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Operator: Hello, and welcome to the P10 Third Quarter 2025 Conference Call. My name is Latif, and I will be coordinating your call today. [Operator Instructions] As a reminder, today's conference call is being recorded. I will now pass the call to your host, Mark Hood, EVP and Chief Administrative Officer. Mark, please go ahead. Mark Hood: Thank you, operator, and thank you all for joining us. On today's call, we will be joined by Luke Sarsfield, Chairman and Chief Executive Officer; and Amanda Coussens, EVP and Chief Financial Officer. Sarita Jairath, EVP and Global Head of Client Solutions; and Arjay Jensen, EVP, Head of Strategy and M&A, are also in the room with us today. Before we begin, I'd like to remind everyone that this conference call as well as the presentation slides may constitute forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect management's current plans, estimates, and expectations, and are inherently uncertain. Actual results for future periods may differ materially from those expressed or implied by the forward-looking statements due to a number of risks and uncertainties that are described in greater detail in our earnings release and in our periodic reports filed from time to time with the SEC. The forward-looking statements included are made only as of the date hereof. We undertake no obligation to update or revise any forward-looking statements as a result of new information or future events, except as otherwise required by law. During the call, we will also discuss certain non-GAAP measures that we believe can be useful in evaluating the company's performance. A reconciliation of these measures to the most directly comparable GAAP measure is available in our earnings release and our filings with the SEC. I will now turn the call over to Luke. Luke A. Sarsfield: Thank you, Mark. Good morning, everyone, and thank you for joining our third quarter 2025 earnings call. Our third quarter demonstrates the strength of our diversified platform and the attractive fundamentals of the market segments that are core to our differentiated investment strategies, namely the middle and lower-middle markets. Before discussing our quarterly financial results, I want to share a few observations around recent headlines regarding private credit and concerns some have raised about the credit market in general. As it relates to P10, private credit represents less than 20% of our fee-paying AUM today. We view this as an asset class with a meaningful opportunity set where disciplined managers can consistently deliver strong, stable performance, and attractive risk-adjusted returns. We have stated on previous calls that private credit is an area we would like to further expand. Having said that, in our existing private credit franchise, we continue to see a strong and robust opportunity set in the middle and lower-middle markets, and we are not seeing deterioration in our credit portfolios. Our underlying business remains incredibly strong. We have a time-tested and rigorous underwriting process, and our investment returns reflect this approach. Now, on to our third quarter results. We raised and deployed $915 million in organic gross new fee-paying assets under management. Investors may recall that we previously mentioned that in the second quarter, we pulled forward approximately $300 million in fundraising from the third quarter. Were it not for these accelerated capital commitments, we would have delivered a third consecutive $1 billion gross fundraising quarter. The fundraising and deployment environment continues to be resilient with compelling opportunities across our diverse franchise. Our expanding business continues to benefit from secular tailwinds in private markets, supporting global demand for difficult-to-access investment opportunities. We believe the market is moving in our direction as clients seek better returns and more exposure to the middle and lower-middle markets. Our distinct business model is a strong foundation upon which to fuel our organic and inorganic growth aspirations. We ended the third quarter with $29.1 billion of total fee-paying assets under management, an increase of 17% year-over-year. The momentum in our business is especially noteworthy when comparing fundraising and deployment in the first 3 quarters of 2025 to the same period in 2024. In the first 3 quarters of 2025, we raised and deployed $4.3 billion of organic fee-paying assets under management, an increase of 48% when compared to the capital raised in the same period of 2024. Other KPIs demonstrate progress over the same 9-month period. Our fee-related revenue, or FRR, has grown 5% year-to-date. And additionally, our FRR is up 11% year-to-date when excluding direct and secondary catch-up fees. We've exceeded our annual organic gross fundraising guidance of $4 billion for 2025. Consequently, we are raising our full year 2025 organic gross fundraising target and expect to finish the year closer to $5 billion. And we are well on our way to achieving the long-term guidance we provided at our Investor Day in September of 2024. All of the materials from our Investor Day are prominently featured on our Investor Relations website, and we invite you to review those materials to get a better sense of how we are thinking about the opportunities in 2026 and beyond. In the third quarter, we had a number of noteworthy accomplishments that support the ongoing momentum in our business. During the quarter, we had 17 commingled funds in the market. RCP's Secondary Fund V closed at $1.26 billion, exceeding our target of $1 billion. We've seen strong demand for our secondaries products, and this fund was no exception. We closed Secondary Fund V in 13 months. The predecessor, Secondary Fund IV was $797 million and took 25 months to close. The takeaway is that our commingled fund business continues to thrive and has achieved significant momentum. In addition, we launched 4 funds in the quarter, Bonaccord Fund III, RCP Small and Emerging Manager Fund IV, RCP Multi-Strat III, and Qualitas Funds US I. We continue to see LPs expanding their allocations across P10's franchise. We recently saw several wealth managers who were invested across our private credit and venture capital strategies commit to RCP's latest secondaries fund for the first time. Additionally, a large multifamily office that has invested in TrueBridge expanded its venture capital allocation by investing in WTI. Finally, in August, we announced a dual listing on NYSE Texas. Being recognized as a founding member of NYSE Texas provides us with a larger platform upon which to engage with the investment community. The NYSE continues to be an important partner, and we are excited to expand our relationship. Given our continued fundraising momentum, we want shareholders to understand the factors driving our long-term growth. First, we provide access to a specialized part of the market in the middle and lower-middle markets. This part of the market is difficult to navigate without a trusted partner. We offered a deep dive on the middle and lower-middle market opportunity in our second quarter earnings deck that demonstrates, through data, the structural advantages of our market focus compared to the larger, more crowded segments. Second, our firm is comprised of renowned investment franchises that have delivered durable alpha over decades through good and bad market environments and economic cycles. Returns continue to be strong as indicated in the slides in our earnings deck. Franchise diversity means we can compete for global mandates and win business in a variety of structures. We expect to drive more non-commingled opportunities over time. Third, we have a large growing LP base with a distinct selection of products and structures. We expect to have 19 funds in the market for the remainder of 2025. We are also continuing to engage with larger pools of global capital that want customized solutions. Fourth, our M&A pipeline is active, and we continue to evaluate attractive situations. We are active in our conversations and diligence. We're going to remain disciplined and on strategy as we consider adding new strategies to the platform. These core components drive our optimism in the forward of our franchise. Before I hand the call off to Amanda, I want to highlight that our share repurchases in the third quarter slowed as we have pulled forward capacity into the second quarter. During the third quarter, we repurchased approximately 110,000 shares at a weighted average price of $11.34 for a total repurchase of $1.25 million. With that, Amanda will discuss the third quarter financials. Amanda Coussens: Thank you, Luke. At the end of the quarter, fee-paying assets under management were $29.1 billion, a 17% increase on a year-over-year basis. In the third quarter, $915 million of organic fundraising and capital deployment was offset by $673 million in step-downs and expirations. We expect step-downs and expirations for full year 2025 to be slightly above our initial expectation of 5% to 7%. Increased step-downs were driven primarily by early paydowns in our credit business, demonstrating the quality of our loan portfolios and underwriting. In addition, a portion of the incremental step-downs consists of recyclable capital from our credit businesses that we expect to redeploy and continue charging fees in future periods. Another component of the increased step-downs and expirations was a large separately managed account that we expected to expire in the first half of 2026, which instead expired during 2025 and was replaced with a larger commitment from the LP following the expiration. We continue to expect step-downs and expirations to return to our historical average of 5% to 7% during 2026. FRR in the third quarter was $75.9 million, a 4% increase over the third quarter of 2024 and a 13% increase, excluding direct and secondary catch-up fees. The average core fee rate in the third quarter was 103 basis points due to strength throughout our product offerings. We continue to expect the core fee rate this year to average 103 basis points. In the third quarter, we had 17 commingled funds in the market. Our private equity strategies raised and deployed $711 million, our venture capital solution raised and deployed $12 million, and our private credit strategies added $192 million to fee-paying assets under management. Fundraising in the third quarter was driven by robust demand for secondary products as well as LP demand for multi-strategy and co-investment products. Total catch-up fees in the quarter were $370,000. The timing of fund closings drives catch-up fees. And in the third quarter, they were primarily attributable to our primary funds, which only impact our core fee rate. With many of our commingled funds early in their fundraising lives during 2025, we expect to see catch-up fees expand in 2026 and 2027. Operating expenses in the third quarter were $65.2 million, remaining flat compared to the third quarter of last year. GAAP net income in the third quarter was $3 million, an increase compared to $1.3 million for the prior year's third quarter. For the third quarter, adjusted net income, or ANI, was $28.6 million, representing a decrease of 7% from the third quarter of 2024. The reduction in ANI is primarily attributable to lower cash interest paid in the third quarter of 2024 compared to the third quarter of 2025, as a result of the debt refinancing in early August 2024, which moved cash interest paid into future quarters as well as additional borrowing costs associated with the recent Qualitas acquisition. For the quarter, fully diluted ANI per share was $0.24 compared to $0.26 in the prior year. FRE was $36 million, an increase of 3% year-over-year. In addition, our FRE margin was 47% in the third quarter. We continue to exercise cost discipline throughout our business to maintain peer-leading FRE margins in the mid-40s. Our Board of Directors approved a quarterly cash dividend of $0.0375 per share payable on December 19, 2025, to stockholders of record as of the close of business on November 28, 2025. Cash and cash equivalents at the end of the third quarter were approximately $40 million. At the end of the quarter, we had an outstanding total debt balance of $398 million, $325 million on the term loan and $73 million drawn on the revolver. Following the end of the third quarter, we paid $11 million down on the revolver. As of today, we have roughly $113 million available on our credit facilities. Our strong balance sheet and ample borrowing capacity position us to execute disciplined M&A with confidence. Our AUM, which is calculated similarly to our peers and is the sum of NAV, drawn and undrawn debt, uncalled capital commitments and capital commitments made to the platform since the NAV record date. AUM was $42.5 billion across the platform as of September 30, 2025. We believe AUM shows the breadth and scale of our business as a leading multi-asset class private market solutions provider as we continue to execute on our growth plan. Thank you for your time today. I'll now pass the call over to the operator to begin the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Ken Worthington of JPMorgan. Unknown Analyst: This is Alex on for Ken. For the first one, I wanted to double-click on the SMA-driven step down. I understand you mentioned it came earlier in '25 rather than expected in '26, but that was also matched with a larger commitment from the same client. When talking about the commitment, does that already appear in the fee-paying AUM? Or is that capital that needs to be deployed? Or are there other considerations there? Luke A. Sarsfield: Thanks, Alex. It's a good question. That does already appear in the fee-paying AUM. So we had a discussion with the client around the structure of our relationship. They added some -- they added a new mandate as part of an SMA, and that is included in the fee-paying AUM. And then as part of that, the -- one of the previously existing older mandates stepped down and stepped down just probably 6 months before we had initially expected it to. Unknown Analyst: And then for the next question, just about your point being more of a global solutions provider, understand Qualitas is helpful there, potentially win the incremental mandates. First part of that question, you mentioned they're launching a U.S. fund. Just want to understand if that's a fund for U.S. investors in their international products or what the deal is there? And then looking at channel mix, I'm seeing insurance company contributions to fee-paying AUM going up over the past handful of quarters. I wanted to check if that's just noise or variability, or if there may be a concerted effort that's flowing through the P&L of targeting the opportunity set as well. Luke A. Sarsfield: So 2 great questions. So first, on the Qualitas U.S. Fund, it's actually kind of the opposite of how you described it. So effectively what it is, is a fund that will invest primarily in the U.S. and will be marketed primarily -- virtually exclusively, I would say, to European investors. And I think this is a great example actually of synergies across our platform of being able to do things kind of in a pan-strategy way. And here in particular, this involves Qualitas and RCP. So one of the things that happened -- many things happened, but one of the very positive things that happened when we announced the Qualitas RCP deal, and remember, they had -- sorry, the Qualitas P10 deal, and remember, Qualitas and RCP have been working together for a long time, Qualitas got a lot of inbound from many of their existing LPs saying, gosh, we would love to have equivalent lower-middle market and middle market exposure that you afford us in Europe into the U.S. but it needs to be in a wrapper that works from the perspective of retail and ultra-high net worth investors in Europe. And so getting it wrapped in the right format was incredibly important, but obviously, having the right investment mixology was incredibly important. And so the beauty of this was it's really -- think of it as a joint venture product, though it's marketed as a Qualitas product, where Qualitas is really going to handle the structuring, the wrapping and obviously, primarily the distribution and the investor relations, and RCP is going to handle a lot of the portfolio mixology and the investing into the U.S., obviously, in close coordination and cooperation with Qualitas. And so it's a great example of the synergies that we talk about. So I'm actually really glad you asked the question. And I think we think there's a lot of other things like this we can do across the platform. But I think this is a great example of a synergy that we found, and I'm sure we'll continue to find many more as we continue to work and grow and execute together. The second question you asked was on insurance and the growth of insurance assets. And I would say we are not focused exclusively on insurance, but we are focused generally on expanding, as we've talked about with Sarita and team and others. We are focused on expanding our footprint and deepening our relationships with large pools of capital and large pools of capital allocators. And clearly, insurance is one of those important pools. I wouldn't say it's exclusive to insurance. It includes pensions. It includes sovereign wealth funds and it includes large endowments and foundations. It will include retail platforms and other retail aggregators. But certainly, insurance is a big part of that. And we have some funds in the market, I would say, that I think are particularly useful and appealing to insurance companies as they think about things like their return profile and kind of their broader capital allocation and obviously, doing things that are capital friendly from an NAIC perspective. And so I think we've been very lucky and very fortunate as part of this broader push to engage with larger pools of capital to have seen some real success and traction in the insurance channel. We don't think it will be unique and exclusive to the insurance channel, but it's certainly a focus of ours, Alex. Unknown Analyst: And great to see the cross-sell with Qualitas. Operator: Our next question comes from the line of Michael Cyprys of Morgan Stanley. Michael Cyprys: I appreciate the commentary on the credit trends. I was hoping you could maybe elaborate a little bit on the steps you guys are taking to support accelerated growth across your credit platform, how you envision that contributing over the next couple of years? Which parts of the market do you view as most interesting for P10? And when you look at the capability set in the platform today, where is there scope to lean in via inorganic initiatives versus more organic builds? Luke A. Sarsfield: Yes. These are all great questions. Thank you, Michael. Great questions, things we think about every day. So I'll take 3 parts of it. The first is just to underscore our relentless disciplined focus on making sure that we're always doing quality underwriting. And I will tell you, this is not some debt bed conversion we had in the last quarter because of the noise in the broader markets. This is something that we've done in a disciplined and diligent fashion since the very genesis of these platforms. And obviously, we have had -- you look at the returns, we've seen great returns across the cycles, and that's because we really focus on risk-adjusted return. We do a lot of internal work. We also engage with third parties who assist us in evaluating and marking the portfolio. We consistently go back and re-underwrite. If there are loans that are not even necessarily problematic, but not performing to our expectation or our underwriting case, we are engaged for quarters, if not years, on sort of engaging with the underlying portfolio company and making sure that they're doing all the right things to enhance that credit quality. And so we feel really, really good about our robust disciplined underwriting process. This is not something that we've come to recently. This is something we've been engaged with since the very start of the platform. I would then say, as it relates to our existing platform, we certainly see opportunities in many cases to grow the platform. And so I'll just give you kind of a few examples of things that we're really excited about. We continue to grow and expand our NAV lending franchise. That's through our Hark subsidiary. We've seen a lot of traction in that space. We obviously have a great, by the way, underwriting history in that space. But we've seen a lot of traction, a lot of uptake. It's clearly becoming a more broadly accepted and mainstream product. We're out marketing our next vintage of the core Hark product. And we just see a lot of engagement generally across NAV lending and what I would call NAV lending adjacent kind of strategies that I think are becoming just a more embedded part of the fund finance ecosystem these days. And so I think we have a lot of optimism around how that strategy plays out. We also mentioned in Enhanced, which is our impact credit strategy, we're out with an evergreen product. And we see a lot of interest and sort of engagement around that. And I think we're really, really excited for what that looks like. And then obviously, we have our WTI venture debt strategy that continues, I think, to deliver really attractive risk-adjusted returns in certain investor types, particularly those who are engaged in the venture ecosystem, but maybe want some structural protections really like that venture debt solution. And then finally, obviously, within our Five Points franchise, we do a lot of SBIC lending, and that certainly has appealed to banks and others who are seeking CRA credit as part of their underwriting and investing mandate. I would say more generally, and we've talked about this, we think there are ample opportunities within private credit. We've talked about areas like being much broader in direct lending. We've talked about areas like being much broader in asset-based lending. Clearly, there are other places like distressed and opportunistic credit. One of the real benefits that we think we have in our platform, particularly if you took something like direct lending, and this kind of goes back to that discussion we just had around Qualitas and RCP, what are some of the potential synergies across our platform. One of the real powerful things in our ecosystem is our relationships with many of the middle market sponsors through RCP in the U.S., through Qualitas in Europe. We're generally one of the top LPs in some of the best world-beating middle and lower-middle market financial sponsors. And as those sponsors do deals, and particularly as they do buyouts and those buyouts generate credit opportunities, we think we would have a really unique and differentiated sourcing engine as it relates to those. Obviously, sourcing is both a challenge and an opportunity for many direct lenders. We really have the organic built-in sourcing engine already. And so if we could kind of marry that with the right team that had the right kind of underwriting, risk assessment, disposition, we think that, just as an example, could be a really compelling place to grow the platform. Michael Cyprys: And then just as a follow-up question, if I could, more bigger picture. When you look at the mid- and lower mid-market focused managers that you're investing capital with, what challenges do you see those GPs facing, whether it's larger GPs just garnering more share of flows or tougher exit route through IPOs for smaller companies or less ability to access private wealth? Just how do you see the sort of broader trends in that part of the market for those GPs? And how do you see the opportunity for P10 to lean in and provide a broader set of solutions to help and support these GPs? Luke A. Sarsfield: Look, great, great, great question. And we think about this in so many ways, right? But the first is -- look, this is part of the broader -- this part of the market, the lower-middle market is part of the broader private asset ecosystem. And I would say no part of the broader asset ecosystem has been immune to the macro trends. What we did highlight, and I think, hopefully, you saw the slides in our second quarter earnings release, we would say we think we are in a relatively more protected and sheltered part of the market relative to some of the big trends in the upper part of the market. And so for all private equity firms engaged in buyout, whether at the upper part of the market or in the middle part of the market, DPI has been down, low these last few years. But it's been down meaningfully less in the lower-middle market than it's been down in the upper part of the market. And so we think there are some real structural advantages. You also mentioned, by the way, the prospect of some of these exits and the prospect of exit via IPO. We think that's another structural advantage in our part of the market. Most of these companies, the vast lion's share of the companies that are in kind of our GPs portfolios don't end up going public, right? They end up getting sold in some sort of transaction, whether it's a trade sale to a strategic or whether it's a sale to, frankly, one of these larger financial sponsors or one of their larger platforms that they own within their portfolio. And so we think that while certainly a robust and vibrant capital market environment, IPO environment is good for everybody, and I suspect it would be good for us and for our GPs. We're kind of a little less sensitive to it than folks playing at the upper end of the market because they obviously had a much more meaningful part of their exit via IPO. And so we continue to like and value our part of the market. Then you're asking what do we do for our GPs. And it's a really great question. And I think one of the advantages that we have in really getting folks to want to engage with us is the franchise, the history, the track record, the imprimatur, frankly, we give because of who we are. And a lot of that is informed by our data insights, right? And so when we work with our GPs, we can obviously give them through our GPScout, through our data solutions, tremendous insights around everything from macro trends in the market, trends in their space, trends in the geography they play in, and even kind of insights on specific deals, how have similar deals done historically, what are the things to watch out for, what has worked, what has not. And they often come to us in sort of an anonymized way and say, hey, we're looking at a deal that has XYZ parameters, can you help us think through this, what are the benefits, what are the detriments, what are the risks we ought to consider. And so you're not just getting capital from us. You're getting strategic advice. You're getting real insight. And then I think one of the other advantages is given the RCP platform, given the kind of brand and stature that RCP has in the marketplace, and I think very similar with Qualitas in Europe, when somebody -- when other LPs or prospective LPs see an RCP, see a Qualitas in the cap stack, they know that these are high-quality managers, that these are folks that have demonstrated good performance metrics, and that these are people who have been diligenced by kind of the best in the business, so to speak, and we're really proud of that. And so those are kind of some of the things I think we're super helpful with in that part of the business. I would also just highlight, and just to knit one other thought together, I think we're building as well a broader ecosystem of capital solutions for GPs. And so for instance, if you're a GP and you want to raise capital for one of your flagship funds, obviously, we can do that. We do that through RCP. We do that through Qualitas. And you can engage with us in that way, and we're very happy to, and we can provide all that information and insight that I talked about. If you then -- if that fund is now out of its investment period and there's a really attractive bolt-on opportunity and you need more capital through Hark, through being in that ecosystem, we can work with you to provide some sort of NAV loan that will help kind of boost the returns in that portfolio or enable you to do a tack-on deal or what have you. And if ultimately then you decide maybe I want more permanent embedded capital in my capital structure, and I want to embark at a GP stake sale, we can obviously engage with you through that via our Bonaccord business. And so I do think that that kind of platform synergy is another really powerful thing as we engage with GPs, Michael. Operator: Our next question comes from the line of Benjamin Budish of Barclays. Benjamin Budish: Luke, you alluded to what I wanted to ask about a little bit in your prior response about P10 being a little less levered to kind of the broader M&A environment. But I'm just curious, when we listen to a lot of your peers who are much more tethered to that, whether it's through realizations or much bigger exposures to net credit deployment, we do hear more about an excitement that IPOs that M&A is going to pick up meaningfully. So just curious what could that mean for P10? Obviously, your model is less tethered to that, but where do you maybe see opportunities accelerating should the M&A environment pick up as rates are coming down? Where is there potential near-term upside just from that macro perspective? Luke A. Sarsfield: Well, look, it's a great question. And when I say -- when you say we're less tethered to it, I guess what I would say is, I think we are a little inoculated on the downside is maybe how I would say it, right? But look, let's be clear, a good market is good for all participants regardless of size they play and regardless of segment. And so if we have a more accommodative backdrop with better M&A volumes, with more capital markets activity, with more financing and origination, that's going to be good for all players in the private asset ecosystem. And by the way, it will be really good for P10. And I think to the point that you mentioned where people are seeing and talking about more optimism, I think we are seeing more activity as well across our businesses. Generally, you obviously see it kind of manifest itself first in transactions at the kind of GP level and then what does that origination bleed through into credit and then the opportunities for monetizations and so on and so forth. And I think, like others have observed and opined on the calls that have happened and are going to presumably continue to happen, we see a more benign and accommodative macro environment than we have for probably at least a few years, if not longer. And that will augur well for our business. That will accelerate deployment opportunities in our credit businesses in the short run. That will amplify, I'd say, returns across the private equity ecosystem we're engaging in. And I think as people get more risk on, they really want to lean into places where there's the potential for magnified returns. And there's no place like venture, if you want to express a view on magnified returns in a more robust and risk-on growth environment. And so we think a broader positive accommodative macro trend is good for virtually everything across the platform, and we're hopeful and optimistic that we're getting to a better part of the cycle here, and we think it will be really good for P10 then. Benjamin Budish: Maybe just one maybe more kind of narrow technical question. You mentioned that some buybacks have been, I think, pulled forward in -- earlier in the year and the absolute number was a little bit lower in Q3. What's the current level of your capacity into Q4? Do you need to sort of re-up your authorization? Just any kind of tactical details around that would be helpful. Luke A. Sarsfield: I'm going to let Amanda take that one, but good question. Amanda Coussens: Thank you, Ben. So we have $26 million remaining on our buyback authorization. And I will say that while we continue to see share repurchases as an important tool for us to return capital to shareholders, we will continue to repurchase as it makes sense. Our long-term capital allocation priorities are to pay our dividends, which we've grown since -- 25% since instituting it in May of '22, M&A opportunities and share repurchases as it makes sense along with debt paydown. Operator: I would now like to turn the conference back to Luke Sarsfield for closing remarks. Sir? Luke A. Sarsfield: Thanks, Latif, and thank you all for joining us today and for the great questions. We look forward to reviewing our fourth quarter performance with you in February. On that call, we will review full year 2025, outline an exciting 2026, and provide financial guidance for the year. We are aligned with you, our fellow shareholders, and remain deeply committed to the long-term interest of our franchise. Thank you, and have a good 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. The conference will begin in a couple of moments. One moment, please. Greetings, and welcome to the BGC Group, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Jason Chryssicas, Head of Investor Relations. Thank you, sir. You may begin. Jason Chryssicas: Thank you, and hello, everyone. This morning, we issued BGC's third quarter 2025 financial results, which can be found at ir.bgcg.com. Any historical results provided on today's call compare only the third quarter of 2025 with the prior year periods unless otherwise specified. All references on today's call to historic and record results are to BGC's stand-alone financial results, excluding Newmark prior to the spin-off in November 2018. We will be referring to our results on a non-GAAP basis, which include the terms adjusted earnings and adjusted EBITDA. Please refer to today's investor materials on our website for additional details on our financial results and for complete and updated definitions of any non-GAAP terms, reconciliations of these items to GAAP results and how, when and why management uses them as well as relevant industry and economic statistics. The outlook discussed today assumes no material acquisitions or dispositions. Our expectations are subject to change based on various macroeconomic, social, political and/or other factors. Information on this call contains forward-looking statements, including, without limitation, statements about our economic outlook and business. These statements are subject to risks and uncertainties, which could cause actual results to differ from expectations. Except as required by law, we undertake no obligation to update any forward-looking statements. For information on factors that could cause actual results to differ from forward-looking statements and a complete discussion of the risks and other factors that may impact these forward-looking statements, see our SEC filings, including, but not limited to, the risk factors and disclosures within the SEC documents. With that, I'm now happy to turn the call over to John Abularrage, Co-Chief Executive Officer of BGC Group. John Abularrage: Thank you, Jason. Good morning, and welcome to our third quarter 2025 conference call. With me today are my fellow Co-Chief Executive Officers, Sean Windeatt; and JP Aubin, along with our Chief Financial Officer, Jason Hauf. We delivered another outstanding quarter with record third quarter revenues of $737 million, up 31% from $561 million a year ago and revenues of $628 million, up 12%, excluding OTC, was also a record. This was driven by growth across every asset class and geography. Our ability to deliver strong growth in a mixed macro environment demonstrates the strength and scale of our global platform. FMX continues to outperform, setting new records in SOFR Futures and U.S. Treasury. SOFR Futures saw both ADV and open interest increase more than threefold versus the previous quarter. This momentum continued into October, where we set multiple new daily volume and open interest records. Our U.S. Treasury market share grew to an all-time high of 37%, significantly outpacing the market. Our $25 million cost reduction program will be completed by year-end. This program will enhance our profitability and margins as we continue to focus on delivering long-term shareholder value. With that, I'd like to turn the call over to Sean to go over the quarterly results of the business in more detail. Sean Windeatt: Thank you, John. We delivered record third quarter revenues and adjusted earnings. Our ECS revenues grew by 114% to $241.6 million, driven by OTC and strong organic growth across the broader energy complex. Excluding OTC, ECS revenues grew by 21.8% versus last year. Rates revenues increased 12.1% to $195.3 million, reflecting higher volumes across all major interest rate products, including strong double-digit growth in interest rate swaps, emerging market rates and repo products. Foreign exchange revenues were up 15.9% to $106.7 million, primarily due to strong growth in emerging market currencies and FX option volumes. Credit revenues increased by 1.6% to $69.1 million, driven by higher credit derivative and structured credit volumes. Equities revenues grew by 13.2% to $60.4 million, reflecting strong European and U.S. equity volumes and continued market share gains in these geographies. Data Network and Post-Trade revenues grew by 11.9% to $34.3 million, excluding Capitalab, which we sold in the fourth quarter of 2024. This growth was driven by Fenics Market Data and Lucera. Including Capitalab, Data Network and Post-Trade revenues grew by 5.2%. Now turning to Fenics. In the third quarter, Fenics revenues increased by 12.7% to a third quarter record of $160 million. Fenics Markets reported revenues of $134.1 million, an increase of 12.5%. This growth was primarily driven by higher electronic trading volumes across rates and foreign exchange products and increased Fenics Market Data revenues. Fenics Growth Platforms generated revenues of $25.9 million, a 24.2% increase excluding Capitalab, driven by strong double-digit revenue growth in FMX and PortfolioMatch. Including Capitalab, Fenics Growth Platforms grew by 13.5%. FMX UST generated record third quarter average daily volume of $59.4 billion, more than 12% higher compared to last year, outpacing all electronic U.S. treasury platforms. This strong growth drove market share to a record 37% for the third quarter, up from 35% last quarter and 29% a year ago. FMX Futures Exchange continued to scale its SOFR Futures ADV and open interest to record levels during the third quarter. SOFR ADV and open interest each increased sequentially by more than threefold. FMX, along with its partners, continues to prioritize growing SOFR ADV and open interest, and we expect to see similar adoption in our U.S. Treasury futures offering in 2026. FMX FX ADV increased by 44% to a third quarter record $13.1 billion, driven by continued support from FMX's equity partners as well as the addition of new products and participants. PortfolioMatch ADV more than doubled, reflecting strong growth in the U.S. and EMEA credit markets. PortfolioMatch continues to gain market share in this fast-growing segment of the credit market and has rapidly expanded its non-U.S. volumes and client base. Momentum is being driven by the greater adoption of algorithmic trading and larger average trade size, which reached record levels in the third quarter, with U.S. investment-grade average trade size up nearly 50% year-over-year. Lucera, Fenics network business, providing critical real-time trading infrastructure to the capital markets once again registered double-digit revenue growth. Lucera is rapidly growing its client pipeline for its newer rates products and continues its global expansion into EMEA and Asia. And with that, I'd now like to turn the call over to Jason. Jason Hauf: Thank you, Sean, and hello, everyone. BGC generated record third quarter revenues of $736.8 million, reflecting growth across all of our geographies. EMEA revenues increased by 37.4%, Americas revenues increased by 28.1% and Asia Pacific revenues increased by 17.4%. Turning to expenses, compensation and employee benefits under GAAP and for adjusted earnings increased by 47.5% and 42.1%, respectively, due to higher commissionable revenues and the acquisition of OTC. Non-compensation expenses under GAAP and for adjusted earnings increased by 20.9% and 19.2%, respectively, primarily driven by the acquisition of OTC. Excluding OTC, non-compensation expenses under GAAP and for adjusted earnings increased by 10.3% and 7.1%, respectively. BGC's $25 million cost reduction program launched in the third quarter and will be completed by year-end 2025. We look forward to providing more detail on the program on our fourth quarter earnings call. Moving on to our record third quarter adjusted earnings. Our pretax adjusted earnings grew by 22.4% to $155.1 million. Post-tax adjusted earnings increased by 11.5% to $141.1 million, resulting in post-tax adjusted earnings per share of $0.29, and our adjusted EBITDA increased by 10.7% to $167.6 million. Turning to share count. BGC's fully diluted weighted average share count for adjusted earnings was 494.2 million shares during the period, a 1.2% decrease compared to the second quarter of 2025 and a 0.1% decrease compared to a year ago. We remain committed to repurchasing our shares. And on November 5, 2025, BGC's Board and Audit Committee reapproved our share repurchase authorization for up to $400 million. We anticipate reducing our full year share count further in the fourth quarter of 2025 in addition to repaying our $300 million senior notes due December 15. As of September 30, our liquidity was $924.7 million compared to $897.8 million as of year-end 2024. With that, I'd like to turn the call back to John to go over our fourth quarter outlook. John Abularrage: Thanks, Jason. I'm pleased to provide the following guidance for the fourth quarter of 2025. We expect to generate revenues of between $720 million and $770 million as compared to $572.3 million in the fourth quarter of 2024, which at the midpoint of our guidance would represent approximately 30% revenue growth. Excluding OTC, we expect fourth quarter revenues to grow around 11% at the midpoint. We anticipate pretax adjusted earnings to be in the range of $152.5 million to $167.5 million versus $129.5 million last year, which at the midpoint of guidance would represent approximately 24% earnings growth. And we expect our adjusted earnings tax rate to between 10% and 12% for the full year 2025. With that, operator, I'd like to turn to open the call for questions. Operator: [Operator Instructions] The first question comes from Patrick Moley with Piper Sandler. Patrick Moley: So I want to start off kind of broad. In the third quarter, we saw on exchange volumes in some of the asset classes you're active in slow down significantly. Your results, though, were quite strong. So could you help us better understand what allowed BGC to kind of outperform some of those industry proxies? Jason Chryssicas: Patrick, thanks for that. So I think, look, twofold. Number one is, as you know, we've targeted growth within the ECS sector. And even excluding the acquisition, you saw growth of 21%, excluding OTC. But it was broader than that. You also saw good growth in both rates and foreign exchange and equities. And that's been very much because of the hiring that we've been doing over the last 18 months, where we've added 150 -- around 150 new brokers, obviously generating great revenues on a revenue per head basis. So that's enabled us to take market share, targeted growth in certain geographies and asset classes and, of course, the growth of ECS. Patrick Moley: Great. And then just as a follow-up, you highlighted the strong growth you've seen in FMX. Could you help us kind of get a better sense for what's going on behind the scenes there? What are your expectations for FCM onboardings in the coming quarters? And then, Sean, could you maybe elaborate on the comment you made in your prepared remarks about UST Futures growing in 2026? What needs to happen between now and then to really get that going? Jean-Pierre Aubin: Yes. Patrick. So look, we're just ending year 1 of FMX, right? We're starting year 2. So 3 points about year 1. One, everything we say we will do in year 1, we have done. We launched, we have record open interest in ADV and onboarded 11 FCMs. We are in line with where we were with cash U.S. treasuries at the same time after launch. Two, SOFR Futures ADV and open interest both increased by more than threefold from the second quarter. Three, we are encouraged by the steady growth of open interest, which signals that FMX clients are really happy to keep their position open at FMX and cleared at LCH. Sean Windeatt: Thanks, JP. And sorry, Patrick, just to add on, it's Sean. What's going on behind the scenes now, as we've discussed with you before is, taking that integration and deepening it, right? So we told you that the 11 FCMs were on board. We will certainly get to that 12 number that we talked about. But this is just becoming BAU and integrated into aggregators and the smart order routers and making sure that SOFR becomes BAU. And then in 2026, there is not -- there's nothing necessarily that needs to be done to address your question other than getting ourselves to the position that we said we would get to in SOFR and then shifting that attention with our partners over to U.S. Treasuries. Patrick Moley: Okay. Great. That's it from me. Congrats on the strong quarter. Jason Chryssicas: Thank you. Operator: The question comes from Elias Abboud with Bank of America. Elias Abboud: Can you walk us through the strong share growth in your FMX cash markets? What would you attribute that to? How much of this is coming from those strategic peers? And then specifically on the treasury platform, I know you have a couple of different protocols there, a public cloud and then a private club, which one of those would be driving the share gains? Sean Windeatt: Why don't I start by -- in terms of the overall market share growth in Treasury, I think that is -- there was a sort of monopoly, if you like, with CME and really, that's why we got back into the marketplace on cash treasuries. So what you've seen, Elias, you've seen that the hard work of that go on for a number of years. Now it's just further adoption, yes, by our FMX partners, but also because it's the most viable second choice for what have a better phase and one would almost say equal first choice now. So that's why you've seen the growth, I think, up to 37%. And what was the second part of the question? Elias Abboud: I know you have a couple of different protocols in the Treasury platform. I think there's a public club and then a private club. Were either of those an outsized contributor to the share gains? John Abularrage: No. As Sean said, we're seeing it mainly across the board. And as we get more participants on both the peak club and your regular club, you're seeing both partners and other participants come into it. So there's not an outlier. There's nothing major that is different than kind of the underlying onboarding of our new participants and our partners leaning in. Elias Abboud: Got it. And for my follow-up, how much leverage does your Energy segment have to higher adoption of cloud and artificial intelligence going forward? Are data centers a meaningful client channel for you today? Is there anything you can share to help us quantify the extent to which higher electricity demand from these users moves the needle on your energy revenues? John Abularrage: On the revenue side, probably not. On the story, the answer is, we are very fortunate to have once been combined with Newmark. So you will have seen publicly that Newmark has done a lot on the data center side and the hyperscaler side, and that affects us because part of Amarex is energy procurement. And so we've got a great business on the energy procurement side, and Newmark has been kind enough to introduce us to some of the people that they are in contact with, and that spills over to us on the energy side. And so the short answer, and I apologize for the long-winded one, is that, yes, we are involved. We continue to be more involved. And the way that it affects us is by procuring energy for those data centers. Elias Abboud: Got it. And maybe just the last one for you here. Electronic credit revenues are flattish year-to-date, I think they're up 1%. Can you talk about what you're seeing in that business, any headwinds? And then maybe stepping back, is this a business that you think can grow at similar pace as Tradeweb or MarketAxess longer term? Or are there structural differences that would likely cause a delta in growth? John Abularrage: To take the last part first, the answer is yes, we can grow at those rates. And when it comes to electronic credit, I think it's growing a bit faster than that and certainly faster than the average that you will see. But as we said to you last time, we are launching new electronic protocols all the time, and we are gaining market share, as you see in the sweep, which we pull out for our portfolio match, and you will see other products of ours start to gain market share. And as the electronic offering becomes a greater percentage of our own credit business proportionately, you will see the overall credit start to move at a faster rate. And actually, JP, why don't you talk about our new offering? Jean-Pierre Aubin: Look, we do recognize the shift towards more electronic and institutional credit market. So we launched a new fully electronic global credit platform for our buy-side institutional clients to continue to move our business more electronic. And I can say this platform is already live globally. Operator: There are no further questions in queue at this time. I would like to turn the call back over to Mr. Abularrage for closing comments. John Abularrage: Thank you very much. Appreciate it. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
Operator: Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Third Quarter 2025 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com. To inform everyone, today's conference is being recorded and is now being webcast at the company's website, www.gencoshipping.com. [Operator Instructions] A webcast replay will also be available via the link provided in today's press release as well as the company's website. At this time, I will now turn the conference over to the company. Please go ahead. Peter Allen: Good morning. Before we begin our presentation, I note that in this conference call, we will be making certain forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on management's current expectations and observations. For a discussion of factors that could cause results to differ, please see the company's press release that was issued yesterday, the materials relating to this call posted on the company's website and the company's filings with the Securities and Exchange Commission, including, without limitation, the company's annual report on Form 10-K for the year ended December 31, 2024, and the company's reports on Form 10-Q and Form 8-K subsequently filed with the SEC. At this time, I'd like to introduce John Wobensmith, Chairman and CEO of Genco Shipping & Trading Limited. John Wobensmith: Good morning, everyone. Welcome to Genco's third quarter 2025 conference call. I will begin today's call by reviewing our Q3 2025 and year-to-date highlights. Additionally, we will provide an update on our value strategy, discuss our financial results for the quarter as well as the industry's current fundamentals before opening the call up for questions. For additional information, please also refer to our earnings presentation posted on our website. Starting on Slide 5. During the third quarter, we continued to advance our value strategy, prioritizing returning cash to shareholders through market cycles and taking additional steps to further expand our earnings power for the benefit of shareholders. For the third quarter, we declared a dividend of $0.15 per share despite an intensive drydocking quarter, extending our track record of 25 quarters of consecutive dividends and marking the longest period of uninterrupted dividends in our drybulk peer group. Including the Q3 dividend, Genco has declared $7.065 in dividends per share, representing 43% of our current share price. In terms of Genco's ability to capitalize on a strong freight market, we remain optimistic for the remainder of 2025 and into 2026. By the start of Q4, we have completed 90% of our drydocking schedule for the year, which positions us well to maximize utilization in what has been a strong Q4 to date. Specifically, our Q4 TCE is currently estimated to be up more than 25% to over $20,000 per day on a fleet-wide basis for 72% of the quarter with strong freight rates being achieved by both our Capesize vessels at approximately $27,000 per day as well as our minor bulk fleet at approximately $16,000 per day. These rates compare favorably to our Q4 cash flow breakeven rate, which is estimated to be approximately $10,000 per day and represents an industry low breakeven rate. In October, we took delivery of a 2020-built Capesize vessel, adding a modern high-specification vessel to our fleet during a seasonally strong point in the freight market. Notably, our first fixture on the vessel following delivery was booked for $29,000 per day net over 50 days, immediately generating earnings while also derisking the investment. This vessel acquisition represents the fourth high-specification fuel-efficient Capesize vessel that Genco has agreed to acquire since Q4 of 2023, further expanding the company's presence in a key sector with compelling supply and demand fundamentals. Moving on to Slide 6. When we implemented our value strategy in April 2021, we set out to accomplish 3 main objectives: transfer Genco into a low leverage, high dividend company, maintain significant flexibility for growth and pay a quarterly dividend based on cash flows less a voluntary quarterly reserve. Four years later, we are pleased to have made progress on each of these objectives. We have implemented a well-balanced capital allocation strategy, successfully capitalized on compelling vessel acquisitions, provided shareholders with uninterrupted dividends and opportunistically paid down debt. Specifically, over the past 4 years, we have invested nearly $347 million in high-quality modern vessels, distributed $264 million in dividends to shareholders and paid down $279 million in debt. Collectively, these actions have enabled Genco to establish a balance sheet that is built to effectively operate in a volatile market, create a highly differentiated risk/reward balance and increase the earnings power of the company to continue to pay regular quarterly dividends and create enduring long-term shareholder value. On Page 7, we highlight our fleet composition. We currently own a fleet of 17 Capesize vessels and 26 Ultramax and Supramax vessels. We continue to balance the high beta and the upside potential of the Capesize sector, along with the steadier earnings stream of the minor bulk ships. On a vessel ownership basis, our ownership splits are 40% Capes and 60% Ultras/Supras. However, when we view these splits on an asset value or net revenue basis, we are over 50% weighted towards the Capesize vessels, providing us significant operating leverage. Turning to Slide 8. With an industry low net loan-to-value ratio, a low cash flow breakeven rate and $430 million in undrawn revolver availability, we believe Genco remains in a highly advantageous position to successfully operate in the current volatile freight rate environment and continue to differentiate itself from its dry bulk peer group. Genco has the scale and operating leverage to benefit from a rising market while also having significant access to capital to take advantage of opportunities if they were to arise as we've demonstrated throughout the cycle. Going forward, we remain focused on executing the 3 pillars of our value strategy, dividends, deleveraging and growth. Importantly, as we progress through the fourth quarter and position Genco for 2026, we do so with the majority of our drydock schedule complete, a further reduced cash flow breakeven level and significant operating leverage to capitalize on improving drybulk fundamentals. Lastly, turning to Page 9. Genco continues to prioritize strong corporate governance, which we believe is another key differentiator for the company relevant to the peer group. Specifically, Genco is the only listed drybulk shipping company with no related party transaction. We have a diverse and independent Board of Directors are highly transparent and provide detailed disclosures on company performance and initiatives while striving to provide a clear and thoughtful strategy to shareholders as we execute on our approach to capital allocation. We view this as a key part of Genco's identity as a company. I will now turn the call over to Peter Allen, our Chief Financial Officer. Peter Allen: Thank you, John. On Slides 11 through 14, we highlight our third quarter financial results. Genco recorded a net loss of $1.1 million or $0.02 basic and diluted net loss per share. Adjusted net loss was $0.01 per share, excluding a loss on debt extinguishment of $0.7 million. Adjusted EBITDA for Q3 totaled $21.7 million, an increase of 52% as compared to Q2. Our cash position as of September 30 was $90 million, which increased due to a drawdown of debt in the third quarter for the purchase of the Genco Courageous, which delivered in the fourth quarter. Our debt outstanding also increased to $170 million due to this purchase. The final installment representing 90% of the purchase price or $57.2 million was funded in October. Overall, since 2021, we have reduced our cash -- our debt balance from $450 million down to the current $170 million level, a reduction of 62%. Pro forma for this acquisition, our net loan-to-value is approximately 12%. Furthermore, our undrawn revolver availability is currently $430 million. With our full revolving credit facility structure, we plan to continue to actively manage our cash and debt positions to reduce interest expense while maintaining access to capital to quickly act on growth opportunities as we did with our most recent acquisition of a high-specification fuel-efficient Capesize vessel. Moving to Slide 15, we highlight our quarterly dividend policy, which targets a distribution based on 100% of operating cash flow less a voluntary reserve. For Q3, our Board of Directors declared a $0.15 per share dividend based on operating cash flow of approximately $21.5 million and a voluntary quarterly reserve of $14.9 million. Notably, for the third quarter of 2025, our dividend formula, including a voluntary reserve of $19.5 million, would have produced a $0.05 per share dividend. However, on management's recommendation, the Board chose to reduce the voluntary reserve to $14.9 million for the quarter, resulting in the $0.15 per share dividend. This highlights our commitment to regular shareholder returns as well as our favorable view on the long-term fundamentals of the drybulk industry and the seasonally stronger freight rate environment that has emerged in the second half of this year. Looking ahead to Q4 2025, we currently have 72% of owned available days fixed at approximately $20,000 per day as compared to our anticipated cash flow breakeven rate, excluding drydocking-related CapEx of approximately $9,000 per vessel per day. Our TCE has increased each quarter of this year and Q4 TCE estimates are currently projected to not only be the highest TCE of the year, but the highest quarterly level since 2022, highlighting the freight rate improvement seen in the second half of this year thus far. Notably, this improvement has been led by our Capesize vessels, which in Q4 to date are currently fixed at approximately $27,000 per day, an increase of nearly 30% from $21,000 per day in Q3, further highlighting the significant operating leverage of the sector. We note that Genco, like much of the industry, has a large-scale drydocking program in 2025. Through the first 9 months of the year, we have completed 16 of 19 scheduled drydockings with one more completed in early November. This resulted in Genco completing 90% of our full year 2025 drydockings with only 2 drydockings remaining as we look to maximize utilization in Q4. We believe Genco's high operating leverage as displayed in the second half of this year, combined with our low financial leverage, creates a solid risk/reward balance for shareholders while providing Genco with increased optionality for the company. I will now turn the call over to Michael Orr, our drybulk market analyst, to discuss industry fundamentals. Michael Orr: Thank you, Peter. Beginning on Slide 17, the drybulk freight rate environment meaningfully improved in Q3 and into Q4 to date as compared to earlier in the year levels. Capesize rates were driven by all-time high Brazilian iron ore shipments during the quarter, including exceeding 40 million tons of both July and August for the first time on record. Brazilian iron ore miner, Vale also reported their highest quarterly production since 2018. Supramax rates were led by augmented coal shipments to China as the country's domestic coal output declined during a period of strong demand. Furthermore, increased South American grain shipments were also supportive for the smaller class vessels. These factors resulted in the Baltic Capesize Index and Baltic Supramax Index to average approximately $26,000 and $14,000 per day, respectively, in Q3. Turning to Page 18, we point to China's strong level of iron ore imports in recent months, led by increased seaborne supplies together with the restocking of iron ore inventories. Specifically, the country's iron ore imports in Q3 rose by 6% year-over-year after a softer first half. While China's iron ore stockpiles were drawn down as much as 8% in the year-to-date, stockpiles have now increased by 6% off of the [ 2025 lows ]. China's steel production has decreased year-over-year by 3%, while China continues to export over 10% of the steel produces mostly going to other Asian countries. Turning to Page 19, we highlight the long-haul iron ore and bauxite trade growth expected from Brazil and West Africa in the coming years. While the growth this year is expected to be marginal with first shipments likely to materialize in November, there are significant growth volumes expected in the coming years. Given the scale of the project, these volumes could absorb potentially over 200 Capesize vessels, which is more than the current Capesize newbuilding order book. Supply constraints and Capesize newbuilding activity combined with added long-haul train distances are 2 key catalysts for the sector. In terms of the grain trade as detailed on Page 20, China has reportedly purchased at least 4 U.S. soybean cargoes following the meeting of President Trump and President [ Xi ] last week. China has agreed to purchase a minimum of 25 million tons of soybeans per year from the U.S. over the next 3 years. Prior to the summit, China had not purchased any U.S. soybean cargoes as they had ramped up purchases of Brazilian agricultural products for much of the year. Regarding the supply side outlined on Slide 21, net fleet growth in the year-to-date is 3% on an annualized basis, split between 1% net fleet growth for Capesizes and 4% to 5% net fleet growth for Panamaxes down to Handysize. The Capesize segment continues to have the smallest order book among the drybulk sectors at 9% of the fleet. Additionally, as scrapping has remained low in recent years, the age of the global fleet has risen to nearly 13 years old, the highest average age of the global drybulk fleet since 2010. This has increased the pool of potential scrapping candidates as over 10% of the on-the-water fleet is 20 years or older, which is identical to the global drybulk order book as a percentage of the fleet. This implies net replacement of tonnage over time as opposed to any material net fleet growth. While we expect volatility in the freight market, the foundation of a low supply growth picture provides a solid basis for our constructive view of the drybulk market going forward. This concludes our presentation, and we would now be happy to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Omar Nokta with Jefferies. Omar Nokta: Just wanted to get maybe just a sense, I know you talked about it a bit, but just sort of in terms of what we're seeing in the freight market, it looks like we've been building on this improvement that was -- you first were talking about back in August when you reported 2Q results. Capes have gotten stronger. We've seen the Panamax and Supramax segments have all started lifting here into year-end. I just wanted to get a sense from your perspective, is this a seasonality thing? Or is this something much bigger? Is it Simandou? How would you characterize sort of this improvement that we've just been continuing to see here in the second half? John Wobensmith: Yes, Omar. So I think it's sort of all of the above in the sense that, yes, it's seasonal. We typically have a late Q3, Q4 stronger freight market. But this time around, we're also seeing record Brazilian iron ore exports in the second half. That obviously has been very positive because of the long-haul ton-mile creation nature of that. And we've had an increase on the coal trades. China domestic demand has increased when domestic coal production actually has gone down. There's been a strong grain trade driven by South America on the minor bulk side, a lot of soybeans being bought by the Chinese really in record quantities at this point. And then we've also had the USTR with the self-sanctioning, which really reduced some of the tonnage count in the Atlantic, which we've been able to actually take full advantage of. Omar Nokta: Yes. So it seems like, as you said, just a handful of things coming together. And then maybe just on that -- as a follow-up, just on that final point you brought up the USTR, the China fees that went into effect briefly against U.S. shipping. Those have now been postponed for 12 months. Just want to get a sense, how did that affect things, I guess, from your view in terms of how it affected, say, drybulk rates, that the Chinese fees? And then how did it affect Genco? John Wobensmith: So from affecting revenues and affecting Genco, it's completely immaterial. Affecting the management team, we, as I like to say, had a lost weekend, that Columbus Day weekend because we spent an inordinate amount of time diverting ships. We had 4 ships that were going in. And so -- but we were able to successfully divert those vessels to different discharge ports. And then, of course, Monday of Columbus Day weekend, the Chinese clarified the port fee side of it and it will allow U.S. companies to come in with Chinese-built vessels and not have any port fees. Of course, 80% of our fleet is Chinese-built. So that was -- that took a lot of risk off the table. And we -- even if those port fees had remained in place, we're really talking about 7 to 8 Capesize vessels that we had already worked out a way to trade those ships at the same earnings level as they're trading now. Good news is all of that's been taken off the table for at least a year, but we're well prepared if that comes back into effect for some reason. Omar Nokta: Okay. Yes. So if indeed it does come back in 12 months' time, it seems like it's a fairly negligible impact on Genco. John Wobensmith: It's just a change of strategy a little bit. I mean our minor bulks are trading very much so in the Atlantic anyway and not doing a lot of Chinese business. And on the Capes, as I said, there are plenty of other trades on the Capes that the 7 or 8 that we have that are Japanese and South Korean-built, we'll find alternative employment without any material impact on the company. Operator: Your next question comes from the line of Liam Burke with B. Riley Securities. Liam Burke: John, you've been investing in the Capesize on the investments. But do you have a look at the non-Capesize? Or is it just the asset coming online that's attractive and gives you the proper return? John Wobensmith: Yes. So look, we have a strong minor bulk fleet. We continue to operate that, and we have no plans to divest out of minor bulks. We have quite a commercial operating platform there. But when we look at the market as a whole, and we look at the low order book, which Michael Orr pointed out at a little more than 10% versus ships that are 20 years and older overall basically match that number. So there is no fleet growth that is anticipated at least now for the drybulk industry as a whole. The Capesize sector has better supply dynamics and being much lower than on the minor bulk side. And when we couple that with the demand growth that we see coming, particularly out of West Africa, but also I think Vale is going to have some growth as well, and there'll be some further growth on the bauxite trade. But that Simandou and the tonnage that is really going to ramp up, we think, in the second half of next year also creates demand growth. So low supply and demand growth, that bodes well for the sector, and that's why we're focused in terms of acquisitions more on the larger vessels than the midsize. Liam Burke: Great. With your fleet renewal, your debt balance has moved up to finance the asset acquisitions. Outside of fleet renewal, do you anticipate accelerating that debt reduction as you're seeing strong cash flows on the higher rates? John Wobensmith: Look, we have a dividend formula in place. So we will definitely be sticking to that. We have a reserve of a little less than $20 million a quarter that's built into that. We think that is sufficient at this point. So I see us continuing to do fleet renewal. And as I said, we here before, we're concentrated right now anyway on the larger vessels. Operator: [Operator Instructions] Your next question comes from the line of Michael Mathison with [ Sidoti ]. Michael Mathison: Congratulations on the demand growth. I just had a question regarding Chinese demand for coal. You mentioned that their demand is up. Have you seen any signs of switching the source of their imports from the U.S. to Brazil or other providers? John Wobensmith: Yes. I think because of the USTR, we've seen less -- a lot less coal come out of the U.S., and it has come from other areas. From a ton-mile standpoint, I would say it's been fairly neutral, but we do expect U.S. coal exports to tick up in the next 6 months because of USTR going away. And I think the -- I think there's also a push in the U.S. right now by the current administration to beef up coal export. So we do expect to see some growth again in that area. Operator: Your final question comes from the line of Poe Fratt with AGP, Alliance Global Partners. Charles Fratt: John, you -- on Page 9 of your presentation, you highlight your corporate governance and how it's very strong and the best in the industry. Can you just give us a reason for adopting a poison pill in early October? John Wobensmith: Yes. I mean I think it's -- we had a shareholder that quickly accumulated a little less than a 15% position. And so as all poison pills, we want to do what's right for all shareholders. And so what that means is that we can slow things down so that we can make sure that if there is something to be done, that again, we can get the best transaction for shareholders. And we also -- I'll add, we did it in the most shareholder-friendly way in that we put it in place for just less than a year, and we spent a lot of time on structuring that, again, to be as shareholder-friendly as we could. Charles Fratt: Would you categorize the move, John, as preemptive? Or was it in response to signals from the largest shareholder? John Wobensmith: No, I would characterize it only to the speed in which the 15% was acquired. And again, if there was any process, you want to slow it down. And again, the idea is to maximize value for all shareholders, and that can be accomplished by putting that in place. Operator: There are no further questions at this time. This concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Ralph Lauren Second Quarter Fiscal Year 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn over the conference to our host, Ms. Corinna Van der Ghinst. Please go ahead. Corinna Van Der Ghinst: Good morning, and thank you for joining Ralph Lauren's Second Quarter Fiscal 2026 Conference Call. With me today are Patrice Louvet, the company's President and Chief Executive Officer; and Justin Picicci, Chief Financial Officer. After prepared remarks, we will open up the call for your questions, which we ask that you limit to 1 per caller. During today's call, our financial performance will be discussed on a constant currency adjusted basis. Our reported results, including foreign currency, can be found in this morning's press release. We will also be making some forward-looking statements within the meaning of the federal securities laws, including our financial outlook. Forward-looking statements are not guarantees, and our actual results may differ materially from those expressed or implied in the forward-looking statements. Our expectations contain many risks and uncertainties. Principal risks and uncertainties that could cause our results to differ materially from our current expectations are detailed in our SEC filings. To find disclosures and reconciliations of non-GAAP measures that we use when discussing our financial results, you should refer to this morning's earnings release and to our SEC filings that can be found on our Investor Relations website. With that, I will turn the call over to Patrice. Patrice Louvet: Thank you, Corey. Good morning, everyone, and thank you for joining today's call. More than 8 years ago, we embarked on an ambitious journey of elevation across our brand, our products and our go-to-market strategy around the world, led by Ralph's vision of inspiring the dream of a better life, we put our consumers at the center and we put this company on the path of healthier, more consistent more sustainable, long-term growth and value creation. In September, we were proud to introduce the latest iteration of this journey, which we are calling our Next Great Chapter: Drive plan. We outlined the vast opportunities still ahead for Ralph Lauren. We currently play in a total addressable premium and luxury market worth $400 billion. And we are just over $7 billion today, less than a 2% market share. Our strategy to grow our share and deliver long-term sustainable growth over the next 2 years and well beyond continues to be supported by multiple diversified engines. As a reminder, these include: First, elevate and energize our lifestyle brand; second, drive the core and expand for more; and third, win in key cities with our consumer ecosystem. We are off to a strong start in the execution of this plan, with second quarter performance outpacing our expectations across the top and bottom line. These results underscore our diversity of growth opportunities and the broad-based momentum of our iconic brand, which is resonating across generations, cultures and geographies. All 3 regions contributed to growth this quarter, including double-digit increases in retail comps and global wholesale sales. And we achieved this while continuing to elevate our brand and drive higher quality of sales. Our strong performance through the first half of this fiscal year also gives us confidence to take up our full year guidance once again, even as we remain relatively cautious on the second half of the year due to potential consumer headwinds and general volatility. While we are watching the macro environment closely, we remain well positioned to capture market share opportunities across categories and geographies. And we are firmly on offense with a focus on investing behind our brands, products and key city ecosystems to deliver growth for the long term. Let me walk you through a few highlights from the quarter, where we drove progress across our 3 long-term strategic pillars. Starting with our efforts to elevate and energize our lifestyle brand. As many of you heard in September, Ralph Lauren has the most loyal customers in our defined premium and luxury market. Sitting at the heart of culture, we build relationships for life, independent of any single fashion trend or cycle. And by leaning into our inclusive luxury lifestyle positioning, we are engaging with consumers across the many facets of their lives, from the runway, to the biggest stages in sports, music, gaming and more. And all in a way that is authentic to the core values we've embraced for 58 years: Optimism, quality, authenticity, timelessness and the easy elegance of a life well lived. Our teams delivered a powerful range of brand activations this quarter, as we successfully lapped last year's outstanding Paris Summer Olympics. Key highlights included: first, we continue to reinforce our position as one of the leading luxury apparel brands in the world of sports. We celebrated our 20th year as the official sponsor of both Wimbledon and the U.S. Open tennis championships this summer. Our Wimbledon storytelling combine the elegance and cherished traditions of British heritage with Ralph Lauren's refine spectator style. Our U.S. Open campaign paid homage to the most electric main stage in tennis to our colorful retro-inspired collection, delivering record-breaking sales around the event. And as sponsor of the U.S. team, we welcomed the Ryder Cup to Bethpage for the first time this fall. Among our many activations, we took over part of Rockefeller Center Plaza and drove storytelling on social media with Nick Jonas and brand ambassador, Billy Horschel. Together, these sports lifestyle campaigns embodied both the proud tradition of sport and the progressive spirit that propels it forward. They drove a combined 67 billion global impressions and more than $350 million in media value. Next, we hosted our Spring '26 Women's Collection fashion show here in New York City, showcasing a balance of strength and centrality in a modern palette of black, white and crimson. And beyond the runway, we delivered some of the most iconic celebrity moments of the season, from Taylor Swift and Travis Kelce choosing Ralph Lauren for their viral engagement, to the old Hollywood glamor of Selena Gomez's wedding to Benny Blanco. Our activations are also driving strong sustainable growth in new customer acquisition and retention. In the second quarter, we added 1.5 million new consumers to our DTC businesses, a mid-single-digit increase to last year, driven by digital and full-price store customers. The ongoing momentum this quarter was led by luxury buyers and with balanced growth across men, women and younger cohorts. And we increased our social media followers by high single digits to 67 million, led by Instagram, TikTok, Douyin and LINE. This rolling thunder approach to activations enabled by our strong data and analytics capabilities, gives us confidence to continue our brand momentum as we look ahead. Moving to our second key initiative, Drive the Core and Expand for More. Ralph's vision has always been about more than a tie or a polo shirt or a sweater. The heart of what we do is storytelling through our clothes and experiences through the cinematic worlds that Ralph has created. And our unique approach to styling enables customers to step into these worlds to build the wardrobes that tell the story of their lives, from that first red polo shirt in a school picture, to the striped silk polo dress in an engagement photo. This philosophy is embedded in how we drive our core products, as much as it is in our high potential and complementary lifestyle categories. Starting with our core, which represents more than 70% of our business. Core product sales grew mid-teens this quarter, driven by strength in cotton, cable-knit, wool, cashmere and cotton shaker sweaters, linen and seasonal Oxford shirts, our lightweight jackets and our Icon Polo Chino caps. An exciting back-to-school season also drove growth and share gains in our core children's programs, led by cable-knit sweaters, quilted jackets and Oxford shirts. Our high-potential categories, including women's apparel, outerwear and handbags, continue to be accelerators for our business. Together, these categories increased strong double digits, outpacing total company growth in the quarter. Women's apparel continued to be driven by our foundational core, along with a strong response to our seasonal styles. Highlights included our cable-knit jersey and featherweight cashmere sweaters, linen shirts, our transitional city and utility barn jackets and dresses. Momentum in our handbag business continued this quarter, driven by each of our women's labels and led by our foundational Polo ID collection; Polo Play, which launched this past spring and included exciting pop-up shops in Korea this quarter; our women's collection Ralph bags in seasonal region green leather and mocha suede; and an encouraging launch for our Tasha Collection, an elevated new offering in the Lauren family of handbags. Special releases this quarter included our limited edition Polo Ralph Lauren for Oak Bluffs Collection in partnership with Morehouse and Spelman Colleges, a powerful celebration honoring the legacy of Oak Bluffs as a cultural haven for black communities in Martha's Vineyard. Our capsules for Wimbledon, the U.S. Open and Ryder Cup, with strong double-digit comp growth in each collection, led by our Polo Bear and Free Styles. And our newest Ralph's Club New York fragrance launch featuring Usher. We will continue to leverage the unparalleled breadth of our lifestyle product offering and power of our icons as consumer lifestyles evolve. Turning to our third key initiative, Win in Key Cities with our Consumer Ecosystem. We continue to thoughtfully expand our consumer ecosystems to deepen Ralph Lauren's presence in our top 30 cities around the world, delivering a cohesive, elevated brand experience across each of our channels. At the same time, we've started investing in our next 20 cities, laying the groundwork for long-term sustainable growth. Within DTC, which comprises the majority of our business, we delivered another strong quarter of comp growth across regions. Global comps increased 13%, above our expectations, with double-digit growth in both our digital sites and physical stores. All 3 regions outperformed our expectations again in the second quarter, with double-digit growth in every geography, including North America. Asia once again led our growth, with sales up mid-teens, driven by all key markets. China grew more than 30% in the quarter, ahead of our outlook with a strong consumer response to our brand building activities, including our Summer of Sports campaigns and amplification of our New York Fashion Show. As we continue to reinforce our presence in our top cities, we opened 38 new owned and partner stores globally. And we recently announced that we are opening our sixth restaurant, bringing our iconic Polo Bar experience to London. The opening is slated for 2028. And yes, we're already getting requests for tables. And finally, touching on our enablers. Our business continues to be supported by our 5 key enablers. Recent highlights include: first, as part of our focus on delivering advanced technology, AI and analytics. In September, we launched our new AI styling tool, Ask Ralph, that we developed with Microsoft, bringing Ralph's iconic styling right to your pocket. Ask Ralph builds on our history of innovating the consumer shopping experience and immersing our consumers in the world of Ralph Lauren with cutting-edge technology. While still early, customer engagement and feedback have been encouraging. And this is an exciting step forward in our journey to test and learn new tools to better serve our consumers, drive conversion and ultimately build lifetime value. Second, our teams and our culture drive our performance. We were proud to be named one of America's Best Employers for Company Culture by Forbes. And finally, Ralph Lauren was honored in Fast Company's 2025 Innovation by Design Awards for our unforgettable brand presence at the 2024 Summer Olympics in Paris. We look forward to building on this legacy, bringing our heritage of sport and style to life at the Milano Cortina Winter Olympics in February. In closing, Ralph and I are incredibly proud and grateful for the hard work, care and dedication that our teams are delivering around the world. Together, we are building on Ralph's legacy and vision with this next great chapter of growth. We remain focused on creating value through a distinct brand position that's clear, consistent, relevant and emotionally resonant. A legacy of leadership in fashion, in culture and in innovation and a proven ability to execute with creativity, agility and operating discipline, all underpinned by our fortress balance sheet and ongoing commitment to embrace new technology and support our teams, partners and communities. With that, I'll hand it over to Justin, and I'll join him at the end to answer your questions. Justin Picicci: Thanks, Patrice, and good morning, everyone. Our second quarter results demonstrate strong progress as we embark on our Next Great Chapter: Drive plan, showcasing our team's agility and unwavering focus on execution. Top line performance exceeded our expectations, reaching our highest Q2 revenues since we began our elevation journey more than 8 years ago. Results were driven by broad-based performance across every region and channel, highlighting our brand strength and authentic connection with consumers around the world. Gross and operating margins once again outperformed our outlook as we continue to elevate across all markets. Each of our 3 regions contributed to operating margin expansion despite the volatile global operating environment. And we achieved all of this while continuing to invest behind our strategic drivers of long-term growth. As Patrice mentioned, our strong year-to-date results and brand momentum give us confidence to raise our full year outlook, even as we maintain a relatively cautious stance into the second half, given the macroeconomic uncertainty and exceptionally strong prior year compares. But first, let me walk you through our financial highlights from the second quarter, which, as a reminder, are provided on a constant currency basis. Total company second quarter revenue growth of 14% was above our high single-digit outlook. By region, Asia and Europe led our performance, with sales increasing 16% and 15%, respectively, followed closely by North America, up 13%. Total company retail comps increased 13%, with ongoing momentum in both our own digital business and stores. Total digital ecosystem sales, including our own sites and wholesale digital accounts grew double digits, reflecting balanced growth across regions. Total company adjusted gross margin expanded 70 basis points to 67.7%. The increase was driven by AUR growth, favorable mix shift toward our full-price businesses and lower cotton costs, which more than offset tariffs, labor and non-cotton material costs. AUR increased 12% in the second quarter, supported by strong full-price selling trends, reduced discounting, modest targeted pricing growth and favorable product mix. We currently expect high single-digit AUR growth for the second half of fiscal '26 based on similar drivers. Adjusted operating expenses increased 11%, reflecting a 130 basis point decline as a percentage of sales to last year. We delivered leverage across key expense categories, including rent, marketing and selling on better-than-expected sales. Second quarter marketing investments grew 2% to last year. As a percentage of sales, marketing normalized at 7.8% compared to last year's 8.7%, which included our Paris Olympic activations. We now expect marketing as a percentage of sales to be approximately 7.5% in fiscal '26, in line with our long-range plan. Second quarter adjusted operating margin expanded 210 basis points to 13.5%, with adjusted operating income increasing 34%. Moving to segment performance and starting with North America. Second quarter revenue increased 13%, above our expectations with balanced growth across our direct-to-consumer and wholesale businesses. In North America Retail, second quarter comps were up 13%, led once again by our Ralph Lauren stores. Digital comps grew 15%, supported by our strategy of full funnel activations, which drove higher quality of sales. In North America wholesale, revenue also increased 13%, driven by strong performance in digital wholesale and our top premium and luxury doors as well as stronger-than-expected replenishment. We are encouraged by our recent sellout trends, but maintain a more measured outlook for the second half of fiscal '26 based on further strategic reductions in off-price sales in the fourth quarter and potential near-term macro pressures across the broader channel. We still plan to exit 90 to 100 wholesale doors in fiscal '26 with approximately half of these related to Hudson's Bay. Moving to Europe. Second quarter revenue increased 15%, exceeding our expectations. Growth was driven by continued momentum across both our retail and wholesale channels. All key markets delivered growth in the quarter, reflecting our ongoing brand strength and elevation. Europe retail comps increased 10% to last year with strong performance across stores and digital channels. Our Europe digital ecosystem increased double digits, driven by both our wholesale and owned digital businesses. Europe wholesale increased 18%, driven by higher-than-expected reorders and a planned shift in shipments into the first half of the fiscal year, as we previously discussed. The timing shift represented approximately 11 points of the wholesale increase in Q2, with the channel still reflecting healthy underlying growth. Turning to Asia. Second quarter revenue and retail comps each grew 16%, with every key market contributing to growth. China once again led our performance, with sales increasing more than 30% to last year, driven by robust comps and new customer recruitment, enabling our continued outperformance versus peers in the market. Sales in Japan increased high single digits, driven by strong full-price selling and reduced discounting. Building out our digital presence remains a significant long-term opportunity across Asia. We are encouraged by our early progress, including double-digit revenue growth this quarter. We drove meaningful acceleration on our Japan digital site, supported by the recent transition to our global e-commerce operating system. And in China, we continue to expand our presence on Douyin since launching our Women's Shop earlier in 2025, including our first Wimbledon live stream digital event this quarter. Moving to the balance sheet. Our strong balance sheet and cash flow generation continue to be powerful enablers of our long-term strategy, supporting both our strategic growth investments and our commitment to shareholder returns. In the second quarter, we finalized the purchase of our Newbury Street store in Boston and also retired our $400 million in senior notes, which matured in September. In addition to our regular dividend, we have repurchased $313 million in shares this fiscal year-to-date, returning a combined total of approximately $420 million to shareholders. We ended the period with $1.6 billion in cash and short-term investments and $1.2 billion in total debt. Net inventory moderated from Q1 levels as planned, increasing 12% to last year, roughly in line with revenue growth. Our inventories are well positioned to meet consumer demand in each of our regions for the holiday season. Looking ahead, our outlook remains based on our best assessment of the current operating environment, geopolitical backdrop and macroeconomic trends. This includes tariffs and other inflationary pressures, supply chain disruptions and foreign currency fluctuations, among other considerations. For fiscal '26, we now expect constant currency revenues to increase in a range of approximately 5% to 7%, up from low to mid-single digits previously. This is slightly ahead of the 3-year guidance we provided in September for year 1 of our long-range plan. Foreign currency is now expected to benefit revenue growth by about 200 to 250 basis points this year. The increased outlook reflects our better-than-expected performance in the first 2 quarters of the year, as well as our continued brand momentum into fall holiday despite the challenging compares. With our strong first half results, we now expect North America revenues to be up slightly for the full year versus our prior outlook of a low single-digit decline. We continue to expect Q4 to be the weakest quarter of the year for North America based on our caution around cost inflation related pressures on U.S. consumers, in addition to our planned strategic reductions in off-price wholesale. We expect Europe to grow at the high end of mid-single digits, unchanged from our previous guide, with the first half benefiting from planned wholesale timing shifts, followed by a sequential deceleration due to challenging second half compares. Despite the timing shifts, we still expect healthy underlying growth in Europe, in line with our long-term plan. And we now expect Asia to be up high single to low double digits for both the second half and the full year, up from high single digits previously. Operating margin is now expected to expand approximately 60 to 80 basis points in constant currency, up from our prior guidance of 40 to 60 basis points, primarily driven by expense leverage. We now anticipate constant currency gross margin to expand about 10 to 30 basis points for the full year, with further growth in AUR, favorable cotton costs and geographic mix more than offsetting pressure from tariffs. Foreign currency is expected to benefit gross and operating margins by about 30 to 50 basis points in fiscal '26. Following our strategic pull forward of receipts, we continue to expect tariff headwinds to ramp up in our fiscal Q3 and become more pronounced into Q4. As a result, we still expect a notable year-over-year gross margin decline in Q4 due to the combination of reciprocal tariffs, unusually strong prior year compares and previously discussed timing shifts, all negatively impacting our smallest revenue quarter of the year. We remain confident in our long-term gross margin outlook of 50 to 100 basis points of expansion over the 3 years of our Drive plan, with expansion expected in each year. While we anticipate gross margin pressure over the next few quarters, Q4 of this fiscal year is still expected to be the most negatively impacted quarter, driven by the additional timing-related headwinds. As we move through next fiscal year, we expect to mitigate these pressures more meaningfully as we begin to lap the tariffs and our sourcing shifts and other mitigating actions take effect more broadly. For the third quarter, we expect constant currency revenues to increase approximately mid-single digits, reflecting a slightly improved outlook for the back half of the year versus our expectations in August and coming into the year. Foreign currency is expected to benefit revenues by approximately 150 to 200 basis points. We expect third quarter operating margin to expand approximately 60 to 80 basis points in constant currency. This is driven by 50 to 70 basis points of gross margin expansion, as well as slight operating expense leverage, more than offsetting tariffs and higher marketing investments to support our global holiday activations and Polo Women's fashion presentation in Paris. Foreign currency is expected to benefit gross and operating margins by about 10 and 20 basis points, respectively, in the third quarter. We expect our third quarter tax rate to be in the range of 21% to 23%, and a full year tax rate of approximately 19% to 21%. In closing, we are proud of our team's strong execution and early progress on our Next Great Chapter: Drive plan across the world through the first half of this fiscal year. Even in an operating environment that remains dynamic, our agility, fortress balance sheet, culture of operating discipline and multiple engines of growth give us confidence in our ability to continue delivering sustainable long-term value. As we shape the future of inclusive luxury lifestyle, we remain focused on investing in the key strategic priorities that will enable us to connect with the consumers more broadly and deeply than ever before and to continue inspiring them to dream. With that, let's open up the call for your questions. Operator: [Operator Instructions] The first question comes from Matt Boss with JPMorgan. Matthew Boss: Congrats on a great quarter. Patrice, so the company continues to outperform expectations despite the caution that you've been calling out. What does your updated outlook for this year assume for health of the consumer, particularly macro assumptions that you embedded for the back half? Have you seen any change in consumer behavior in any key markets today? And then just larger picture, Patrice, if we extend the lens. Could you walk through global brand awareness for Ralph Lauren relative to only 2% market share for the brand today? And just how that supports your revenue targets longer term? Patrice Louvet: Sure. Well, thank you for your question, Matt. So on the first part of your question, we continue to see strong broad-based momentum in our business, right? Our new Next Great Chapter: Drive strategy is working, and our brand is resonating with consumers around the world. To date, we have not seen any meaningful changes in consumer behavior across our key consumer segments or markets. Demand remains healthy, and our core consumer is resilient. Especially as we continue, as you know this, to shift our recruiting towards more full price, less price sensitive, higher basket size new customers. Now from a macro perspective, as price increases take root across different sectors, we are watching closely to see how consumers will respond, and our teams are staying as agile as ever in this context. And listen, we continue to focus on our key strategic pillars and invest in spaces that we expect to successfully fuel our momentum and grow share for the long term. So first, we've implemented a rolling thunder of brand building activations to drive brand desirability and retention and more consistent engagement with consumers. I'll come back to that when we talk to your awareness question. Whether that's through our impactful fashion shows -- we had 2 this last quarter -- our inspiring sport activations or our more innovative interactions like our AI-powered Ask Ralph styling assistant. This will remain a key area of investment as we look ahead. Second, we've continued to drive a healthy balance of authentic core products that perform across macro cycles along with our high potential categories. Think women's apparel, outerwear and handbags. And both are performing well, as you heard us talk about earlier. And third, just a reminder that we still have a lot of distribution opportunities globally. Whether that's deepening our presence in the existing top 30 key cities in China or Western Europe, to what we've just started doing, which is opening new stores in the Bay Area, for example, as we build the San Francisco ecosystem or in the Pacific Northwest, here in the U.S. So all in, our consumer continues to show up for our brand. And even as we navigate the macros, our business model is resilient with our multiple drivers of growth, and we will continue to stay on offense to deliver on our long-term Drive plan. As far as global awareness is concerned, let's go around the world together, Matt. So obviously, our awareness is highest here in North America. Then Europe is very closely behind that across all the markets. But I think the opportunity still in markets like Germany, which historically have not been a focus area, as you know, for this company, but certainly, we are -- as the current leadership team are very focused on taking advantage of the Germany opportunity, and we're seeing strong continued momentum across that region. And then in Asia, it's really a mixed picture. We've been in Japan for -- it will be 50 years next year. We have strong brand awareness there. We have opportunities for growth of the brand awareness in Korea. And probably, our greatest awareness opportunity remains in China, where I think based on our latest numbers, slightly more than half of the population is aware of the Ralph Lauren brand. So depending on the markets, awareness is or is not a key opportunity. Obviously, as we look to recruit new younger consumers, we know there's work to do on brand awareness and brand engagement. And then it's really about making sure that we're telling stories that resonate with these different consumer groups. It's really about making sure that we have a product offering that takes advantage of our core icons and also leverages our high potential categories in a way that resonates with those consumer groups we want to go after. And it's making sure that we can offer a compelling shopping experience, whether that's online or in stores, in the key cities that matter for these consumer groups. So certainly, you touched on it, we're very energized by the opportunity ahead of us when you look at market shares, right? Less than a 2% market share in a large and growing market total addressable market of around $400 billion. So building awareness is a vector of growth that will help us expand our market share. But obviously, conversion, basket size, all the different dimensions of revenue growth areas that our marketing teams are focused on. Operator: The next question comes from Jay Sole with UBS. Jay Sole: Justin, the company has successfully driven 8 straight years of AUR growth. Patrice kind of touched on this a little bit, but how are you thinking about using pricing as a lever over the next few quarters before you start to lap tariffs? And how should we think about your ability to mitigate tariffs over time? And how much of your guidance of a second half deceleration is due to your general caution on a consumer slowdown versus true structural or timing shifts this year? Justin Picicci: Thanks, Jay. Thanks for the question. Those are a few really important questions. So let me try to take them one by one and see if I can provide some helpful context here. So first on pricing. So we have a proven multiyear elevation strategy that's driven those sustained AUR gains you referenced in more than 8 years and counting. Our AUR growth has been and continues to be driven by multiple levers, right, investing in our brand, attracting more full-price customers, elevating our product mix, favorable geo, channel mix and pulling back on discounts in addition to strategic pricing actions. And as we talked at our September Investor Day, these drivers are durable into the future. And really importantly, we continue to see consumers recognize and respond to the value we're delivering. It's critical. Now for this fiscal year, we took normal course of business pricing actions for fall as we continue to elevate our brand around the world. And with the higher tariffs that were announced, we did layer in some additional modest adjustments, both for fall and for spring '26. And that's reflected in that high single-digit AUR growth guide we provided for the back half of the year. Your second question on gross margins, we still expect Q4 to be the most impacted quarter this fiscal year, consistent with our planned cadence. And it's a combination of the reciprocal tariffs and the timing shifts we made to accelerate receipts earlier in the year, and this is all happening and Q4 is our smallest revenue quarter of the year. It's a transitional quarter, right, between fall holiday and spring. So even with the year 1 tariff pressure, we're now expecting 10 to 30 bps of gross margin expansion this fiscal year, better than our initial outlook. And talking beyond this year, we still expect to mitigate the cost inflation. And you'll start to see our broader mitigating actions take shape, country of origin shifts and optimization, merchandising mix actions and potentially some further targeted pricing. And then lastly, on the second half guide. So clearly, we made some strategic intentional choices to front-load our performance this fiscal year given the higher level of macro uncertainty as you move through the year and specifically in the back half. But that all said, we've been able to raise our outlooks for Q3 and Q4 modestly as we move through the first half of the year. Now we do realize there are a number of moving parts here. But when you adjust for the timing shifts, when you adjust for the strong holiday compares, the general caution we've called out on the U.S. consumer, our underlying trajectory remains in line with our longer-term algo of that mid-single-digit growth. So I said a lot, just to summarize. Targeted pricing, one of our many durable levers of AUR growth that we're applying to this fall and beyond with a focus on value. We continue to feel good about our ability to expand gross margin and mitigate tariffs both this fiscal year and beyond. And while there's a combination of structural and timing shifts impacting the second half of this fiscal year, our underlying growth continues to track to our long-range algo of mid-single digits as we shared at Investor Day. Operator: The next question comes from Brooke Roach with Goldman Sachs. Brooke Roach: Justin, Patrice, I was hoping you could dive a little bit deeper into the strategic actions that you're taking to engage the North America value-oriented consumer this holiday season. You continue to take a little bit of a conservative approach there, but it looks like you've been outperforming your expectations to date. Wondering what the plan is for this holiday and what you're looking to do if the consumer does look to get a little bit weaker? Justin Picicci: Sure. And thanks for the question. So just taking a step back as we enter -- or enter this fall holiday season, we saw some pretty broad-based momentum behind our brand, across markets and channels, including in North America. And we've been -- past 8-plus years, we've been through a number of different iterations of a tough environment before, right, of cost inflation, price inflation, cotton freight, pressures on the consumer. And we've navigated that pretty successfully using that diversified toolkit of levers that we talked. And the brand is positioned now better than it ever was before during any of those periods. So we know -- we have confidence that we can navigate through the macro pressures. We've got real pricing power, and we also have seen our value perception grow progressively along with AUR throughout the elevation journey. So when we think about fall holiday, a couple of words come to mind. One is flexibility, right? We've got the flexibility in our price architecture to be able to -- in a very targeted, selective way, still talk and convert those more value-oriented customers subsegments that exist in channels like wholesale and the outlets when the macro pressures sort of tighten. And we can do that without walking back our broader brand guardrails. The other word that I think about it is value. We're going to stay laser focused on making sure we're providing a compelling price value proposition to our customers. And as we kind of sharpen our marketing, as we sharpen our analytics, as we get to know the customer better and we get our segmentation more precise, we're only getting better at being able to understand that -- what's that sweet spot in terms of price value to appeal to the consumer. Patrice Louvet: And Brooke, I might add to Justin's perspective, 2 points, first on branding and the second on product offering. So our storytelling -- and you saw the range of activations this past quarter, which was very special. And obviously, it's given us momentum going into this holiday season. Our storytelling is really designed to appeal broadly, including to the more value-sensitive consumers. And what we have certainly found the past few quarters is the broad range of marketing activations from sports; to fashion presentations, to the serendipitous celebrity moments have talked to the different consumer segments that we appeal to. And then our teams here in North America are putting disproportionate emphasis now on better segmentation to make sure we're getting the right message to the right group at the right time. So I think we're gaining momentum there. There's more to come on this front. That's on the marketing branding side. On the product side, what's very interesting is across consumer segments, the strategy of both driving our core icons and our 3 high potential categories is resonating. So we're seeing that play out at the upper end echelon from a revenue standpoint of our customer base. We're also seeing that play out within our more value-sensitive consumers, which obviously makes it a lot easier to execute and gives us confidence in our ability to win during this upcoming holiday season. Operator: The next question comes from Michael Binetti with Evercore. Michael Binetti: Congrats on a nice quarter. Yes. I want to ask just 2. So on the AUR, look at a few metrics here. The global AUR growth rate has been very, very close to the DTC same-store sales growth rate for a while. You're implying flattish units in the first half, something near that. You consistently tell us it's really attractive new customer growth, so customers are growing units are not. Is there an opportunity for the units to help you start to outpace the AUR growth as you look at the rest of the year? And then Patrice, the Investor Day plan looks for EBIT margins, 15%, 15.5% range by fiscal '28. There's a scenario where you get to that range this year. I guess, it's a jump ball between Patrice and Justin. But in the first year of the plan, I know you clarified that 16% is in the cap. Maybe you can help us frame the long-term opportunity with a nod to the update for the second quarter upside here? Patrice Louvet: On margin, there's no jump ball. It's always Justin. Justin Picicci: In case it was unclear. So on the AUR question, so we've been pretty -- to your point, consistently growing AUR, and you see the AUR gains with the comp gains, which really shows the quality of the revenue they are putting up and the share gains that we're getting behind them. To your point on units, we've been growing units along the course of this journey. I think earlier in the elevation journey when we had the step changes in elevation, they were slower. But now as we move through, where we've been seeing unit growth is those areas that we've really been targeting, right? So our full-price businesses, right? Our digital businesses, our markets like China, where we know we have outsized growth opportunities. On our accelerator categories like women's, like handbags, like outerwear. We've been seeing unit growth there. I think when you think about the environment from a macro perspective that we're going to go -- that we expect to go into in this sort of second half and maybe carrying into the first half of next year and we talked this a little at Investor Day. We are going to lean more into AUR versus unit growth overall as we navigate those cost inflation pressures. That all said, to your point on opportunity, there was certainly a unit growth opportunity, specifically in those areas that we've been focused on, like those areas that are further along on the elevation journey. So you'll continue to see us opportunistically focus on and grow units there. And then as the other areas of our business progress on that elevation journey, you'll see the inflection point in those facets as well. On the OI margin question in terms of opportunity, 16% plus, when you think about longer term, I mean, we -- and we've talked this before -- we're committed to balancing -- delivering on or often exceeding our near-term commitments with reinvesting back behind our brand in our business for that longer-term sustainable growth. So you see us do things like this year, this guide, we took up both the top and bottom line. We also took up our marketing expectation, right, as we continue to reinvest behind that sustainable long-term growth. I think in terms of -- that philosophy is not going to change. You'll see us continue to follow that as we move forward. So as we have potential upside, you're going to see us balance the flow-through between operating margin expansion and between reinvestment back into the business with marketing probably being the 1A area. You're also seeing this year as we move through the year based upon our guide, and you kind of saw it start last year, you see us work this sort of SG&A leverage muscle, right? This cost optimization muscle. And that's going to be another lever we have at our disposal, both to mitigate and manage the macros. And as we know, gross profit does have some choppiness associated with it, but also to balance between flowing through near-term profitability gains with reinvestment back into our business. Operator: The next question comes from Ike Boruchow with Wells Fargo. Irwin Boruchow: I think this is for Justin. Wanted to kind of dig more into North America wholesale. You've been -- you've inflected the positive, I think, 3 quarters in a row now, but you kind of went low double digits this quarter, but there's an 11-point shift. And then, Justin, some of your comments on the fourth quarter kind of suggests you're going to pull back from some unproductive sales. So kind of just peeling the onion back, just how should we think about the trajectory of North America wholesale? And then I assume that shift is hurting us in the third quarter, but would love some clarity there. So kind of just looking for the trend line and how you kind of plan that channel at this point? Justin Picicci: Sure. So listen, when you think about the underlying quality growth that we're seeing in our wholesale business, I would say, North America and in EMEA, but let's focus on North America as well as the strategic ongoing elevation work in these channels, that is quite purposefully meant to balance momentum at times, notably in North America. I mean, we're very encouraged. Our brand momentum has been strong and we've been able to deliver more outsized performance than we were expecting. I think it's fair to say through the first half of this year. And the great thing about this growth is that it's healthy, high-quality growth on an underlying basis, right? And it's reflective of the diversity of our growth driver. So it's working in retail, is carrying over and cutting through in wholesale. Women's is a great example. Women's is working really well, both from a door perspective and a comp perspective in North America wholesale, specifically at that top tier -- at the top-tier channel. So it's great to see the execution of the strategy, and it's great to see the healthy underlying growth. To your point on sort of a normalized growth expectation as we think about first half versus second half and beyond, we've always talked about sort of a stable to up type of algo for that North America wholesale business. And that's really balancing between growing in areas like top-tier doors, growing in areas like digital, growing in areas like key cities with our wholesale partners. Balancing that out with continuing to call off-price, continuing to call the lower tier distribution. So when we think about the second half specifically versus the first half, we've got some off-price reduction pressure that we know is coming that is planned for Q4. That's going to impact that business by 2, 3 points. We've also got -- we're caution embedded in our outlook around the U.S. consumer, right? Because we know as the pricing environment begins to take shape, those sort of strong reorder rates that we've been seeing in that business, there's some elasticity pressure that we're layering on top of that as we head into the second half. And then we've got the third step, which is really continued brand elevation reinvestments, which is going to partly offset some of our gross bookings. So when you think about the shape of things, there will be some expected pressure in the second half, but I think we feel good about the core of that business. And if you strip out some of the one-offs, we feel good about that sort of stable to up normalized growth organic trajectory. Operator: The next question comes from Dana Telsey with Telsey Group. Dana Telsey: So nice to see the progress. As you think about your retail distribution, both full price and outlet, anything different you're seeing in outlet from full-price? And with the AUR increases, how is trajectory and outlets basically globally of higher-priced product there? And just lastly, anything on the supply chain to make note of as a benefit for margin going forward? Patrice Louvet: As far as the performance is concerned across all our DTC channels, I might even expand that to ralphlauren.com, if you don't mind. We're actually seeing really nice, consistent growth. Both our full-price stores, our outlet stores and actually disproportionate growth on digital, which we're very excited about. And as I mentioned earlier to Brooke's question, what we're seeing is on marketing activations and our product offering is resonating pretty consistently across these 3 different channels. And as we get more precise on consumer understanding and consumer segmentation, we're able to better target through particularly our social media platforms to get the full potential performance across all 3. But the short answer to your question is broadly consistent performance across the 3 areas. And of course, moving forward, our expectation is to continue to expand our full-price stores, right? You saw this quarter, we opened 38 around the world. That will continue. We do not expect to expand our outlet doors. If anything, what our teams are doing around the world now is combining outlet presence, so we might have a center where we have 3 different locations. We're building that into one. And then we expect to have some closures of outlets moving forward as we look to continue to elevate our presence. And of course, we're leaning in aggressively in ralphlauren.com and our digital operations because we're seeing very strong response there. Justin Picicci: On the supply chain piece, Dana. So our global sourcing supply chain, well positioned, strong long-standing partnerships. It's really been, as you know, a key differentiator for us over the past 8-plus years, significantly diversified. So we have been taking advantage of that diversification in terms of being nimble and agile as we navigate the ongoing cost inflation landscape. And we do also maintain alternate sourcing capabilities for all of our key products in more than 1 country of origin, right? So we've been certainly leaning into that as well as working with our supply partners to drive efficiencies in our cost of goods and broader sort of end-to-end relationships. That supply chain is also very innovative. They also continue to focus on developing and scaling new opportunities in each of our regions to mitigate what we know is a very dynamic global macroeconomic environment. So you'll see some of those mitigating actions start to ramp up as we move sort of through this year into early next year and into next year more fulsomely, and that is obviously a key lever in our mitigation toolkit when we think about cost inflation. Operator: The next question comes from Laurent Vasilescu with BNP Paribas. Laurent Vasilescu: Patrice, I have to ask about China. I've seen China grew over 30% this quarter. I think that's in line with the prior quarter. Can you talk about what you're seeing there? Is there a rebound in the luxury space? Or is it idiosyncratic to Ralph? I would think that's the case, to some degree. And I think -- I know you don't guide explicitly for China, but I think you mentioned on a prior call that your expectations were for China to grow low double digits this year. How should we think about growth this year for China? Patrice Louvet: We always love to talk about China. So thank you for your question. So very pleased with the performance, again this quarter, up 30%. If you look at our run rates in China, we've been performing strongly for many years now. Why is that? While it's our strategy at play that the teams on the ground are doing a brilliant job executing, building the brand in a way that resonates with the Chinese consumer, leveraging our core items and also leading into our high-potential categories, particularly our women's apparel and handbag businesses, disproportionately performing in China. And then expanding our footprint in a very selective way across the 6 key cities, building these unique ecosystem. So the performance you saw this quarter is really the result of these actions over many years. While we are, like you, reading the headlines on the economic environment in China, I think, to use your terminology, a lot of our performance is driven by idiosyncratic elements from the Ralph Lauren mix. Now keep in mind, Laurent, market is significant, right? And we still have relatively small share. So there's a lot of business to be had even if the overall category, we're not growing. As we did guide, I think, low double digits for China, even longer term, right? So not just for this year, but over the 3-year period of our Next Great Chapter: Drive. We don't typically do that for individual markets, but we thought it was helpful for all of you just to get a sense of how we think about that market in particular. We stand by that. Listen, we gave that guidance 6 weeks ago, so it's unlikely that changed in the span of 6 weeks, but we feel very good about the balance of growth drivers and the diversity of growth drivers across that market, healthy comp growth quarter-on-quarter with new store expansion in a very selective, disciplined way, really leaning into digital and digital -- significant growth potential, including with -- and we touched on this in prior calls -- social commerce, which is really gaining momentum in China in particular. So we talked about our activations on Douyin. We have a women's total activation that's performing very well, actually ahead of our expectations. We'll be expanding that across our portfolio. So the combination of new consumer recruiting, which drive a strong comp growth, select store expansion and acceleration of our digital platform and footprint along with clienteling, this is probably one of the markets where we have the best understanding of the customer and the best connected understanding of the customer across the ecosystem gives us confidence that we can continue to build strong, steady performance in China. We're in China for the next few decades, right? So we're also being very disciplined in terms of how we grow quarter-on-quarter to make sure it's done in a quality way, a sustainable way. And we're encouraged by the momentum we've got. All right. Well, Laurent, you had the last question. So thank you, everyone, for joining us today. We look forward to reconnecting in February. We will have just -- we'll be in the middle of the Cortina Olympic Games, where we sponsor the U.S. team. And we'll be looking forward to sharing our third quarter fiscal '26 results. And until then, take care, and have a great day. Operator: Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.
Operator: Hello. My name is Donna, and I will be your conference facilitator this morning. At this time, I would like to welcome everyone to Ralliant Corporation's Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] I would now like to turn the call over to Nathan McCurren, Vice President of Investor Relations. Mr. McCurren, you may begin your conference. Nathan McCurren: Thank you, Donna. Good morning, everyone, and thank you for joining Ralliant's Third Quarter 2025 Earnings Call. I'm Nathan McCurren, Vice President of Investor Relations. Today, we'll walk through our third quarter 2025 results, highlight key operational progress and provide an outlook for the fourth quarter. I'm joined today by Tami Newcombe, our President and Chief Executive Officer; and Neill Reynolds, our Chief Financial Officer. Our earnings release issued yesterday and today's presentation can be accessed on the Investors section of our website at ralliant.com. Please note that we'll be discussing certain non-GAAP financial measures on today's call. A reconciliation of these items to U.S. GAAP can be found in the Appendix to our presentation. During today's call and unless otherwise stated, we're comparing our third quarter 2025 results to the same period in 2024. During the call, we will make forward-looking statements, including statements regarding events or developments that we expect or anticipate will or may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties and actual results might differ materially from any forward-looking statements we make today. Information regarding these risks and uncertainties is available in our information statement filed with the SEC on May 28, 2025, and our quarterly reports on Form 10-Q filed with the SEC on August 11, 2025, and to be filed on November 6, 2025. With that, I'd like to turn the call over to Tami. Tamara Newcombe: Thank you, Nathan. Good morning. Welcome to Ralliant's Third Quarter Earnings Call, our first reporting period as an independent public company. The team approached the post-spin separation with discipline and focus, stepping into new roles and implementing refined processes, all while delivering quarterly results that were at or above the high end of our guidance ranges. On today's call, I'll start with a brief overview of Ralliant and a high-level look at our financial performance. Next, I'll invite Neill to share a deeper insight into our Q3 results, the Q4 outlook, and discuss considerations as we move into 2026. Then I'll be back to showcase progress on our profitable growth strategy, leveraging the Ralliant Business System. Slide 4 highlights what makes Ralliant different. We stand at the forefront of precision, driving safety and breakthrough performance through advanced technologies that perform in demanding environments. Our solutions help ensure reliability, safety and efficiency when failure is not an option. We continue partnering with our customers to unlock advancements that will change the world and have an impact for years to come. We develop and manufacture precision solutions globally across diverse end markets. Our portfolio of trusted brands has earned our customers' confidence by delivering precise instruments, sensors and safety solutions that enable faster customer innovation. As electrification, digitization and AI accelerate the demand for high-performance, data-driven equipment, we meet these needs by serving customers in critical markets such as utilities, defense and electronics. What truly sets us apart is our people-first culture ingrained in decades of precision expertise and the Ralliant Business System. This has enabled us to solve our customers' toughest challenges in the many applications that we serve, earning customer trust and positioning us well for future growth. With that, let me provide the key takeaways from the quarter on Slide 6. First, all our financial results were at or above the high end of guidance ranges we provided last quarter, demonstrating our commitment to delivering results while executing our long-term strategic priorities. Second, we are delivering high growth in the Utilities and Defense end markets and sequential improvement in Test & Measurement and Industrial Manufacturing. Third, we are executing our levers to drive growth and innovation. This was demonstrated in the quarter as Tektronix launched two new high-performance precision instruments architected to be scalable platforms that will accelerate our new products road map. Fourth, we delivered significant free cash flow with a conversion rate above our long-term expectation of greater than 95%. And last, we progressed on our cost savings program that we announced last quarter to deliver $9 million to $11 million in annualized savings by the end of 2026. Drilling down into our Q3 financial results on Slide 7. Our revenue was above the high end of our guidance range. We continued to deliver sequential improvement with 5% growth over Q2. This was driven by secular demand in several end markets and improved shipment execution, particularly in defense. We expanded adjusted EBITDA margins by 60 basis points sequentially to 20.4%, reaching the low end of our long-term through-cycle target range that we communicated at Investor Day in June. Turning to Slide 8. Our growth has improved each quarter throughout the year across most regions. North America turned positive with 3% year-over-year revenue growth, driven by exposure to our growing Defense and Utilities end markets. We also delivered sequential improvement with green shoots in Industrial Manufacturing and Test & Measurement. While Western Europe experienced a 6% decline, largely driven by customer cautiousness, we remain actively engaged with customers and partners across the region. China is also down 6% year-over-year as we continue to see cautious demand amid geopolitical headwinds. China macro leading indicators have shown signs of recovery, but we expect continued pressure driven by export controls, tariffs and an uncertain environment. China was a significant driver of Test & Measurement growth for Ralliant from 2021 through 2023, but selling conditions have changed. In 2024, we executed a restructuring of the team in China. Since then, we've been investing to capture new opportunities in other markets such as India and Southeast Asia. While there are still puts and takes within each region, our teams are focused on strengthening relationships and positioning ourselves strategically so that when spending resumes, we are ready to capture growth opportunities and accelerate momentum. I'll now invite Neill to go over our financial results and provide some insights on expectations for the balance of the year. Neill Reynolds: Thank you, Tami. Please turn to Slide 10. During Q3, we generated $529 million in revenue, roughly flat year-over-year as growing demand in Sensors & Safety Systems and pricing actions across the business were offset by cautious customer investment in Test & Measurement. Notably, we achieved a 5% sequential increase in revenue, driven mostly by higher shipments on a growing backlog in Defense and a seasonal step-up in Test & Measurement. Adjusted EBITDA margin declined year-over-year, driven by lower Test & Measurement volume and a step-up in operating expenses. Our adjusted operating costs were $170 million, consistent with the expectations we laid out on our second quarter earnings call. Adjusted EBITDA margin increased 60 basis points sequentially, driven by a 200 basis point increase in adjusted gross margin, primarily due to operating leverage on higher revenue, partially offset by an increase in operating expenses. We also fully offset the cost of tariffs in the third quarter, ahead of our year-end goal. As a reminder, we expect the pricing countermeasures to continue to be a small gross margin percentage headwind, but we now expect this to be closer to 50 basis points on a run rate basis given additional countermeasures we executed this quarter. Adjusted EPS was $0.60, in line with the top end of our guidance range of $0.54 to $0.60. This is a reduction year-over-year, driven by lower adjusted EBITDA and the addition of $16 million of interest expense this quarter following the spin-off. Looking at the results, please note that adjusted EBITDA and EPS contain several non-GAAP adjustments. There are two unique items this quarter I would like to shed more light on. First, we are making a $22 million non-GAAP adjustment related to a stock-based compensation modification, which is a spin-related mark-to-market expense associated with Ralliant team members who transitioned from Fortive. This was a onetime noncash expense due to the equity conversion at the time of spin. For our normal practice, we are not adjusting for stock-based compensation expense from new equity granted in the period. Second, we are making a non-GAAP adjustment to exclude a $12 million favorable noncash discrete tax item related to a reduction in the German corporate tax rate. Now turning to cash. We generated $127 million in free cash flow, representing a conversion rate of 185% in the quarter. Over the trailing 12 months, our free cash flow conversion rate has averaged 124%, significantly exceeding our long-term target of over 95%, underscoring our focus on operational efficiency and working capital management. On Slides 11 and 12, I'll provide more color on our end markets and segment performance, starting with our larger segment. In Sensors & Safety Systems, Q3 revenue grew 11% year-over-year and 5% sequentially. Higher volume was led by increased demand in Defense and Utilities. Defense & Space revenue grew 18% year-over-year. We saw higher shipment levels in the quarter and backlog continues to grow. Utilities revenue grew 11% year-over-year, driven by the continued investment in power grid modernization and expansion. We also had pockets of growth in industrial manufacturing, which grew 9% year-over-year in the quarter after delivering stable revenue for the preceding 6 quarters. Adjusted EBITDA margin for Sensors & Safety Systems was relatively flat as positive volume leverage was offset by higher post-spin employee costs. Moving to Test & Measurement. Demand continued to stabilize, which combined with a typical seasonal step-up generated 6% of sequential revenue growth. Year-over-year revenue declined 14% as customers remained cautious with capital investment, and we compare against some large projects in the prior year period. We have seen momentum start to build in the communications market with Q3 representing the highest revenue and order quarter for the year. Revenue declined over 30% year-over-year as we are lapping about $15 million of projects from a customer in the third quarter of last year. Sequentially, revenue grew 6%, primarily driven by military and government customers. Diversified Electronics revenue declined year-over-year, most pronounced in China and Western Europe. Semiconductors revenue grew both year-over-year and sequentially as we work through backlog. Orders remain at low levels as power CapEx remains largely on hold for many customers. We are seeing semi customers defer R&D lab investments while they focus on AI infrastructure investments and maintenance CapEx. Adjusted EBITDA margin in the segment grew 480 basis points sequentially with strong incremental margins on revenue growth and disciplined cost management. Year-over-year adjusted EBITDA margin declined about 10 percentage points, driven by volume decline and the higher post-spin employee costs. Turning to our balance sheet on Slide 13. We ended the quarter with $264 million in cash and cash equivalents as well as $1.15 billion in term loan debt, resulting in 1.9x net leverage. Our cash balance increased $65 million versus Q2, including the expected payments to Fortive and tax authorities. We have paid $57 million of approximately $90 million for Fortive commitments related to the spin-off and expect the remaining roughly $35 million to be paid during Q4. Turning to capital allocation on Slide 14. Our priorities remain intact. First, invest organically in the business; second, return capital through dividends and share buybacks; and lastly, executing selective tuck-in acquisitions focused on our high-growth vectors. Our commitment to organic reinvestment was demonstrated with our new product launches in the quarter. As we look ahead, we see meaningful opportunity to continue to invest in growth and anticipate ramping CapEx from approximately 2% currently to between 2% and 3% of revenue in 2026. We remain focused on deploying capital on high-return opportunities. Last week, our Board of Directors authorized a quarterly cash dividend of $0.05 per share. We also have a $200 million share repurchase authorization in place. We are committed to balancing these capital allocation priorities against our target cash balances and our long-term net leverage target of 1.5 to 2x adjusted EBITDA. Before I turn the call back to Tami, I want to review our outlook for Q4 2025 as well as provide some color on the seasonality of both segments to help you understand Ralliant better. I'm now on Slide 15. For the fourth quarter of 2025, we expect revenue of $535 million to $550 million, a continued gradual improvement with consistent shipment delivery in Sensors & Safety Systems and a typical small seasonal step-up in Test & Measurement. We expect adjusted EBITDA margin of 20% to 21%, in line with Q3 and adjusted EPS of $0.62 to $0.68. Free cash flow can naturally fluctuate based on the timing of certain payments. Following this outsized quarter, we expect free cash flow to be down sequentially in Q4. For the full year, we expect our conversion rate to remain above our long-term target of over 95%. Turning to Slide 16. To help you with your planning, as we look ahead to 2026, I want to provide color on the historical seasonality of our business and outline some of the important timing factors in 2025 given our midyear spin. Let me touch on our normal seasonality. As we start to look ahead to go from what is typically our highest revenue quarter of the year in Q4 to what is typically our lowest revenue quarter of the year in Q1. Over the past 10 years, the seasonal sequential revenue step down from Q4 to Q1 has been in the mid- to high single-digit percentage range. Given our operating leverage, particularly in our more seasonal Test & Measurement business, this typically results in a roughly 2 percentage point to 3 percentage point sequential decrease in EBITDA margin. We have also included on Slide 16, items from 2025 to keep in mind that will impact our comparisons next year, including the impact of tariffs, spin-related costs, interest expense and our cost savings program. We will provide more details on our expectations for Q1 on our fourth quarter earnings call in the new year, but we hope this color is helpful as we continue to learn more about Ralliant. With that, I'll turn the call back to Tami to talk through an update on our profitable growth strategy. Tamara Newcombe: Thank you, Neill. I'll continue with Slide 18. Our profitable growth strategy is anchored in three pillars that are designed to deliver enduring value. The first pillar is RBS everywhere. RBS is our engine for innovation, scale and profitability, and we have embedded its processes and tools across the enterprise to drive disciplined execution and increase customer-centric innovation. The second pillar is stronghold positions. We are committed to delivering sustained customer value through differentiated services, robust product road maps and global channel reach. This quarter, we expanded our footprint with strategic wins, including one of the world's largest motor producers, a leading steel supplier and a global pioneer in direct air capture technologies. These customer partnerships reinforce our ability to perform reliably in demanding environments and critical applications. The third pillar is winning growth vectors, where we are investing to capture secular growth trends, specifically across defense technologies, grid modernization and electrification. I want to highlight where we're focusing our efforts and how our portfolio investments align with long-term demand trends and shareholder value creation. Starting with defense technologies. We expect the super cycle of investment in defense programs to continue with global annual defense spending projected to increase from $1.8 trillion last year to $3 trillion by 2030. Our defense customers have been awarded multiyear contracts on many critical programs that include our PacSci EMC safety systems. Our backlog, which is now over 2x our annual revenue, has continued to build throughout this year as customer demand has outpaced shipments. We continue scaling production of these essential solutions to support the U.S. and its allies. To serve this surge in demand, we are leveraging RBS to increase the production capacity within our existing manufacturing footprint and future expansion is a key area for organic investment. Shifting to power grid modernization. Utility companies are investing in both expansion and upgrade as they face significant increases in power demand with aging infrastructure. Expansion investments are needed to support power demand growth, which is expected over the next 5 years to be 6x higher than the prior 20-year average. Upgrade investments are needed as over 70% of power transformers in the U.S. are more than 25 years old. We are capitalizing on this customer demand with sensors and analytics solutions for the power grid critical assets like generators, transformers and substations, resulting in 14% revenue growth in our Utilities end market year-to-date. Our last growth vector is electrification. As the world becomes more electrified, we help customers innovate and enable much of the supporting infrastructure. A great example of this in Q3 is our growth in data center applications where Gems Setra provides sensors for both liquid and air cooling systems. In a fast-moving data center market, RBS enabled the Gems Setra team to respond quickly to evolving customer requirements and numerous product iterations, leading to an accelerated production ramp of a new pressure sensor for liquid cooling. While data center applications are a smaller part of our portfolio today, they drove the sequential growth in our Industrial Manufacturing end market in the quarter. Now turning to Slides 20 and 21 and the two new Test & Measurement launches. The DPO7000 sets a new benchmark by combining ultra-low noise, high ENOB or effective number of bits, and unprecedented throughput with a scalable architecture. This enables engineers to capture and analyze signals that were previously invisible. This level of precision performance is critical for next-generation technologies like AI, robotics, quantum systems and ultrafast serial communications. At the same time, we launched the MP5000 series modular precision test system, which expands the Tektronix portfolio into the validation workflow by bringing new levels of flexibility to automated testing. Its modular design empowers engineers to add or reconfigure testing modules in minutes, offering a platform that will evolve with the needs of our customers. Last week, Tektronix hosted nearly 100 customers and partners for hands-on demonstrations. The positive feedback was tremendous. During the event, I heard firsthand from our customers and partners the value of these solutions to innovate more efficiently and confidently. We expect to continue to fuel innovation with a focus on high-return organic investments aligned with our growth vectors. Before I close our prepared remarks, I want to review our key takeaways for the quarter. They're on Slide 22. We executed our profitable growth strategy in Q3, and we will continue to execute against our three strategic priorities, driving strong cash generation and free cash flow conversion while investing organically. We are capitalizing on secular growth trends, focusing on innovation and strategically allocating resources while navigating ongoing macro and tariff dynamics. We are executing our plans to drive profitable growth through our proven RBS playbook with powerful examples in the launch of two new breakthrough products and the progress on our cost savings program to enable both growth and efficiency. The team remains energized to achieve our goals for 2025, and we will build on our momentum in 2026 as we execute our clear profitable growth strategy to maximize shareholder value as a stand-alone company. Now I'd like to open up the mic for your questions. Operator: [Operator Instructions] our first question is coming from Julian Mitchell of Barclays. Julian Mitchell: Maybe just wanted to understand, first off, how sort of demand -- the cadence of demand in recent weeks and months, any notable changes there? And sort of allied to that, when we're thinking about the low single-digit, I think, sequential sales increase you've guided for the fourth quarter, trying to understand if there's any particular difference in that sequential move between the two segments. Tamara Newcombe: Julian, good to hear your voice this morning. You were with us at Investor Day. And as I look back on the last 5 months, I have to say post spin, I continue to be more positive, the signals we're getting across the business. We've got this unprecedented opportunity in Utility and Defense. And we're seeing stabilization to some modest growth across the rest of the business. Specifically to your question around demand, maybe how I look at the business, we've got some project business or backlog business that it's all about execution. That's predominantly in our Defense business. But we do have project business in Utilities and in the T&M space. The rest of the business is more of a book and turn. And as we look at orders, we look at orders weekly. We have continued to see orders keep up with our revenue, it's about a 1:1 book-to-bill if you look on an annual basis this year. So orders are keeping up. Sales funnels, healthy, good strength in North America when it comes to sales funnels. And then we also -- we're really close with our channel partners. That's about 50% of our business. So we get sell-through or point-of-sale reports as well as inventory levels and quota activity, many of them give us. And those are trending in a positive direction. And just the activity. I mean, the launch of the new products, last quarter, we were talking about some new products at Qualitrol. This quarter, we're talking about two industry-leading platform announcements at Tektronix. Lots of good customer activity across the business. So I'm enthusiastic about the opportunity we have here in front of us. Neill Reynolds: Yes. Julian, let me just add to that. This is Neill. I think if you look across both the kind of sequential 2Q to 3Q and the guide in 3Q to 4Q, underlying that is predominantly volume. We've seen a little bit of the pricing impact from the tariffs that was largely baked in, in Q2. So that kind of 5% or so sequential revenue improvement we saw from 2Q to 3Q was predominantly volume-based, and we're kind of seeing that as well into 4Q as well. Of course, there's some seasonality step-up that we'll see going into 4Q. Tami kind of hit on. But underlying that, I think, is solid kind of volume and shipments that's kind of underlying that step-up. Julian Mitchell: That's good to hear. And then just turning to the margin side of things. I just wondered sort of two sides to it. One is sequentially, shouldn't we see a slight increase in margins in Q4 of the increase in volumes? And then when we're looking year-on-year at the Sensors segment, margins are flat despite double-digit sales growth. When should we see kind of operating leverage pick up there? Tamara Newcombe: Yes. Julian, just at a high level, we're still committed to the margins, the adjusted EBITDA ranges that we gave you during Investor Day. And as you know, those were different by segment. And in the Test & Measurement segment, very much tied to volume. So our focus is really around growth there. And Neill, if you'd like to make up? Neill Reynolds: Yes. So I think if you think about the margin profile going forward, particularly, I think you're asking about stepping up into Q4 and even beyond that. So from a Test & Measurement perspective, we saw a nice improvement in incrementals. As you went from 2Q to 3Q, that step-up in margin was substantial with nice incrementals on it. Sensors & Safety Systems, a little less so, although still at that kind of high end of the margin range in terms of where that business is targeted. As you move into 4Q, we'll see a step up as well. And I think you'll see some margin expansion in Test & Measurement again based on the volume. So there is some volume sensitivity there. As you move over to the Sensors & Safety Systems side, a couple of components there to unpack. The first is on the defense front for those products, those products run at the lower kind of end of the range if you think about Sensors & Safety Systems. That kind of average margin runs lower than the average of the Sensors & Safety Systems segment. So as we grow that business, there will be a little bit of a margin headwind as we grow that. However, the other side of the business runs at very healthy margins, and the pickup we saw in industrial should help. But as you think about growing the business, step up in T&M, we'll see continued fall through there, maybe offset by a little margin mix related to the Defense products as you move into Q4. Operator: Our next question is coming from Deane Dray of RBC Capital Markets. Deane Dray: I want to first congratulate you all on the debut. That was first quarter, check the box. And I especially appreciate the slides, a lot of good details, and you've shared a lot of insights about the business and trends and mix. And so it's -- yes, we knew this business when it was part of Fortive, but we didn't have that detailed lens that you're providing now. So just, first of all, thank you for that. And secondly, I just want to drill down on the Defense business because we don't see typically growth of 18% in an industrial type of business. So just kind of frame for us how that breaks out into, is it programs? Is there any kind of MRO to it? And what does the shutdown mean for the business over the near term? Tamara Newcombe: Thank you, Deane. The Defense business, we're specifically talking about our PacSci EMC business. And if you look back over the last 65 years, there's only been two other times in history where you've seen Defense spend be positive up into the right for a 10-year period. And we're about 4 years into this cycle and all the signals that we're getting, the increase in Defense budgets to $3 trillion by 2030, which is about a 40% growth rate. The focus on these core programs, there's 12 core programs that have been identified as critical. And the PacSci EMC Safety Systems plays in the majority of those programs, gives us a lot of confidence that this business has more years to run here, probably out through 2030. As we work with the customers in that space, they give us good visibility. You heard me say earlier that we've got visibility to about twice the backlog that we did or we will do this year, so our annual revenues. And they give us good visibility not only to the backlog, but when they need the supply. So we're partnering very close with these customers that we have. There's been a lot of activity. You can -- it's public information. There's a demand surge on these 12 programs. We've started to see quoting activity, which is very positive and expect some of those orders would start to build as we go into the future here. Neill Reynolds: I'll just add on to that one. So we have seen very significant backlog build as you think about this year, and we do anticipate seeing further backlog growth as we move forward in the business. And we continue to work with customers on that, as Tami has said. As you look at going forward, you mentioned taking the CapEx rate up from roughly 2% to 2% to 3%, and we're going to invest in a couple of areas. And one of them is in Defense. And we're going to continue to expand capacity there to support the increase in the backlog and the orders and the timing that we worked out with the customer. So I think more to come there, but clearly, we're seeing strong signals and proof points from a backlog perspective that show we're going to see some solid growth in this business out into the future. Deane Dray: Great. That's good to hear. And just as a follow-up, Tami, more of a holistic question for you. I'd be interested in hearing your perspective of how integrated, coordinated, optimized is the organization today because it is brand new. Are there some operating inefficiencies still? And just maybe if you can give it a scale of 1 to 10, 10 is your humming, a 100%. I know that's continuous improvement. But just where do you fit on that spectrum? And for Neill, just very specifically, that $35 million that's due to Fortive. Are those shared services? I didn't -- I don't recall how much shared services there are and what's the ramp down there. Neill Reynolds: Let me just hit that last one quickly for you. Those are payments that we returned to Fortive. One is just based on the amount of cash that we generated out of spin. It was somewhat of a reverse working capital dollar, so to speak. So we paid that back already. The other is related to the split of entities and payments back in tax jurisdictions that's required as part of the spin. So we paid out $57 million of that so far. We anticipate the total of both of those being $90 million. So another $35 million to go, primarily based on the jurisdictional cost related to the spin and the split. Tamara Newcombe: Going back to your question, Deane, around the optimization piece. We announced last quarter a cost-out program that we -- the team executed very quickly. It's going to take some time for the savings to roll in. Some of it's closing some sites, so that takes a little bit, goes into next year. So that's one piece of it. The second is just who we are, our culture. We're at steep and continuous improvement, operating rigor, discipline. We are always looking for those opportunities, whether it's a save to invest or it's an opportunity just to add to the profits that we deliver. So that's -- again, it's who we are, it's what we look for every week in the business is where can we optimize the businesses. Operator: The next question is coming from Joe Giordano of Cowen. Joseph Giordano: Can you touch on market share within Tektronix? I know that's been an area of focus with investors. And then clearly, you're launching some new products here. Just how has that trended? And are some of the -- are you looking to push more into validation now like strategically? Tamara Newcombe: Yes, Joe, there's -- overall, in the Test & Measurement space, Tektronix is a top 5 player in that space. When you talk about our market share, there's different ways that people look at it. They look at it by product realization workflow from R&D to validation to production, or there's different end market looks that you can take. And depending on which way you look at it, there's places we play. And when we play, we're a strong player. And there's places we've made the conscious choice not to play. The two announcements that we made, I call them both products and platforms because they're announced as a new product. One of them squarely in the R&D space, that's a DPO7000 product. And the feedback from engineers that I was with last week is just outstanding on the low noise floor and the amount of visibility. They're seeing signals that they once were invisible. So it's a terrific product. It also has a scalable architecture where we can upgrade that. That's why I also call it a platform because you'll see some velocity here as we introduce higher levels of bandwidth in that product. And then the second product, which you alluded to, which is the MP5000 platform. It takes us into the validation space with a product that is custom-built for validation. So customers certainly have taken our bench instruments, particularly the Keithley branded instruments, power supplies, SMUs and use them in validation in the past. But this is a scalable architecture, meaning modules on the back that -- you can stack these things fairly too high, and really designed for validation and even into production. So yes, this is an adjacency and an opportunity for Tektronix to really expand the portfolio. Joseph Giordano: Interesting. And then just shifting over to Golden Dome, you mentioned. Can you talk about what the opportunity is there for you guys and kind of what you're supplying into something like that? Tamara Newcombe: So in the Defense business where we play, I mentioned some of the critical core programs that have -- we've been a part of for a decade or more. Those programs will also be instrumental in the Golden Dome project. So these are existing programs, not new starts, but programs that PacSci EMC already has safety systems and content on that would be deployed for that particular application. Joseph Giordano: Got it. And if I could just sneak one last one on margins. Like how should we think about Test & Measurement's exit margin kind of informing us into next year as like a run rate? I know there's like 4Q to 1Q dynamics. But if we think about 4Q exit rate in context of like what a full year next year might look like, can you kind of talk us through there? And where is like EA Elektro kind of fit into that now? Neill Reynolds: Yes. So from a T&M perspective, as I mentioned earlier, we saw some nice improvement from 2Q to 3Q. We saw a pretty nice step-up. And as you know, it's very volume sensitive. So we did see a nice pickup in the margins. I'd expect to see another nice pickup similarly into Q4 for that business, if that's helpful. And then as we mentioned, seasonally, we'll start to see a step down just as the natural seasonality moves into Q1. But I think that's kind of the baseline you want to think about for an exit rate. And the way that we think about it is, look, we've got to drive through cycles here to hit our long-term margin goals. And at this level of revenue, we're at the low end of that range overall. From a Test & Measurement perspective, we'll see a step up. And then in Q1, we'll see kind of a bit of a step down seasonally, but we continue to drive improvement as we work through the year. Operator: The next question is coming from Amit Daryanani of Evercore ISI. Amit Daryanani: Yes. I guess, a lot of questions have been asked. I'll ask a couple of just housekeeping ones. On the Test & Measurement side, can you just talk about when do you expect that business to stabilize from a revenue perspective? Is it the back half of '26? And how much visibility do you have from a backlog or wins basis to know that business will stabilize? Tamara Newcombe: Amit, on the Test & Measurement, pretty similar across all of our businesses, how we look at it. And there are parts of that business, the Test & Measurement business, where we get long projects, whether it's on -- it's mostly the systems business. But the majority of it is book and turn. So it's important that we watch our orders rates on a weekly basis. Our sales funnels and our sales funnels have been healthy, so as our channels and our activities. And if you go through this year, Q1 was our lowest revenue quarter of the year. And each quarter, we have seen sequential improvement in that business. Really North America probably being the strongest, Europe and China kind of still bouncing along the bottom, but that's how we have looked at that business. Neill Reynolds: The second thing I'd add to that as well is as we think about the business, I think it largely -- we feel it's largely stabilized with the sequential growth that we've been seeing. The comps are going to change as we move into Q1. We talked about a little bit of a step down there, but the comps are going to be better as well. So I think as you move into next year, I think we feel like we'll be in a good position despite some of that seasonality come into that quarter. Amit Daryanani: Got it. And then I thought I heard you folks talk about the semiconductor space and about how customers are deferring R&D spend there to focus on AI. Just any visibility or any perspective from your side in terms of how long is that deferral going to happen? And does that essentially mean that '26 could be a more outsized growth year on that segment as you go forward? Tamara Newcombe: Yes. In the semi space, we certainly have close relationships with those customers. They're innovating, whether they're spending or not in a given quarter or a given year. So we stay pretty close to them. You also -- we follow the semiconductor index. And what I'm seeing is a bifurcation in the customers in that space. There's customers that have a lot of CapEx and continue to invest in T&M. And then there's a set of customers that are more cautious. And I think probably just following earnings, you've seen that play out. But the semi space is one that we will continue to stay close to. The new product announcement, the DPO7000 fits squarely into those technology companies that are doing next-generation electronics design. So an opportunity for us to be back with those customers and really drive activity and funnel. If -- here we said it's November, it's the time of year that most of our technology companies are setting their budgets for 2026. So as we hit into January, February, there's always -- there's a lot of engineers that have a lot of a laundry list of wants for their electronics labs, and then we'll start to see as we get into the first quarter, how much they open up the spending checkbook and drive some CapEx. So activity level is good, funnels are healthy, we're seeing some early signs, but we've got to get the money flowing. Operator: Our next question is coming from Ian Zaffino of Oppenheimer. Ian Zaffino: I wanted to maybe key in on Industrial Manufacturing as far as the acceleration there. What exactly are you seeing as far as either by region or area or sector? And then is this sustainable? Or how sustainable do you think this is? Tamara Newcombe: Yes. In the Industrial Manufacturing end market, which is predominantly our Gems Setra and Hengstler-Dynapar businesses. I would start with where are we seeing the growth opportunities. And that's -- where the teams are focused is where are the pockets of growth. I talked about our Gems Setra business. They're fantastic in pressure and liquid sensing, and they've got a great opportunity here with data center and the equipment build-out that we're seeing. North America looks pretty healthy. We've seen some good growth in North America, both from opportunity and also what we're hearing from our channel partners. I'd say Western Europe is still weak. We stay close to customers there. We still have good activity, but the results have been weak. And then China is somewhere in the middle. We have a strong local-for-local program in China in Industrial, but it's just kind of bumping along. Ian Zaffino: Okay. And then maybe just as a follow-up, can you just touch upon the M&A environment? What you're kind of seeing there from a willingness from the sellers, maybe the multiples? And then when we talk about tuck-ins, what is sort of the ceiling as far as purchase price to be considered, a tuck-in and any other type of areas that you'd be looking to make these tuck-ins in? Tamara Newcombe: Yes. I would -- I'd start with our clear priorities, and we're really focused on executing against the priorities we laid out just a couple of months ago in our Investor Day. And it is about 1% to 2% of our long-term through-cycle growth to come through M&A. Our first priority in these businesses, and we really like where we start with these businesses, is organic investment. And we will be thinking about that for '26, '27. Our second priority is returning to our shareholders. We've authorized the dividend. We paid 2 quarters in a row here, and we've got authorization for a share buyback. Third in the order there is tuck-in M&A. And I think of that as businesses that will fuel the businesses that we have. So where in Utilities do we want to make some investments to take advantage of this tremendous unprecedented opportunity that we're seeing in the utility space in both new builds and in where we play in retrofits and refurbs. So other places there, hardware is what we're good at. That's our core end products. But in the Qualitrol business, we're also starting to deliver and monetize some software and analytics products. Operator: Our next question is coming from Piyush Avasthy of Citi. Piyush Avasthy: One on Diversified Electronics within your Test & Measurement segment. You mentioned it declined year-over-year. There are a few end markets within that vertical. So if you could drill down a bit more there, if you could touch on trends you're seeing in autos and consumer electronics. And sequentially, are you seeing any signs of stabilization in that vertical? And maybe what's baked in your 4Q guidance for that vertical, that would be helpful. Tamara Newcombe: Yes. Piyush, on the -- you're exactly right on the Diversified Electronics and some of the bigger movers in there. That's in there -- from an auto standpoint, the biggest play is our product line. It's now part of Tektronix, which is the EA product line. And we've pretty much stabilized there from a run rate standpoint, maybe seeing some modest improvement in our smaller deals. Where the opportunity is, it's really as automotive and the battery specifically has shifted more towards energy use. We are seeing large projects that we're participating in, quoting, designing. It's just hard to sell the time frame on these because they're big CapEx, they often come with a new building that's coming up, a production facility. So we're keeping our eye on that. But I would say in the Diversified Electronics quarter-over-quarter, it's stabilize to modest improvement. Neill Reynolds: Yes. And we've seen if you look over -- the comps year-over-year are pretty heavy. If you look sequentially, we've seen some nice pickup over the last couple of quarters in that area, but predominantly in North America. And I think that's really a bit where things are shifting to from that perspective. So we are seeing some more focused efforts and some growth in North America. You look at the overall North America from a company perspective that we talked about or showed in the presentation there. So we have seen some life there in North America picking up both year-over-year and now sequentially. So we feel like that's kind of heading in the right direction. I think it's another piece of -- another data point that kind of underpins while we're looking at some tough year-over-year comps for T&M, we're also seeing some sequential improvement, particularly in North America, which gives us -- which makes us, I think, incrementally more positive on the business than maybe we were a couple of months ago. Piyush Avasthy: Helpful. And one quick one on the cost saving plan. The $9 million to $11 million of cost savings by the end of 2026, like can you remind us of the cadence of when you realize these savings? Is it more spread out? Is it more first half, second half? Any incremental color there would be helpful. Neill Reynolds: I think we said by the end of the year, look, there's some -- built into that is some rationalization, some site and infrastructure rationalization. So that always takes a little bit of time. I'd say from an execution perspective, we've already started the execution on that plan. We should see by midyear or so kind of the execution on some of the closure and rationalization of some of the infrastructure related to that plant, which is primarily cost of sales savings, and we'll see some benefit from that as we get to the back half of '26. Operator: Our next question is coming from Rob Jamieson of Vertical Research Partners. Robert Jamieson: I just want to stick with Test & Measurement and dive in a little bit more here. Just on semiconductor and the test equipment, I mean, there's currently some bifurcation here, some weakness in memory and make sure those offset by strength in leading AI chips and packaging. But which subsegments in semiconductor are you serving? And how does your product portfolio enable you to maybe benefit from some of the AI-driven investments in advanced packaging, high-bandwidth memory validation test? I mean, are these areas that you're trying to grow exposure to? Tamara Newcombe: Yes, absolutely. We certainly want to be where the growth is in Test & Measurement. If you think about our business, it's predominantly in the R&D space. Probably 50% to 60% of the focus is R&D. So next-generation AI chips, next-generation compute, next-generation communication protocols, that's squarely where the Tektronix business is and where this new product that they just announced plays extremely well. The adjacency that -- there's two new products, the MP5000 platform takes them into the automated test part of the workflow, which is relatively new. I've made the point that there's been -- certainly customers will use the bench instruments to do some automated tests. But this is like purpose-built, ground up to play in that segment and really go after the opportunity there, both new build opportunity when you're building out a new lab and upgrades and replacements of where we would be getting share gain. So both of those. Robert Jamieson: Okay. That's helpful. And then just when you think about the Test & Measurement space and the recovery path that you're on, what end markets and regions do you think are going to be the biggest drivers of getting your organic growth back towards the broader Test & Measurement peer group average over time? Like what should we be looking for? And then just also, can you help like in order of magnitude, size or just qualitatively how you'd rank the Diversified Electronics portion of Test & Measurement, like what's your largest and smallest exposures there? Tamara Newcombe: Yes. The way we think about the business is really where we start to see activity, channel activity, sales activity, funnel build, orders. Where I'm most positive there is North America. We talked earlier in our prepared remarks about China, which has been a strong growth driver for the Test & Measurement business from '21 to '23. Not expecting any type of a recovery there anytime soon in the short term. But we do think it has stabilized and seems -- we're -- if you look at the order side of the business, there's been some up and down from a revenue standpoint in China. But from an order standpoint, pretty consistent the last 4 to 5 quarters. So I think the -- when I say a modest recovery, we'll see in North America as well as Southeast Asia, India, where some of the companies have moved. I think the second part of your question was around Diversified Electronics. If I were to think about what's inside Diversified Electronics, the biggest end markets would be industrial, consumer, some auto, battery, medical and then education in that bucket. Operator: The next question is coming from David Ridley-Lane of Bank of America. David Ridley-Lane: What were Test & Measurement orders in the third quarter of 2025 and the third quarter of 2024? Tamara Newcombe: We have not shared orders profiles in the past. I directionally gave a view that we've seen a really strong orders profile in North America in Test & Measurement. And all of the -- what's wrapped into our guidance for Q4 is our visibility into earlier demand. And some of it's orders, some of it's sales funnels, channel insights, all those different pieces of the business that we look at to give you that guidance. Neill Reynolds: Yes. I think the overall -- if you look at year-over-year, we're obviously down in revenue. A lot of those bookings are kind of book and turns in the quarter. So I think from a book-to-bill of 1:1 a year ago and a book-to-bill more or less 1:1 in the last quarter or so. So I think that's kind of the way to think about it. David Ridley-Lane: Let me try a different way. Deferred revenue on the balance sheet is up $22 million year-to-date and $19 million quarter-over-quarter. So if you are seeing orders growth that would come with down payments. Directionally, should your investors look at that quarter-over-quarter or year-to-date increase in deferred revenue as indicative of the bookings number? Neill Reynolds: Yes. So deferred revenue primarily relates to our Defense business. So the way that those contracts work generally is we get some incremental, I guess, cash investment from our customers as we start to go execute on long lead time items. And then down the road, we go ship those and then match that up. So that deferred revenue is really in relation to the increased backlog that we're seeing in Defense, and premiums that we're getting from customers upfront to go execute on some of those longer lead time items as it relates to that defense growth we talked about earlier. David Ridley-Lane: And then just since you mentioned it, I guess, what about your contracts in PacSci EMC make them not qualify for the GAAP remaining performance obligations? Because if I look, there's less than $10 million of RPO in Sensors & Safety. Neill Reynolds: I'm sorry, I didn't catch the end part of that question. David Ridley-Lane: There's less than $10 million of remaining performance obligations in the Sensors & Safety Systems segment. And generally speaking, if a business had firm noncancelable backlog, that would be in the RPO metric. Neill Reynolds: So yes, we'll follow back with you on that one in terms of how that works. I think the backlog that's related to the Defense business is very strong, obviously, which is consistent with how we think about defense businesses overall, but we'll come back on the RPO. Operator: Our final question today is coming from Scott Graham of Seaport Research Partners. Scott Graham: I want to understand a little bit about -- maybe cutting Defense, Diversified Electronics a little differently. I know, Tami, you mentioned that EA is the largest business there, but that business has a lot of -- that division has a lot of non-EA. So I guess my question is, within those markets, is this the 7000, the 5000 upgrades, are you going to look to pivot to new markets there? And I'm asking that -- I know that these are products, particularly the 7000, which is very engineer oriented, but engineers work everywhere. So there's clearly an end market issue away from EA there as well. So I'm just wondering if there's a plan here to move some of these new products into your salespeople moving them into new markets that are maybe better markets than what we've seen in that business. Tamara Newcombe: Yes. Scott, you're absolutely right. The products that Tektronix just announced, both the DPO7000 which is more of research play, and the MP5000, which is more in the validation workflow, really transcends end markets. So any end market where you're building out electronics, whether it's electronics in the medical field, electronics all over the consumer space or IoT, electronics and industrials, education, every one of those customers, anybody building electronics. We had a traditional plumbing fixture supply company that's marketing electronics into their fixtures. That's an opportunity for Tektronix. You're absolutely right, as electronics spread across almost every end market. As we kind of talked about this electrification of many devices, you will see the opportunity for Tektronix and Test & Measurement across all of that. Scott Graham: That's helpful. Then just a quick follow-up on sort of the margin development here. Can you give us what pricing was in the quarter, help us maybe triangulate toward price cost? I know you mentioned a mix factor, Neill mentioned a mix factor in Defense as being negative in the quarter. But maybe just help us understand the dynamics of price cost in the quarter, if you can give us price. Neill Reynolds: Yes, in the quarter. So normally, we see about 1 to 2 points of price year-over-year. We talked about that previously. As we think about moving from 2Q to 3Q, a lot of the pricing had already been baked in, including the pricing for tariffs. So we didn't see a large step-up in price from 2Q to 3Q. Most of that was underlying volume. We might see a little bit trail into Q4 just based on the timing of some of the countermeasures on the tariffs and how we manage that. But predominantly, the buildup is from volume. And also, I'd say quarter-over-quarter from an FX perspective, I'm not anticipating any material movement there either. So underlying primarily is volume. Operator: That brings us to the end of today's question-and-answer session. I would like to turn the floor back over to Ms. Newcombe for closing comments. Tamara Newcombe: Thank you all for joining us today. Again, I want to thank my team for how they executed the first full quarter as an independent company. With the spin behind us, we are energized about the opportunity that we have in front of us here. We are balancing our operating rigor and our discipline and our heritage with a growth mindset in innovation and how we go drive growth in this business. Thank you all for joining, and I look forward to continuing the conversation in the weeks to come. Operator: Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Good morning, ladies and gentlemen. Welcome to Minerva Foods Earnings Video Conference for the Third Quarter of 2025. Joining us today are Mr. Fernando Galletti de Queiroz, CEO; and Mr. Edison Ticle, CFO and CRO. Please note that this presentation is being recorded and translated simultaneously. To listen to the translation, click the interpretation button. For those listening to the conference in English, you may mute the original audio by selecting mute original audio. The presentation is also available for download at ri.minervfoods.com/en under Presentations. [Operator Instructions] Please note that any forward-looking statements made during this conference regarding Minerva's business outlook, operational and financial targets consist of projections made by the company's Executive Board and are subject to risks and uncertainties. Investors should be aware that political, macroeconomic and other operational factors may affect the company's future performance and lead to results that differ materially from those expressed in such forward-looking statements. To start the Q3 2025 earnings video conference, I will now hand it over to Mr. Fernando Queiroz, CEO. Please go ahead. Fernando De Queiroz: Good morning, everyone. Thank you for joining Minerva Foods Q3 2025 Earnings Release Call. Minerva ended the third quarter of 2025 with a solid set of operational and financial results, reaffirming the consistency and discipline in the execution of our business strategy. Once again our company has shown that geographic diversification is a key pillar of the operational and commercial execution of our business model, reducing risk and maximizing our arbitration capacity while strengthening our corporate strategy as South America's largest beef exporter. In Q3 2025, we posted record gross revenue of BRL 16.3 billion and record EBITDA of BRL 1.4 billion with an EBITDA margin of 8.9%. In the 12 months ended in September, gross revenue also reached a record high of approximately BRL 54.4 billion and EBITDA totaled BRL 4.6 billion, the highest ever for the company over a 12-month period. In the third quarter of 2025, we successfully completed the integration of our newly acquired assets, which was originally scheduled to conclude only at the end of the year. This early completion reflects our operational efficiency and the strong commitment of our teams in capturing and materializing the expected synergies. The integration process was conducted in a very structured manner in alignment with our organizational structure enabling the consolidation of our management model and the standardization of our administrative, industrial, commercial and financial processes. Therefore, we reached a new level of revenue and operating performance setting historical records that reinforce the strength of our strategy and the resilience of our business model. Edison will dive into the performance of the new assets over this nearly 1-year integration period. Let's now return to our Q3 2025 performance. Starting with gross revenue, as I mentioned earlier, we reached BRL 16.3 billion in the third quarter and BRL 54.4 billion in the last 12 months, both record highs for the company. Exports accounted for 61% of consolidated gross revenue in the quarter and 58% in the last 12 months ending in September. These results reinforce the importance of exports as one of Minerva Foods main operational drivers and once again demonstrate our arbitration between markets and efficiently access a broad range of destinations through our South American production platform. In addition to the foreign market, it is worth highlighting that our domestic operations also benefit from origin-based arbitration allowing us to optimize margins and maximize profitability. Minerva Foods' geographic diversification, which integrates units across several South American countries, significantly enhances our operational flexibility. A good example is our Paraguay operation; which in addition to supplying key markets such as the U.S., Chile and Taiwan; also supports Brazilian domestic demand in a competitive and efficient manner reinforcing regional integration and complementary operations between our production platforms. This stresses the soundness of our business model and the company's ability to capture value both in foreign and domestic markets. Turning now to our operational profitability. Third quarter EBITDA also reached a record level of BRL 1.4 billion with an EBITDA margin of 8.9%. In the last 12 months, our adjusted EBITDA was BRL 4.7 billion, a record for a 12-month period, resulting in a margin of 9%. Net income for Q3 2025 was BRL 120 million bringing the 9-month year-to-date total to approximately BRL 763 million. Finally, regarding our capital structure and considering the pro forma 1-month performance of the new assets, we ended the quarter with a significant reduction in net leverage, which reached 2.5x net debt over EBITDA, the lowest level since 2022. This result is in line with our continued commitment to improving the company's capital structure and reinforces the financial discipline guiding our management. Also regarding our balance sheet, in the third quarter we maintained a solid cash position of BRL 14.9 billion. Edison will later go into more detail about financial performance. Continuing with the highlights of the quarter. In another financial liability management initiative, we carried out the 17th debenture issuance totaling BRL 2 billion, reinforcing our cash position and contributing to the ongoing improvement of our capital structure. We also had the subscription warrants arising from the capital increase totaling BRL 30 million between July and September. It is worth noting that there are still BRL 187.5 million subscription warrants outstanding representing BRL 969.3 million, which should help the company's cash flow over the coming years. Finally, we continued our financial liability management strategy and yesterday, we announced the repurchase and effective cancellation of BRL 76 million related to the 2031 bonds. In total, throughout 2025, the company bought back and canceled approximately BRL 385 million totaling BRL 2.3 billion related to the 2028 and 2031 bonds, an initiative that reinforces our commitment to a more balanced and efficient capital structure, reducing financial costs and strengthening the balance sheet's flexibility. Now regarding our sustainability highlights. We recently published our 14th sustainability report referring to fiscal year 2024. This report confirmed by independent auditors and aligned with key international standards reflects Minerva Foods commitments to the ESG agenda and the creation of sustainable value throughout our chain. It consolidates our progress and results from the past year reinforcing the integration of sustainability into our business strategy and into the company's day-to-day decisions. We also released the Animal Welfare Report, a document that includes data from our global operations, including the supply chain of animals and third-party's raw materials of animal origin. The report highlights policies, procedures and progress towards the goals set as part of our commitment to the topic. For traceability, we achieved 100% compliance in the socioenvironmental audit of cattle purchases in our operations in Paraguay for the sixth consecutive year, which demonstrates our leading position in traceability. Under the Renove program, we consolidated progress in implementing low carbon and carbon-neutral protocols at locations in Brazil, Uruguay and Paraguay with support from external audits to verify the carbon balance at each facility. We also made progress with our subsidiary, MyCarbon, achieving significant developments in carbon credit generation and trading projects with new partnerships and more than 145,700 hectares where we had detailed diagnostics of agricultural practices assessing the potential and opportunities for carbon project development. On Slide 4, we'll discuss our performance by origin. At the top of the slide, we have a breakdown of gross revenue by destination. Asia led accounting for 28% of gross revenue with China standing out at 17%. Next comes NAFTA, which represents 25% of our revenue for this period led by the U.S. with 21%. It's worth noting that this high share of U.S. revenue is mainly due to the impact of stock sales directed to the North American market in previous quarters. Following that, we have the Americas accounting for 24% of gross revenue with Brazil at 17% and Chile at 6%. I'd also like to highlight the importance of the domestic market, which maintains a consistent share in our revenue mix. The continued strengthening of our brand and expanded market penetration in Brazil have helped to reinforce our presence among consumers and support the sustainable growth of our local operations. In the lower left, we show export performance for our beef operations during the third quarter of 2025. Asia was the main destination accounting for 45% of export revenue for the quarter with China alone responsible for 36%. NAFTA comes next with a 14% share. Following that, the Middle East accounted for 11%; the European Union, the Americas and the community of independent states; and Africa contributed 3% of total exports. Looking now at the last 12 months ending in Q3 2025. Asia remained the top destination with 33% of exports. China accounted for 25% of that. NAFTA was second with 29% led by the U.S. at 23%. The Americas accounted for 12% of exports followed by the Middle East at 9%, the European Union at 8%, Eastern Europe at 7% and Africa with 2%. On the right side, we show the exports of our lamb operations in Australia and Chile. In the third quarter, NAFTA remained the main destination with a 43% share driven largely by the U.S., which alone represented 42%. Asia came next with 27%, Europe at 19% and the Middle East at 6% of quarterly exports. In the last 12 months ending in 3Q 2025, we had a similar picture. NAFTA led with 44% of exports followed by Asia with 25%, Europe with 17% and the Middle East with 7%. Let's now look at our revenue performance. The international market remained the main driver of our performance. Exports accounted for almost 70% of gross revenue in the third quarter and 64% in the last 12 months excluding the other category. Looking at a breakdown by operation. Brazil exported 68% of its production in the quarter and 59% in the last 12 months ending in the third quarter. In the LatAm operations excluding Brazil, the export rate was even higher, 71% both in the quarter and in the year-to-date 12-month period. For lamb operations in Australia and Chile, we had a similar scenario. Exports accounted for 65% of gross revenue in the quarter and 73% over the last 12 months. On the right hand side, we show gross revenue by origin. Brazil due to its strong cattle availability continues to be the main operational driver contributing 62% of gross revenue in the quarter and 55% in the last 12 months. Next are Paraguay and Uruguay, both at 10% in the quarter. In the last 12 months, Paraguay contributed 12% and Uruguay 9%. Argentina accounted for 7% in the quarter and 10% in the last 12 months. Australia contributed 3% in the quarter and 5% in the last 12 months. And Colombia had a share of 3% in the quarter and over the past 12 months. Lastly, the other category linked to our trading division represented 5% of revenue in the quarter and 6% in the last 12 months. Before diving deeper into the financial highlights, I'd like to emphasize how optimistic we are regarding the end of 2025 and the opportunities emerging in the global animal protein market. The ongoing imbalance between supply and demand continues to create a favorable environment for South American beef exporters. As we've highlighted in recent quarters, this scenario is mainly the result of supply constraints due to the cattle cycle in key producing regions. While South America continues to expand production and export volumes, other relevant markets faced supply constraints in the face of still resilient domestic demand. This dynamic has supported high price levels and driven increased imports, especially those originating from our continent. In China, the third quarter was marked by strong import volumes driven both by preparations for the Chinese New Year and the local cattle cycle, which is beginning to constrain domestic beef production and, as a result, is creating more space for international products. As we've been discussing, the U.S. market remains constrained with a still depleted herd and a clear impact on domestic beef output, a scenario that's expected to remain existing for the coming years. More recently, Europe has also begun to feel the effects of the global beef supply imbalance with major producers in the region such as France, Germany, Ireland and Poland beginning to experience herd and production challenges, which is already starting to reflect in export dynamics. The global beef demand environment remains positive even in the face of political uncertainty, creating favorable prospects for exporters from our continent. In this sense, Minerva Foods stands out for its strong arbitration ability between markets reinforcing our competitive positioning amid this highly volatile environment. Lastly, before handing things over, I'd like to underscore that our geographic diversification strategy continues to be one of Minerva Foods' greatest strengths. It allows us to mitigate risks, respond quickly to market shifts and maintain competitiveness even in a challenging global landscape. This strategic resilience supports the consistency of our results and reinforces our long-term vision, a vision in which we believe it's entirely possible to combine large-scale production with environmental preservation, technological innovation and social value generation. I'll now turn it over to Edison to walk us through this quarter's financial highlights. Edison de Andrade Melo e Souza Filho: Thank you, Fernando. Let's move on to Slide 6 where I will discuss the performance of the newly acquired assets. In line with our commitment to provide greater transparency regarding the performance of the newly acquired assets, since Q4 '24 we've been presenting a breakdown of volume and revenue between Minerva's legacy and newly acquired assets. This quarter Brazil once again stands out as the main highlight with a consolidated revenue of BRL 10 billion, of which BRL 3.6 billion came from the new assets. In Argentina, consolidated gross revenue was BRL 1.2 billion with the new plants contributing with BRL 278 million. While in Chile, the new sheep processing facility in Patagonia posted a revenue of BRL 31.1 million and other countries have maintained a regular course of their operations as no changes have occurred in their asset base. Consolidating all of our origins, we reached a total gross revenue of BRL 16.3 billion in Q3, up 80%; of which BRL 11.5 billion refers to Minerva Foods legacy assets and BRL 4 billion to the new assets. As Fernando highlighted at the beginning of the presentation, in Q3 '25 we successfully completed the integration process ahead of schedule. We initially expected the process to last 15 to 18 months, but we have managed to conclude it in less than a year. It's worth emphasizing that completing this phase ahead of schedule reflects the quality of the strategic plan we implemented, which enabled us to follow a clear road map with well-defined milestones, properly mapped risks, which naturally contributed to the company's ability to accelerate its deleveraging process. Let's now move on to Slide 7 for a closer look at the performance of the new assets. For today's call, we've prepared a new slide highlighting metrics on the normalized performance of the new assets. In other words, after the completion of the integration process. On the left hand side, you can see the results for the past 4 quarters of the new assets. Operations in Brazil reached a gross revenue of BRL 3.6 billion in Q3 and BRL 8.2 billion LTM. In Argentina, BRL 278 million in the quarter and BRL 914 million LTM. And in Chile, BRL 31 million in the quarter and BRL 82 million LTM. So altogether, the new assets contributed with BRL 3.9 billion in gross revenue in Q3 '25 and BRL 9.2 billion in the last 12 months. As Fernando mentioned earlier, this quarter marked the completion of the integration process with September being the first month in which the new assets operated under normalized conditions, that is operational and financial indicators that are in line with our historical base. Therefore, the fourth quarter '25 will be the first fully normalized quarter post integration with no plant ramp-ups and adequate sales mix and no further working capital needed or investment needs related to the new assets. With that in mind, we carried out an exercise to assess the expected performance of the new assets in Q3 '25 under normalized operating conditions. In other words, with the full integration and normalized operations. As a result, net revenue from the new assets would reach approximately BRL 4.3 billion. In other words, and also following the same concept of completed integration, annualized performance would have reached close to BRL 17.2 billion as shown in the table in the bottom right hand corner. As you know, Minerva Foods has historically delivered an EBITDA margin of around 9%, which was a rough average of the last 10 to 12 years. So using that same level of margin, which I consider to be very conservative because it doesn't consider the post-integration synergies. The idea is to have a conservative and intelligible reference so that you can understand the level of performance we can expect from the new assets now that we have completed the integration. So if we use the EBITDA margin historical level of 9%, that means we're talking about BRL 388 million coming from the new assets or roughly BRL 1.6 billion worth of EBITDA on an annualized basis, slightly above our initial EBITDA expectations. You may recall that when we announced the acquisition back in '23, our expectation was that the new assets would generate about BRL 1.5 billion in EBITDA including the Uruguayan operations which, as you know, were not approved by the regulators and therefore, not part of the current pro forma. So given these numbers, I'd like to draw your attention to how much was paid for this acquisition. There was so much controversy, so much debate in the last 24 months. Many people said it was expensive. But now in light of the asset's performance, it looks to me like this metric has become even more attractive. So we conducted a couple of analysis to illustrate this point. The first is the contractual value of the assets so what was on the contract; in other words, BRL 1.5 billion as an initial down payment and the remaining BRL 5.3 billion upon completion and final payment in October '24. So if we consider BRL 6.8 billion as the total value of assets, the acquisition multiple was 4.4x EBITDA. We can also try a more conservative approach and consider the cash impact of the acquisition. So the firm value of these new assets reflects not only the amounts that were on the contract, which were BRL 6.8 billion, but also additional disbursements with interest and working capital adjustments, which were worth about BRL 350 million, which adds up to BRL 7.1 billion in firm value. So the transaction multiple in conservative terms would be about 4.6x EBITDA. Historically, Minerva Foods multiple has traded at around 5x to 5.5x firm value over EBITDA. So it seems obvious that even from a purely financial standpoint if we don't consider the strategic side of the acquisition, it was a very attractive acquisition, which is accretive to the company given the evident discount to Minerva's historical multiple and what was paid in these 2 scenarios I've just shared with you. It's also important to emphasize that given the complexity of our sector and the size of this acquisition, this also includes other value generation strategic drives like capturing synergies over time, which further enhance performance and bring the acquisition multiple even further down and it will make the acquisition even more attractive. In summary, the acquisition of the new assets is not only financially accretive and positive, but also a strategic milestone that reinforces our leadership position and significantly expands our market arbitrage capacity. We're very optimistic about the future and we're confident that the synergies among our operations and the successful integration of these assets will continue to generate substantial value and sustainable growth for the companies over years to come. Let's now return to the results discussion and move on to Slide 8 to discuss net revenue and EBITDA. Starting with net revenue, it reached BRL 15.5 billion in Q3 '25, once again marking an all-time record for a single quarter. That's an 82% growth year-on-year and 11% compared to the previous quarter. Over the last 12 months ending in September, net revenue totaled BRL 51.3 billion, also the highest annualized figure ever recorded by the company. It's worth noting that we are already within the '25 net revenue guidance, which we announced earlier this year, which ranges between BRL 50 billion to BRL 58 billion in net revenue for the full year of '25. Turning now to profitability. EBITDA in Q3 '25 reached BRL 1.4 billion, the highest ever achieved in a single quarter, which accounts for a 71% increase year-on-year and 7% quarter-on-quarter with an EBITDA margin of 8.9%. I'd like to highlight once again the excellence in operational and financial execution consistently demonstrated by Minerva Foods over recent quarters even in light of such a highly complex and volatile global environment. Over the last 12 months, consolidated EBITDA including the pro forma effect of 1 month of the new assets totaled BRL 4.7 billion. Once again let me highlight that we delivered solid operational performance and profitability consistent with our historical levels, a direct result of robustness of our business model; specifically the benefits of our geographic diversification strategy, arbitration which are critical to our resilience and operational and financial performance especially amid the recent volatility. Now let's move on to Slide 9 to discuss financial leverage. We ended the quarter with a significant improvement in net leverage, which declined from 3.16x to 2.5x net debt over EBITDA last 12 months. This result reflects 2 key factors. First, our consistently solid operational performance with EBITDA reaching record levels both in the quarter and year-to-date, which is the result of not only favorable global beef market conditions, but also the successful integration and contribution of the new assets, which scaled up revenue and EBITDA while enabling the capture of synergies and greater operational efficiency as well as cost dilution. As a direct consequence, we also had the leverage and the generation of free cash flow in Q3 '25, which made a significant contribution to reducing our debt and reaffirmed our focus on financial discipline and our ability to convert results into cash. Combined, these factors underscore the company's commitment to operational efficiency, financial discipline and long-term value creation for shareholders. Our deleveraging trajectory reaffirms the strength of our balance sheet and the soundness of our capital structure, increasingly more balanced and sustainable. Now let's move on to the next slide to discuss net income and operating cash flow. We posted a net income of BRL 120 million for the quarter and year-to-date it's already reached BRL 763.3 million over the last 12 months reflecting the noncash impact of foreign exchange variation at the end of '24. Net income remains negative at BRL 804 million. On the right hand side of the slide, you can see the operating cash flow for the quarter, which was positive BRL 3.4 billion while the last 12 months totaled approximately BRL 6.3 billion in operating cash generation. Now on Slide 11, we're going to discuss one of our main priorities, which is free cash flow generation, which was a key highlight of Q3 '25. Building up Q3 '25's cash flow, we start from a record EBITDA of BRL 1.4 billion. Next, we released working capital worth BRL 2.5 billion in the period driven mainly by the reduction of inventories, particularly those associated with the U.S. and which accounted for BRL 1.6 billion released from the total. Additionally, the accounts payable line contributed approximately BRL 625 billion back to cash in line with the normal progress of the company's operating volumes and the growth of company's operations. As we mentioned last quarter, maintaining inventory in U.S. territory was part of our tactical strategy, which proved highly successful. Given the country's current tariff policy, volumes already imported were not subject to the full taxes, which directly benefited revenue and strengthened Minerva's competitiveness in the local market. Continuing with the cash flow buildup, CapEx totaled approximately BRL 340 million and focused mainly on maintenance investments and organic expansion projects. Cash-based financial expenses were negative BRL 609 million while cash-based derivative results consumed about -- which is basically hedge and debt indexes and consumed roughly BRL 517 million, which is a result of the mark-to-market effect on the hedge positions. As a result, we ended the quarter with a positive free cash flow of BRL 2.5 billion, the highest ever recorded in a single quarter. Looking at the last 12 months, free cash flow was also positive at BRL 2.9 billion. We started with an EBITDA of BRL 4.6 billion, CapEx of BRL 1 billion and release of working capital of approximately BRL 2.2 billion last 12 months. Cash-based financial expenses were negative at around BRL 2.8 billion. Adding up these effects, it gives us BRL 2.9 billion positive free cash flow for 2025. These results clearly demonstrate the consistency of Minerva Foods operational and financial performance with an accumulated free cash generation of approximately BRL 11 billion since 2018. This track record underscores the company's financial discipline and its strong ability to convert operating results into tangible free cash generation. Now on Slide 12, we review the bridge of our net debt. At the end of the previous quarter, net debt totaled BRL 14.2 billion. Now looking at the debt bridge in Q3, we have a positive free cash flow of BRL 2.5 billion, which contributed to debt reduction. Foreign exchange variation also decreased indebtedness in about BRL 139 million and about BRL 263 million related to noncash derivatives, which increased the debt and the impact of BRL 30 million from having exercised the subscription warrants this quarter and which naturally reduced the net debt. As a result, net debt stood at BRL 11.8 billion at the end of the period, down 17% from the previous quarter. Let's now turn to the next slide to discuss the company's capital structure. As mentioned earlier, net leverage measured by net debt over adjusted EBITDA stood at 2.5x at the end of the quarter, the lowest since 2022. Keeping our conservative cash management approach, we ended the third quarter with a comfortable cash position of BRL 14.9 billion and a debt duration of approximately 4.2 years with about 83% of total indebtedness in the long term as shown in the amortization schedule at the bottom of the slide. Regarding our debt profile, approximately 67% of the total debt is exposed to foreign exchange variation. And let me remind everyone again that Minerva's strict hedging policy currently requires the company to maintain at least 50% of long-term FX exposure hedged. In July, we completed our 17th debenture issuance totaling BRL 2 billion across 4 series with proceeds primarily allocated to debt buyback operations. In line with our liability management strategy, yesterday we announced the repurchase and cancellation of part of the 2031 bond amounting to approximately USD 76 million bringing total repurchases and cancellations in 2025 to approximately USD 385 million or BRL 2.3 billion. This is yet another step towards achieving a more balanced and cost efficient capital structure. In August, we also completed the capital reduction process to absorb accumulated losses from '24, which effectively cleans up the company's balance sheet and creates room to comply with our dividend policy come year-end. Finally, as previously mentioned, in Q3 '25 we exercised stock warrants arising from the capital increase totaling BRL 30 million with approximately BRL 969 million still available to exercise through 2028, which will naturally have a positive impact on the company's cash position and indebtedness. To conclude, I'd like to thank the entire Minerva Foods team for their tremendous efforts and dedication during this crucial integration period, always acting with great focus and in line with our management model. We'll continue to work on continuous improvement and the pursuit of opportunities in the global beef protein market. We are confident in our strategy and long-term business. I'll turn it over to the operator so we can start the Q&A session. Thank you very much. Operator: [Operator Instructions] Our first question is from Gustavo Troyano, Itau BBA. Gustavo Troyano: First, I would like to go back to the EBITDA margin in the quarter. I'd love to understand the consequences of this margin moving ahead. We know that in this quarter, you had accelerated inventory selling in the U.S. in these 3 months. So this may have an impact on the gross margin for the quarter. How much has the inventory sale added to the gross margin in this quarter? Along the same lines when we think about accelerating inventory sales in the U.S., I'd like to understand its impact on the SG&A because we saw bigger reductions than what we expected. So I'd love to understand that moving ahead since now we should see a lack of acceleration for that in the U.S. Secondly, I have a question about cash generation, which was the highlight for this quarter. I'd love to pick your brain on what you expect for the full year. We were saying that depending on the sale of inventory in the U.S., for 2025 we should see BRL 1.5 billion approximately according to our conversations. Do you expect this after this quarter? Are you expecting BRL 1.5 billion in working capital for this year or is there a new variable that changes our expectations for the whole year of 2025? Edison de Andrade Melo e Souza Filho: We'll try to answer everything briefly. For the gross margin, we don't have further comments. The gross margin is worse this quarter because of the price increases in cattle. Compared to the previous quarter, the average price went up by almost 25% in average. So it is only natural for us to see a worse gross margin. However, we should focus on the gain in scale. In spite of the gross margin, we had even better dilution. When it comes to costs and SG&A expenses, we were a little bit under 10% of our net revenue. It was around 14%. We believe that 10% is an optimal level moving forward. Of course we had sales that were above average from our inventory, which helped increase revenue and dilute costs. But in a more normalized scenario, our SG&A should be around 10%. So I don't have any further comments regarding the gross margin. Moving forward, prices are relatively stable. Cattle prices are a little bit higher. So looking forward when we think about the gross margin in our weekly forecasts, it is basically in line with what we saw in the third quarter. Regarding our working capital, what I can tell you is that we had performance that was better than what the market expected for the third quarter. For the 2025 numbers, what we expect is something in alignment with our forecast. It's going to be even better than our forecast. Doing very quick and conservative math, if we look at receivables, advanced payments, inventory; these numbers are going to be more normalized towards the end of the year. So we may have a [ payment ] of around BRL 1 billion in cash. So if we repeat our EBITDA of BRL 1.4 billion, repeat our BRL 600 million expenditure, our CapEx is also repeated and we have normalized numbers for the other parameters. And if we are very conservative and we have normalization of BRL 1 billion in our working capital, we're going to have BRL 500 million of cash burn. If we add that to our free cash flow, which is BRL 1.9 billion to BRL 2 billion, we're going to have a free cash flow of BRL 1.5 billion. We were discussing a free cash flow of around BRL 1 billion at the end of the year. So it's 50% better than our expected forecast at the beginning of the year. Now thinking about deleveraging. Our EBITDA is BRL 4.6 billion for the last 12 months. We're going to have BRL 950 million for the fourth quarter and we're going to get to BRL 5 billion, a little bit over BRL 5 billion of EBITDA for 2025. If we burn BRL 500 million in cash, we'll go from BRL 11.7 billion to BRL 11.2 billion in our debt. For our leveraging, our leveraging goes down a little bit more like 2.44x or 2.45x. So all these numbers are useful for us to leave the market at peace even in a more conservative forecast for the working capital for the end of the year. Sometimes analysts are waiting for the wolf to come around, but he never comes. So if we still have a negative working capital, we're still going to produce BRL 1.5 billion in our free cash flow and we're going to have leveraging under 2.5x. Operator: Our next question is from Leonardo Alencar, XP. Leonardo Alencar: First and foremost, congratulations. I know it's a bit sensitive to talk about the future, but you mentioned that you had strategic inventory in the U.S. and much of your results came from that, but it was a surplus. Is there still a surplus to be sold in Q4? Also, can this inventory be transferred to Q1 or would you have to pay tariffs between the U.S. and Brazil? Would you be able to transfer this inventory into Q1 to have a better position? What do you think? Also on the topic of Q4 and of course the impact of the cash flow generation. For China, you mentioned advanced volumes for the third quarter. Is this a matter of demand because of the Chinese New Year or do you have any safeguards thinking about any potential risks for the fourth quarter? And I have 1 last question. You've mentioned bigger quotas for Argentina, but it seems like you haven't really implemented that yet. So you're going to increase it to 80,000 tons, but I don't know if you've done this, if you're waiting, if you have dynamic preference. And I'd love to understand these 3 points for Q4. Fernando De Queiroz: Okay, Leonardo. For the U.S., we have a sales strategy based on our understanding of the market. So to answer your first question, yes, we may roll out our inventory. But definitely in many countries, you have the first in first served quota. So we should be sending out more shipments so that we're able to work with this quota in order for Minerva to fit into that. There's lots of uncertainty when it comes to what's going to happen with Brazil. However, obviously, we have 3 other countries that are exporting into the U.S. quota. China has been surprising with their volumes. You saw they had record volumes. So we've been having a few conversations regarding safeguards and we do believe that we could have news to share regarding China. But it's not going to be something that impactful to change our guidance with China as one of the main markets as maybe the first or second biggest markets. Regarding the quota from Argentina to the U.S., yes, indeed, we haven't reached a conclusion. In the U.S., they still have issues with their lockdown. As soon as we get over that, then we should see more official logistics. We'll understand how this is going to work in Argentina. We still don't know how this is going to play out. However, we're relying on Argentina with a 5x higher quota going from around 20,000 tons to around 100,000 tons. Operator: Our next question is from Lucas Mussi, Morgan Stanley. Lucas Mussi: First, I have a question about capital allocation. From the beginning of the year, we've been discussing this thoroughly talking about the potential return of dividend payments. As soon as the company is more comfortable with the leveraging level, we're talking about the historical levels of 2.5x. Our expectation was to reach this number by the first quarter of next year, but this is something that you were able to achieve 2 quarters earlier. Given the recent conversations regarding the taxation of dividends as of next year, could you please update us on what you're thinking about this regarding the distribution of dividends? Are you going to do it earlier? Again, I'm asking in light of recent developments. Is there any kind of priority? Are you still waiting for next year? I'd love an update on capital allocation given the current circumstances because you were able to achieve this goal earlier than expected with a very comfortable leveraging level. And we have the ongoing fiscal conversations in Brazil. Second, regarding China, China was one of the biggest drivers for the third quarter. We see that in industry data with very strong demand. However, we see reports that most of the growth in the third quarter compared to the second quarter also had to do with advanced stock with a stock buildup from importers in China because they were afraid of potential measures related to safeguards. And potentially in the fourth quarter, we could see lots of deacceleration for that. What do you think about this for China in the short term? Do you see this in your portfolio? Do you expect deacceleration for the fourth quarter or is it just noise? Edison de Andrade Melo e Souza Filho: Regarding dividends, what we discussed in the last quarter is that we're going to talk to the Board when we have the final numbers for 2025. As you put pretty well, we reached a leveraging level that allows for us to have a more flexible dividend payout policy maybe 2 or 3 quarters earlier than what we expected. So we're going to have this conversation as soon as we have the final numbers for 2025. And if this is within our policy, then we're going to comply with our policies as we have been talking about. Regarding tax changes, I'd like to say that our company is ready. Should changes be made and should we reach the conclusion that having advanced dividend payouts make sense, then we'll do it. But this hasn't happened yet. This is ongoing. We are discussing it, but we don't have anything that is concrete. In our meeting, we said that we would absorb all accrued losses and we would be open to dividend payouts at any point if the company decides to do so. Fernando will answer regarding China. Fernando De Queiroz: Lucas, yes, there have been advances there. We do believe that there may be something coming from the Chinese government not towards Brazil, but towards the whole import system to strike more balance. The main point is that Brazil is still the biggest, most competitive supplier for China. So you're right in assuming that, yes, we had record numbers from China, almost 200 million tons per month. So yes, depending on the measures that we see in the future, these numbers could go back to normal, let's put it this way. Now what I do find interesting and what we're following up on is the days of available inventory that we have in Chinese ports. This is at very low levels even with record imports. Partially, this is due to a reduction in local production. So we still have a positive flow, but we do see the impacts of the advance of some measures that China could implement. Operator: The next question is from Guilherme Palhares from Santander. Guilherme Palhares: I've got a couple of questions about the balance sheet. Edison, there's been some progress in the agreements line. The average cost was 1.54 each month, right? How are you thinking about that line given that there have been more recent debenture issuances, about 113 of the CDI and there seems to be a cost difference. So could you share the agreement strategy compared to a longer-term strategy? Also, you've released some more working capital. You've brought forward some clients from the energy and beef tradings. What of that is recurring in your balance sheet structure? Edison de Andrade Melo e Souza Filho: Well, the cost of agreement is there as a piece of information, but it's not our cost, that is passed on. So there's a misunderstanding that we offset that financial cost when we buy raw material. There's a discount when we buy raw material because I'm paying the client earlier and we also get more time from the financial institution. So we share that cost as a matter of record, but it's actually a benefit that you can see in the CNMV because of the lower cost of raw material. And beef client and energy trading advances, I mean the energy trading is becoming increasingly more relevant. It buys future energy in the market and at some point, it means using resources and at other times, it means receiving resources. So that's our trading operation at the energy desk. So because these other accounts payable have increased and we have shared all of that, that was because of the energy trading company. It was BRL 500 million to BRL 600 million worth of future energy sales, but receiving for it upfront. Those energy trading operations are longer-term operations so they're more stable. Once they're closed, their average duration is 3 years. So it's going to be in the cash and it's not going anywhere. Beef operations, as I've said many times, have to do with our sales mix. If there's an increase in China, our credit policy is we require payment in advance so a prepayment. So it's natural to have more funds available ahead of time as China's share with us increases. And the company has grown its top line by 80% year-on-year. Now if you look at it on a day-by-day basis in terms of billing, the beef advanced payment bill is about 22, 23 days. Now it's about 26 days. So they're not that different to our historical track record. The difference is because China is increasing its share when compared to other markets. Now if you want to be conservative and think about it in a normalized fashion, bring it down from 26 to 22. So there's about 3 or 4 days to normalize it, which is the calculation I did for the fourth quarter assuming that you have a normalization of the working capital accounts in Q4. Now as for the advanced payments for energy, we share that with you to provide you with more transparency so you understand how those advanced payments work. I think the inventory is about BRL 3.1 billion and its average duration is 3 years. So it's not going anywhere for the next 3 years. It's not leaving our balance sheet. Guilherme Palhares: Yes, that's a really interesting piece of information for us. Operator: Next question is from Thiago Duarte from BTG Pactual. Thiago Duarte: Can we go back to the revenue discussion, but not so much from the market standpoint and more from the company operations standpoint. In terms of slaughtering, in Brazil over 1 million heads were slaughtered this quarter. That's about 13% of the slaughter share in Brazil this quarter. You've already mentioned that the new assets will be running at a suitable level also from a volumes point of view. Now considering the location of the plants, both the legacy plants and the new plants and the cattle you have in those regions, are you considering that share level to be sustainable? Is that something we can consider looking forward in the context of cattle availability in Brazil? And my next question is about inventory monetization again. I know you've already talked about that in a previous question, but it wasn't clear to me. Looking at the company's inventory days, they've gone back to levels very similar to the consolidated historical levels. So last quarter, we talked about that to Edison. So it looks to me like you've made arbitrage tactical movements. Is my interpretation correct? Considering the information we have available right now, for lack of a better word, this revenue surplus that you've got from this inventory. Edison de Andrade Melo e Souza Filho: Well, Thiago, with regards to your first question, if there is more room, yes. That's the answer. We broke our record over September and October in terms of slaughtering in Brazil. So yes, we're just fine-tuning operations now so that we can become even more flexible and increase productivity even more. So yes, there is room for that and October is proof of it. As for the inventory levels, our strategy is based on the quota system. So there can be variations, but there won't be too much of an impact on the analysis. Most of our tactical movement was done in Q3. As Fernando said, there are normal variations to the operation. There may be a slight reduction in Q4 or if the domestic market becomes stronger or if the market becomes better in Q4 seasonably speaking, but the tactics that we've built up in the first and second quarter was realized in Q3. Operator: [Operator Instructions] The next question is from Mr. Henrique Brustolin from Bradesco BBI. Henrique Brustolin: I have a couple of follow-up questions. The first one is about the energy trading company. Looking at the ITR, it looks like the revenue is being multiplied by 3 year-to-date. At least that's what it looks like looking back and that operation seems to have a huge operation to your working capital. So my question is how should we consider that operation? Will it scale up looking forward or is the current level -- can we consider the current level to be recurrent for that line of business? And the second question, if I can take the opportunity. If you could please comment on the specific dynamics taking place in Uruguay and Paraguay. Realized prices in the quarter have been quite solid. So what are your prospects for these 2 markets looking forward? Edison de Andrade Melo e Souza Filho: It's not being multiplied by 3. It's gone from BRL 600 million to BRL 1.3 billion. I'm not going to say the top level, but it should stand at that level for the next 3 years. It shouldn't go too much up or down. So yes, please consider it to remain stable at that level based on the operations average ratio, which is about 3 years. About Paraguay, Uruguay, Argentina and Colombia excluding Brazil; beef is increasingly becoming a global commodity. So that price increase we've seen everywhere is a result of shortages in the Northern Hemisphere. So there will be market fluctuations. Some markets will change their behavior, but that geographical diversification is what allows Minerva to remain stable to capitalize on asymmetries and to exercise arbitrage among markets. So price level should go up and obviously we can choose between different destinations and different origins and we'll continue to do that. Henrique Brustolin: Great. I meant multiplying it by 3. I said the revenue in the trading company and not the advance payments, but that was very clear. Operator: This concludes the Q&A session. I will now turn it over to Mr. Fernando Queiroz for his closing remarks. Fernando De Queiroz: Thanks, everyone. Thank you for joining Minerva's earnings release conference call. And I would like to congratulate our team because we have been able to integrate assets in record time thanks to a lot of planning, a lot of clarity when it comes to different roles and a multidisciplinary team and work. Each unit was sponsored by a Minerva unit and that made sure that the culture, processes and management systems could be absorbed as quickly as possible. And I'd also like to highlight this shortage scenario in the Northern Hemisphere. The U.S. still hasn't started to retain females. In Europe, there's considerable shortage. Let's keep an eye out for Europe because it's going to become a massive destination. It should grow considerably next year. And that proves that our strength and our accurate strategy to be in South America works because South America is the main platform. And we also see some price movement in Australia. Prices are going up quite rapidly, which only attests to our competitiveness in the region because its main vocation is to produce soft commodities and more specifically speaking beef. We're here if you have any questions. Thank you. Operator: Thank you. Minerva's earnings release video conference call is now concluded. For further questions, please contact the Investor Relations team at ri@minervafoods.com. Thank you for joining us and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, ladies and gentlemen, and welcome to the Westwing Group SE Q3 2025 Earnings Call. [Operator Instructions] Now dear ladies and gentlemen, let me turn the floor over to your host, Andreas Hoerning. Andreas Hoerning: Good morning, everyone, and thank you for joining us for our earnings call on the third quarter of 2025. My name is Andreas Hoerning. I'm the CEO of Westwing. I'm hosting the call together with Sebastian Westrich, our CFO. Looking at today's agenda, I will begin by providing key updates on our business for the third quarter of 2025, after which Sebastian will share the details of Westwing's financial performance. After our investment highlight summary, we will be happy to take your questions. Let's take a look at the current state of Westwing. In Q3, we delivered growth and continued to improve profitability significantly. Our GMV increased by 5.4% year-over-year despite changes in product assortment. We improved our adjusted EBITDA by 73%, reaching EUR 6 million at an adjusted EBITDA margin of 6.1%. This marks an increase of 2.5 percentage points year-over-year. Free cash flow was positive at EUR 10 million in Q3, and we ended the third quarter with a net cash position of EUR 58 million. For the full year 2025, we expect free cash flow to be double-digit positive. Strategically, we are well on track with the implementation of our 3-step value creation plan. Our own product brand, the Westwing Collection grew 19% year-over-year, which resulted in an all-time high group GMV share of 66%. As part of our geographic expansion, we achieved our full year objective of launch in 10 new countries, and we continued our store expansion with the opening of 7 new stores this year. The operational progress is fully in line with our targets. We confirm our financial guidance for 2025 and are currently expecting the adjusted EBITDA at the upper end of this guidance. We also confirm our ambition for 2026, which is the return to a high-single to double-digit growth and further improved profitability. As always, let's have a look at our 3-step value creation plan, which we started executing in 2022. In terms of levers, we successfully completed the first 2 phases, the turnaround and strategy update phase, and the building of a scalable platform phase. 2025 marks a transition year for us, where we are focusing on the key growth levers of the third phase to be able to scale with operating leverage from 2026 onwards. As in the last earnings call, let me now briefly guide you through our progress across the key levers of the third phase of our plan, beginning with the latest developments of the Westwing Collection, then moving on to how we strengthen our market share in existing geographies, pushing the premium positioning of our brand and finally, the progress we've made in terms of international expansion. So starting with the Westwing Collection. The Westwing Collection is our gorgeous sustainable private label product brand, and we continue to be very pleased with its performance. It again delivered strong growth of 19% year-over-year, resulting in an all-time high group GMV share of 66%. This represented a total GMV of EUR 75 million in Q3. The strong development supports our top line as well as profitability since the products are very desirable and they allow us to achieve a higher contribution margin compared to third-party products. As we build Europe's premium one-stop destination for Home & Living, we're creating a unique product assortment for design lovers, consisting of our own brand, Westwing Collection and the best third-party design brands. We still have significant room for improvement on both sides. As outlined in our last earnings call, besides improvements in product assortment, we see offline store expansion as a lever for share gains in existing markets. In 2025, we opened a total of 7 offline stores. In Q3 alone, we successfully opened 3 stand-alone stores located in Munich, Berlin and Cologne as well as 2 store-in-stores, one in Dusseldorf and one in Copenhagen. Before I share an update on our geographic expansion, let me show you some impressions of our newly opened stores. In Munich, we opened a so-called warmup store. It is more than just a pop-up. It's a preview of our first permanent Munich store coming next year in the heart of the city. Munich is especially meaningful to us as it's where our journey began and where many of our central teams are based, enabling us to learn and refine the customer experience even faster. Next to Munich, we are also very proud to now have a permanent stand-alone store in Berlin. This is located on the iconic Kurfurstendamm, bringing Westwing to life in the heart of Berlin's western city center. On top, we opened our stand-alone store in Cologne, one of Germany's busiest shopping cities. Next to our stand-alone stores, we also opened 2 store-in-stores. One is located at Breuninger Dusseldorf on the prestigious Konigsallee. Following the successful pilot of our store-in-store concept in Stuttgart in 2024, we are proud to continue our partnership with Breuninger, arguably Germany's leading fashion and lifestyle department store chain. The other one is our very first store-in-store in Scandinavia at the iconic Illums Bolighus flagship store in Copenhagen. This opening marks a new milestone in our Nordics expansion following the successful launch of Westwing in Denmark, Sweden, Norway and Finland earlier this year. By partnering with Illums Bolighus, a destination known for timeless elegance and Danish design culture, we are strengthening our presence in the Nordics and connecting with a design-savvy audience in a uniquely meaningful way. Overall, offline stores help us to further strengthen brand presence, positioning and top line, providing a holistic shopping experience across the multi-touch customer journey supports Westwing's market share gains. In Home & Living, many customers combine online and offline experiences in their journey, especially for large furniture purchases. The latter mostly for the touch and feel and simply because basket sizes in furniture are often very large and require many touchpoints for conversion. On the next slide, you can see impressions of the official opening of our Berlin store, where we welcomed over 250 friends of the brand, key opinion leaders, press and content creators from the world of fashion, art, design and lifestyle. The event generated strong positive press coverage and a high volume of social content, amplifying our brand visibility. Let's move on from gaining market share in existing geographies and increasing our premium brand positioning to entering new markets. At the beginning of the year, we announced our plan to open 5 to 10 new countries in 2025. We are happy to announce that we successfully opened 10 new countries this year, reaching our full year objectives. As outlined in our last earnings call, geographic expansion allows us to offer our existing global product assortment to customers in the corresponding market segment for design lovers in other countries. This means selling more of the same products. All Continental European countries follow the same logic with low marginal costs of serving them, translation supported by AI, onboarding of last-mile delivery providers, local influencer marketing and performance marketing with attractive returns within a few months. Therefore, in the midterm, we aim to be present in approximately all European countries. We do not plan to open any additional countries until year-end as our focus is now fully on the most important season of the year in Home & Living. To provide for a glimpse into our 2025 country expansion, let me share some impressions of our Nordics launch event. At the end of August, we celebrated our Nordics launch with 200 guests, including brand partners and leading voices across fashion, design, art and lifestyle. From our styled steamboat experience to sculptural installations at the Westwing Villa, the event showcased our passion for timeless design and cultural connection. It generated extensive positive media coverage and inspired highly shareable social content across the region, achieving exceptional reach, both online and offline. This milestone marks the start of our journey in Scandinavia, bringing beautiful living to even more homes. Back to results. I now hand over to Sebastian for details on our financial performance. Sebastian Westrich: Thank you, Andreas, and good morning, everyone. I'm Sebastian Westrich, the CFO of Westwing. Let me start with details on our top line. Our GMV increased by 5.4% year-over-year, while revenue was at plus 3.4% year-over-year despite the negative impact of the changes to our product assortment. I want to highlight here again what Andreas mentioned earlier in this call. Our Westwing Collection business continued to grow by 19% year-over-year. Now let me also briefly comment on Q3 top line development on segment level. The DACH segment saw a revenue decline of 2.1%, (sic) [ 2.4% ], while the international segment's revenue increased by 10.8%. There are 2 major reasons for this difference in top line development. Firstly, we began introducing a largely global and more premium product assortment and related restructuring of our local business functions in the international segment as early as Q2 2024. The assortment offered in the DACH segment remained unchanged until late 2024. And as a result, last year's baseline for DACH is stronger than that of the international segment. Secondly, the international segment benefited from additional revenue generated by our geographic expansion with 10 new countries launched in the first 9 months of 2025. Regarding top line outlook for Q4, we remain cautious as the performance depends largely on the month of November, including the upcoming Black Friday sales events. Now let me continue with an overview of our profitability development. In Q3, we improved our adjusted EBITDA by EUR 3 million to EUR 6 million, which represents an increase of 73% year-over-year. In order to show profitability development before D&A, we have also included the EBIT development on an adjusted basis on the right side of the slide. It is also clearly positive at EUR 3 million and showed an even greater increase of EUR 4 million year-over-year. Excluding adjustments, Q3 showed a negative EBIT of minus EUR 4 million. The adjustment mainly includes the negative impact of a higher fair value of employee stock option programs due to the significant share price increase in Q3. The impact amounted to minus EUR 6 million, which was non-cash effective. It is important to highlight that we are actively reducing the number of outstanding stock options to reduce both dilution risk for our shareholders as well as negative P&L impact from potential further share price increases. Let us now take a look at our P&L margins. In the first 9 months of 2025, we realized an adjusted EBITDA margin of 7%. This is a significant improvement of 2.6 percentage points compared to the previous year's period in the absence of any scale effects. Let us now focus on the P&L development in the third quarter of 2025, which you can see here on the right-hand side. I am pleased to report that we improved our P&L structure in Q3 in almost all areas, leading to a strong improvement in adjusted EBITDA margin by 2.5 percentage points year-over-year to 6.1%. Our gross margin improved by 2.2 percentage points year-over-year, mainly due to strong Westwing Collection share gains. The fulfillment ratio improved slightly by 0.1 percentage points year-over-year. The fulfillment ratio includes negative effects from expansion as we accept lower logistics linehaul utilization from our central warehouse to the new countries in the beginning. This ensures short delivery times also for our customers in the new markets but comes at higher cost per order. With increasing scale, this negative effect will decrease. Overall, this led to an increase in contribution margin of 2.3 percentage points to 33.9%, a really strong result for our third quarter. Our marketing ratio increased slightly by 0.3 percentage points year-over-year to minus 13.4%. The main reason for the increase is our investment into expansion. Our G&A ratio, which includes other result, improved by 2.3 percentage points to minus 17.9%, reflecting the positive effects from our 2024 complexity reduction measures. This led to an adjusted EBIT margin of 2.6% in Q3, up 4.3 percentage points year-over-year. D&A decreased by 1.8 percentage points year-over-year, primarily driven by the full depreciation of legacy technology assets. Overall, as mentioned before, our Q3 adjusted EBITDA margin improved by 2.5 percentage points year-over-year to 6.1%. The adjustments made in Q3 were minor, except for the higher fair value of our stock option programs following the significant share price increase, which I mentioned before. An overview of these adjustments as well as the unadjusted consolidated income statements can be found in the appendix to this presentation and in our Q3 financial report. Let's move on to profitability on segment level. In Q3, which is displayed on the right-hand side of this slide, we saw a strong improvement in adjusted EBITDA margin in both segments. In the DACH segment, adjusted EBITDA margin improved by 3.6 percentage points year-over-year to 6%. In the International segment, we were able to improve our adjusted EBITDA margin by 1.2 percentage points year-over-year to 6.4%. The improvement in profitability reflects the successful implementation of our 3-step value creation plan across both segments. Let's also briefly look at our earnings per share development. What you can see on this slide is the last 12 months data since Q1 2024. The dark green bars showing unadjusted earnings per share, the light green bars showing earnings per share on an adjusted basis. Adjustment includes changes in fair value of the aforementioned employee stock option programs as well as restructuring expenses. We are happy to be able to show that the very positive development continued also in Q3 2025. The dent in the unadjusted earnings per share in Q3 stems again from the steep increase in Westwing share price in Q3. Let us now move from profitability to our balance sheet and take a look at our net working capital. By the end of Q3, net working capital stood at minus EUR 1 million, which is EUR 4 million higher compared to Q3 2024, but EUR 7 million lower versus the previous quarter. Compared to the previous year, we still had higher inventory, mostly driven by the newly introduced Westwing Collection items that we already mentioned in previous calls. Compared to the previous quarter, we managed to reduce inventory levels slightly despite the typical seasonal inventory buildup towards the high season, and we improved trade payables as well as contract liabilities. We expect net working capital to improve further in Q4 due to typical seasonal effects and the respective positive impact on cash flow. On the next slide, you can see CapEx and CapEx ratio for the first 9 months as well as for the third quarter of 2025 compared to the same period in 2024. CapEx remained broadly stable year-over-year in 2025, both for the first 9 months and in Q3 specifically. However, when comparing 2025 to 2024, we see a shift between investments into property, plant and equipment and intangible assets. While in 2025, we invested more into store openings, we were able to reduce CapEx for internally developed tech assets as we move to a SaaS-based tech platform. Let us now take a look at our net cash position. We are pleased to report a strong net cash position of EUR 58 million at the end of September, which is EUR 8 million more compared to the end of June. Overall, free cash flow was at EUR 10 million in Q3. Taking lease payments of EUR 3 million into account, we had a positive free cash flow after lease payments of EUR 8 million in Q3. Our balance sheet remains strong with no debt other than the IFRS 16 lease obligations and IFRS 2 liabilities from cash settled stock option programs. We remain confident to enable double-digit free cash flow for the full year 2025, driven by both profitability and net working capital. Given our seasonality, Q4 is expected to be the strongest quarter. On the next slide, I'll comment on the financial guidance for 2025, which we published at the end of March. Our performance in the third quarter and the first 9 months of 2025 in terms of both revenue and profitability is fully in line with our guidance. In terms of top line, we had, as expected, headwinds from our changes in the product assortment. These negative effects are expected to ease further towards the end of 2025. But as mentioned earlier, top line in Q4 depends largely on a successful November and the Black Friday sales event. In terms of profitability, we expect a typical seasonal peak in the upcoming fourth quarter. To summarize, we are well on track to deliver on our 2025 guidance in terms of revenue and profitability and also in terms of a clearly positive double-digit free cash flow. Given the strong performance in the first 9 months with an adjusted EBITDA margin of 7% so far, we currently expect to end the year at the upper end of the adjusted EBITDA guidance. This brings me to our midterm outlook, which was shared for the first time in our full year 2024 earnings call. I want to highlight again that our ambition is to return to significant growth in 2026 while continuously improving profitability. Significant growth means a high-single to double-digit growth rate driven by our expansion initiatives and the anticipated easing of negative impacts from the product assortment changes. In terms of profitability, we expect scale effects as we grow, as well as positive effects from our improved product assortment. We remain focused on executing our 3-step value creation plan with a clear goal of driving sustained improvements in profitability and cash flow. Combined with our return to meaningful growth, this will enable us to unlock the full value potential of Westwing. I'm handing over to Andreas now to conclude our presentation with our investment highlights. Andreas Hoerning: Thank you, Sebastian. Let me briefly recap the investment highlights. First, we have a unique relevant customer value proposition through the specific assortment and the way we serve our customers. Second, the market potential is huge, especially in our existing geographies, but also beyond. Third, we are developing the superbrand in design with high loyalty and true potential to grow further. Fourth, we have high and increasing margins as well as operating leverage while we scale. Fifth, we have a great balance sheet with a strong cash position and no debt, strong net working capital and low CapEx. All of this will lead us in the midterm to 10% plus adjusted EBITDA with a continued strong cash conversion. Sebastian and I are now happy to take your questions. Operator: [Operator Instructions] And we already have one person who wants to ask a question, this would be Volker Bosse from Baader Bank. Volker Bosse: Volker Bosse from Baader Bank speaking. So first of all, of course, great results and congratulations, especially that you are able to specify your guidance to the upper end in this challenging times, very an outstanding achievement. Perfect. I would have 3 questions, if I may, starting with your still decline in orders and number of active customers year-over-year. So how do you see the momentum evolving? Do you see an improving momentum, means is the worst triggered by the transformation process is behind you, so to say? I mean, your outlook on the forward-looking on these 2 KPIs, please, would be the first question. Second question is on your country expansion. Yes, great to hear that you achieved also here the upper end of your given guidance range, so to say, 5 to 10, so 10 new countries. Can you already share initial developments in the new countries? I think Portugal is most advanced as it was the first country which you opened. How do you see the acquisition of new customers and incremental sales is progressing here or in other countries? Perhaps you have first thoughts already for us on that. And the third question would be on the new physical stores, which you opened. Do you see here an increased online activity be it in click rates or be it in sales in the catchment areas of the stores. So do you have this granularity of data on hand to share basically the stores do what they are supposed to do, meaning drive sales and brand attention? Andreas Hoerning: Thank you, Volker, for your questions. And also, thank you for the congrats. We're also pleased about the development of the EBITDA. So the first question was related to decline in orders and number of customers, and your question was how this will be evolving, whether the worst is already over? So generally spoken, the decline in order and number of customers is expected to ease in the same way as the negative GMV effect from the change in product assortment is also expected to ease. And we did this in a phased approach. So first, we changed the product assortments quite heavily in -- especially in Italy and Spain, where we also closed offices and warehouses and went from a local -- very local assortment to a global assortment. And there, we saw a pretty steep decline in number of customers simply because the offering that we had there beforehand to customers was different to the one that we have today, and the churn in customers was quite significant. This has already eased in those countries quite significantly. We're actually happy with the development now. And then the subsequent development was that we also changed the product assortment in our larger markets, Germany and also CEE. By the way, so DACH and CEE a bit later. And this effect we are seeing this year this is also why we were so cautious with our guidance on top line this year. And at the moment, we are fully in line with that. And it stems from exactly your point, the number of orders and number of customers, it is the same reason. You can also see that in the increase in average order value that we are reporting because there you can see that with the shift from a more impulse buying and smaller products to more Westwing Collection and more furniture, we see a strong growth in average order value and the decline of the number of orders and number of customers as it eased in Italy and Spain, it is also easing in Germany or in DACH and in CEE. So we can expect that the worst is over, as you say. And into next year, we actually expect a much, much lower effect of that, if even any. I hope that answers your question number one. Number two was on country expansion. You were asking about the development here. So as you rightly said, Portugal was the first one. And when we look now at the countries that we opened this year, so the 10 new countries, we, of course, compare the development of those to the one that we saw in Portugal in the first months and quarters. And we're actually very pleased with the development. It's in line with what we saw in Portugal. We see new customer growth there. Everything that we report from there is obviously incremental. That's the beauty of opening new countries. And our kind of the first results in terms of absolute numbers that we won't share now. Next year, I think we will give a bit more indication because it's very early still. But when you look at the absolute numbers, we're actually really happy with what we see in Sweden, in Denmark, in Norway and in Croatia also. Despite Norway and Croatia actually being relatively small markets, but we see really nice developments there. We'll give more updates throughout next year when the numbers become more meaningful, because at the moment, though we are happy, the relation to our overall GMV is, of course, still very small. So that was the second question on country expansion. And the third one was on the physical locations on our stores. And here, you asked whether we see besides the top line that we make in the stores, whether we also see an increased online activity in the catchment areas, and that's exactly the case. We don't share any numbers on the online catchment area uplift also for the reason that we don't have an A/B test in place. What we do is we compare catchment areas with stores against the catchment areas without stores. And there, we can see a significant effect of the stores. But of course, it's not 100% proof of this effect. But for instance, when we had Hamburg and Stuttgart as the only stores in Germany, those 2 catchment areas were the best performing in the whole of Germany. The reason behind this is, obviously, what you also pointed towards is that we have sales in the stores themselves. And then we also have the effect that is what we call also a marketing effect. So when people walk past our stores, it's like a billboard that's out there or even when they walk into the store and they have a look at products, they don't necessarily decide straightaway to convert to a buyer. That often happens only after their visit to the store. We have found that, for instance, when customers decide to buy a sofa, there are roughly 30 touchpoints involved between the first -- very first one and the purchase in the end. So these are many, many online touch points and increasingly so also our offline touchpoints. But this explains why we see this catchment area uplift in the cities where we have the stores. So it's absolutely positive. I can confirm what you said, Volker. Does that answer your 3 questions? Volker Bosse: Yes. And I would have a follow-up, more general remark on your Page 23, you give an indication on '26 already, very much appreciated. On market, you have a stable or a flat arrow, so to say, or how to say. I mean the question is for -- do you see any -- do you see no market tailwind, but also no market headwinds for next year? So what is your general assumption behind your '26 guidance in regards to what is the market providing? Andreas Hoerning: Thanks Volker. Your question on market development, how we see that in 2026, I'm handing over to Sebastian. Sebastian Westrich: Volker, thanks for your question on our view on the overall market development. So we expect overall no tailwind from overall consumer sentiment and market growth. But of course, there will be regional differences. So there are some areas within Europe, CEE, for example, where I think the overall conditions are more promising compared to what we see, for example, in the DACH segment where when you look at consumer sentiment indicators, there is no real improvement. And that is why we remain cautious. And our outlook or ambition for 2026, as we already mentioned in earlier calls, is based on our strength and executing our 3-step value creation plan with the share gains in existing markets and the expansion to new countries. And so far, we feel very confident to achieve those targets based on the financial and operational progress that we achieved so far in 2025. Operator: Next question comes from Jose Antonio Perez Parada from NuWays AG. Jose Antonio Perez Parada: Congratulations again on the strong quarter. I would like to ask for -- I have a couple of questions, if that's okay, I will just land them. The first of them is if has anything changed regarding the capital allocation over the quarter or if there's anything it's important to know for the near future? The second question will be that we already understand or we see that there will be no further geographic expansions in the rest of 2025. But could you give us any notion on the direction of the geographic expansion in 2026, maybe towards any region? That's another one. And the third one is that, you told us earlier that fulfillment ratio included some negative effects from expansion. So I would like to ask you again, if you could please guide me through the underlying dynamic again. Sebastien clearly mentioned something about the centralized distribution center in Poland, but I would like to grab the logic again. That would be it. Andreas Hoerning: Thank you, Antonio, for your questions. I'm going to hand over to Sebastian for the questions on the change to -- on the capital allocation and on the fulfillment ratio. And before I do that, I'll just briefly comment on your question on expansion. So you were wondering what the expansion in 2026 might look like. We're not going to share any specifics, but our general ambition is to be present in nearly all countries in Europe. And this also includes Great Britain, but of course, Great Britain is a bit more complex because it's not in the EU, and it also requires a bit more complex logistics setup. So we will likely expand also geographically in 2026, and we'll share more details on that when the time is right to do it. Jose Antonio Perez Parada: That clearly answers my question. Andreas Hoerning: And I hand over to Sebastian for capital allocation and fulfillment. Sebastian Westrich: Okay. Yes. Thanks a lot for your question. Let me start with the fulfillment question related to our expansion countries. So linehaul means the trucks that we send from our central logistics center in Poland, for example, to Portugal, and for new markets, we decided to already send those trucks even though they might not be fully utilized. So that means, of course, that the cost per item that we ship is higher, but this allows us to ensure better shipping times for our customers. So we accept the higher costs for a better customer experience. As we scale those new countries, Portugal, Nordics, et cetera, of course, also then the utilization of those trucks improves. So the cost should go down. And this is the effect that we briefly mentioned earlier. Andreas Hoerning: And it's also the effect that we are seeing in Portugal because there we already have significant volumes. We also combine this with Spain. So in Portugal, we actually see a very low logistics costs. And the same will happen to, for instance, the Nordics region, because there we are also able to combine certain shipments. Sebastian Westrich: Then on your question on the capital allocation strategy, and if anything changed over the quarter. So no, our capital allocation priorities remain disciplined and focused on long-term value creation, of course. So in line with this approach, we have demonstrated our commitment to shareholder value already in the past when we performed some share buybacks. And we may consider further measures going forward, but this, of course, is subject to market conditions and also regulatory requirements. So overall, no change to our capital allocation strategy. Jose Antonio Perez Parada: Again congratulations on the strong quarter and lots of success for the closing of the year and the upcoming holiday season. Andreas Hoerning: Thank you so much, Jose. Operator: At the moment, there seem to be no further questions. [Operator Instructions] Once again, Jose Antonio, please state your question. Jose Antonio Perez Parada: Thank you very much. Just taking advantage of the final question. You already answered some of the question to Volker. But we understand the underlying dynamic of the customer and orders. However, if I could have a little bit more color on the underlying dynamics of customer number and number of orders, given that they decreased, for example, our expectation of number of customers was lower and the expectation of orders was a little bit lower as well. So how does it look like going forward? Or what can we expect? Sebastian Westrich: Jose, thank you for your question. Let me better understand. So the -- you want to have -- you would like to have an outlook on the development of this in the future in more specifics. Is this what you would like to have? Jose Antonio Perez Parada: Yes, that would be perfect. I fully understand the dynamic behind it that we are expecting less customers, less orders due to the less impulse buy from smaller ticket items. But how does it in general look like going forward? Or what can we expect in -- Sebastian Westrich: Yes. So what we absolutely see for the future is that we will return to active customer growth and also to the growth of the number of orders. So this is absolutely the plan, not just from the expansion countries where we, obviously, see every customer that we gain there is a new customer, right, but also for the existing markets. So we have a clear commitment also to share gains in existing markets. And this, in the end, we cannot do without also active customer growth. We believe that a better assortment, better marketing and last but not least, also our physical presence, for instance, in Germany, will drive this. And actually, we see the beginning of this. So the stores enable us also to convince our customers that we previously weren't able to convince maybe because they required an offline step in their journey to actually then purchase with us. And as we came from 9 off-line stores, for instance -- from -- sorry, 2 offline stores at the beginning of this year and are now at 9, you can imagine that the full year effect can only be seen next year and actually in the years to come because the store has a certain trajectory of the first 3, 4 years of its existence. It needs to establish itself, if you like, in a city. So this is actually one important reason why we believe that also in the existing geographies, we will be increasing the number of active customers. It's a matter of time. We believe that next year, so we're not going to give a guidance on this, but we believe that next year we'll look a lot more positive than this year due to the easing of the effect that you also mentioned beforehand and the growing effects from our expansion measures plus stores. So no specific -- we don't have a specific forecast here, but you can expect that this significantly improves. And absolutely, our commitment is to going back to increasing number of active customers and orders. Operator: [Operator Instructions] And for some final words, I would like to hand over back to the management. Andreas Hoerning: Thank you. As we haven't received any additional questions, we're ending today's earnings call. Thank you for joining, and goodbye.
Operator: Good afternoon, everyone, and welcome to the eHealth Inc. conference call to discuss the company's Third Quarter 2025 Financial Results. [Operator Instructions] I will now turn the floor over to Mr. Eli Newbrun-Mintz, Senior Investor Relations Manager. Eli Newbrun-Mintz: Good afternoon and thank you all for joining us. On the call today, Derrick Duke, eHealth's Chief Executive Officer; and John Dolan, Chief Financial Officer, will discuss our third quarter 2025 financial results. Following these prepared remarks, we will open the line for a Q&A session with industry analysts. As a reminder, this call is being recorded and webcast from the Investor Relations section of our website. A replay of the call will be available on our website later today. Today's press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations site. We will be making forward-looking statements on this call about certain matters that are based upon management's current beliefs and expectations relating to future events impacting the company and our future financial or operating performance. Forward-looking statements on this call represent eHealth's views as of today, and actual results could differ materially. We undertake no obligation to publicly address or update any forward-looking statements, except as required by law. The forward-looking statements we will be making during this call are subject to a number of uncertainties and risks, including, but not limited to, those described in today's press release and in our most recent annual report on Form 10-K and our subsequent filings with the SEC. We will also be discussing certain non-GAAP financial measures on this call. Management's definitions of these non-GAAP measures and reconciliations to the most directly comparable GAAP financial measures are included in today's press release. With that, I'll turn the call over to Derrick Duke. Derrick Duke: Thank you, Eli, and welcome, everyone. It's been 6 weeks since I stepped into the CEO role, and I couldn't be more excited to be part of this organization. With years of experience in health insurance distribution, I've long admired eHealth, especially the technological innovation it has brought and continues to bring to the industry. I joined because I see a massive opportunity in our core Medicare Advantage and adjacent markets. eHealth is uniquely positioned to capture this opportunity through our strong carrier relationships, trusted brand, high-performing sales organization and differentiated omnichannel enrollment platform. Before diving into our performance, I want to take a moment to thank Fran Soistman for his leadership through eHealth's business transformation and for assembling a strong mission-driven team. Over the past 6 weeks, I've spent time meeting employees across all levels and functions. What I found is a deeply customer-centric culture and a team that's passionate about helping beneficiaries navigate their healthcare choices. Right now, my top priority is executing on AEP. This is a critical period for our business, and I believe we've entered well prepared and better positioned than other distribution organizations to succeed in this dynamic environment. After AEP, I'll turn my attention to reviewing our longer-term strategy and refreshing our 3-year financial targets. I also remain committed to enhancing our capital structure. Last month, we extended the maturity of our term loan with Blue Torch to January of 2027 with other key items of the agreement remaining unchanged. This provides us with additional financial flexibility as we continue to work towards achieving greater liquidity by leveraging our receivable asset and addressing the convertible preferred instrument. Let me now pivot to where my focus is today, AEP execution. This year's AEP is once again marked by disruption. Carriers have made broad plan changes, focusing growth on their best-performing products and geographies while pulling back elsewhere. Healthcare is local and the impact of these changes vary significantly by region, carrier and plan type. In this environment, eHealth is playing a critical role. Our Medicare matchmaker brand and carrier-agnostic model continue to resonate strongly with consumers. As we enter the second year of plan disruption, seniors note that they can come to eHealth for unbiased advice and continuity. Carriers continue to view eHealth as a valuable partner in executing their targeted growth strategies. We maintain broad inventory across large national carriers, blue plans and regional insurers, allowing us to offer consumers an attractive variety of coverage options. Just as carriers have taken varied approaches to plan design this year, we've seen similar diversity in how they've adjusted compensation structures across distribution channels. Overall, we're seeing a solid year-over-year increase in our commission rates, underscoring the strength of our relationships and the confidence carriers place in our model. Through the first 3 weeks of AEP, our Medicare performance is tracking in line with internal expectations, supported by strong consumer demand on our platform. We are seeing early signs of a more favorable competitive environment as well as increased efficiency within our branded marketing channels. The most critical weeks of the enrollment period are still ahead of us. As we progress through AEP, we're prepared to be opportunistic, leaning in where we see the potential to drive incremental growth at attractive LTV to CAC ratios with flexibility afforded to us by online and hybrid fulfillment that can be more easily flexed compared to traditional call centers and feet on the street models. Now let's take a step back and look at our performance in Q3. In the third quarter, total revenue was roughly in line with internal expectations. Medicare Advantage volume came in below our expectations due to a more pronounced impact from new dual-eligible enrollment rules compared to what we saw in Q2. We responded by pulling back marketing spend, preserving budget for AEP where it can be deployed at significantly higher ROI. At the same time, we continue to recognize positive net adjustment or tail revenue from our existing book, driven primarily by our Medicare Advantage cohorts. Third quarter GAAP net loss and adjusted EBITDA exceeded internal expectations, driven by tail revenue, which has a positive impact on profitability. Disciplined cost management was also a key contributor to our Q3 profitability performance. During the quarter, we finalized our preparations for AEP, and I'm encouraged by the momentum we've built heading into this critical period. We entered the season with a more tenured and experienced adviser force than last year, a direct result of our continued investment in long-term career paths for top performers. Our consumer brand continues to gain strength. Direct branded channels are expected to drive the majority of application volume this AEP with a higher contribution than last year. These channels are not only generating better lead quality, but also driving stronger retention, evidence that our message is resonating. Technology remains a cornerstone of our strategy. Our digital team is focused on delivering a seamless omnichannel journey, whether a consumer starts online or with a licensed adviser. New features like click-to-call from adviser chat are helping bridge these environments, allowing for fluid transitions and more personalized support. Our AI screener, originally piloted in Q2, is now deployed at scale. We expect this powerful tool to enable us to unlock meaningful operational efficiencies and improve consumer experience. And while acquisition is essential, retention is equally critical, especially in a disruptive AEP. Our goal is to preserve the continuity of the member relationship, whether that means advising someone to stay on their current plan or guiding them to new coverage within our ecosystem. We've proactively reached out to members most impacted by plan changes, initiating adviser conversations early in the season. We are also equipping members with a robust suite of self-service tools to help them evaluate their options and make informed decisions with confidence. Our tool, MatchMonitor, delivers a personalized automated shopping experience for our members at the start of the AEP with a side-by-side comparison of their current plan to the top plan recommended for them by our proprietary multifactor algorithm. While AEP is our primary focus, I want to briefly touch on our diversification efforts. We continue to see solid performance in products that can be sold year-round and have favorable cash flow profile, including hospital indemnity plans or HIP, and MedSupp. Third quarter HIP enrollments more than doubled and MedSupp agency enrollments grew 10% year-over-year. Six weeks into my tenure, I've gained a deep appreciation for the strength of this organization, its people, its platform and its purpose. We are executing in a highly dynamic environment, and I believe eHealth is uniquely positioned to lead through this disruption. Our value proposition remains clear and differentiated. We offer among the broadest selection of plans in the private sector, enabling consumers to find the right coverage even as the market shifts. Our growing brand identity is driving higher engagement, more efficient member acquisition and better retention. Our online and AI capabilities allow us to flex capacity and scale intelligently, supporting both consumer experience and enrollment margins. And finally, our carrier value proposition is differentiated through our ability to tailor distribution strategies in support of carrier geographic and product focus. We are raising our 2025 GAAP net income and adjusted EBITDA guidance ranges, reflecting our performance through the end of Q3. John will provide updated guidance in his prepared remarks. I look forward to engaging with many of you after the call. Thank you for your continued support. And now I will turn the call over to our CFO, John Dolan. John Dolan: Thank you, Derrick, and good afternoon, everyone. Third quarter results reflect a typical seasonal dip in Medicare enrollment volume, further intensified by this year's dual-eligible regulatory changes accompanied by a corresponding reduction in our Q3 marketing spend. At the same time, we made a deliberate investment in scaling and training our licensed adviser force, an annual initiative that prepares our organization to meet consumer demand during AEP. Through the early weeks of the annual enrollment period, consumer demand on the eHealth platform has been strong and the effectiveness of our marketing spend is up not only sequentially, but also year-over-year. These early indicators reinforce our confidence in the strategic decisions we made this year to prepare us for the elevated consumer activity. As I review our results, please note that all comparisons are year-over-year unless otherwise specified. Total revenue for the third quarter was $53.9 million, down 8%. GAAP net loss improved to $31.7 million from $42.5 million and adjusted EBITDA was a loss of $34 million, also an improvement from a loss of $34.8 million last year. Third quarter Medicare segment revenue was $49.9 million compared to $53.2 million, reflecting lower enrollment volume, which was partially offset by $12.1 million in positive net adjustment revenue or tail revenue. This compares to $1.1 million in Medicare segment tail revenue last year. Q3 segment loss narrowed significantly to $1.2 million compared to segment loss of $5.6 million. Total Medicare applications across our fulfillment models declined 26%. As Derrick mentioned earlier, enrollment volume was below expectations with the removal of the quarterly dual-eligible enrollment period having a larger impact on our results in Q3 versus Q2. We believe that many dual-eligible consumers who could transact outside of the main enrollment periods likely did so earlier in the year. MA-related marketing spend declined 25%, roughly in line with volume. Customer care and enrollment expense was down 6%. While we use flexible staffing arrangements like voluntary time off to accommodate lower inbound call volume, we also ramped new adviser cohorts. This process includes onboarding, licensing and training in preparation for AEP. These dynamics are reflected in our Q3 Medicare unit economics. Member retention remains a cornerstone of our strategy. Last year, we introduced initiatives aimed at further strengthening member engagement and protecting our book of business impacted by Medicare plan changes. These initiatives delivered strong results as evidenced by the improved retention data we are seeing from the MA cohort we enrolled last AEP compared to the same cohort from 2023. This year, we're building on that success. During the third quarter, we expanded our dedicated customer service and retention team. We're applying key learnings from last year to optimize our retention initiatives, focusing on what delivered the highest ROI and resonated most with our members. We recognized another quarter of positive tail revenue, bringing our year-to-date cumulative positive tail revenue across all segments to $40.5 million. Medicare Advantage LTV declined slightly by 1.5%. Third quarter Employer and Individual segment revenue was $3.9 million, with segment gross profit of $1 million. This compares to $5.2 million in revenue and $1.8 million in gross profit last year. The year-over-year decline was due to shifts in market dynamics and our marketing budget allocations. We limited marketing and sales spend in the Individual ACA market amid declining eligibility and rising premiums that were impacted by the one big beautiful bill. In this segment, we are focused on building ICRA capabilities that advance eHealth's market-leading technology platform to support diversification. Combined, technology and content and general and administrative costs grew 3.6%. Beneath that, technology and content expense decreased 4%, while general and administrative expenses increased 8%, primarily due to compensation and benefits tied to leadership transitions. Total operating expenses declined 6%, driven by reductions in variable marketing spend. Cost management remains a key focus. We're proactively adjusting variable spend to drive growth at attractive unit acquisition costs while pulling back from areas with lower return on investment. We'll continue evaluating fixed costs as a source of leverage. Operating cash flow was negative $25.3 million, an improvement from negative $29.3 million last year. We ended the quarter with $75.3 million in cash, cash equivalents and short-term marketable securities compared to $105.2 million last year. Our commission receivable balance as of September 30 was $907.7 million. We continue to work towards leveraging our sizable receivable asset to increase access to capital in support of our strategic initiatives, including developing and integrating AI through our distribution platform, business diversification and other high ROI opportunities. The final tenet of our capital structure enhancement is addressing the convertible preferred instrument. As we stand today, we believe we have sufficient liquidity to execute on our operational plan and continue to enhance and scale our Medicare business and in-flight diversification areas. We are raising our net income and adjusted EBITDA guidance ranges to reflect execution through the end of Q3. AEP has started strongly, but it's important to remember that the final weeks have a significant impact on our fourth quarter performance. Our new guidance ranges are as follows: We continue to expect total revenue for 2025 to be in the range of $525 million to $565 million. GAAP net income for 2025 is now expected to be in the range of $9 million to $30 million compared to our prior guidance range of $5 million to $26 million. Adjusted EBITDA for 2025 is now expected to be in the range of $60 million to $80 million compared to our prior guidance range of $55 million to $75 million. And we continue to expect operating cash flow to be in the range of negative $25 million to positive $10 million. These ranges include estimated positive net adjustment revenue in the range of $40 million to $43 million compared to the prior range of $29 million to $32 million. Operationally and strategically, we believe we are well positioned to take share and continue building lasting brand and consumer relationships this AEP and beyond. With that, I'll turn the call over for questions. Eli Newbrun-Mintz: Operator, you can open the line for Q&A now, please. Operator: [Operator Instructions] And your first question comes from George Sutton from Craig-Hallum. George Sutton: I wondered if you could talk about the disruption that you speak of relative to AEP. What that means to us is more shoppers. You've got more folks turning 65 than ever and you've got all the plan changes and terminations that are creating the need for movement or shopping. Are we reading that disruption as being favorable for you correctly? Derrick Duke: Yes. George, it's great to hear from you and speak to you again. I think I would start by just saying that from a disruption perspective, we're seeing similar levels of demand year-over-year that's tied to that carrier disruption. And the way I would encourage you to think about that is that similar levels, different reasons and different carriers from the prior year. So sometimes we talk about that internally that it's sort of one event that is occurring over a multiyear period as carriers address their own issues related to margin and portfolio productivity. Early stage, again, in AEP. So we want to make sure we emphasize that the last few weeks are the important time period of the AEP enrollment period. But so far, our results are in line with our expectations and we're happy with the results that we're seeing. So again, similar levels of demand that we saw year-over-year and a high number of shoppers on our platform. George Sutton: You mentioned a plan to prepare to be opportunistic as you see the evolution of the AEP period. Can you talk about what that might look like? Derrick Duke: Yes. I'll start and maybe I'll ask Michelle to add. George, we're trying to be really thoughtful about which marketing channels that we invest into based on the economics of those channels. As you recall, I think we mentioned in our last quarterly call that we're investing more in our branded channels that have better economics, higher LTV to CAC ratios for us. In the prepared remarks, we talked about the fact that we reduced spend in Q3 in order to be ready to increase spend in Q4 when and where we saw those opportunities. Michelle, what would you add? Michelle Barbeau: Sure. Thank you. I think you captured it really well. But it is exactly that it is regularly looking at performance across all channels and how to continuously optimize to improve. As you well know, our North Star, right, is always LTV to CAC. And we look at that continuously across our mix, what is performing best? What do you need to dial back? What do you need to lean into? As we've talked about, we are continuing to grow branded channels as part of our mix and are really pleased with how they are continuing to perform. And as part of that, we actually look at the branded channels across several channels because they work cohesively together. For example, when TV is on, we also see a great lift in search and our search traffic is up substantially year-over-year as a result. So there's also sort of that holistic view that we give in addition. George Sutton: Got you. Lastly, you have really focused the discussion around stronger retention. That was not necessarily historically an eHealth strength. Can you talk about sort of what you're seeing there? Is this really driven by more of the brand message, meaning someone leaves or has a plan change and comes back to you to solve their needs? Derrick Duke: It's a great question, George. Let me start maybe with a bit of a philosophical statement on my part as I've started reacquainting myself and reestablishing long relationships I've had in this industry with carriers as well as building new ones. Part of the conversation I'm having with our carrier partners is around my expectation of what type of distribution company eHealth is going to be going forward. Sometimes I hear from carriers that we are best-in-class for telebrokers, whether it's retention, quality, which I appreciate the compliment. But my response to them so far has been, I don't want to just be the best telebroker, I want to be the best broker. And I believe that eHealth has all of the capabilities and competencies to allow us to do that regardless of who we compete with on the other side, whether that's another telebroker or whether that's a feet on the street brokerage or an FMO. And so often, we hear in this industry that FMOs have better retention because of relationships. And again, my perspective is we have the ability, especially because of the decision the company made a few years ago to begin investing in our brand to replicate those types of relationships. And so it's on the strength of the brand investment that the company has made that we believe we're seeing incremental growth in retention. Again, in John's prepared remarks, he talked about the improved retention on our most recent cohort during AEP last year and our continued investment in our retention and loyalty team. One metric to give you related to that is that we increased our outbound calls this year by approximately 20% into our membership base to ensure that they were prepared for the disruption that we believe they were going to experience during this open enrollment period. So based on all of those things, we believe we've yet to see the full benefit of increased retention because of the investments that we've made. And personally, I'm excited to see what we can do around not having a transactional relationship with our membership, but having a relationship that leads to transactions, if that makes sense. Michelle or John, would you guys add anything? John Dolan: I think you covered it. Operator: And your next question comes from Jonathan Yong from UBS. Jonathan Yong: I guess you mentioned that you're seeing similar levels of demand. I assume that's similar to last year. But the carriers in CMS have pointed to a flat to down type of growth expectations for next year and some carriers have removed some brokers from their network. So I guess within the context of that similar levels of demand, would you characterize this as share gains from competitors or underlying enrollment growth, if you could provide additional color there, understanding it's early in AEP? Kate Sidorovich: Yes. Jonathan, this is Kate. So if you look at how we performed in last AEP when we exceeded our expectations, we actually took market share, both as a percentage of new enrollment and the ending member base. Now as you progress through this year, it's a highly disruptive period. It remains to be seen where we end up as a percentage of total membership for the industry. But to your point, CMS does expect that the overall membership in Medicare Advantage will decline a little bit by about 3%. It is a temporary bump because by 2030, we still expect for Medicare Advantage to represent a much larger percentage of total Medicare enrollees, around 60%. Jonathan Yong: Okay. And then the enrollment, I think you said is tracking to internal expectations so far. And it sounds like you're seeing an increase in commission rate. I just want to make sure, is it those enrolled lives of the higher commission rates or just generally speaking, because of the commission increase you're seeing that? And then of those lots you are enrolling, are they actually commissionable or are they 0 commission lives and you just happen to be getting them? Derrick Duke: Yes. Jonathan, great question. I'll start, and then maybe I'll ask John to add on. So around the rate portion of your question, as you know, CMS rate decision led to carriers having the opportunity for a rate increase of a little north of 10%. What we've seen as we prepared for this AEP is that carriers took sort of a different strategy, if you will, on how they would deploy that increased rate. Some carriers gave us that increased rate across all products that we're selling. Others distinguished it between their product portfolio where they wanted to see growth. I would say, in general, what we're seeing and now expecting is that we'll sort of be in the mid-single-digit percentage rate increase year-over-year in -- during the AEP period. So that's number one. The second thing is the demand that we're seeing and the enrollments that we're seeing are in plans that are commissionable, and we fully expect to receive commissions on the production that we're producing. John? John Dolan: Yes. The one thing I'd just make sure you understand is when we think about our LTV, it's comprised of both the commission rates, which Derrick focused on in those increases. It also includes a component of administrative fees. So the -- some of the increase may not flow all the way through to the LTV. So I just want to make sure people hear that. Operator: [Operator Instructions] And your next question comes from Ben Hendrix from RBC Capital Markets. Michael Murray: This is Michael Murray on for Ben. Just a quick follow-up on the commission rates. So how should we think about LTV growth for 2026 given the higher commissions? Should we think about it in the low-single-digit range? Derrick Duke: John? John Dolan: Yes. I think as Derrick pointed out, we're expecting to see the commission in our forecast to be in the mid-single digits. A little bit of that will be muted by the administrative fees. So it's probably expected to be low-to-middle single-digits increase. Michael Murray: Okay. And then I just had a question on your tail revenue expectations for the year. So you increased your tail revenue guidance by $11 million at the midpoint while you raised adjusted EBITDA guidance by $5 million. Is there anything to call out in the delta between the 2? John Dolan: No, I think the -- if you're looking at the Q3 results, our revenue was kind of in line with expectations. We had -- as Derrick explained in his prepared remarks, I think our volume was lower, so our commissions were lower, but we had net adjustment revenue that offset it. So as we flow through that into our guidance for the full year, you got to take that into consideration. So the tail guidance, we think there's between the $40 million that is the low end of our range on a full year basis, which is what we booked year-to-date, we think there might may be potentially some upside in Q4. Operator: And there are no further questions at this time. Mr. Derrick Duke, you can proceed. Derrick Duke: Thank you. Thank you all for joining us today and for your continued interest in eHealth. We look forward to updating you on our AEP results in our next quarterly call. Have a great evening. Operator: Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation. You may now disconnect. Have a great day. Good bye.
Operator: Thank you for standing by. My name is Gail, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lightspeed Second Quarter 2026 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Gus Papageorgiou, Head of Investor Relations. You may begin. Gus Papageorgiou: Thank you, operator, and good morning, everyone. Welcome to Lightspeed's Fiscal Q2 2026 Conference Call. Joining me today are Dax Dasilva, Lightspeed's Founder and CEO; Asha Bakshani, our CFO; and J.D. Saint-Martin, our President. After prepared remarks from Dax and Asha, we will open it up for your questions. We will make forward-looking statements on our call today that are subject to risks and uncertainties that could cause actual results to differ materially from those projected. Certain material factors and assumptions were applied in respect to conclusions, forecasts and projections contained in these statements. We undertake no obligation to update these statements, except as required by law. You should carefully review these factors, assumptions, risks and uncertainties in our earnings press release issued earlier today, our second quarter fiscal 2026 results presentation available on our website as well as in our filings with U.S. and Canadian securities regulators. Also, our commentary today will include adjusted financial measures, which are non-IFRS measures and ratios. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliations between the 2 can be found in our earnings press release, which is available on our website, on SEDAR+ and on the SEC's EDGAR system. Note that because we report in U.S. dollars, all amounts discussed today are in U.S. dollars unless otherwise indicated. And with that, I will now turn the call over to Dax. Dax Dasilva: Thank you, Gus, and good morning, everyone. I'm thrilled to announce that Lightspeed had another very strong quarter. Revenues, gross profit and adjusted EBITDA came in above our previously established outlook. This marks the second consecutive quarter where we have exceeded revenue and gross profit outlook metrics. In addition, we delivered positive free cash flow and saw our GTV and location growth accelerate as we continued solid execution of our strategy. Our decision to focus on our 2 core growth engines, retail in North America and hospitality in Europe is clearly working, and we are seeing fantastic momentum. From product development to landing new business, our teams are delivering at a record pace. To deliver on our strategy, we are harnessing the latest advances in AI. As an example, this quarter, we released a host of new AI-driven products and features to enhance our customers' omnichannel capabilities. We are already seeing strong adoption across thousands of use cases. Additionally, by increasingly integrating AI tools in our go-to-market efforts, we are seeing sales productivity improvements such as doubling the number of connected calls from our outbound sales reps. We continue to leverage AI thoughtfully to drive revenue, improve products and reduce costs. I want to begin today by comparing this quarter against the 3 strategic priorities we laid out at our Capital Markets Day. As a reminder, those priorities are: growing customer locations in our growth engines, expanding subscription ARPU and improving adjusted EBITDA and free cash flow. On growing customer locations. In Q2, customer locations in our core growth engines, North American retail and European hospitality were up 7% year-over-year, an acceleration from 5% last quarter with approximately 2,000 net new customer locations added in the quarter. This acceleration clearly demonstrates that Lightspeed is growing in markets where we have a proven right to win. As a reminder, our goal is a targeted 3-year customer location CAGR of 10% to 15%, and we are on pace to meet that goal. Total customer location count, which includes all of our markets, was net positive again this quarter. Expanded outbound sales efforts, increased investment in vertical brand marketing and more effective inbound spending have helped drive location growth, particularly in our growth engines. Outbound bookings in our growth engines nearly tripled year-over-year. Since the start of the fiscal year, we've grown our outbound team to approximately 130 fully ramped reps within our growth engines, each now carrying a full quota. This investment is paying off. Our outbound motion continues to drive highly targeted acquisition of our ideal customers with strong unit economics. We will keep allocating resources toward outbound to capitalize on this proven engine of growth. During the quarter, we continued to expand our presence at trade shows, a great source of lead generation for ICP customers. Our NuORDER offering gives us a unique position within the retail environment and participating in these events gives us an opportunity to both demonstrate our strong product offerings and communicate our vision for NuORDER and our wholesale network. We're also continuing to host our own signature product innovation events, where we gather customers to showcase recent product launches and industry insights. Coming up, we'll be hosting Lightspeed Edge in Paris on November 24 for hospitality customers and New York City on January 12 for our retail customers. All these efforts continue to have a halo effect on our inbound funnel as we increase our visibility with our ideal customers through trade shows, outbound targeting and Lightspeed branding on our terminals at local restaurants in Europe and retailers in North America. We had many notable customer wins this quarter. In retail, we added 40-location Crock A Doodle, which operates pottery painting franchises across Canada, Benson's Pet Center with 9 locations in New York and Massachusetts. Within NuORDER by Lightspeed, we extended our partnership with Nordstrom and added marquee brands such as Carhartt and Steve Madden. And in golf, we signed on Top of the World Communities with 3 restaurants and 2 golf courses in Candler Hills, Florida. In hospitality, we added the 2 Michelin Star restaurants Hirschen in Salzburg, Germany. The Beckford Group focuses on unique premium hospitality experiences across their 6 locations in the Southwest of England. And with 2 locations in Antwerp, Belgium, we welcomed Da Giovanni, one of the area's well-known Italian restaurants. On driving software revenue and ARPU. Q2 software revenue grew 9% year-over-year and software ARPU increased 10%. Growth in our key markets is fueling software revenue as expanding location counts and targeted outbound efforts attract larger, more sophisticated customers who tend to adopt higher-end plans. This momentum is further supported by our steady release of new innovative features on our flagship offerings. In the quarter, we released several new features. In retail, we launched multiple AI-powered tools designed to dramatically improve our merchants' online presence with minimal cost or effort on their part. We launched the Lightspeed AI showroom designed for physical retailers who want a compelling online presence without the added time commitment of running an e-commerce store. Lightspeed's AI agent takes product data hosted within the Lightspeed platform and delivers a custom-branded website and catalog to help drive store traffic. Originally released back in March in beta, Lightspeed's cutting-edge AI-driven website building tool is now available to all customers who are looking to offer a full e-commerce experience. Merchants simply describe or show Lightspeed's website builder the kind of site they want using real-world examples, and the tool builds a fully integrated professional looking online store with speed and ease. And we launched AI product descriptions. This powerful new tool significantly streamlines the manual workflow, adding new products to e-commerce sites. Retailers can customize subscriptions by adding specific instructions for tone, style and length to ensure brand consistency. Since August, this description and formatting tool has been used to create approximately 57,000 unique product descriptions. In addition to these AI-powered tools, we were very excited to launch NuORDER Marketplace. Currently, our retailers use NuORDER to connect directly to each of their brands individually, allowing them to search within that brand's product catalog. However, our retailers have to conduct searches brand by brand. With marketplace, retailers can search for specific products, colors, styles or sizes across multiple brand catalogs simultaneously to help them discover new products and better curate their offerings. Currently in beta, Marketplace will be launched soon to all eligible NuORDER customers. In hospitality, we launched Integration Hub. The hub enables our customers to easily discover, connect to and start using over 200 third-party applications within the Lightspeed ecosystem. We've seen strong initial reception with almost 1/3 of our flagship hospitality customers interacting with the hub since its launch. Adding on to the already robust capabilities available to restaurant tours through Lightspeed's AI-powered benchmarks and trends, our latest update adds new visual layers to the sales performance chart, highlighting best and worst days relative to the market and providing drill-down views for each sales metric, helping merchants to make data-driven pricing and operational decisions. Benchmarks and trends remains the anchor feature for our top-tier plan within hospitality. In August, we launched Lightspeed Capital in Switzerland, where we saw strong and immediate demand from our Swiss customers. Finally, we launched time menus to bring automation to multi-menu setups, eliminating the need for manual workarounds. We also enabled Lightspeed Order Anywhere to sync with the restaurant's Google business profile, ensuring a consistent online presence and improving discoverability. By narrowing our focus to our growth engines, we've enabled our development teams to become far more productive, and I'm thrilled with the pace of innovation we are seeing on our 2 flagship offerings. I want to take a moment to share a glimpse of what's next for Lightspeed. As you have seen with several of our recent product launches, we've been deeply investing in AI as a meaningful way to empower our customers and redefine how they run their businesses. I'm thrilled to preview our upcoming innovation, Lightspeed AI, a new way for merchants to access insights and make decisions directly within their POS. Think of this as your AI assistant with agentic capabilities. Our AI acts as a trusted partner to help our customers find answers, uncover trends and act faster than ever before, custom-built to serve our retailers and restaurateurs' needs. This is the next evolution of Lightspeed's AI journey, building on the success of products like AI showroom and benchmarks and trends and is already being tested by a select group of customers. We can't wait to share more in the coming months as AI becomes a foundational part of how we help businesses thrive. On expanding profitability. Finally, our third strategic priority was to expand profitability. And in this quarter, we did exactly that through expanded margins and improved cash flow. Lightspeed further strengthened its software gross margins to 82% and transaction-based gross margins reached 30%, with both improving year-over-year and from the previous quarter. Adjusted EBITDA of $21 million increased 53% year-over-year. Importantly, we also saw improved cash flow, delivering adjusted free cash flow of $18 million, up significantly from $1.6 million in the same quarter last year. Back in March, at our Capital Markets Day, we laid out a bold strategy with 3-year financial goals. We are now over 2 quarters into that period, and I believe our strong results are evidence that we are well on our way. Within retail, our large customers are complex retailers that need sophisticated solutions to help them order, manage and turn over their inventory. These customers need more than basic software to run their businesses. They need a light ERP solution, which is exactly what we offer. We believe no other cloud POS vendor can match the feature set within Lightspeed Retail. In addition, we stand apart with the NuORDER Lightspeed integration because with NuORDER, Lightspeed's retail POS has wholesale built right in. The end result is an unmatched ordering workflow and a flywheel effect where more brands bring in more retailers and more retailers bring in more brands. Within European hospitality, I am confident that we have the superior product offering. We are now complementing that strong offering with the go-to-market motion that is becoming best-in-class. In addition, regulatory requirements involving fiscalization are a barrier to new entrants into that lucrative market. We have a formula that is working, and we believe we will continue to excel in this region. I will let Asha take you through our financials before making closing comments. Asha Bakshani: Thanks, Dax, and welcome, everyone. Lightspeed had an exceptional second quarter with our key financial metrics and KPIs surpassing expectations. Our results are evidence that our product innovation, our aggressive outbound strategy and our strategic focus we embarked on are working. We are delivering in the areas that matter most, which sets us up well for the long term. Before I take you through the financials, I would like to highlight some key trends in the quarter that I found very encouraging. First, and perhaps most importantly, we're seeing a tremendous impact from our strategy to focus on our growth markets of North America retail and European hospitality, as you heard from Dax. Software revenue in these markets increased 20% year-over-year. GTV was up 15% year-over-year. Payments penetration was 46%, up from 41% last year, and customer locations were up 7% year-over-year versus 5% in the previous quarter. These markets make up over 65% of our total consolidated revenue. When we isolate the metrics in these markets, they reveal the true competitiveness of our offering and the strength of our platform. We are really excited about the accelerated growth we're seeing in these markets, especially since we are still early in our transformation. Second, even with aggressive investments in product and go-to-market, the company's total profitability and cash flow metrics continue to improve. Gross margins and adjusted EBITDA showed great progress, and our relentless focus on driving profitable growth helped us deliver positive free cash flow of $18 million in the quarter, up from $1.6 million a year ago, and we expect to generate breakeven or better free cash flow for the full fiscal year, a significant milestone for Lightspeed. As usual, I will walk you through a detailed look at our financials and then provide our Q3 and fiscal 2026 outlook. Total revenue grew 15%, ahead of our outlook, driven by a growing location count, software ARPU expansion and increasing payments penetration. Revenue growth was primarily generated by our growth markets of North America retail and European hospitality as more and more customers move on to our platforms and attach new modules. In addition, we benefited from improving same-store sales, thanks to a more stable macro environment. Software revenue was $93.5 million, up 9% year-over-year, with software ARPU up 10% year-over-year. Software ARPU increased due to our outbound teams attracting larger customers, new software releases and the benefit of price increases we implemented last year. Transaction-based revenue was $215.8 million, up 17% year-over-year. Gross payments volume grew 22% year-over-year and capital revenue grew 32% year-over-year. GPV as a percentage of GTV came in at 43%, up from 37% in the same quarter last year. Overall GTV grew by 7% to $25.3 billion and total average GTV per location continued to climb as we continue to sign more high-value customers. GTV in Europe benefited from favorable FX rates as the U.S. dollar weakened against local currencies. Total monthly ARPU reached a record $685, up 15% year-over-year, driven by both higher software and payments monetization. ARPU grew across both our growth and efficiency markets with growth markets outpacing the overall average. And as those locations grow, we expect a continued positive impact on overall ARPU. With respect to our efficiency markets, our goal is to maintain the revenue base through additional module attachments and expansion of financial services. As an example, this quarter in Australia, we launched Instant Payout on Lightspeed Payments for hospitality merchants. This high-margin offering allows merchants to receive their daily sales the very same day, including weekends and holidays. There also continues to be meaningful opportunities to grow payments revenue in these markets as payments penetration is at 36%, well below the 46% penetration in our growth markets. In the quarter, we were able to keep total revenue close to flat year-over-year. With respect to profitability and operating leverage, total gross profit was strong, growing 18% year-over-year, exceeding both 15% revenue growth and our prior 14% outlook, driven by strong top-line performance and expanding gross margins in both subscription and transaction-based revenue. Total gross margin was 42%, up from 41% last year, despite transaction-based revenue increasing to 68% of total revenue from 66% last year. Hardware gross margins declined this quarter due to strategic discounts and incentives to drive new business as well as free hardware provided to support customer transitions to our Unified Payments and POS offering. We delivered strong software gross margins of 82%, up from 81% last quarter and 79% a year ago. This is largely driven by increased cost efficiency. We are increasingly using AI to reduce the cost of support and service delivery. As an example, AI now resolves over 80% of inbound chat interactions on our flagships. This has allowed us to significantly reduce headcount in support, which is showing up in our expanded gross margins in software. Gross margins for transaction-based revenue were 30%, up from 27% last year. This improvement reflects growth in our capital business and in payments penetration in our international markets, where margins exceed those in North America. As we convert customers to Lightspeed Payments, we increased our overall net gross profit dollars. And in the quarter, we saw transaction-based gross profit grow 28% year-over-year. Total adjusted R&D, sales and marketing and G&A expenses grew 13% year-over-year. This includes meaningful investments we are making in field and outbound sales as well as product innovation in our growth engine. Adjusted EBITDA in the quarter came in at $21.3 million, increasing 53% from $14 million in Q2 last year, driven by continued successes from our strategic shift and our focus on AI and automation to accelerate operating efficiency. As a percent of gross profit, adjusted EBITDA was 16%, approaching the longer-term 20% target we outlined at our Capital Markets Day. I'm very happy to report adjusted free cash flow of $18 million in the quarter. Thanks to our improving profitability and disciplined working capital management, we were able to deliver positive free cash flow despite our accelerated outbound strategy and increased investment in R&D. Although free cash flow will vary quarter-by-quarter, we expect to deliver breakeven or better adjusted free cash flow for the full fiscal year. We continue to actively manage our share-based compensation and related payroll taxes, which were $17.4 million or 5% of revenue for the quarter versus $19.5 million or 7% of revenue in the same quarter last year. With respect to capital allocation and our balance sheet, we ended Q2 with approximately $463 million in cash, an increase of approximately $15 million from last quarter. Approximately $200 million remains under our broader Board authorization to repurchase up to $400 million in Lightspeed shares, and we continue to be opportunistic in evaluating further share repurchases. Total shares outstanding in the quarter were down by 10% versus the same quarter last year due primarily to the $179 million in shares repurchased and canceled over the last 12-month period. Aside from potential buybacks, our largest use of cash will be growing our merchant cash advance business. There are currently $107 million in MCAs outstanding, and we believe we can continue to grow this balance over time. With that said, we're also running the MCA business more efficiently, using less capital this quarter versus the same quarter last year despite growing revenue by 32%. This is due to our successful effort to reduce payback periods to 7 months. With respect to M&A, we remain opportunistic in the evaluation of small tuck-in acquisitions to help accelerate product development, but large-scale acquisitions are not a strategic priority for us. Our balance sheet remains healthy and positions us well as we continue our strategic focus. Now turning to our outlook. For modeling purposes, I would like to highlight a couple of factors. First, Q3 GTV is generally flat to slightly down from Q2 due to seasonality, and we expect similar performance this year. Although Q3 benefits from the retail holiday season, in Q2, we have strong performance in European hospitality as well as golf. In terms of software growth, in Q3, we will lap the price increases implemented last year. As a result, we expect software growth to slightly moderate for the second half of the year. Looking ahead, we remain confident in our ability to execute against our go-forward financial outlook shared at our Capital Markets Day in March. As a recap, we targeted a 3-year gross profit CAGR of approximately 15% to 18% and a 3-year adjusted EBITDA CAGR of approximately 35%. Given our strong performance to date, we are raising our outlook for the full fiscal year. For the third quarter, we expect revenue of approximately $309 million to $312 million, gross profit growth of at least 15% year-over-year and adjusted EBITDA of approximately $18 million to $20. For fiscal 2026, based on a strong first half of the year, we are increasing our outlook for the year. We expect revenue growth of at least 12% year-over-year, gross profit growth of at least 15% year-over-year and adjusted EBITDA of at least $70 million. With that, I'll turn the call back to Dax. Dax Dasilva: Thanks, Asha. Before we take your questions, I would like to take this time to welcome our new Board members. In July, we welcomed Glen LeBlanc, the former EVP and CFO of BCE Inc., who brings with him over 30 years of tech and telecom experience. Last month, we also welcomed Sameer Samat and Odilon Almeida to our Board of Directors. Sameer is currently President of the Android ecosystem at Google, and Odilon served as the CEO of ACI Worldwide, a global payment software and solutions provider. I look forward to working with all of them as we continue to advance our strategy and support our customers. I would also like to thank our departing Board members, Rob Williams, Paul McFeeters and Patrick Pichette for their contributions and support over the past several years. In closing, I think Q2 is clear evidence that our strategy is working. I want to thank all of the employees at Lightspeed for making this strategy a success. Without your dedication and commitment, none of this would be possible. With that, I will turn the call back to the operator to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Thanos Moschopoulos of BMO Capital Markets. Thanos Moschopoulos: It seems like you're seeing a good return on your investment in outbound sales. And so in light of that, how should we think about the sales ramp? Might you look to accelerate your hiring plans for this year? And maybe too early to talk about next year, but safe to assume that you'll continue to ramp those investments heading into next year? Dax Dasilva: Thanks, Thanos. Yes. So outbound sales, overall, it's going really, really well. Our Q2 outbound bookings tripled year-over-year. So really, really pleased about that. As you know, this is the go-to-market motion that's going to allow us to really target our ICPs with precision and really have the best sales metrics. We've grown our outbound team to approximately 130 fully ramped reps right now in our growth engines, North American retail and EMEA Hospital (sic) [ European hospitality ]. And those are all carrying a full quota. We are expecting to get to 150 by the end of the fiscal year. And yes, and we are planning -- we're in the planning stage for how many reps we'll deploy in subsequent years. Thanos Moschopoulos: Okay. Great. And then maybe just a question on capital. As we think about the growth going forward? I mean, is much of that going to be driven by the launch in new geographies? And how should we think about the rollout? You mentioned Switzerland. What will be the strategy there for further expansion? Asha Bakshani: Yes. I'll take that one. Thanks, Thanos. Capital is going really, really well. You saw that come through in the prepared remarks and in the PR. We are using capital to upsell and cross-sell across the base. And in the Rest of the World portfolio, capital is one of the products that's super popular in the upsell to the merchant base. As we continue to ramp outbound and bring more ICPs into the funnel, we should continue to see capital growing quite nicely. You saw over 30% growth this year, and we should expect to see pretty solid growth into future years because the ICP customers that we're getting through in the outbound funnel are real prime customers for the capital business. They're very creditworthy, high GTV customers. And so that's -- we should expect that to help capital grow even stronger. Operator: Your next question comes from the line of Trevor Williams of Jefferies. Trevor Williams: I wanted to start with a bigger picture question on pricing. Just how you guys would frame the current backdrop at the industry level. Asha, I heard the call out on hardware discounting as more of a customer acquisition tool. I'm just curious if that's more of a proactive or reactive move to anything you're seeing competitively. Asha Bakshani: Trevor, thanks for the question. The hardware discounting is totally proactive. The hardware discounting is quite typical and common. You saw a slight uptick this quarter from what you've seen historically, and that just comes with more new locations. As we attract more and more locations in our growth portfolios, in particular, we are giving discounts to get those customers through the door. Pricing and packaging overall has been going very well for Lightspeed. We had some pretty significant price increases about a year ago, and that's what you're seeing come through partly in the growth this year. As we look forward, Dax talked a bit about all the product velocity and how strong that has been at Lightspeed. And so we keep including these new modules in different pricing and packaging. And so that evolution is going to continue, and that continues to drive quite a nice ARPU uplift for Lightspeed. Trevor Williams: Okay. No, I appreciate that. And then on the GTV growth acceleration we saw this quarter, I think you called out higher GTV location from the success with the growth engines. Anything else you can dimensionalize around same-store sales, location growth? And I know you don't guide to GTV growth, but with the momentum that we're seeing on the growth engines side, is it fair for us to assume that the trajectory that we've seen over the last couple of quarters that, that should persist going forward? Dax Dasilva: Yes. I'm going to say that same-store sales in both retail and hospitality, both in NAM and Europe were really positive this quarter. It's the best quarter for same-store sales in quite some time. And total GTV was up about 15% year-over-year in the growth engines and about 7% overall. So that's a good acceleration. It's also driven by all of the new locations. As you saw, we closed 2,000 new locations in the growth engines, which is an acceleration from last quarter. Operator: Your next question comes from the line of Josh Baer of Morgan Stanley. Josh Baer: Congrats on a really strong quarter. I wanted to dig in a little bit on investments in EBITDA and just really understand the takeaway from the change in the EBITDA guidance sort of reframe from $68 million to $72 million to greater than $70 million. So you've been -- you outperformed EBITDA again, the guide for Q3 was good. Like is there a reason to think that investments are ramping in the back half of the year and into Q4? Or yes, like how should we think about greater than $70 million? And then I just have a follow-up on OpEx. Dax Dasilva: As you can see, we're seeing a lot of traction in our growth engines. We want to continue to accelerate location counts. We want to continue to invest in our go-to-market. And so some of that -- some of our -- some of the funds are being reinvested in continuing that trajectory. I think that's important for the company. I think everybody wants to see us be able to capture share in our biggest opportunities for growth. Asha? Asha Bakshani: Yes. Thanks, Josh. I think Dax really drove that point home. We're just -- the EBITDA raise is smaller than the beats that you've seen to date only because we really want to give ourselves the flexibility to double down on investments where we're seeing that the investments pay off even more quickly than expected. And we are seeing that in several areas in our growth engines. And so the smaller EBITDA raise is really to give ourselves that flexibility to continue to invest in growth. There's a large TAM out there, and we're excited about that. Josh Baer: Okay. That makes a lot of sense. I guess a follow-up would be on just the software piece here. Software ARPU growth is higher than the total software revenue growth, but you're still adding customers on a net basis year-over-year, quarter-over-quarter. How do we put those 2 different growth rates? Asha Bakshani: Yes. Great question, Josh. The software ARPU growth is growing faster than total software growth really just results from the mix shift. As we're bringing larger and larger customers onto the platform and churning the smaller customers, you're seeing that show up in the average revenue per user per month more quickly than in the software revenue. And that's really all that's about -- and that's a good news story for Lightspeed. We're bringing more of the larger customers, higher ARPU customers onto our platform, and we're seeing the vast majority of the churn in the smaller merchants. Operator: Your next question comes from the line of Tien-Tsin Huang of JPMorgan. Tien-Tsin Huang: Just curious, any good quarter here. Any interesting observations out of the growth markets from a monthly perspective, month-to-month, that is, that informs your confidence to raise your outlook? And I'm curious, same question here for quota-carrying sales, any seasoning effects here? I'm assuming you'll see more productivity. I just don't know how that's balanced across the 130 that you have. Dax Dasilva: I think Q2 is a really good quarter for European hospitality. It's their go-to season as well as for golf. Obviously, we'll see a little bit less of those 2 elements of the growth engines in Q3. We'll see more of NoAm retail. So that's sort of how our seasonality looks in the next little while. But yes, I think we are we are seeing a real payoff of those go-to-market efforts and those growth engines. We're seeing acceleration. And I think with outbound, we're really able to target those customers that are natural fits for where our product plays, which is those higher GTV merchants in retail and hospitality. Tien-Tsin Huang: Got it. And then Dax, I'm curious I have to ask on the efficiency markets. Any change there in your thinking on strategy? Because it seems like there's some surgical things you're doing there to enhance growth or productivity there. Any change in thoughts? Dax Dasilva: I think we consider this a really big success, right? It's really helping us fuel growth in the growth engines. We see 20% software growth in our growth engines. We're happy. But as you can see, the efficiency markets are really holding. We're -- we have really positive trends on efficiency, and we're -- yes, it's maintaining what it needs to. Operator: [Operator Instructions] Your next question comes from the line of Matthew English of RBC Capital Markets. Unknown Analyst: This is Matthew on for Dan Perlin, RBC. So I have a question on NuORDER. It's great to hear the rollout of Marketplace. I was wondering if you could frame the monetization strategy of that asset and maybe the outlook for attaching payments to that B2B volume. Dax Dasilva: Yes. This is such an exciting part of the strategy, and you're seeing quarter after quarter become a bigger and bigger part of all parts of the retail story, and it's a massive part of our sales pitch now. So we are the only retail POS with wholesale built right in. You're going to see a massive rollout of our vision of this at NRF. But day-to-day in our sales calls, this is -- it is a massive benefit for the retailers in our target verticals to be able to buy from wholesale right inside our platform because we can offer a workflow that literally nobody else can offer in our space. Now that is even made more powerful by the fact that we can leverage all of our insights, our AI-driven insights and our capital products to make turns of inventory even more efficient. And now with Marketplace, it's not just the brands that you're currently working with that are available to you NuORDER, you can now discover new brands, search across brands that you haven't interacted with. And so it really opens up the world of NuORDER for our retail customers and allows them to diversify and add to their curation. So it's very, very exciting, multifaceted advances on NuORDER. We have amazing brands coming on to the platform as well, like this quarter, Carhartt is a major new addition. And I think what's exciting about that is that Carhartt also has a lot of retailers that they work with that should be on Lightspeed. And so brands are recommending retailers join the platform and retailers are recommending that their key brands are also on the platform. And as you mentioned, there's a big payments opportunity here as well. So we've got now the infrastructure in place to take advantage of that, and that's a part of our acceleration strategy with NuORDER. Operator: Your next question comes from the line of Matt Coad of Truist Securities. Matthew Coad: Really good set of results here. I wanted to touch on the locations growth. I thought really encouraging set of results, both on total locations and growth engines. I was hoping you could unpack it a little bit for us, both on gross adds in the growth engines, kind of like what subverticals maybe you're seeing outsized success in or what kind of geographies within Europe you're seeing success in? And then also curious if you could touch on churn rates. It seems like churn rates have gotten a little bit better for you guys based on our math. So any tidbits or pieces of information there would be helpful. Dax Dasilva: Yes. I think this is a major win for the company to have 2,000 new locations, an acceleration from 5% to 7% location growth in 1 quarter. As you know, our 3-year CAGR that we shared at Capital Markets Day is 10% to 15% location growth. So in 2 quarters of the transformation, we're already making major progress. And this just feeds all of our metrics, right? It just helps everything grow to have more high-quality merchants joining the platform. And so this is the #1 thing that I talk about every single day at the company as we have to bring more customers on to Lightspeed's platform. And this has become a rallying cry because we know that we can add value for these customers by having them join the platform, by having them leverage NuORDER, by having them leverage all our new AI tools and all of the deep inventory tools and restaurant management tools that we have for European restaurants as well. So in our growth engines, I would say location growth, if you look quarter-by-quarter. It's pretty evenly split across the 2 growth engines. We've got areas of seasonality, of course. When it's go time for European hospitality and golf in the summer months, there's less likely to be onboard onto a new system. They're often interested in learning about it, but to close them, it's more likely to close them in Q3. And then conversely, for retail, they're not going to want to switch systems in the middle of the buying holiday season, which is their opportunity to make the most money. So yes, we do see different opportunities, but I think we are able to -- we're still able to grow in our key verticals. So the key verticals as well for retail where we see some of the biggest opportunity is multi-brand apparel that are using NuORDER to buy from a lot of different brands. We, of course, are very, very strong in sport and outdoor, which includes some of our strongest verticals like bike and golf, but there's a lot of other different verticals that we're doing really well in like running and swimwear, et cetera. In European hospitality, we're in a number of different European countries. We've been historically strong in the Benelux and the U.K., but France and Germany are real exciting stars for us right now as well. So this is -- there's lots of areas of strength that we're going to continue to build on. Operator: With no further questions, that concludes our Q&A session. I'd now like to turn the conference back over to Papageorgiou for closing remarks. Gus Papageorgiou: Thank you, operator. Thanks, everyone, for joining us today. We will be around all day if anyone has any further questions, and we look forward to speaking to you at our next conference call in early of next year. Thanks, everyone, and have a great day. Operator: This concludes today's conference call. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Equinox Gold Third Quarter 2025 Results and Corporate Update. [Operator Instructions] And the conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Ryan King, EVP, Capital Markets for Equinox Gold. Please go ahead. Ryan King: Thank you, operator. Good morning, everyone, and thank you for taking the time to join the call with us this morning. Before we commence, I'd like to direct everyone to our forward-looking statements on Slide 2. Our remarks and answers to your questions today may contain forward-looking information about the company's future performance. Although management believes our forward-looking statements are based on fair and reasonable assumptions, actual results may turn out to be different from these forward-looking statements. For a complete discussion of the risks, uncertainties and factors that may lead to actual operating and financial results being different from the estimates contained in our forward-looking statements, please refer to the risks identified in the section titled risks related to the business in Equinox Gold's most recently filed annual information form, which is available on SEDAR+, on EDGAR and on our website. And finally, I should mention that all figures are in U.S. dollars unless otherwise stated. With me on the call today are Darren Hall, Chief Executive Officer; Pete Hardie, Chief Financial Officer; and David Schummer, Chief Operating Officer. We will be discussing our third quarter 2025 production and cost results and providing an update on ramp-up progress at our Greenstone and Valentine mines after which we will take questions. The slide deck we are referencing is available for download on our website at equinoxgold.com, under the Shareholder Events section. You can also click on the webcast link to join the live presentation. And with that, I will turn the call over to Darren. Darren Hall: Thanks, Ryan, and turning to Slide 3. Good morning, everyone, and I appreciate you taking the time to join us on the call today. Firstly, I would like to acknowledge the efforts of all of Equinox's employees and business partners for their continued focus to responsibly deliver over 236,000 ounces during our first full quarter, including Calibre assets. Well done to the entire team. It is truly an exciting time for Equinox as we begin to realize the value of our expanded Americas-focused gold portfolio anchored by 2 new cornerstone gold mines in Greenstone and Valentine. As I've mentioned previously, the leadership team, supported by the entire organization is focused on creating shareholder returns by consistently delivering on its commitments, which are focused on demonstrated operational excellence, advancing high-return organic growth, rationalizing the portfolio and disciplined capital allocation. These are more than just words. Over the last quarter, we have made material progress on each of these commitments. Just a few examples: operational excellence. Production and costs were in line or favorable compared to consensus expectations and we remain on track to deliver into our full year consolidated production guidance. Importantly, we have made meaningful progress at Greenstone, which I'll talk to shortly. Advancing high-return organic growth. We poured force gold at Valentine where the ramp-up is progressing extremely well, a game, which I'll provide color on shortly. Additionally, Castle Mountain was accepted into the U.S. Federal Permitting Improvement Steering Council's FAST-41 permitting program, which defines an anticipated record of decision in December of 2026. Rationalizing the portfolio. Post quarter end, we closed the sale of our Nevada assets for $115 million, including $88 million in cash. Disciplined capital allocation. We retired $139 million of debt during Q3 and have commenced Q4 with an additional $25 million in October. Turning to Slide 4. During Q3, we sold 239,000 ounces at an average cost of $1,434 per ounce at an all-in sustaining cost of just over $1,800 per ounce which underscores the enhanced scale and earnings power of the new company. Our adjusted net income was $147 million or $0.19 per share with adjusted EBITDA of $420 million. We ended the quarter with $348 million in cash, not including the $88 million from the sale of our Nevada assets, which closed post quarter end. With year-to-date production of 634,000 ounces, we are well positioned to deliver the midpoint of our 2025 production guidance of 785,000 to 915,000 ounces after divesting Nevada and prior to considering any production from Valentine. Equinox has entered a pivotal phase with increasing Canadian production driven by asset optimization and the addition of Valentine, positioning us for stronger cash flow and earnings in the quarters ahead. Turning to Slide 5. Greenstone's performance improved meaningfully in Q3, and we remain on track to deliver into the low end of our production guidance at Greenstone. Importantly, Q3 mining rates exceeded 185,000 tonnes per day, which was a 10% increase over Q2 and a 21% increase over Q1. Importantly, process grades improved 13% in Q3 to 1.05 grams per tonnes. Improvements to pit floors, haul roads and dumps, along with implementation of double-side loading have led to lower cycle times and increased productivity. Our focus on equipment maintenance practices, more efficient shift changes and the use of hot seating during shifts is also contributing to improved equipment utilization, which is resulting in increased daily mining performance. Since July, we have implemented additional dilution management measures, including enhanced grade control protocols and improved tracking systems, which is positively contributing to increased grades quarter-over-quarter. In the mill, despite 10 days of downtime due to planned maintenance events, including a 7-day shut to replace HPGR grinding rolls, total tonnes processed in Q3 were consistent with Q2 as we saw a 6% improvement in tonnes per hour processed. Further process improvements are underway, including commissioning of additional final refeed and core source stockpile conveyors that will enable consistent delivery material to the grinding circuit during periods of downs by providing additional redundancy. The positive momentum has continued into Q4 with October mining rates exceeding 205,000 tonnes per day, a 10% increase over Q3. In the process plant, we have seen mill grades improve to 1.34 grams per tonne, a 27% increase over Q3 and a 15% improvement in tonnes milled per day versus the Q3 average. The strategy being made across the board, coupled with increasing grades underscores our confidence that Greenstone will deliver a strong Q4 and continue that momentum into 2026. Turning to Slide 6. Valentine commissioning continues ahead of expectations with ore introduced into the circuit on August 27 and first gold was poured on September 14. The plant averaged nearly 5,000 tonnes per day or 73% of nameplate for the first 66 days of operation. Performance in October continues to demonstrate strong progress with throughput averaging over 6,200 tonnes per day or 91% of nameplate. Importantly, 18 days or 58% of the days during October were greater than nameplate. Recoveries exceeded 93% for the month from lower grade commissioning ores, which again, are consistent with feasibility level recoveries, albeit a lower grade. Performance at this level is truly a testament to the robustness of the design and disciplined execution by our construction, commissioning and operations teams over the last 18 months. While we're still early in the journey, based on what I have seen, I fully expect Valentine to deliver into the upper end of the Q4 production range of 15,000 to 30,000 ounces. With the ramp-up progressing extremely well, I anticipate Valentine will reach nameplate capacity by Q2 2026. On this basis, 2026 should be a strong year with production anticipated to be between 150,000 to 200,000 ounces. In parallel, we're advancing our Phase II expansion studies and see a clear path to increasing throughput to between 4.5 million to 5 million tonnes per year. I will provide a fulsome update when we announce full funds approval which I anticipate in early Q2 2026. Concurrently exploration drilling has accelerated across the property with 4 drills in operation, the team is following up on several new discoveries, including the previously released Frank Zone. Assays are pending for a number of significant intercepts, which could meaningfully add to the resource base in the coming years. Needless to say, we are very optimistic on Valentine's exploration potential. Turning to Slide 7. Looking to 2026, I expect continued improvement in production and cash flow, supported by increasing contributions from both Greenstone and Valentine. We have seen a lift in our share price over the past few months, supported by a stronger gold price and steady operational delivery. That being said, I believe there is still a disconnect between our intrinsic value and how we are currently trading. Since 2022, our peers have seen significantly higher equity performance and while I recognize we've got work to do as we continue to build confidence by delivering our commitments. I believe there's a meaningful upside potential in our share price. The opportunity ahead is significant, and our strategy is solid. By demonstrating operational excellence, advancing our high-return organic growth assets, rationalizing the portfolio with a disciplined capital allocation strategy, I'm confident that we will become a reliable top quartile value to diversify gold producer. With that, operator, we are ready to take questions. Operator: [Operator Instructions] The first question today comes from Francesco Costanzo with Scotiabank. Francesco Costanzo: Congrats on a good quarter. Maybe I'll start with Valentine. With the first of gold poured that was completed in September. Can you discuss some of the key performance milestones that you're tracking during the mine and mill ramp up? And then maybe after that, could you give us an update on the Phase II expansion study to increase the throughput to 5 million tonnes per annum? Darren Hall: Yes. Francisco, thanks and appreciate yours and Scotia's continued support. When we think about the milestones of Valentine, I guess, is that there's a lot of moving parts as you birth a new asset like Valentine. But I guess as the headline number here is that if we think of the first 66 days of performance of the entire facility since introducing ore in August 27, we've exceeded 70% of nameplate. And if we think about October in isolation, it's over 90% of nameplate. So all of the things that the team are focused on are clearly delivering in a great product. And as we look forward, they're now thinking about what's happening next, which is a good segue into Phase 2. We've tried purposely not to distract the team with Phase 2. But in the background, we have been doing work and over the last quarter, we've continued on our, we'll call it, options study analysis. And we now have good clarity on what the preferred option is going forward. And it's really a much simpler view than what we'd ever seen before. It doesn't include the addition of flotation. It specifically includes the addition of a twin ball mill, which provides additional redundancy in the circuit, which we see will comfortably deliver close to 5 million tonnes. So in this month, we'll actually commence the feasibility study and as I foresee earlier, I would anticipate going to the board in early Q2 for full funds approval so I would anticipate providing a fairly fulsome update here in the latter part of Q1 or early Q2. Francesco Costanzo: Yes, that's great. Maybe if I could just 1 more on deleveraging. So net debt currently sitting around $1.3 billion. Can you outline your strategy for deleveraging and how that might relate to portfolio rationalization work that's underway. And with the Pan sale now closed, can you maybe highlight when we might expect to see the next transactions? Darren Hall: Sure. I guess there are 2 things that are running in parallel that we can kind of put a ring fence, if you will, around portfolio optimization. But if we think about -- I think you mentioned a $1.3 billion net debt. And if we look forward for the next 12 months and we think about our production portfolio, we call it 1 million ounces given the buoyancy and the privilege we see with buoyancy and gold price right now, and we look at our total cost, it's easy to see over $1 billion that we can put against delevering the balance sheet. So ignoring any asset sales, by the end of next year, we're going to be in a very, very solid liquidity position with a significant portion, if not the majority of our debt extinguished. So as we start to think about Valentine coming online, I would anticipate that we'll definitely be fully funded on Valentine before we make a go commitment. And we think about the additional organic growth that comes post that with Castle Mountain, we're going to be in a very solid position with that as well. Now specifically as it relates to our assets, well, if I think of assets as children, I love them all, but for the right price, I'll gladly part with one. So we have seen interest in some of our assets. And to that end, there are people when we encourage people, if you're interested in having a discussion come to us and we'll gladly entertain and we'll see how it makes sense. And if those assets and that offer would make more sense and value to our shareholders in someone else's hand versus ours. But we're not desperate to transact. But for the right price, if it makes sense for our shareholders, we'll gladly entertain and progress any opportunities. But this is very clearly a path for us to realize some additional value and look at how we could use cash from any sales in terms of funding our organic growth portfolio. But to reinforce also, this is looking at disposal of, not acquisitions. Operator: The next question comes from Anita Soni with CIBC World Markets. Anita Soni: Darren, I just wanted to ask about your calculation of mine site free cash flow. I think there are some items in there that relate to basically nonoperating mines, so Los Filos, Castle Mountain and Valentine. Can you give a breakout of percentages or even millions of dollars like which ones I would allocate it to? Darren Hall: Yes, Anita. Again, I don't have that information in front of me, but I'll ask Peter. Pete, you're in a position to... Peter Hardie: Unfortunately, no, not at this moment, Anita. I'm happy to -- we'll have that for you after the call. Anita Soni: Okay. Then I'll ask on Valentine, a follow-up question, I guess. On Valentine, the grades that you're introducing right now, it was like 0.77 grams per tonne, I think. And then I'm just -- not that this is the time to be concerned, but I was just curious, was that just a deliberate decision right now until you get the recovery rates where you want them to be, not to waste or is that something where you are in the mining sequence at lower grades initially? And how will that evolve over the next couple of quarters? Darren Hall: No. Thanks, Anita. And I appreciate the question, and it's a really, really good question. No, we're seeing very solid and actually positive reconciliation from our ore control to our resource and reserve models at Valentine. So very comfortable with what we see there, as we've talked about previously. As we talk about being in the first 2 months, we've specifically commissioned the plant on lower-grade materials. And the reason being is this that we want to practice on material is less important. But in hindsight, Jason and the team have done such a fantastic job that we probably should have just commissioned on the highest grade material because we're seeing recoveries in excess of feasibility out of the gate. So no, the team has done a great. But no, it's been a purposeful decision to process lower-grade materials and ramp up as we get comfortable with getting to the point where we can declare commercial production, which we would anticipate probably in the next month or so, right, definitely in the quarter. Anita Soni: Okay. So I'm going to ask 1 more since the first one didn't get answered, if that's okay. But it's similar on the grades going into Greenstone. So I think it said in October, you're at 1.34 gram per tonne material. I'm not sure if it was being fed to the mill or if that was what was being mined. But if it's 1.34, are you starting to see higher grades coming out of the pit specifically the underground areas where you were wondering if sort of the remnants around the old workings were there or not? Like have we seen -- is there any progress or update on the profile of the skin? Darren Hall: Yes. No, absolutely. And thanks again for the great question. Is that if we think about quarter-on-quarter, we saw a significant improvement at grades milled at Greenstone. It did go to 1.05 and they are milled grades, not mine grades. We have seen an improvement in mine grades as well in the quarter. I mean average mine grade in Q3 was 0.91 grams per tonne compared to $0.78 in Q2 and as you're aware, we're mining more material than what we're processing. We're purposefully processing the higher grade material. And from the material we are seeing, we are seeing a higher grade because of where we position ourselves geographically. But secondly, I think that the concerted focus we've had on getting reliable tonnes mined, which is allowing the team to focus on quality which is minimizing dilution and then also being very purposeful in and around how we treat material in and around the voids is definitely having a very positive impact on grade. And I think I mentioned on the earlier part of this call that there's been a focus for quite some time. But I'll suffice to say, in July, things got pretty serious with respect to grade, and we saw a step change in September with the average grade in September process to 1.38 and we've been able to maintain a 1.34 in October. So I think what we're seeing is a combination of the performance in the mine, allowing for focus on quality, which is allowing for a consistency in grade fed, which was always the model, but I think that we've got the right people focused on the right things, and we're starting to see the benefit from. So that, coupled with the continued improvements we see in mill throughput on a tonnes per hour or tonnes per day basis will definitely lead to a much stronger Q4 with growth momentum into 2026. Operator: The next question comes from Mohamed Sidibe with National Bank Capital Markets. Mohamed Sidibe: Maybe I could start with Greenstone. Just wondering if you could maybe give us a little bit of color on your current stockpile in terms of tonnage and grade at Greenstone currently, if possible? Darren Hall: Yes. No, sure. At the end of month October, again, this is from memory, but I guess is that the important part of the stockpile is the highest grade material and we have the better part of a month of high-grade material in front of us and the grades in excess of 1.5 grams. Then there's the other material, which is a little lower grade material, but we're talking 2 million or 3 million tonnes at around 0.7 grams per tonne and then we've got the lower grade material as well. But in total, we've got in excess of 8 million tonnes of stockpile in front of the plant as it stands today. Mohamed Sidibe: That's great. And maybe if I could just move in terms of capital allocation priorities. I think back in Q2, you talked about, of course, deleveraging your balance sheet, paying down debt and reinvesting within your growth projects. But in terms of capital return, you had talked about potentially mid-2026. Since then, I think gold has moved over $500 per ounce. Have your thoughts changed around your capital return program at all? Or should we still target mid 2026 for a potential update on that front? Darren Hall: Well, I guess, is kind of foreshadowed earlier, if we kind of ignore any potential cash that can come in from an asset divestment, I think we're going to find ourselves significantly delevered by the end of 2026 and at that point, we'll be having some pretty material conversations about vehicles to be able to return additional capital to shareholders. I mean, Pete, what would you layer on this one. Peter Hardie: Yes. I think, Mohamed, if you're -- as you said, if you're looking at 2026, that will be a 2026 discussion. So for purposes of modeling, if you will, just assume no capital returns for next year. We are really very entirely focused, as Darren just said a couple of times now on delevering. Darren Hall: Yes. And if we think about capital allocation holistically. Aside from exploration, the most accretive investment we can make is to ensure that we deliver into our production commitments at a responsible price. From that, with cash it's delevering the balance sheet, but it's positioning ourselves for our significant organic growth as we see through Valentine Phase 2, Castle Mountain. And then the additional benefit we'll see from Los Filos in the next couple of years as well. So I think our strategy on capital allocation is very clear. And if we find ourselves with a cash inflow vis-a-vis an asset disposal that could then provide additional talk to return capital to shareholders through a dividend or a share buyback or some other form. But the organic growth opportunity within the portfolio, exploration and the assets are mentioned Valentine, Castle, Los Filos will provide significant returns to our shareholders. Operator: The next question comes from John Tumazos with Very Independent Research. John Tumazos: Could you elaborate on the Phase 2 expansion to 5 million tonnes potentially for Valentine. Would the 15,000 tonnes a day, be it the same grade to suggest the 2029 output as much as 400,000 ounces? Darren Hall: Yes, John -- and thanks for the question. I appreciate your support. If we think about the feasibility study that was put out at the end of 2022 for Valentine, it had a 2.5 million tonne base plant, expanded to 4 million tonnes. And what that did is that delivered into the feasibility study, which generated a 175,000 to 200,000 ounces a year over a reserve life of 14 years. So now what we've been looking at is what's that optimal increment that we could add to the base facility. And what we've been looking at is that optionality. So where we see right now is this that we see a path to something that's comfortably in that, call it, 5 million tonnes because it makes the math easy so would it be a 20% increment in throughput over what was included in the feasibility study. So I think then you make some assumptions on what would the incremental grade be. So if we be -- let's be -- let's assume that the grade is consistent with the average. It would then demonstrate a proportional increment of 25% improvement in production. Stepping back, I think that if we look at this -- the exploration success we've seen from Frank and the other potential along the property that will all come together around the same time. I think over the next year, we'll be sitting back and saying, clearly, we'll have an optimal incremental throughput, the material that feeds into that will be significantly impacted by our exploration success, and we look at optimizing the plants. Everything we've done to date has assumed the same relatively conservative mine plan, resource base and pit designs that we used in the 2022 feasibility study. So I think that we have a very favorable view on the increment at Valentine. But I think that will become more favorable as we optimize the plant 4 or 5 million tonne plant, and we start to see the benefits from the reconciliation that we anticipate going forward. Early days, but given the nature of the deposit, I would anticipate we're likely to see some positivity in terms of reconciliation above a cutoff. So no, I think that it's -- it's too early to say absolutely what the numbers are, John. But if I was sitting on your side of the table, trying to fill in a model, I would probably replace the $4 million with $5 million and then use something that was just proportional on throughput accordingly. Throughput beg your pardon on ounces. John Tumazos: If I can ask another, what is the best way to manage the benches at Greenstone when you have waste benches, 0.7 gram stockpile benches. And then highs as nice as 1.5 grams. Do you have all the same size shovels and trucks? Or do you have a few half size to quarter size shovels and trucks to go in and get those sweet spots without waste. Darren Hall: It's a good question. It leads to really a selectivity issue, John, in terms of how selective can you be. And I think that we're seeing that with the level of control, we can be more selective. But to take the situation where you're running from, say, a 10 or a 12-meter bench. You're making the benches smaller. Do we think there's going to be a material improvement inability to be able to deliver higher grade as a function of selectivity -- and I think in short, it's early days, but I don't believe from what I see, there's going to be a significant opportunity. There's going to be interesting areas where maybe it's more relevant than others. But generally speaking, I consider as it stands today, a Greenstone is more of a bulk mining, want to have a level of quality. But for the equipment size is rightsized for the operation we have, and it's really going to be about lowering our unit cost of production vis-a-vis mining processing and spending G&A as efficiently as we possibly can to have the most positive impact we can on all-in sustaining costs and maintaining margins given whatever gold price. And I'll maybe ask Tom. Tom, is there any layer in there from a selectivity perspective in terms of what we see from a resource reserve perspective. Unknown Executive: No, Darren, I think you covered it. I think the again, John, some of the things mentioned in the commentary of the conference call with respect to some of the ore control practices and things we're putting in with some of the automated systems and paying close attention to the geology as we go bench to bench is helping manage dilution. And we definitely are looking at some of these selectivity studies in the background. But to Darren's point, on mass, there doesn't appear to be a benefit. There can be selective areas where we can go in and be very in certain areas pick cherries out. But on mass, John, this isn't going to be a flitched -- several fetched benches as we go down. Darren Hall: Again, if we think about the contrary here at Valentine, we see good opportunity, and we have 2 specific mining fleets, a larger fleet, the smaller fleet and specifically to use a smaller fleet where there's a good opportunity to be more selective, and therefore, preferentially mine at a lower grade, not only just use the stockpiles. So yes. No, I think we have a good plan at Greenstone and we'll continue to look for those opportunities to positively impact grade. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Darren Hall for any closing remarks. Darren Hall: Yes. Thank you, operator. I'd just like to close by thanking all of our stakeholders for their continued support and everyone's participation and questions on the call this morning. It is appreciated and valued. And as always, Ryan, I and the entire leadership team are always available if you have any further questions. So with that, take care. Be well and back to the operator. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Luca Pfeifer: Hello, everyone, and welcome to our third quarter 2025 results call. This event is being recorded. Our speakers today will be our CEO, Marcelo Benitez, and Bart Vanhaeren, CFO of the company. The slides for today's presentations are available on our website, along with the earnings release and our financial statements. Now please turn to Slide 2 for the safe harbor disclosure. We will be making forward-looking statements, which involve risks and uncertainties and which could have a material impact on our results. On Slide 3, we define the non-IFRS metrics that we will reference throughout this presentation. And you can find reconciliation tables in the back of our earnings release and on our website. With those disclaimers out of the way, let me turn the call over to our CEO, Marcelo Benitez. Marcelo Benitez: Good morning, everyone, and thank you for joining us. This has been another strong quarter for Millicom. Before we begin, I want to express my heartfelt appreciation to all members of the TIGO team. Your dedication and purpose-driven execution are at the heart of these results. Once again, thank you. In the third quarter, we accelerated top line growth while maintaining strict cost discipline. This reflects the consistent execution of our double [indiscernible], delivering the best customer experience with maximum efficiency. We also advanced on our strategic agenda completing the Uruguay and Ecuador acquisition and closing the SBA tower transaction. Three milestones that strengthened both our balance sheet and regional footprint. Organically, service revenue grew 3.5% year-over-year, supported by mobile subscriber growth and ARPU expansion in prepaid. Most importantly, we remain firmly on track to deliver our $750 million equity free cash flow target for 2025. Let's now review the key milestones from the quarter. Our relentless focus on commercial execution continues to deliver solid results, both in consumer segment and in the business segments. On B2C, we added nearly 250,000 postpaid mobile customers and about 60,000 new home subscribers. In B2B, the momentum remains strong. I'll touch on that shortly. Thanks to the discipline in capital allocation and operational efficiency, we delivered record profitability. Adjusted EBITDA reached $695 million, with an all-time high 48.9% margin. This translated into equity free cash flow of $243 million. We closed the quarter with net leverage of 2.09x or 2.33x proforma excluding the infrastructure sale. We remain fully committed to maintaining leverage below 2.5x even as we integrate Ecuador and Uruguay in Q4. Let's now look at performance by segment and geography. Our mobile business delivered its strongest organic growth since 2021, with mobile service revenue up 5.5% year-over-year. Growth was driven by ARPU expansion in prepaid as we align pricing with inflation and by steady migration from prepaid to postpaid. Our postpaid base grew 14%, reaching 8.9 million customers while prepaid volumes remained stable. These results demonstrate the strength of our commercial model, focused on delivering the best network experience, focus on channel productivity, pre to post migration and fixed mobile convergence. Turning to our home business, our second largest segment. As we mentioned a moment ago, we added 60,000 new customers, up 5.4% year-over-year, supported by our convergence strategy, which bundles multiple services under one plan. This approach enhances customer value and keeps churn in the low single digits. Home service revenue was essentially flat year-over-year, a marked improvement from the nearly 5% decline a year ago. The strong foundation built in recent quarters positioned us for positive revenue growth on the next quarter. Please turn to the next slide for a review on our B2B business. Our B2B segment continues to gain momentum. Service revenue reached $231 million, up 5.3% year-on-year in constant currency. Small business clients grew 10%, totaling over 400,000. Our digital services remain a key growth engine. Revenue rose 10%, led by cloud, cybersecurity and SD-WAN growing around 35% year-over-year. In short, B2B is scaling profitable and remains a compelling growth platform for Millicom. Let's now review our performance in our largest market in Colombia. Colombia delivered another strong quarter. Postpaid customers rose 12% year-over-year, while prepaid also grew. In Home, customers increased 12%, reaching 1.6 million HFC and FTTH connection driving Home service revenues up 5.7%, a full turnaround from 2022. Overall, service revenue grew 6.5% and EBITDA margins expanded 447 basis points to 43.5%. This demonstrates how profitable growth is now firmly embedded in our Colombia business. Turning to Guatemala, we continue to perform exceptionally well. Guatemala continues to set the bar for operational excellence. Postpaid customers grew 20%, driving mobile service revenues up 4.6%. Exceptional efficiency led to operating cash flow growth of 22% year-on-year, reaching a record of $204 million, a remarkable achievement. Please turn to the next slide to look at Panama. In Panama, postpaid customers grew 15%, supporting 7.1% mobile service revenue growth. We achieved our record EBITDA margin of 52.2%, underscoring Panama's position as one of our most efficient operations. Let's now turn to Slide 12. We are very proud to have completed acquisitions of Uruguay and Ecuador. Two countries that share our purpose of connecting people and driving digital progress across Latin America. These acquisitions broaden our footprint to 11 countries and enhance earnings quality through greater scale and macroeconomic stability. Uruguay adds 700 cell sites, 33% market share and $246 million in annual revenues, with $93 million of adjusted EBITDA. Ecuador brings approximately 2,500 cell sites, 30% market share generating almost $490 million in revenues and $161 million in adjusted EBITDA. With these two additions, we integrate an investment-grade country and a dollarized economy into our portfolio, enhancing stable cash generation and unlocking meaningful synergies through original scale. We're energized by these opportunities. They strengthened our position as the leading pure play telecom operator in Latin America. Before we move on to the financials, I'd like to take a few minutes to update you on where we stand with our strategic projects and legal matters. First, as we shared last quarter, we've now completed the sale of our tower companies in El Salvador and Honduras. The Lati tower transaction totaled about $975 million marking a successful conclusion of our infrastructure monetization plan. With this, we've achieved what we set out to do, unlock value for our stakeholders and stay fully focused on what we do best, delivering connectivity. Turning on Costa Rica, I am pleased to share that we've settled our long-standing litigation with Telefonica. This was related to the 2020 acquisition attempt. This brings important closure and allows us to move forward with clarity and focus. Separately, the Costa Rica regulator has decided to prohibit our proposed combination with Liberty Latin America that we announced on August 1, 2024. Sutel is concluding that the potential competitive effects could not be adequately mitigated by the remedies proposed by the parties or by any additional conditions that Sutel could impose. This decision was unexpected as both parties have engaged extensively with Sutel throughout the review of the process to develop a set of commitments that we firmly believe addressed any potential concerns. We respectfully disagree with this decision. And for this reason, we have filed a formal appeal on October 22, and we'll continue to pursue all available options. We remain confident that the transaction will deliver meaningful benefits to customers, enhance competition and contribute positively to Costa Rica's digital development. Now regarding the ongoing DOJ investigation, we recorded a $118 million provision this quarter. That figure reflects our current expectation of the financial impact of resolving the matter. Because the process is still ongoing, we cannot comment further at this stage, but we expect to share more details shortly. Finally, let me touch on Colombia, where things are moving steady on both fronts, EPM on one hand has officially launched the privatization process for its stake in TIGO-UNE under Law 226 and everything is progressing as expected. At the same time, the regulatory process for the Coltel acquisition is advancing well. We are now waiting for a minimum price disclosure for the stake held La Nacion and we continue to expect both EPM and Telefonica transactions to close in the first quarter of 2026. With that, I will now hand it over to Bart, who will walk you through the financials in more detail. Bart Vanhaeren: Thank you, Marcelo. Let's now turn to our financial performance for the quarter, starting on Slide 15. Service revenue for the quarter totaled $1.34 billion, representing a year-over-year decline of 0.5%. This was no surprise considering the application of IAS 21 for Bolivia, which this quarter negatively impacted service revenues by $74 million compared to last year. When excluding the FX impact, underlying service revenue growth actually accelerated from 2.4% year-on-year growth in Q2 to 3.5% year-on-year growth in Q3, reflecting the continued momentum of our commercial initiatives and strong operational execution across our markets. We also continued to deliver solid results in our prepaid to postpaid conversion strategy, resulting in local currency, double-digit postpaid growth numbers while prepaid revenues continued to grow by low single digits year-over-year in local currency, supported by a stable prepaid customer base. This growth reflects our ability to attract new clients and broaden the top of the funnel, reinforcing the strength of our commercial engine. Importantly, we delivered another quarter of margin expansion with organic adjusted EBITDA increasing by 23.8% year-over-year to reach a record $695 million. It's worth noting that the year-over-year increase in adjusted EBITDA was influenced by a onetime restructuring and M&A charges in 2024. When normalizing for this effect, adjusted EBITDA still grew by 10% year-over-year. This increase translates into an adjusted EBITDA margin of 48.9%, another all-time high for the company. As Marcelo highlighted earlier, accelerating top line growth while maintaining cost discipline remains a core pillar of our strategy. Finally, equity free cash flow rose by 18.1% for the last 9 months when compared to the same period last year, reaching a total of $638 million, marking yet another milestone for the company. Next, I would like to walk you through our performance by region, starting on Slide 16. In Guatemala, local currency service revenue grew 3.6% year-over-year, reaching $366 million for the quarter. This solid performance represents a significant improvement over last year's top line growth driven primarily by our mobile strategy, which focused on effective customer base management and increasing ARPU through the successful migration from prepaid to postpaid plans. Colombia delivered another strong quarter, with service revenue expanding 6.5% year-over-year to $364 million, almost surpassing Guatemala for the first time in our corporate history. This growth was fueled by an expanding customer base, particularly in postpaid, robust performance in B2B and a material turnaround in our home business, supported by intensified commercial efforts aligned with our strategic priorities. In Panama, service revenue remained largely flat year-over-year at $170 million. When compared to Q3 2024, we added nearly 65,000 postpaid subscribers to our customer base. These gains were partially offset by a decline in B2B revenue, stemming from government contracts, which were executed earlier in 2024. In Paraguay, we achieved $143 million in service revenue, increasing 3.5% year-on-year. This solid growth was mainly achieved through expansion in both our prepaid and postpaid customer base and relatively stable ARPUs. In Bolivia, service revenue in constant currency accelerated to 6.1% year-over-year, reaching $84 million for the quarter. And for the first time since the onset of the devaluation, we recorded a quarter-over-quarter increase in service revenue. We remain cautiously optimistic about continued currency stabilization. Service revenue in other markets increased 1.4% year-over-year, reaching $217 million for the quarter as robust top line growth in El Salvador and Nicaragua was partially offset by soft results in Costa Rica. As mentioned in my introduction, we're very pleased with the overall profitability achieved during the quarter with adjusted EBITDA for the group reaching a record margin of 48.9% as shown on the Slide 17. All of our largest operations delivered year-over-year margin expansion. Let's now review the performance of each country in more detail. Starting with Guatemala, adjusted EBITDA grew 6.2% year-over-year, reaching $236 million for the quarter. This strong result was driven by a combination of service revenue growth and operational efficiencies. As a result, Guatemala reported a record adjusted EBITDA margin of 56.6%, up 147 basis points compared to the same period last year. In Colombia, adjusted EBITDA increased 17.3% year-over-year to $161 million. This performance reflects the robust top line growth discussed earlier, coupled with disciplined OpEx management. It's worth noting that last year's EBITDA was impacted by approximately $5 million in severance payments. I want to take the opportunity to congratulate our team in Colombia for their tireless efforts and outstanding results. Panama delivered a 10.4% year-over-year increase in adjusted EBITDA, reaching $93 million, driven by cost savings from efficiency programs. As a result, adjusted EBITDA margin expanded by 480 basis points, reaching a record 52.2%. Paraguay also expanded its profitability when compared to the same period last year. The team achieved an 11.8% year-over-year increase, reaching a total of $76 million for the quarter with adjusted EBITDA margins expanding to 51.4%, reflecting continued operational discipline and growth in our customer base. In Bolivia, adjusted EBITDA increased 21.8% on a constant currency basis year-over-year to $42 million for the quarter. The margin expanded by 649 basis points to 49.7%, primarily thanks to our ongoing focus on cost efficiencies and dedollarization efforts. Finally, adjusted EBITDA in our other segments which include El Salvador, Nicaragua and Costa Rica increased 7.7% to $108 million as we continue to deliver operating leverage across all 3 countries. As a reminder, we have here Nicaragua and Honduras with margins above 50%, making a total of 5 countries out of 9 with margins above 50% and Bolivia actually getting very close. Let's now turn to Slide 18 for a review of our equity free cash flow. In the third quarter of 2025, equity free cash flow totaled $243 million to reach $638 million over the last 9 months, representing an increase of 18.1% year-on-year. Now when comparing to the same quarter last year, we see a $28 million decrease, which is primarily attributable to a mix of strategic investments and timing-related factors as we are trying to stabilize equity free cash flow over all quarters. Positive contributors were adjusted EBITDA was up $110 million year-over-year, in line with our increased profitability and $73 million one-off impact in 2024 mainly related to restructuring and M&A costs. Finance charges improved by $10 million, thanks to lower debt levels, favorable FX movements and reduced commissions on U.S. dollar purchases in Bolivia. Offsetting these gains were the following detractors. Cash CapEx increased by $50 million, mainly due to changes in working capital. Trade working capital and others decreased $66 million mainly due to the aforementioned litigation settlement with Telefonica related to the 2020 Costa Rica acquisition attempt as well as timing of payables. Spectrum payments were up $12 million, reflecting the phasing of coverage obligations in Colombia and taxes paid increased $10 million, primarily due to the higher profitability. Now please turn to Slide 19 for a more comprehensive view of our deleveraging during the quarter. We reduced our leverage from 2.18x to 2.09x, a solid improvement of 9 points quarter-over-quarter. This was primarily driven by our strong equity free cash flow generation of $243 million, as just discussed. On the other hand, we paid $125 million dividend in line with our approved dividend policy and recorded $80 million in exchange rate impacts due to the appreciation of our local currency debt. These items together added approximately 0.1x to our leverage. Overall, the quarter reflects disciplined capital allocation and continued progress toward our long-term balance sheet objectives. Before reviewing our financial targets, I wanted to highlight that we have finalized the Lati business divestment announced in October 2024. As a reminder, the total consideration for the Lati divestment was approximately $975 million. Let's now review our financial targets for the year. We're very pleased with our performance year-to-date and remain on track to meet our year-end leverage target of below 2.5x as well as our equity free cash flow goal of around $750 million. As a reminder, this leverage target excludes the impact of any strategic M&A transactions executed during 2025. I'd also like to emphasize that we are maintaining our free cash flow target despite the adverse effects of the currency devaluation in Bolivia, as well as the one-off legal settlements discussed. We're excited about what lies ahead and remain fully committed to delivering continued top line growth and sustainable margin expansion. With that, let me turn the call back to Luca. Luca Pfeifer: We'll now begin with a question-and-answer session. As a reminder, if you would like to ask a question, please let us know by e-mailing us at investors@millicom.com and we will add you to the queue. Our first question comes from [indiscernible] HSBC. What is the Ecuador and Uruguay transactions leverage? Where do you expect to be at the end of the year? What is the net impact from these transactions in year's cashflow? Bart Vanhaeren: Yes. Good question. So our leverage now is 2.09x. If you would normalize for the tower transaction, that would have been 2.33x. Now, so 2.09x, we closed Uruguay that adds about 0.1x. We closed Ecuador at about 0.1x as well. So pro forma, we are close to 2.3x as of Q3, if you would normalize for the tower transactions. Luca Pfeifer: Thank you. In Ecuador, there was a spectrum renewal news. Would the burden of payment fall on Millicom? Bart Vanhaeren: So we have -- there are 2 parts of the spectrum renewal. In fact, one is a license renewal, which comes with all the spectrum that was attached to the original license that was approximately $115 million that has been paid by Telefonica as a condition precedent to closing of the transaction. However, there is an upcoming 5G auction that will come probably in the beginning of next year, end of this year, and we expect mid- to mid-high double-digit million dollar spectrum charges payable somewhere in the first half of 2026. Marcelo Benitez: And important to say that this was a prerequisite to close the transaction. And with this renewal and also the availability of the 5G spectrum in Q1 strengthened our position to first focus on strengthen the network as it is the priority in our playbook. So we are very pleased to have enough spectrum to start operating in Ecuador. Luca Pfeifer: Thank you. Could you please provide more details on the DOJ provision? What is the issue related to? And when can we expect there to be a resolution? Marcelo Benitez: Well, there is no much to say more than what we already said in the call. Basically, we are in the process with the DOJ with regards of the litigation. The provisions that we printed this quarter is what we expect is going to be the outcome. And as I said, we will come back with more details shortly. Luca Pfeifer: Perfect. What is driving the higher tax provision in Nicaragua? Bart Vanhaeren: So in Nicaragua, we had tax litigation ongoing. We have been, like many other legacy liabilities, we have used this quarter to clean up and close a lot of matters, not different in Nicaragua. We settled with the administration on the payments of the delta of what we settled with and what is already paid and provisioned is that increase. That payment will come partially in Q4, partially in Q1 to -- for the finalization of the settlement. Luca Pfeifer: Perfect. Marcelo, what is the future course of action in Costa Rica and if the appeal for the regulatory decision gets rejected? Marcelo Benitez: Yes. Starting on Costa Rica, we really believe that this merger was very, very good for the country and for the industry. Costa Rica, it's a very stable economy, has a very predictable macro. But more importantly, they do have a lot of appetite for digital infrastructure. That is at the core of what the country needs. And in order to have that, Costa Rica needs to have strong operators. That's why we propose to merge on a JV with Liberty in Costa Rica. Unfortunately, the decision of the Sutel was against this merge. We are appealing that with the arguments that I already said, this is good for Costa Rica. Having said that, we need to also focus on what is under our control. And what is under our control is to go back to our operating model more focused on the commercial grid that we have in other countries. We are going to invest again reinforce our infrastructure and then also reinforce our channels and bring that operation back to growth with strong focus as we have in all the other operations in cost efficiencies. So that is what's under our control, and that is where the focus is going to be expecting, of course, a more better news from the Sutel. Luca Pfeifer: Next on the line is Livea Mizobata from JPMorgan. Livea Mizobata: I have a couple. The first one, could you provide an outlook for CapEx for 2026? How are you seeing this line behaving on the next year? And the second one, we would like to explore a little bit more the margin expansion across the board. We are seeing several countries expanding a lot of margins this year, particularly this quarter. Is this still mostly related to your efficiency program? Or are there more initiatives that we should be seeing that will continue to impact your margins going forward? Specifically, I would like to touch on Colombia because we see an impressive margin gain there. So do you see eventually room for Colombia to join its 50 clubs that you talked so much? So like could we see the Colombia market also raising margins and reaching that level? Because we saw an impressive market there -- market improvement there, right? Marcelo Benitez: Thank you, Livea, for your question. I mean the 50 club, it's ready to receive more members. It's a club where you can get in and you can never get out. So I will start with Colombia. What happened in Colombia is purely organic. We accelerate the top line growth. The direct cost had a decrease quarter-on-quarter based on our efficiency initiatives. So that brings operating leverage at the gross margin level. And additionally to that, we kept the OpEx flat, even though we are investing a lot in commercial activities to fuel growth. So that's where the profitability is coming is mainly operating leverage if you talk about organic terms. But if you go on dollar terms, also you have some points of growth coming from the currency -- the strengthen of the Colombian pesos currency. When we look at the group level, it's a little bit of a different story. It's a mix between organic growth that is more or less very similar to Colombia's operating leverage, but we do have some one-offs around $70 million year-over-year that had to do with severance and M&A costs that we had last year and we don't have this year. On CapEx, we -- when we started this new journey of efficiency, we always said that we invest with a lot of granularity. So we look at where the demand is. That's how we came from $1 billion CapEx to a $700 million CapEx. So we are very comfortable with that envelope because this model is refining as we speak. So we have a very, very strong network performance with a lower cost. So our expectation is to maintain the envelope at around $700 million. Luca Pfeifer: Our next question comes from Eduardo Nieto from JPMorgan. Eduardo Nieto Leal: So I had one around your leverage but more so looking further just because now you have more clarity on the closing of some of the acquisitions and including the one in Colombia. So just wanted to get your thoughts on where leverage should peak also considering your dividends, your potential settlements of legal matters. Just thinking where you're comfortable to get in terms of net leverage? And then a second part of that question is in terms of your debt or your financing needs, right? You have some maturities, especially in 2027, more in 2028, you have more M&A to close next year. So just wondering what you see as financing needs and what that could look like in terms of international capital markets, if you see a potential to change the mix between HoldCo debt, OpCo debt. And just any color that you can share on that, please? Bart Vanhaeren: Thank you, Eduardo. So on the leverage 2.09, I think we mentioned already Uruguay and Ecuador each had about 0.1 to the leverage. So around we get to 2.3x. EPM would add another 0.20 in between 0.20 and 0.25. So with that, we get close to the 2.5. And then Coltel will get possibly above that, depending, obviously, on how EBITDA evolves, our cash flow evolves, et cetera. If that happens, we do believe that depending on the speed of our integration cost that we would reduce that pretty quickly below the 2.5x again. On the debt side, we still have more than $900 million cash on balance sheet today. So for the immediate upcoming payments, we do have the liquidity. We will do some tactical debt issuance, mostly focused on local currency debt as we like it. Today, we have 50% of our debt in local currency. And we're continuing to look for opportunities. I can already tell you, we raised $200 million in local currency in Uruguay. That's probably the largest corporate debt issuance in Uruguay. And we've been welcomed fantastically by everybody down there. Next year, we will look at, again, at liability management, cleaning up some earlier maturities possibly and look at our debt curve. This year, we really wanted to focus on cleaning a number of things up, closing the transactions, getting the -- see what we receive in terms of debt structure. And next year, we'll start to look back at a regular liability management. Eduardo Nieto Leal: Just one quick follow-up. Are you comfortable, I guess, with the mix between the amount of debt that you carry at the HoldCo versus the OpCos that mix that you have today? Bart Vanhaeren: Yes, we have 40% of our debt as of Q3 balance sheet date in HQ. As I said, we are already raising $200 million additionally in Uruguay that was post the Q3 closing. And we have a few others in the pipeline to continue to increase. I'm comfortable where we are. But as a strategy, I want to have a maximum of local currency unless it's prohibitively expensive. So that's how we look at that. Luca Pfeifer: Next question comes from Gustavo Farias from UBS. Gustavo Farias: Two questions on my end. So the first one, if you could give us any color on the new countries you just entered Uruguay and Ecuador, how are you looking at extracting those synergies from the operations, maybe any color on what would be the main drivers to drive margins up? The second question, last quarter, you commented about a trend of price increases across countries mostly driven by postpaid migration. So if you could give us an update on how that's evolving lately? Marcelo Benitez: So thanks, Gustavo, for your question. I mean these are 2 very different countries. In the case of Uruguay. Uruguay is a very developed country with high consumption per user. A lot of data demand, very much postpaid. So there are 3 operators there. As you know, you have the state-owned operator, then you have Claro -- us and then Claro. So first, the network in Uruguay is pretty strong. So we are going to focus on developing ARPU as we did in the other countries by focusing on prepaid to postpaid with a small prepaid base. We want to expand the prepaid base a little bit and also play into the devices field because that's where the demand is in Uruguay. They have a lot of appetite for very high-performance handsets. Having said that, in parallel, and that is the first chapter of our playbook is efficiencies. So we are going to implement what we have implemented in all the countries, the purchase order controls from $0, contract renegotiations and also focused operation on what we do best, deliver the best connectivity. So the same playbook applies to Ecuador, but the environment in Ecuador is different. There, we do need to invest in network quality and network expansion. As I said, this spectrum renewal and the new acquisition of Spectrum give us a good new spectrum in 700 that it's going to immediately affect positively on the quality of our network. But we need to expand also the coverage, especially in Guayaquil and the coast, where more than 50% of the people live. So that is the strategy. It's the same playbook, but there is some prework to do in Ecuador, in network, in strengthening the network, and it's more commercial in Uruguay. I hope this answers your question, Gustavo. Luca Pfeifer: The next question comes from Andres Coello from Scotiabank. Can you comment on why you did not participate in the spectrum auction in Paraguay and comment on the competitive environment as new entrants is expected to launch 5G coverage soon. And in addition, can you provide an update on the closing of the deal in Colombia? Marcelo Benitez: I will take the first one, you take the second. So in Paraguay, basically, the conditions were not there for us to participate in the spectrum -- in the spectrum tender. We do -- we have a very, very good relationship with the regulator. There is now a bit of a process on whether the new acquirer can keep the spectrum. We respect that process and we trust the regulator that the regulator is going to do the right thing. Having said that, there are other segments that are available. So we are working with the government segments in 2.6 and also in 700 megahertz. So we're working to get that spectrum for 5G. There is no way TIGO will not have 5G in Paraguay, and that is clear for us, and it's clear for the government as well. So on the new entrant, we do believe that to become a real player from scratch in a country like Paraguay, you need more than spectrum. And we -- as we welcome always competition, right, only with 5G is very, very difficult to have a full telco and not even talk about convergence play. So we don't see at this point of time any threat for any serious competitor in a new competitor in Paraguay. Bart Vanhaeren: And as well as with a limited availability or percentage of 5G-capable phones over the total number of phones in the country. Going to the question about the closings in Colombia. As you know, there's multiple transactions in one. So let me peel the onion. So on one side, we have the transaction with EPM, our partner in our existing operation. They have disclosed the minimum price. We made some communications around that earlier in Q2 that we would participate in the auction process. There's --it's a privatization law called Law 226, 2 phases. Phase 1 is now ongoing. This is where the shares are offered to Sector Solidario, think about employees pension funds. That's a process that takes 2 months. It will be done early December, after which there will be an auction organized and that process takes less than a month. So this is well on track to close around year-end, early Q1. Then we have, on the other side, the deal with Telefonica is done, signed and has a number of conditions precedent for closing, which is merger approval. That merger approval is ongoing. We're having constructive discussions with the regulator and expect to have a resolution in Q4 about the merger. And then the second condition, precedent is also to have a deal with La Nacion, who is a third shareholder of Coltel. And we expect, as we hear, they are getting to the end of their process, establishing the minimum price with similar that EPM had earlier in the year. And then they can launch Phase 1 of the Law 226 process immediately behind us. So that's a 2.5 month to 3-month process once they launch the Law 226 process. And there again, we are expecting everything works out that we could close both transactions in Q1, knock on wood, let's see how it goes. Luca Pfeifer: Excellent. Thank you, Bart. Our next question comes from David Lopes from New Street Research. David-Mickael Lopes: Congratulation for the quarter. Most of my questions have been answered actually, but maybe just a couple of follow-ups. On the Costa Rica deal, I was wondering if you could comment a bit on the remedies. Why were they not enough? And why were they? And do you have any idea how long the appeal process takes usually I guess, pretty hard to answer if you have any idea of view. And then you mentioned about the spectrum in Ecuador. And I was wondering what are the other auctions coming in the future in the rest of the portfolio? And maybe last question on competition in Guatemala -- and you're posting good numbers. And I thought a few quarters ago, there was a bit more competition from Claro. So again, your numbers are good. So I was wondering how has competition evolved in Guatemala? Marcelo Benitez: So on remedies on Costa Rica, it was a surprise, David, for us to hear the argument from Sutel on why the remedies were not enough. We have been very proactive and very diligent also not only with Liberty, but also working with external consultants and experts on the matter. We did not see any rational argument to say that there is no remedies that can really make this transaction to happen. It's some kind of unprecedent to say that there is no way that this is going to happen but we do respect the regulator, and we do respect the formal channels, and that's why we are appealing. And we hope that the Sutel will reconsider its position. With regards to spectrum, now the -- well, you have first the renewal that was done. So that is one block of spectrum, then you have the 5G spectrum that's going to happen now in Q1. So that's, I think, about it for the short term, but it's more than enough to, one, strengthen our existing infrastructure, mainly with 700 megahertz, that is the new spectrum that we're going to bring in. And also to start developing the 5G coverage where the handset availability is there, right? So, I think that is extremely positive and on a very good timing for us. With respect to Guatemala, we are fighting point of sale by point of sale as we do with infra CapEx investment and capital allocation. We also are very, very granular on how we fight in the commercial. Remember that Guatemala is a purely prepaid market. So the war is being done in the point of sale every day. So where we were attacked at the beginning of the year. And it was very natural and predictable that this was going to happen was where Claro started to build new coverage, and we had very high market share, for example, in Quetzaltenango. So what the reaction we did was not a mainstream reaction because that was not necessary, but specifically in the regions where we were attacked. So this is working. It's a combination of working with the point of sale, strengthening the channels, strengthening a little bit the offer and also improving the network that is at the core of the consumer experience. So that's what we did in Guatemala. And now we are coming into a more stable place with the results and with the numbers. Luca Pfeifer: Thank you very much, everyone. This concludes our question-and-answer sessions. We will reconnect with you and the market for our fourth quarter results on February 26. Thank you very much. Marcelo Benitez: Thank you. Bart Vanhaeren: Thank you.
Operator: Greetings, and welcome to the Solstice Advanced Materials Third Quarter 2025 Earnings Call [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mike Leithead, Vice President, Investor Relations. Thank you. You may begin. Michael Leithead: Thank you, and good morning, everyone. Welcome to Solstice's Third Quarter 2025 Earnings Call. Solstice completed its spin-off from Honeywell on October 30 and is now listed on the Nasdaq Stock Exchange under the ticker SOLS. We are excited to be with you today for our first earnings call following the spin. We released our third quarter 2025 financial results earlier this morning. Today's presentation, including non-GAAP reconciliations and our earnings press release are available on the Investor Relations portion of Solstice's website at investor.solstice.com. Our discussion today will include forward-looking statements that are based on our best view of the world and our businesses as we see them today and are subject to risks and uncertainties, including the ones described in our SEC filings. Turning to Slide 3. Joining me today are David Sewell, our President and CEO; and Tina Pierce, our CFO. David will open today's call with highlights of our third quarter results. Tina will then review our segment performance and financial outlook before turning the call back to David for closing remarks. We will then be happy to take your questions. With that, I'll now turn the call over to David. David Sewell: Thank you, Mike, and thank you, everyone, for joining us today. First, I'd like to recognize this significant milestone for Solstice as we host our first earnings call following our spin-off from Honeywell. Exactly 1 week ago today, we rang the opening bell at the NASDAQ to mark the beginning of our next chapter. The excitement was palpable throughout the day, not only from those participating in the celebration on site, but from all of our employees who cheered us on from their locations around the world. I can't stress enough how grateful I am to each of our team members who dedicated their time and talents to make that milestone possible and to the entire Solstice team who continue to deliver for our customers. As you'll hear on today's call, even as we were in the final stretches of preparing the business to operate as an independent entity, we continued to deliver strong financial results. As we discussed at our Investor Day last month, Solstice has a strong track record of peer-leading growth, fueled by our technology platforms and underpinned by strong secular growth trends in the end markets we serve. Our third quarter performance builds on this track record, delivering year-over-year net sales growth of 7%. This growth reflects both strong demand for our products as well as the significant value that our differentiated product platform provides our customers. During the third quarter, we also maintained our best-in-class margin profile, delivering adjusted stand-alone EBITDA margins of 24.3%. Our strong margin profile is driven by our commitment to operational excellence, capital efficiency and the specialty nature of our portfolio. During our Investor Day last month, we discussed how we are refining our operating model to focus on commercial excellence, drive productivity and optimize return on invested capital. Following our spin-off, Solstice's pro forma capital structure reflects a prudent net leverage profile estimated at approximately 1.5x, allowing for financial flexibility and the ability to continue reinvesting in high-return growth areas of the business. As we strive to unleash growth, we will be allocating capital with clear priorities and discipline, specifically in areas such as semiconductor materials, nuclear conversion, protective fibers and cooling technologies where we believe Solstice has a clear right to win. We believe this will enable us to make the key investments needed to accelerate our growth and profitability. Finally, with a strong third quarter, we are well positioned for the remainder of the year and are on track to deliver on our full year 2025 guidance. Turning to Slide 5. I'd like to discuss in more detail a few key highlights from our third quarter 2025 consolidated results. In the third quarter of 2025, Solstice recorded $969 million in net sales, up 7% year-over-year. Notably, in our Refrigerants & Applied Solutions segment for the quarter, robust demand for refrigerants drove 22% year-over-year net sales growth for that business as we are capitalizing on the HFO transition. In Electronic and Specialty Materials, we achieved top line growth in both Electronic Materials and Safety and Defense Solutions, which underscores the continued value that we provide our customers with our differentiated offerings across the businesses. Beyond the reported sales figure this quarter, underlying momentum continues to build in the business from key secular trends in the attractive end markets we serve. In alternative energy services, which is our nuclear conversion business, our backlog grew 12% sequentially, reflecting both favorable order activity and benefits in price. In Electronic Materials, we saw our order book strengthen throughout the quarter and see positive momentum carrying into the fourth quarter, further solidifying our optimism around our position in the growing AI, semiconductor and data center landscape. Adjusted stand-alone EBITDA for the third quarter of 2025 was $235 million, reflecting a 5% decrease year-over-year and an adjusted stand-alone EBITDA margin of 24.3%. This was largely due to anticipated transitory costs, including certain items related to our spin-off as well as the expected technology transition from HFCs to HFOs. As discussed during our recent Investor Day, this leads to our full year baseline guidance of 25% EBITDA margins, which we are well in line to achieve. Finally, while we reported a net loss attributed to Solstice of $35 million for the third quarter of 2025, the decrease year-over-year was primarily driven by the impact of higher income tax expense resulting from frictional taxes associated with the spin-off. We estimate these discrete tax items added approximately 80 percentage points to our effective tax rate this quarter. As we complete our transition to operating as a stand-alone public company and move past some of these discrete transitory items related to our spin-off, we are very confident in our opportunity for margin expansion and long-term trajectory for growth to drive improved profitability. Turning to Slide 6. I'd like to discuss in more detail the puts and takes impacting our year-over-year net sales and adjusted stand-alone EBITDA performance. Beginning with our net sales of $969 million for the quarter. Organic net sales growth was 5%, including 2% from volume growth and 3% due to pricing. This primarily reflects volume growth and favorable pricing in refrigerants, which was partially offset by lower volumes in Healthcare Packaging and Research and Performance Chemicals. Our net sales growth also included a 2% increase due to foreign currency translation. Turning to our adjusted stand-alone EBITDA of $235 million for the quarter. The decrease year-over-year was driven by approximately $10 million of anticipated transitory costs discussed earlier, which primarily fell in the ESM segment as well as a year-over-year shift in refrigerants product mix, primarily within the stationary end market. This industry shift reflects a significant increase in demand for our low global warming potential refrigerants for stationary applications due to the ongoing regulatory transition towards next-generation HFO solutions. While this transition translates to a year-over-year margin decline, we foresee much greater longer-term benefits for our business due in part to our industry leadership in this space. As an example, as the installed base of stationary units using HFO blends continues to grow, we would expect to see benefits from an emerging aftermarket, which represents approximately 50% of our refrigerant product mix today. Our adjusted stand-alone EBITDA margin declined by a little less than 3 percentage points year-over-year, remaining healthy at 24.3%, inclusive of an approximate 100 basis point impact from transitory costs that I mentioned earlier. Offsetting the negative impacts I just described were modest price and cost timing benefits for the quarter. I hope this gives you a clearer idea of the puts and takes impacting our business in the short term. We are pleased with our ability to continue to deliver a healthy and attractive margin profile, and we are on track to deliver against our 2025 revenue and EBITDA guidance. With that, I'll now turn it over to Tina Pierce, our CFO, to discuss our segment results for the quarter in more detail. Tina Pierce: Thank you, David. Now let me talk in a bit more detail about the results in each of our 2 segments, beginning with Refrigerants and Applied Solutions on Slide 7. Overall, the segment achieved $687 million in net sales for the third quarter of 2025, reflecting 9% growth year-over-year. The growth is composed of 8% organic net sales growth and 1% increase due to foreign currency translation. The segment posted $243 million in adjusted EBITDA for the third quarter of 2025, down 3% year-over-year and adjusted EBITDA margin of 35.4%, down 431 basis points year-over-year. As David mentioned previously, this decrease was primarily driven by stationary refrigerants product mix, which more than offset positive flow-through in both -- both in volume and pricing. Transitory cost had a negligible impact in the segment. Looking at performance for our subsegments, Refrigerant net sales increased 22% year-over-year to $400 million, driven by both favorable pricing and volume growth. As David mentioned, our refrigerants business experienced a significant increase in demand for our low global warming potential refrigerants for stationary applications due to the ongoing regulatory transition towards next-generation HFO solutions. We also saw modest growth in auto during the quarter and continued to strengthen our aftermarket position. Building Solutions and Intermediate net sales were $175 million, down 3% year-over-year. Although continued softness in the construction market impacted performance, we remain focused on driving LGWP solutions and on continuing our strong operational execution to ensure we are well positioned to serve our customers upon a return to more normalized demand in key end markets. For Healthcare Packaging, net sales were $49 million, down 14% year-over-year. The decline was due to lower volumes resulting from some destocking we saw in the pharmaceutical end market. Despite this headwind during the quarter, we're confident in our strong market position through our Aclar brand of high-barrier packaging materials. We also remain excited about the long-term growth trajectory for our low global warming potential medical propellant and our ability to leverage our expertise to support the growing need for low GWP inhaler solutions. Lastly, our alternative energy service business had $63 million in net sales, down 2% year-over-year. While the year-over-year sales comparison was impacted by customer timing, underlying business momentum continues to accelerate with our AES backlog up 12% during the quarter to $2.2 billion as of September 30. Now turning to our Electronic and Specialty Materials segment on Slide 8. The segment achieved $282 million in net sales for the third quarter of 2025, reflecting 2% growth year-over-year, largely attributable to favorable foreign currency translation. Flat organic sales growth consisted of increases in Electronic Materials and Safety and Defense Solutions as well as Research and Performance Chemicals pricing, offset by Research and Performance Chemicals volume declines. The segment posted $47 million in adjusted EBITDA for the third quarter of 2025, down 15% year-over-year and adjusted EBITDA margin of 16.7%, down 319 basis points year-over-year. The decrease was primarily driven by anticipated transitory cost items that David mentioned earlier. Looking at the performance of our subsegments, Electronic Materials net sales increased 4% year-over-year to $103 million, driven by volume growth. As David mentioned earlier, we saw improving order patterns throughout the quarter and expect growth momentum to carry into fourth quarter in our key sputtering targets and thermal interface materials offerings. We are investing for growth in this business as we outlined at our recent Investor Day, which should ensure we are well positioned to capitalize on key secular trends for semiconductors, AI and data centers. Safety and Defense Solutions had $53 million in net sales, up 6% year-over-year, driven by volume growth. This growth was fueled by strong demand for both armor and medical fiber applications during the quarter. We remain encouraged by the growth of this business as we look to invest in furthering our Spectra capabilities. Finally, Research and Performance Chemicals net sales declined 2% year-over-year to $126 million. This decline was primarily driven by lower volumes, partially offset by favorable pricing. Moving to Slide 9 to discuss Solstice's balance sheet and capital management. Our financial health continues to be bolstered by significant cash flow generation and cash conversion. As outlined in our recent Investor Day, we remain focused on reinvesting in the business, especially in key high-return growth areas. Our capital expenditures were $248 million for the 9 months ended September 30, 2025, a 23% increase compared to the prior year due to planned increases in capital spending to drive long-term growth. Adjusted stand-alone EBITDA less CapEx for the 9 months ended September 30, 2025, was $520 million, a 7% decrease compared to the prior year period as higher capital expenditures more than offset the increase in stand-alone adjusted EBITDA. Despite the anticipated decrease year-over-year, this still equates to strong cash conversion of 68% for the 9 months to date. Turning to our capital structure. We have a very strong balance sheet with a conservative leverage profile and ample liquidity. Following the execution of the spin-off on October 30, our total long-term debt was $2 billion, and we had cash and cash equivalents of approximately $450 million, resulting in net debt of approximately $1.6 billion and an estimated net leverage ratio of approximately 1.5x based on our trailing 12-month stand-alone adjusted EBITDA. Our capital structure reflects the strong outcome from our debt raise earlier this year. Our $2 billion of long-term debt is comprised of $1 billion Term Loan B at SOFR plus 175 basis points and $1 billion of 5.625% senior notes due in 2033. We also had $1 billion of availability under our revolving credit facility, which combined with the cash on our balance sheet results in approximately $1.5 billion of total liquidity. Moving forward, we will continue to deploy capital in line with the capital allocation priorities we outlined at our Investor Day. These include investing in high-return organic growth projects, maintaining a strong balance sheet and a strong liquidity position, accelerating growth through selective M&A and finally, returning excess capital to shareholders. Turning to Slide 10. I'd like to discuss our financial guidance, which we previously provided at our Investor Day. Based on our results discussed today and expectations for the fourth quarter, we are on track to deliver our full year 2025 guidance. This includes net sales between $3.75 billion and $3.85 billion, adjusted stand-alone EBITDA margin of approximately 25% and capital expenditures between $365 million to $415 million. As you will likely note, this implies an adjusted EBITDA and margin decline in the fourth quarter, reflecting remaining transitory cost, refrigerant seasonality and near-term actions to position us for strong growth in 2026. We do not expect fourth quarter results to represent the true trajectory of our business performance going forward, and we are excited about the momentum we are seeing into 2026. I'd now like to pass it back over to David for some closing remarks. David Sewell: Thank you, Tina. Please turn to Slide 11. As Tina just mentioned, we are on track to deliver on our full year 2025 guidance. Our outlook is based on our belief in Solstice clear right to win and future prospects that are supported by strong secular trends, a clear path ahead for resilient and long-lasting growth and a refined operating model that enables our strategy to unleash that growth. We are committed to unlocking growth by expanding our leadership positions through investing in our capabilities, expanding our deep customer relationships and enhancing our proven growth engine. Our third quarter results reflect the burgeoning benefits of our strategy as demonstrated through our strong top line. We will also deploy our refined operating model to continue driving operational excellence. Our model focuses on our innovation and commercialization processes to maximize customer value and drive growth. It steers us to commercial excellence through best-in-class practices around pricing, margin management and customer centricity. It also aligns us towards disciplined capital deployment and optimization, efficient supply chain and logistics management and manufacturing excellence. We're confident that this operating model will enable us to further our strategy and unleash our growth potential. I'm also confident that our near-term transition positions us well to benefit in the medium and long term. As a stand-alone company, we have the ability to focus our capital spend on the highest return projects with an aim to improve margins and drive organic top line growth. We believe ongoing momentum in areas such as refrigerants, semiconductor materials, protective fibers and nuclear validates our decision to invest in these areas, which are well aligned with our growth strategy. Looking beyond 2025, we already are finding opportunities and actioning items to improve our cost profile. This should provide a long-term pathway for margin improvement, furthering our financial strength. Finally, we have a strong liquidity position and financial flexibility that is enabling us to invest for high-return growth at a time when many others in the chemical space are pulling back. We apply a disciplined capital allocation strategy that strengthens our ability to serve customers and reflects a focus on investing in growth while maintaining a strong and flexible balance sheet. We have both the financial flexibility and strategic focus to enable organic and inorganic investments that drive technological innovation, improve customer proximity, bolster our industry leadership and expand that leadership as we pursue our differentiated growth strategy. With over 130 years of innovation at the intersection of chemistry, engineering and material science, our business has built a deeply rooted legacy. We have demonstrated long-standing leadership across multiple innovation cycles, not just keeping pace with the market, but defining it. I couldn't be more excited as we embark on our future as an independent company. We look forward to sharing additional updates in the months ahead. With that, we are now happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of John McNulty with BMO Capital Markets. John McNulty: Congratulations on the split. So I wanted to get into the AES segment a little bit more. Even since your Capital Markets Day, there's been growing enthusiasm kind of around the nuclear markets. And I guess we can see that even today in your backlog expanding. I guess, can you help us to understand a little bit more about what drove that backlog increase? Was it primarily price? Was there more volume coming in? And also how you can capture volume growth going forward? I know you've got the big debottleneck that's coming on, but it seems like you may be close to sold out even post that. So I guess, how do we think about the growth for this business given the enthusiasm and excitement around nuclear right now? David Sewell: John, thanks for the question. And the backlog increase, we saw a 12% backlog increase, to your point. That was new orders, not pricing. And we are aligned with our capacity expansion with the volume anticipated demand that we see. However, there has been a lot of recent announcements of expansion investments. So we're following that very closely. And if we need to continue to expand manufacturing capabilities, we'll be able to do so to meet the demand. But it's an exciting growth opportunity for us long term, and it's really nice to see all of these announcements and investments that have been made in the marketplace. John McNulty: Got it. Okay. No, that's helpful. And then just as a follow-up, the refrigerants business, it seems like it's actually -- despite the volume or the top line side, it seems like it's a little bit more of a drag on EBITDA than I guess we were expecting it to be. I guess can you help us to unpack that mix shift like kind of negative headwind? And I guess, how does that set you up as you're looking to 2026? Can we see the refrigerants EBITDA and the margins inflect up at that point? David Sewell: John, you're exactly right. It's really driven by the short-term transition from HFCs to HFOs and really more specifically from 410A transitioning to 454B. And we did anticipate the margin contraction during the initial transition, which is within the forecast of that 25% year-over-year margin. But what we see moving forward is we'll finish up the transition, pricing has stabilized. And then as we get into 2026, we'll start to see the aftermarket kick in. And as we've talked about, that's a little bit higher margin business than our OEM business. So we see the opportunity growing in margins. We just need to get through the transition, and this was an expected transition that we had. And I think you'll definitely see it in the fourth quarter and then start really reducing the beginning of the year. And then as -- we'll give a forecast in 2026, but we should be out of the transition as we get in further into '26. Operator: Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Congratulations on your first public quarter, exciting stuff. David, I wanted to pick up on your prior thought. At the Capital Markets Day on October 8, you set forth an EBITDA growth trajectory in the mid-single-digit range for the medium term. And I understand you'll probably give more specific guidance next quarter. But as we think about that mid-single-digit glide path, might it apply to 2026 as well? Or do you think there are either transition issues or market issues that you're seeing that would cause it to be below or above that range? How are you thinking about that growth trajectory for the next year or so? David Sewell: Yes. Thanks for the question, Kevin. We'll certainly, to your point, give 2026 guidance when we report fourth quarter. But the way we think about it and have we -- and again, we're on track for how we see it is exiting the year around that 25% margin and then our growth rate will come from there. So we don't feel like there'll be continued downside. We feel like the 25% is our baseline, and that's where we'll be able to grow from with the growth secular trends that we're seeing that get us pretty excited. Michael Leithead: And Kevin, this is Mike. I would just build on that a little bit. As you'll see in the appendix, we included a slide to sort of help people bridge through some of these transitory costs. As David mentioned, most of these will be behind us as we exit the year. So we really do feel comfortable that as we get into '26, a lot of these margin impacts are not expected to carry over. Kevin McCarthy: Very good. And to follow up on that, Mike, I was noticing on Slide 13 in the appendix, it looks like you're baking into the fourth quarter about 300 basis points having to do with plant downtime. So David, can you elaborate on that? Is that having to do with maintenance or inventory management efforts? And maybe you can talk about what's down and what the effects might be on a segment level, please? David Sewell: Yes. So Kevin, it's a combination of both planned downtime and some unplanned downtime. The planned downtime was mostly in Baton Rouge and Geismar, but that was fully baked into our forecast. We did have some unplanned downtime. It was an issue with the reactor. That was in our ESM business. The good news is we're fully operational. Everything is up and running, but we did incur some costs in that in the third quarter, and we will incur some costs and impact on that in the fourth quarter. But again, good news is fully operational, and we'll have it behind us once we get through the fourth quarter. Operator: Our next question comes from the line of Josh Spector with UBS. Joshua Spector: I want to follow up on that last question. Just -- so if you look through your slides and kind of how you guys have talked about the second half, you have $30 million in transitory costs you're calling out from corporate. It seems like you're calling out a lot of this plant and downtime impact as perhaps more temporary at maybe $20 million, $25 million. Are those things that we should be adding back base case to next year? And if that number is wrong, what would you point us to instead? Tina Pierce: Yes. Josh, so really, the anchor is the guidance that we provided. And so that's the $950 million of EBITDA for 2025, which is approximately a 25% margin rate. So what we've highlighted here on Page 13 is, yes, the $30 million of transitory cost, those will definitely not reoccur. We had $10 million -- approximately $10 million in quarter 3, and then you can see there's approximately $20 million in Q4. And this involved a hedge. We are part of the broader Honeywell hedging program. That has been discontinued effective at the time of the spin. And then as we stood up our new freight and logistics organization, there were some changes in the estimates associated with that. All of that is behind us now. And then as David alluded on the plant downtime and absorption, all of the plants are up and operating now. So we don't anticipate that going forward. And then the final factor there is just seasonality, and that's largely our refrigerants business. That business tends to be a little bit heavier in second and third quarter. So that's the third reason for the step down. But overall, we continue to remain confident in the guidance that we provided at our Investor Day. Joshua Spector: Okay. And just going back to the RAS segment and some of the moving pieces on margins. I guess one piece I don't understand is that you're seeing a big margin and EBITDA impact in the second half from the transition, but it doesn't really seem like you saw that anywhere to the same degree in the first half. So I don't know if there's a difference in mix half-on-half that has a bigger impact. And I guess, importantly, when we're thinking about first half '26 and the margins that you reported, is there a headwind that we need to anticipate there that's a negative for EBITDA? Or is that already largely baked in and we can grow off of that? David Sewell: Yes, Josh, it's a good question. There's a couple of pieces here that I'll walk through on the refrigerants. In 2024, 410 market was really tight, and that pricing has since stabilized. So we are up against that from a year-over-year standpoint. But the other piece that's a factor is we have such strong demand and to ensure we could supply our customers, we did import from overseas to meet that demand and keep our customers running. And when we did that, there was a little bit of a margin impact for obvious reasons, but we felt it was more important to satisfy the needs of our customers. So we did see some margin contraction with that. The good news about that is we are fully stabilizing our supply chain to meet the demand needs. So we don't anticipate having that as we go into 2026. Operator: Our next question comes from the line of John Roberts with Mizuho Securities. John Ezekiel Roberts: I don't think we have the 2 quarters of 2025 first half separated yet. That's fair. So maybe to follow on, on that question, will the transitory headwinds be big enough that the March quarter will be down? I don't even know what our March quarter 2025 was to compare against. But will you be able to flip to up? I know you don't want to give guidance for 2026 yet, but just directionally, will those headwinds be big enough that we'll still have a down March 2026 quarter? David Sewell: No, we should be through the transitory costs through -- by the end of the year. We will have the TSAs that we talked about at our Investor Day that go through most of 2026. So we will have those costs. We'll have a little bit of the transition from HFCs to HFOs leaking into the first quarter, which are anticipated. But by and large, those transitory costs should be behind us. John Ezekiel Roberts: And when will we get the split for the first half of 2025 results, so we'll have the comparisons? Michael Leithead: Yes, John, it's Mike. So yes, we will be able to break that out for you in short order here going forward. Operator: Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Leithead for his final comments. Michael Leithead: Great. Well, look, we really appreciate everybody joining us today for our first earnings call as a public company. If you need anything, please reach out to the IR department and happy to help. So thank you, and have a good day. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Hello, and welcome to Enact's Third Quarter 2025 Earnings Call. Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your first speaker, Daniel Kohl, Vice President of Investor Relations. You may begin. Daniel Kohl: Thank you, and good morning. Welcome to our third quarter earnings call. Joining me today are Rohit Gupta, President and Chief Executive Officer; and Dean Mitchell, Chief Financial Officer and Treasurer. Rohit will provide an overview of our business performance and progress against our strategy. Dean will then discuss the details of our quarterly results before turning the call back to Rohit for closing remarks. We will then take your questions. The earnings materials we issued after market close yesterday contain our financial results for the quarter, along with a comprehensive set of financial and operational metrics. These are available on the Investor Relations section of our website. Today's call is being recorded and will include the use of forward-looking statements. These statements are based on current assumptions, estimates, expectations and projections as of today's date. Additionally, they are subject to risks and uncertainties, which may cause actual results to be materially different and we undertake no obligation to update or revise such statements as a result of new information. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release as well as in our filings with the SEC, which will be available on our website. Please keep in mind the earnings materials and management's prepared remarks today include certain non-GAAP measures. Reconciliations of these measures to the most relevant GAAP metrics can be found in the press release, our earnings presentation and our upcoming SEC filing on our website. With that, I'll turn the call over to Rohit. Rohit Gupta: Thank you, Daniel. Good morning, everyone. I am pleased to report that Enact delivered another strong quarter of performance, reflecting the continued disciplined execution of our strategy and the strength of our operating model. Our results demonstrate the strength of our business and our ongoing commitment to creating long-term value for our shareholders. To that end, we are pleased to announce our updated 2025 capital return expectation of approximately $500 million, up from prior guidance of $400 million. Additionally, we entered a new $435 million revolving credit facility with favorable terms, providing additional financial flexibility with which to manage our business and execute our strategy. Dean will discuss both in more detail. For the third quarter, we reported adjusted operating income of $166 million or $1.12 per diluted share. Additionally, adjusted return on equity was 13%, while insurance in-force increased 2% year-over-year to $272 billion, and we generated robust new insurance written of over $14 billion. We continue to navigate a dynamic macroeconomic environment with discipline and focus. The U.S. economy continues to be supported by steady consumer spending, moderating inflation and a resilient labor market even as hiring momentum cools. On a national level, steady wage growth, lower mortgage rate and generally stable home prices have driven modest improvements to affordability. However, given broader macro uncertainties, consumers are more cautious and many buyers are still waiting for the right conditions, leading to an increase in housing supply in certain geographies. Overall, our business remains underpinned by strong demographic tailwinds, particularly from prospective first-time homebuyers entering the market. We remain optimistic about the long-term health of the U.S. housing market and confident in our ability to deliver through economic cycles. Against this backdrop, our capital position and credit performance remain key strengths. During the quarter, we executed against our CRT program with a new quota share agreement that will cover new insurance written in 2027. In addition, after quarter end, we closed on a new forward excess-of-loss agreement that will provide approximately $170 million of coverage on a portion of our 2027 book. Our PMIERs sufficiency ratio was 162%, providing significant financial flexibility, and our credit and investment portfolios are in excellent shape. Our insurance in-force portfolio remains resilient with a risk-weighted average FICO score of the portfolio at 746. The risk-weighted average loan-to-value ratio was 93% and layered risk was 1.2% of risk in-force. Pricing was constructive again in the quarter, and we maintained our commitment to prudent underwriting standards. Our pricing engine, Rate360, dynamically delivers competitive risk-adjusted pricing by factoring in actual and projected housing market rents at a detailed geographic level. Total delinquencies were up 6% sequentially with new delinquencies up 12% and cures down 1%, both consistent with seasonal trends. We had a reserve release of $45 million, and our resulting loss ratio for the quarter was 15%. Credit performance continues to be strong, and we remain well reserved for a range of scenarios. We delivered another quarter of strong expense management, with expenses that were down year-over-year, despite the ongoing inflationary environment. We are pleased with our disciplined cost management year-to-date and Dean will discuss the improved expectations for the remainder of 2025. We continue to advance against our capital allocation priorities, support existing policyholders by maintaining a strong balance sheet, invest in our business to drive organic growth and efficiencies, fund attractive new business opportunities and return excess capital to shareholders. Regarding our first priority, I've already discussed our strong capital position, underscored by a robust PMIERs buffer as well as the ongoing execution of our CRT program and new credit facility. I'm also pleased to note that during the quarter, we received our fourth ratings upgrade from Moody's since going public in 2021, upgrading MX rating to A2 from A3 and Enact Holdings' ratings to Baa2 from Baa3, while A.M. Best moved our outlook to positive. In relation to our second priority, we continue to invest in initiatives to drive growth in our core MI business, including pursuing opportunities to deepen our existing relationships with lenders through technology enhancements, increasing customer engagement and improving the efficiency of our operations. In addition, Enact Re continues to perform well and participate in attractive GSE single and multifamily deals, while maintaining strong underwriting standards and generating attractive risk-adjusted returns. Enact Re remains a long-term growth opportunity that is both capital and expense efficient. Finally, as it relates to capital returns, during the third quarter, we returned $136 million to shareholders through share repurchases and dividends. And as I mentioned earlier, we are increasing our expected capital returns to approximately $500 million for the year. This represents our highest capital return since the IPO, while also maintaining a very strong balance sheet and investing in our future. This upward revision reflects the strength of our business model and the current levels of mortgage originations. Overall, we are pleased with our performance in the third quarter and through the first 9 months of 2025. We continue to navigate a complex and evolving environment from a position of strength, supported by robust new insurance written with excellent credit quality, a strong balance sheet and prudent expense management. As always, we are actively engaged with our lending partners, the GSEs and the administration to ensure we remain well positioned to adapt to an evolving environment. With that, I will now hand it over to Dean to walk through our financial results in more detail. Hardin Mitchell: Thanks, Rohit. Good morning, everyone. Adjusted operating income was $166 million or $1.12 per diluted share compared to $1.16 per diluted share in the same period last year, and $1.15 per diluted share in the second quarter of 2025. Adjusted operating return on equity was 13%. A detailed reconciliation of GAAP net income to adjusted operating income can be found in our earnings release. Turning to revenue drivers. New insurance written was $14 billion, up 6% sequentially and up 3% year-over-year. Persistency was 83% in the third quarter, up 1 point sequentially and flat year-over-year, continuing its trend above historical norms. While mortgage rates have fallen recently, our portfolio remains resilient with 21% of mortgages having rates at least 50 basis points above September's average of 6.4%. Historically, persistency has varied in relation to mortgage rates. As rates continue to change, we may see persistency shift from its current level. The combination of solid new insurance written and elevated persistency drove primary insurance in-force of $272 billion in the third quarter, up $2 billion or approximately 1% from the second quarter of 2025 and $4 billion or approximately 2% year-over-year. Total net premiums earned were $245 million, flat sequentially and down modestly year-over-year. The year-over-year decrease was primarily driven by higher ceded premiums. Our base premium rate of 39.7 basis points was down 0.1 basis point sequentially, aligned with our expectation for base premium rate in 2025 to approximate 2024 levels. As a reminder, our base premium rate is impacted by several factors and tends to modestly fluctuate from quarter-to-quarter. Our net earned premium rate was 34.9 basis points, down slightly sequentially, driven by higher ceded premiums. Investment income in the third quarter was $69 million, up $3 million or 4% sequentially and up $8 million or 12% year-over-year. Our new money investment yield continues to exceed 5%, lifting our overall portfolio book yield. As we noted in the past, while we typically hold investments to maturity, we may selectively pursue income enhancement opportunities. During the quarter, we sold certain assets that will allow us to recoup realized losses through future higher net investment income. Turning to credit. We continue to see stable credit performance across our overall portfolio. New delinquencies increased sequentially to 13,000 in the quarter from 11,600 in the second quarter of 2025, in line with expected seasonal trends. Our new delinquency rate continues to remain consistent with pre-pandemic levels for the quarter at 1.4%, an increase of 20 basis points compared to 1.2% in the second quarter of 2025 and flat to the 1.4% in the third quarter of 2024. We assess our claims rate on a regular basis and maintain our claim rate on new delinquencies at 9%. Total delinquencies in the third quarter increased sequentially to 23,400 and from 22,100 as news outpaced cures and the delinquency rate increased 20 basis points sequentially to 2.5%. Losses in the third quarter of 2025 were $36 million and the loss ratio was 15% compared to $25 million and 10%, respectively, in the second quarter of 2025 and $12 million and 5%, respectively, in the third quarter of 2024. The current quarter's reserve release of $45 million from favorable cure performance and loss mitigation activities compares to a reserve release of $48 million and $65 million in the second quarter of 2025 and third quarter of 2024, respectively. Turning to our continued prudent expense management. Operating expenses for the third quarter of 2025 were $53 million and the expense ratio was 22%, consistent with the second quarter of 2025 and lower than the $56 million and 22%, respectively, in the third quarter of 2024. Based on our performance and fourth quarter outlook, we now forecast 2025 expenses, excluding reorganization costs, at approximately $219 million, lower than our previous range of $220 million to $225 million despite inflationary headwinds. We continue to operate from a strong capital and liquidity position, reinforced by our robust PMIERs sufficiency and the successful execution of our diversified CRT program. Our PMIERs sufficiency was 162% or $1.9 billion above PMIERs requirements at the end of the third quarter. During the quarter, we entered into a new forward quota share reinsurance agreement, which ceded approximately 34% of our 2027 new insurance written to a broad panel of highly rated reinsurers. Subsequent to the end of the quarter, we secured approximately $170 million of additional excess of loss reinsurance coverage for a portion of our 2027 book by a broad panel of highly rated reinsurers. These transactions demonstrate our commitment to disciplined risk management while providing certainty of coverage at favorable market terms. As of September 30, 2025, our third-party CRT program provides $1.9 billion of PMIERs capital credit. During the quarter, Moody's upgraded the insurance financial strength rating for our flagship insurance subsidiary Enact Mortgage Insurance Corporation to A2 from A3. Moody's also upgraded Enact Holdings, Inc.'s long-term issuer rating and senior unsecured debt rating to Baa2 from Baa3, and the outlook for the ratings is stable. This marks the fourth upgrade since our IPO in 2021 from Moody's. Also, A.M. Best raised our ratings outlook from stable to positive. Additionally, we entered into a new $435 million 5-year senior unsecured revolving credit facility at favorable terms, expanding our borrowing capacity, extending our maturity profile and providing greater flexibility and liquidity to support our operations. In addition, our conservative debt-to-capital ratio of 12% provides additional financial flexibility. Turning now to capital allocation. During the quarter, we paid out $31 million or $0.21 per share through our quarterly dividend. Today, we announced our third quarter dividend of $0.21 per common share payable December 11. In addition, we bought 2.8 million shares for $105 million in the third quarter of 2025. Through October 31, we repurchased an additional 1.2 million shares for $42 million. As Rohit mentioned earlier, we are increasing our 2025 total capital return guidance to approximately $500 million, recognizing our ongoing strong business performance and current mortgage origination levels. As always, the final amount and form of capital return to shareholders will depend on business performance, market conditions and regulatory approvals. Overall, we are pleased with our performance in 2025 to date, and we believe we are well positioned for a strong end to the year. We remain focused on prudently managing risk, maintaining a strong balance sheet and delivering solid returns for our shareholders. With that, let me turn the call back to Rohit. Rohit Gupta: Thanks, Dean. Looking ahead, while the external environment remains dynamic, our strong balance sheet, embedded equity and disciplined operating approach positions us well to navigate uncertainty and capitalize on long-term opportunities. I want to thank our entire team for their continued dedication and exceptional execution. Their commitment to our mission of helping people responsibly achieve the dream of homeownership is what drives our success. We continue to remain focused on delivering long-term value for all of our stakeholders, and we are confident in our ability to continue building on our strong history of consistent performance. Operator, we are now ready for Q&A. Operator: [Operator Instructions] The first question comes from Bose George with KBW. Bose George: I first wanted to just ask about the expectation for delinquency trends. Can you talk about where you think delinquencies will peak on portfolios as they're fully seasoned? Can we look at books that are closer to being fully seasoned like maybe 2021 or as a way to gauge where the newer books will season? Hardin Mitchell: Yes, Bose, thanks for the question. From a credit perspective, very much in line with what we said in our prepared remarks, credit performance remains very strong through the third quarter. It's certainly supported by a lot of different factors, kind of chief among them, the resilient macroeconomic environment, coupled with the embedded home price appreciation across our portfolio. I think from a vintage perspective, getting to that part of your question, we -- as we disaggregate the portfolio, we really don't see any variance to expectations across variables across the portfolio, and that includes book years. Obviously, there's book years with different mixes of risk variables. More recently, the 2022 and forward book years have a higher concentration to a purchase origination market, which tends to have higher concentration in high LTV, high DTIs. But when you consider those risk attributes mix, we really see good alignment between our actual performance and our expectations when we onboard that business from the onset. So I think certainly, credit performance is going to be very dependent on the macroeconomic environment. And if we continue to see the resiliency that we've seen to date, we would expect credit performance to stay in that very -- aligned with the very strong credit performance that we've seen to date. Bose George: Okay. Great. And is the typical seasoning sort of 4 years, 5 years? Is that when they're fully seasoned? Hardin Mitchell: Yes. From an aging of the of the overall portfolio, we've talked about the normal loss development curve and the progression up that curve towards a plateau at around years 3 to 4. It's not a point. It's kind of a plateauing and that plateau happens in between years 3 and 4 and maybe another 12 months thereafter. What we've seen, what we talked about our expectation heading into 2025 was given the aging of that portfolio up in that 3- to 4-year time period that we would see some slowing in the delinquency development from a year-over-year change perspective. And I think that's actually what we've seen. So when you look back '23 to '24, you saw kind of mid-teens percentage change in increase in new delinquencies. This year, you see more kind of mid-single digits, 5%, 6% change year-over-year. And I think that has a lot to do with the aging of the portfolio and the development or the progression of the normal loss development curve. Bose George: Okay, great. And then just actually one clarification on the expense. The year-over-year increase, obviously, is very modest, but just in terms of the quarterly trends, the last couple of quarters, I guess, were a little lighter than '24. So this year, I guess, is the 4Q just a little more back-end heavy versus the other quarters? Hardin Mitchell: Yes, Bose, we've talked about this in the past that our expenses aren't level throughout a calendar year. We typically have higher variable performance-based incentive comp over the last -- second half of the year. I think that's going to have a more meaningful impact in the last quarter of this year. But if you look back at prior year experience as well, you see that in the third and fourth quarters of just going back to like 2024. So yes, similar driver and a little bit more disproportionate in the fourth quarter of this year. Operator: [Operator Instructions] The next question comes from Rick Shane with JPMorgan. Richard Shane: Really a couple of things. One, you've provided favorable guidance on expenses. One of the questions that I think everybody is wrestling with is how technology, particularly AI is transforming different businesses. Can you talk a little bit about what's driving your favorable expense guidance, but also longer term, how you see AI transforming your business? Rohit Gupta: Absolutely, Rick. So I would say in terms of favorable performance of expenses, as Dean talked about it in his prepared remarks, we are always prudent in our expense management as a company, and you have seen that play out since our IPO. During 2021, our expenses were close to $240 million, I would say, low $240 million range. And since that time, despite inflationary pressures, we have actually reduced our expenses close to $25 million. And last 3 years, we basically have our expenses trending flat in terms of total expense dollars. So I think that's just our general mindset that when we think about our expenses, we are very mindful of the environment where we are making investments, how do we make our existing processes more efficient, whether it comes to our underwriting processes, whether running rest of the business, we are making technology investments on an ongoing basis to harvest benefits from those investments. Now that being said, we also make technology investments to make smarter decisions. In the past, I've talked about investments in our Rate360 engine, where 6, 7 years ago, we started investments in our data. Then we started investments in machine learning. And as a result, we believe we have a very granular risk-based pricing system in Rate360 that allows us to make decisions and changes at a more granular level and in a more agile way in the market so we can respond to market changes. And lastly, I would say that we also spend time and investments in customer experience. So in places where we can improve customer experience and that allows us to have a bigger footprint in the market. We are proud of our customer base in terms of number of customers we do business with on an active basis. That continues to be close to 1,600 lenders in the country as well as doing business with all top 20 originators in the country. So I would say that's our technology strategy. When it comes to AI, I've said in the past that we continue to invest on that front both for efficiency reasons and making smarter and more granular decisions. So that's basically how we see that playing out for our business. Richard Shane: Got it. Okay. That's helpful. And then just if we can think about a little bit in terms of -- you've increased your return of capital allocation for the year 25%. It's risen steadily throughout the year. This was a strong quarter in line roughly, I think, with at least Street expectations. Is it just that you guys sort of as you move through the year and gather more information, feel more confident in terms of setting your capital return expectations? It's -- I don't think this year is way out of whack with your expectations, and I don't think third quarter or fourth quarter outlook seems radically different. What drives a 25% increase in capital return outlook? Hardin Mitchell: Yes, Rick, it's Dean. I appreciate the question. I think you hit on a lot of the points. When we set our return of capital plans at the beginning of the year, we're thinking about our expectations around business performance. We're thinking about the current and prospective macroeconomic environment, and we're thinking about the regulatory landscape to determine kind of what the appropriate level of capital return is given the intersection of those 3 considerations. I think as we go through the year, we both make assessments how we're doing relative to our original expectations. And then to your point, we're gaining more and more confidence in those drivers as we progress through the year. From my perspective, the increase from $400 million to $500 and even if you go back a quarter, the increase from $350 million to $500 million, I think it reflects both the favorable business performance year-to-date and also certainly an indication of the current level of mortgage originations that are in the market today. I think it's really the combination of those 2 things that has caused us to come back and revise our return of capital guidance upwards. Richard Shane: Got it. And so if I were to summarize that, year has manifested potentially better than your conservative expectations, but this is really about the confidence interval on that performance narrowing to the higher end as we sort of move into fourth quarter. Rohit Gupta: Yes, Rick, I'm not sure if I would call it conservative expectations. I would just say we operate in an uncertain environment. So we always keep that in mind. You see that in our commentary in our prepared remarks that we are running the business with a mindset that we need to be confident in our actions. And as we gain that confidence with actual performance coming through, we continue to update it along the year. So I think it's just the nature of how we actually manage the business and how we make sure that we can deliver on our promises consistently. Richard Shane: Got it. Fair point that uncertainty has been mitigated as we move through this year in general. That's a fair point. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Rohit Gupta for any closing remarks. Rohit Gupta: Thank you, Drew. Thank you, everyone. We appreciate your interest in Enact. And once again, I would like to wrap up the call by thanking all of our employees for their hard work and dedication in fulfilling our mission to help people buy a house and keep it their home. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to Tutor Perini Corporation's Third Quarter 2025 Earnings Conference Call. My name is Julian, and I'll be your coordinator for today. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] I will now turn the conference over to your host today, Mr. Jorge Casado, Senior Vice President of Investor Relations. Thank you. Please proceed. Jorge Casado: Hello, and thank you all for joining us. With us today are Gary Smalley, CEO and President; Ron Tutor, Executive Chairman; and Ryan Soroka, Executive Vice President and CFO. Gary and Ryan will review the details of the quarter and provide some commentary regarding our outlook and guidance. Ron is here to help answer any project-specific questions as he remains involved in the setup of our newer major projects. Before we discuss our results, I will remind everyone that during this call, we will be making forward-looking statements, which are based on management's current assessment of existing trends and information. There is an inherent risk that our actual results could differ materially. You can find our disclosures about risk factors that could contribute to such differences in our Form 10-K, which we filed on February 27, 2025, and in our Form 10-Q that we are filing today. The company assumes no obligation to update forward-looking statements, whether due to new information, future events or otherwise, other than as required by law. In addition, during today's call, management will be referring to certain non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures in the earnings release that we issued today and in the Form 10-Q that is being filed today, both of which can be found in the Investors section of our website. Thank you. And with that, I will turn the call over to Gary Smalley. Gary Smalley: Thanks, Jorge. Hello, everyone, and thank you for joining us. As I mentioned during our last 2 earnings calls, it certainly is a great time to be a Tutor Perini shareholder. Our business and correspondingly, our stock has performed extremely well this year, yet we are just at the start of what we expect will be a very strong period of double-digit revenue growth, increased profitability and solid cash generation over the next several years. With what we continue to see on the horizon, there remains tremendous opportunity ahead for further substantial shareholder value creation. Now let's talk about our third quarter performance. Tutor Perini delivered excellent results for the third quarter, once again setting new records across various key metrics. Our operating cash flow was extraordinarily strong for the quarter at $289 million and $574 million through the first 9 months of 2025, setting new records for both respective periods. The strong cash flow was almost entirely driven by collections from newer and ongoing projects. Our third quarter cash flow was the second best for any quarter ever, and our cash flow through the first 9 months of this year is already well in excess of last year's full year record operating cash flow. With what is now our fourth consecutive year of record operating cash generation, the cash on our balance sheet is quite healthy. We plan to continue building our cash position until our general corporate purpose cash reaches a level at which we can comfortably initiate one or more strategic capital allocation alternatives, most likely in the form of a recurring dividend and/or a share repurchase program. Tutor Perini has been benefiting from favorable macroeconomic tailwinds, which are driving strong sustained market demand for construction services across all segments. We believe that these tailwinds will persist due to the tremendous amount of federal, state and local level funding that are now in place and because our country has for decades and until recent years, neglected to adequately fund and prioritize the types of substantial infrastructure investments being made today. We have continued to be successful in capitalizing on major project opportunities, adding $2 billion of new awards and contract adjustments in the third quarter, which increased our backlog to a new record of $21.6 billion, up 54% year-over-year. Backlog for both the Building and Specialty Contractors segments also set new records. Our book-to-burn ratio for the third quarter was 1.4x. I'll provide further details on some of our new awards shortly. Our third quarter revenue was strong, up 31% year-over-year, and revenue for the first 9 months of 2025 was the highest since 2009, achieving record quarterly and first 9 months revenue performance for the Civil segment and the best performance since 2020 for the Building segment. Operating income was up significantly this quarter despite a further substantial increase in our share-based compensation expense that resulted from the dramatic growth in our stock price, which has nearly tripled since the end of last year, reflecting our continued strong operating performance driven by contributions from various newer, higher-margin projects in the Civil and Building segments. I will note that while we expect our share-based compensation expense to be higher than previously anticipated for the full year of 2025, it is still projected to decrease considerably in 2026 and further in 2027 once certain awards have vested. The Civil segment continues to perform at record levels, delivering its highest segment operating income ever for both the third quarter and first 9 months of the year with strong margins that are sustainably above the historical range for the segment. The Building segment's operating income for the first 9 months of 2025 was the highest since 2011. And importantly, the Specialty Contractors segment returned to profitability this quarter ahead of expectations. Adjusted earnings per share for the third quarter, which excludes the impact of share-based compensation expense, net of the associated tax benefit was $1.15, up significantly compared to the adjusted loss per share of $1.61 reported for the third quarter last year, again, demonstrating our strong core operating performance and contributions from various newer, larger and higher-margin projects, many of which are just ramping up. Our GAAP EPS was $0.07 for the third quarter, a substantial improvement compared to a loss of $1.92 per share for the same quarter last year. Overall, our business continues to perform extremely well this year, significantly better than we anticipated at the start of the year. The newer, larger projects I mentioned are expected to drive very substantial growth, strong profitability and solid cash flow over the next several years. Now taking a closer look at our new awards in the third quarter, the largest of these included the UCSF Benioff New Children's Hospital in California, valued at approximately $1 billion, a $182 million defense system project in Guam and $155 million education facility project in California. We also listed several other smaller new awards in our earnings release today. Looking ahead, we believe that our backlog will remain strong as we continue to see numerous major bidding opportunities for our Civil and Building segments, many of which should also include a significant role for our electrical and mechanical business units within the Specialty Contractors segment. Our most significant new project opportunities over the next several years are primarily located in California, New York, the Midwest and the Indo-Pacific region. Among these opportunities are several building segment projects currently in the preconstruction phase that are expected to advance to the construction phase, a few later this year and others over the next 2 years. We have well over $25 billion of upcoming bidding opportunities over the next 12 to 18 months, the largest of which include the $12 billion Sepulveda Transit Corridor, the $3.8 billion Southeast Gateway Line and a $2 billion replacement hospital, all of which are in California as well as the $5 billion Penn Station transformation project in New York, the $1.4 billion I-535 Blatnik Bridge project in Minnesota and the $1 billion I-69 ORX Section 2 project connecting Indiana and Kentucky. In addition to these billion-dollar plus projects, we have an even firmer opportunity that is on the near-term horizon. We expect to add approximately $1 billion to backlog by second quarter of next year for the finished trade scope of work for Phase 1 of the Midtown Bus Terminal in New York City. Recall that we were awarded the first part of Phase 1 of the bus terminal project last quarter for an announced value of $1.87 billion. We also continue to have significant Indo-Pacific opportunities, largely driven by the federal government-specific deterrence initiative Black Construction, our Guam-based subsidiary has had tremendous success in winning various new projects throughout the region and continues to be well positioned to capture additional major projects over the coming years. We remain highly selective as to what opportunities we will pursue with a continued focus on bidding projects with favorable contractual terms, limited competition and higher margins. We are pursuing projects that will highlight Tutor Perini's differentiated approach, depth of operational talent and history of outstanding project execution. Based on our outstanding performance to date and strong confidence in the results we expect to deliver for the fourth quarter, we are raising our guidance for the third consecutive quarter. Our adjusted EPS for 2025 is now expected to be in the range of $4 to $4.20, up from our previous guidance of $3.65 to $3.95. Importantly, the outlook for Tutor Perini remains very positive beyond 2025. We still anticipate that our adjusted EPS in '26 and '27 will be significantly higher than the upper end of our increased guidance for 2025, and we expect strong operating cash flow for the rest of this year and beyond. Finally, I will reiterate and expand a bit on what we have said earlier this year regarding the broader macro environment. We still do not anticipate that tariffs will have a significant impact on our business. We also do not currently foresee the risk of any of our major projects in backlog being canceled, delayed, defunded or otherwise materially impacted by the administration's targeted funding cuts or by the recent federal government shutdown, including our work on the first phase of the California high-speed rail project or any of our projects in New York. We have had discussions with our customers, and they have confirmed that our projects are funded and authorized and they are not expected to be adversely impacted. So for us, it continues to be business as usual at this time on all of our major projects. Thank you. And with that, I will turn the call over to Ryan to discuss the details of our third quarter results. Ryan Soroka: Thanks, Gary, and good afternoon, everyone. I will start with a discussion of our third quarter results, after which I'll provide some commentary on our balance sheet and our latest 2025 guidance assumptions. All comparative references will be against the same quarter of last year, unless otherwise stated. Revenue for the third quarter of 2025 was $1.42 billion, up 31% year-over-year. Civil segment revenue was $770 million, up 41%. Building segment revenue was $419 million, down slightly compared to last year, but expected to increase substantially over the coming quarters. Specialty Contractors segment revenue was $226 million, up a very strong 124%. Our revenue growth for this quarter continued to be driven by increased project execution activities on various newer, larger and higher-margin projects that all have substantial scope of work remaining. These included the Midtown Bus Terminal Phase 1 project in New York, a new hospital project in California, the Brooklyn and Manhattan jails, the Honolulu Rail project, the Manhattan Tunnel, the Newark AirTrain replacement and the Kensico-Eastview Connection Tunnel. All of these projects are in their early stages and are expected to ramp up substantially over the next several years. Civil segment income from construction operations was $99 million in the third quarter of 2025, up substantially compared to a loss of $13 million. Last year's third quarter loss was due to a significant charge that resulted from an adverse arbitration decision on a completed bridge project in California, which we are appealing. The improvement this quarter was otherwise driven by contributions related to the strong revenue growth from higher-margin projects that I mentioned for the segment. Civil segment operating margin was solid at 12.9% for the third quarter of 2025 and 15.1% through the first 9 months of 2025, both well ahead of the segment's historical 8% to 12% range and in line with our expectations for 13% to 15% for this year. Building segment income from construction operations was $14 million in the third quarter, also up considerably compared to a loss of $4 million last year, which was mostly due to a charge we took during last year's third quarter for the settlement of a legacy dispute on a completed government facility project in Florida. The profit increase in the current year quarter was primarily due to contributions related to the increased project execution activities I mentioned. Building segment operating margin was 3.4% for the third quarter of 2025, in line with expectations. We believe this margin will continue to increase over the next several quarters as volume from certain higher-margin projects growth. Specialty Contractors segment income from construction operations was $6 million for the third quarter, reflecting an earlier-than-anticipated return to profitability and compares to a loss of $57 million last year. The improvement was primarily due to the absence of certain prior year unfavorable adjustments as well as the current year contributions related to the segment's very strong revenue growth with increased project execution activities on various newer projects across diverse end markets. Specialty Contractors segment operating margin was 2.7% for the third quarter of 2025. Other income for the third quarter was $7 million compared to $4 million last year. Interest expense was $14 million, down 36%, compared to $21 million last year because of our significant debt reduction since last year. Income tax expense for the third quarter was $15 million with a corresponding effective tax rate of 44.6% compared to an income tax benefit of $34 million last year with a corresponding effective tax rate of 27.5%. We trued up our tax provision again this quarter, and our new projected effective tax rate for 2025 is now higher than previously anticipated, entirely due to the significant increase in share-based compensation expense that Gary mentioned and the fact that nearly all of that higher expense is nondeductible. On a GAAP basis, net income attributable to Tutor Perini for the third quarter of 2025 was $4 million or $0.07 of earnings per share, a result impacted by the further increase in our share-based compensation expense, but still a substantial improvement compared to the net loss attributable to Tutor Perini of $101 million or $1.92 loss per share in last year's third quarter. Adjusted net income attributable to Tutor Perini was $62 million or $1.15 of adjusted earnings per share for the third quarter, up very substantially compared to an adjusted net loss attributable to Tutor Perini of $85 million or an adjusted loss of $1.61 per share for last year's third quarter. For the first 9 months of 2025, adjusted net income attributable to Tutor Perini was $171 million or $3.22 of adjusted earnings per share, also up very meaningfully compared to an adjusted net loss attributable to Tutor Perini of $46 million or an adjusted loss of $0.88 per share for the same period last year. As you can tell, our business is performing well with core operations performance driving very solid earnings this year and reflecting a dramatic turnaround compared to last year. As Gary mentioned, our operating cash flows for the third quarter and first 9 months of 2025 were record-breaking at $289 million and $574 million, respectively. We expect that our operating cash for the full year of 2025 will shatter last year's record and will represent our fourth straight year of record cash generation. We also anticipate that our cash flows will continue to be strong well beyond 2025, driven by organic cash collections, that is from new and existing projects and occasionally enhanced by collections associated with dispute resolutions. Next, I'll address our balance sheet. Our total debt at September 30, 2025, was $413 million, down 23% compared to $534 million at the end of 2024. Our cash balance has grown substantially this quarter due to our record operating cash flow, and it continues to significantly exceed our total debt now by $283 million. Our cost and estimated earnings in excess of billings, or CIE, declined again this quarter and is at the lowest level it has been since the first quarter of 2017. CIE has declined by $95 million or 10% since the end of last year, mostly driven by the resolution, billing and collection of various disputed matters as opposed to project charges. Our CIE is expected to continue to decrease as we resolve the remaining legacy disputes. Finally, here are our latest updated assumptions regarding our increased earnings guidance. G&A expense for 2025 is now expected to be between $410 million and $420 million, with the increase from our previous assumption due entirely to increased share-based compensation expense as our share price has continued to climb. Depreciation and amortization expense is now anticipated to be approximately $50 million in 2025, with depreciation at $48 million and amortization at $2 million. Interest expense for 2025 is still expected to be approximately $55 million, of which about $5 million will be noncash. This $34 million or 38% lower than our interest expense of $89 million in 2024. Our effective income tax rate for 2025 is now expected to be approximately 30% to 32%, higher than previously anticipated due to the increase in share-based compensation expense, nearly all of which is nondeductible. We still anticipate noncontrolling interest to be between $75 million and $85 million, significantly higher than last year due to increased contributions from certain joint ventures. We still expect approximately 53 million weighted average diluted shares outstanding for 2025. And capital expenditures are now anticipated to be approximately $170 million to $180 million, with the vast majority of the CapEx in 2025 estimated at approximately $120 million to $130 million to be owner-funded for large equipment items on certain large new projects such as tunnel boring machines. Thank you. And with that, I will turn the call back over to Gary. Gary Smalley: Thank you, Ryan. In summary, we delivered extraordinary results for the third quarter that exceeded expectations with record operating cash flow, continued strong revenue growth, solid operating income and profitability across all segments and strong bottom line earnings as well as backlog that climbed to a new all-time record of $21.6 billion. This record backlog should enable us to produce strong double-digit revenue growth and significantly higher earnings in 2026 and 2027, while serving as a catalyst for continued strong annual cash flow as our newer projects progress through design and into construction. Our excellent performance to date, combined with our confidence in the results we expect to deliver for the fourth quarter, has enabled us to raise our 2025 EPS guidance for the third consecutive quarter. The outlook for Tutor Perini is very bright over the next several years as we continue to benefit from favorable macroeconomic tailwinds and strong public and private customer funding that are fueling sustained market demand for our services. Finally, and just to reiterate, despite the dramatic growth we have seen this year in our stock price, I still believe we have tremendous opportunity ahead for further substantial shareholder value creation. Thank you. And with that, I will turn the call over to the operator for questions. Operator: [Operator Instructions] And our first question comes from Adam Thalhimer with Thompson Davis & Company. Adam Thalhimer: Great quarter. Gary Smalley: Thanks Adam. Adam Thalhimer: Can you give a little more color on specialty turning positive? What drove that? And what's your expectation for the next few quarters? Gary Smalley: Yes, Adam, look, what's really driving specialty performance is the work that we have, the non-claim resolution or dispute resolution work is just going extremely well. We're making a heck of a lot of money, and that is the work that we're primarily doing is for Tutor Perini, but also the work that we're not doing for Tutor Perini is just doing extremely well. So we have a quarter that had very little noise from dispute resolutions, and that's what's really driving it. So whenever we have quarters like that throughout the business, but especially for specialty at this point, you're going to see much improved results. Adam Thalhimer: Does the specialty revenue trend up from the Q3 level? Gary Smalley: Yes. It will because keep in mind that most of the work that they're doing is for these larger projects that we've been announcing awards of over the last 1.5 years or so. And as those projects continue to ramp up, their participation will continue to ramp up. So their revenue is going to go up significantly, particularly New York-based revenue. Adam Thalhimer: And then can you just level set us lastly on how many of the legacy disputes are remaining? Gary Smalley: Yes. The -- we're looking at about a dozen, let's say, of any significance. There's some cats and dogs, odds and ends out there, too, but 10, 12 of any significance. Operator: And our next question comes from the line of Liam Burke with B. Riley Securities. Liam Burke: As you move on with better terms and better margins on these contracts rolling over as we can see in your operating margins, is your bidding activity staying robust? Or have you been seeing less interest in certain areas? Gary Smalley: No, it's still very robust. We've got a load of work that's coming up in different geographies, really led by New York still and a lot of things happening in California. We still have Indo-Pacific that's looking very strong as well as the Midwest. So we're -- in all of our major geographies, there's still a really strong pipeline of work yet to be bid. Liam Burke: Great. And I don't want to keep harping on specialty contractors, but you had a pretty nice quarter in awards and the announcements, which we really don't hear a lot about. Is there something changing in terms of the amount of awards that specialty contractors are getting? Gary Smalley: No, not really. Just keep in mind, though, for these larger projects, particularly in New York that we've been announcing, their participation is very strong in each one of those projects. So that means that as the backlog was building for the whole company, the specialty backlog, particularly in New York, has also been building. And this is higher-margin work for them than what they've seen in the past. So expect higher margins to be reported as we move forward. Operator: And our next question comes from the line of Min Cho with Texas Capital Securities. Min Cho: Congratulations on another strong quarter and guidance raise. So you went through your $12 billion kind of near-term bid pipeline pretty quickly. I know the awards and backlog can be kind of lumpy from time to time. But based on that pipeline and just the timing of the pipeline, do you -- could you exit the fourth quarter at another record? Or are we expecting something a little bit more flattish? Gary Smalley: Yes, it's probably a little bit more flattish in the fourth quarter. It's going to be lumpier. Lately, it's been every quarter, it seems increased new record, new record, new record. And we're not going to see that going forward in the short term. We may have new records, but it won't be consistently quarter after quarter. So a little bit lumpy, but flattish over the short term -- short to medium term anyway. Min Cho: Right. It's still just at very high levels. That's great. Also kind of going back and maybe, Ryan, on the specialty contracting business, nice to see it back in the black. By 2026, could you kind of be at your target of 5% to 8%? Or given what's in the pipeline, do you expect that could take a little bit longer? Ryan Soroka: Yes. I think there's certainly potential to get up to that 5% to 8%, in particular, looking forward as these newer projects ramp up and that are obviously coming along with the significant civil work and building work. So I think as those revenues and margins come through, I think you're going to see those margins continue to elevate. Min Cho: Excellent. And then just finally, Gary, so obviously, the directional outlook for 2026 is still to be up substantially from the high end of '25. But from even the last quarter, are you feeling better or the same about 2026? And if you can just talk about what's maybe changed? Gary Smalley: Yes, I would say at least as good, if not better. What's happening is we continue to have exceptional results in resolving the things of the past. And so that certainly is helpful. But also as we go forward, we're seeing more clarity on the work that we were booking. We've been able to do a better job in negotiating what we call buyouts. So in other words, we offload risk to vendors and subcontractors. And for these lump sum projects, we've done a better job than what we thought. So everything is -- and then the early performance is also really better than what we thought. So I would say that we expect -- we just are more bullish now over '26 and even '27 than we were before. But it's always been very high expectations. And so we still have those, but with a little bit more. Operator: The next question comes from the line of Michael Dudas with Vertical Research Partners. Michael Dudas: Not sure who's had a better year due to Tutor Perini or Dodgers. Gary Smalley: That's a good question. Michael Dudas: You could ponder that offline. Gary, you've talked a couple of the response to the questions about the bookings that you're looking at and the bidding activity. There's several and they're large. How do you look at that relative to like where your business is today, what regions, your capacity, the ability to kind of continue to execute at this high level? And is this -- is the market set up for maybe not in the next few quarters, but maybe in the next 12 to 30 months to have another uptick in what the backlog can be and what the visibility can be out, say, to the end of the decade? Gary Smalley: Yes. It certainly can have an uptick as we progress through these bids. It really depends on the timing of when the bids come to fruition and then, of course, our success rate. But there are some large projects that you've heard. We like our chances. As far as capacity, we're not going to overextend ourselves. We're very disciplined in the approach. We still have capacity for more, but we also are working off projects, too. So as projects get worked off, we have staff that become available, and we insert those individuals, those key leaders where we need them most. So we feel really good about where we're staffed and we feel good about what the long-term prospects of this backlog can look like. Michael Dudas: I appreciate that. And then my follow-up is, Gary, I mean, the cash performance has been outstanding. It goes without saying. Maybe as we think about it, you're going to need some cash to grow the business, I'm assuming, as these projects ramp up and on the cash cycle. And you did mention about what to do once you get to this certain level on cash. And maybe you could share a little bit about what you're thinking, maybe the Board might be thinking internally on this concept and over how much more, what kind of level is required to maybe start thinking about that in a more tangible thought process? Gary Smalley: I won't give you an exact time line, but I will say that it is a topic of conversation every time we get together with the Board and the next time is next week. And I think that we're unanimous in believing up until the latest conversations is that it would be prudent to continue to accumulate more cash because of exactly what you said. There's -- we still have to look at future needs for the cash. So we'll be conservative. We'll be intelligent with what we do. And as far as the timing, I won't -- we won't have a spoiler alert at this point because we got to get through the meeting next week. And then we'll -- if there's any news, then we'll roll it out as soon as possible. But look for continued conservatism and just caution to make sure that we have excess cash rather than needing to draw down on some revolver or anything. Michael Dudas: That makes perfect sense. And just a quick follow-up on the bidding opportunities. Are you bidding on those by yourself? Or are there any joint venture partners in many of these projects? I'm assuming most of them are going to be on your own? Or is there some that you might join with some partners? Gary Smalley: Yes, it's a mix. When the projects get as large as the ones that we are talking about, it's likely that there's a JV partner. But look, we do very well with respect to surety support, being able to deliver projects ourselves without the need for others to participate. We also have capabilities internally that we don't always need help. But these are huge programs. So look for, we'll say, a good -- many of those to have a JV partner. And then we'll rely on our experience with our JV partners in the past. We've always had very successful JVs and would look to go back to our established partners. Operator: And our final question comes from the line of Steven Fisher with UBS. Steven Fisher: Congratulations also on the cash generation there. Just curious on that point, what's the outlook for sort of the mobilization payments or upfront payments that you're getting? Is that now mostly kind of happened as your sort of backlog is flattening before this next wave? And is cash going forward for the next handful of quarters going to be more related. It's just sort of ongoing project burn? Gary Smalley: Yes, there's -- most of the mobilization payments have happened. There's still a couple of fragments to go. I would look at cash continue to be strong, not as strong as what we had in the third quarter, that's just really phenomenal, the $289 million. So it will still be very strong compared to where we've been historically. And we look for continued strong cash going into '26 and '27 and beyond that, too. Steven Fisher: That's helpful. And just in terms of impactful margin momentum, I mean, clearly, going in specialty from negative to positive is important. But on the scale of dollars, it's maybe not as big as what could happen with the Building segment. So just trying to get a sense of the -- both the timing and the magnitude of that momentum in the building side. And so maybe you can help me with this in terms of as we think about the revenue mix of the Building segment over the next couple of years, what percent of that do you think is going to be sort of the typical lower-margin GC work with a lot of the subcontractor pass-throughs versus the larger prison type projects where you've got more -- a higher margin profile. Is this going to be like you think 50-50 within that segment or more weighted towards those kind of fixed price projects like the prison type thing? Gary Smalley: Yes. Yes. Look, as always, our margin profile is dependent on a large mix of work. A good bit of the work that we're doing now is the -- you mentioned the prisons, but it's work like that, that is higher margin. Even the traditionally lower margin work that we're doing now, some of those projects are showing increased margins, too. So without giving you an exact percent, the mix is better than it's ever been. Certainly, the fixed price work impacts that, but also the complexity of some of the work that we're doing and the absence of bidders, not even talking about the fixed price work, that's helping us to demand higher margins there, too. So that's why we're so bullish on building margins being improving because the content of this newer work that's higher margin is just going to feed the margin growth in the Building segment. Steven Fisher: Makes sense. And then just a quick follow-up there is when do you think you'll hit the point where the Building segment margins are really reflecting the solid burn on all the work that's gone in there? Is that sort of a 2027 time frame? Or could it be sometime before then? Gary Smalley: No, I think you're going to see by mid-2026, you're going to see a significant impact and it's going to be improved by the time you get to 2027. But '26, I think the latter part of '26 is going to look much better than where we are even now with the elevated margins in '25. Steven Fisher: And then I guess the last question here, I suppose I have to ask on the government funding side. You mentioned, Gary, that the government shutdown and the budget cuts aren't going to have an impact. I guess I'm curious to hear what you think about the dynamics with the mayor elect in New York City here versus the Trump administration and what that could mean for ongoing projects and perhaps importantly, something like Port Authority, which you have, it sounds like another slug coming. So what do you think about those dynamics and how they could play out? Gary Smalley: Yes. Look, it's hard to predict what the future might hold, but we're not expecting any significant impacts. And you mentioned the Port Authority. Look, the Port Authority is not a city agency. It's a state agency between 2 states, New Jersey and New York. And we don't -- we just don't anticipate any impacts and nor do our owners, our customers. We're having active dialogue with them as developments occur. And so far, we don't see any impact at all. Operator: And with that, that does conclude the question-and-answer session. I would now like to turn the floor back over to Gary Smalley for closing remarks. Gary Smalley: Well, thank you, everyone, again, for your interest and participation today. We look forward to continuing to deliver strong results going forward as we have for the first 3 quarters of this year. Look, we appreciate your support and confidence in the improvements that we are making and your patience for those of you who have been with us for a long time. For those of you who have been in wait-and-see mode, that's okay, I get it. But we believe that there's still a lot more good to come. So get on board, there's still time. And look, we look forward to talking to you again next quarter. Thank you very much. Operator: Thank you. With that, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, everyone, and welcome to today's Third Quarter 2025 Middleby Corp. Earnings Call. [Operator Instructions] Please note today's call will be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to CEO, Tim FitzGerald. Please go ahead. Timothy FitzGerald: Good morning, and thank you for joining today's call. I'll begin this morning with an overview of the announced strategic review of our Residential Kitchen business before discussing highlights of the third quarter and for each of our business segments. As part of our efforts to drive long-term shareholder value, we've been undertaking a strategic review of our overall business portfolio. We continue to believe that our shares are significantly undervalued, and we're taking deliberate steps to close that gap, including with the planned spin-off of our Food Processing business targeted for the completion in the second quarter of 2026 and also through our significant share repurchasing activities. As we further continue to evaluate opportunities to unlock the value at each of our 3 industry-leading segments, we have embarked on a review of options to maximize the value of our Residential Kitchen business. This includes an evaluation of a range of options, one of which is a potential separation of our Residential Kitchen business. During the quarter, in connection with that review, we recorded a noncash impairment charge of $709 million. This is an accounting-driven valuation adjustment and does not reflect any change in our confidence in the segment's underlying strength. In fact, we believe our Residential business is positioned better than ever. We have a portfolio of iconic brands. We have invested in new state-of-the-art manufacturing centers of excellence. We are introducing new products with exciting features, and we have strengthened our team across the platform. While the residential market remains challenging, our business is positioned to benefit from a recovery. We intend to pursue options that will maximize shareholder value while benefiting our customers and employees. But please note, we will not be making any further comments on the status of this strategic review on the call. As for the third quarter, we are pleased with our results, which once again demonstrate the strength of our business and our team's disciplined execution. Total revenue of $980 million exceeded the top end of our guidance range. Each of our 3 segments met or surpassed expectations. This top line performance drove adjusted EBITDA of $196 million and adjusted EPS of $2.37, both exceeding the upper end of our guidance. These results reflect the benefits of our strategic investments over the past several years, expanding our go-to-market strategy, strengthening local sales support, advancing digital marketing and enhancing after-sales service capabilities. We continue to invest in innovative technologies that help customers address labor and training challenges and operate more efficiently. Our ice and beverage platform remains a core area of opportunity and is expected to be a meaningful growth driver in the years ahead. While broader market conditions remain mixed, our long-term strategic focus has positioned Middleby to capture outsized growth when markets normalize. At our Commercial Foodservice segment, we returned to positive organic growth in sales for the first time since the third quarter of 2023. Growth was driven by the general market, institutional customers and with emerging restaurant chains, offset in part by ongoing softness among large QSR customers facing lower traffic and cost pressures. We are encouraged by the traction we're seeing from investments made with key U.S. channel partners. By partnering and educating our dealer base on the performance advantages of our technologies, we are capturing market share and outpacing overall industry growth in this area. And we're particularly excited about the growing pipeline of opportunities of our ice and beverage solutions. At the Residential segment, we've continued to make significant progress, both strategically and operationally. During the quarter, we saw healthy growth with our premium indoor brands. This growth was offset by tariff-related headwinds impacting our outdoor product sales. Additionally, we experienced temporary shipment delays tied to the consolidation of operations, actions that will ultimately drive greater efficiency and profitability across the portfolio. A major milestone was the opening of our new state-of-the-art facility in Greenville, Michigan, which serves as a Center of Excellence for all our residential refrigeration brands. This facility will enable scaling of manufacturing, engineering and logistics, resulting in enhanced customer service and long-term margin benefits. Third, in food processing, improving international markets offset continued softness in the U.S. During the quarter, we realized a strong order rate, which inflected positive after a soft start to the year as customers resume deferred capital projects. Our ability to deliver comprehensive full-line solutions positions us to capture these opportunities. We also expanded our global network of innovation centers with the opening of the Middleby Innovation Center (sic) [ Middleby Centro di Innovazione ] in Venice, Italy, a flagship hub for the Food Processing Group focused on accelerating customer collaboration and technology development. This new innovation center is unique for the industry, and it will transform how we engage with our customers for years to come. Our strong financial results and conviction in Middleby's future underpin our capital allocation priorities. We expect to continue repurchasing shares using the substantial cash flow we generate. This reflects our belief that Middleby's current share price undervalues the long-term earnings potential of our company. By investing in share repurchases today, we are positioned to drive sustained shareholder value as markets -- as our end markets recover. In parallel, we will continue to evaluate strategic alternatives across our portfolio to ensure we are optimizing Middleby's overall value creation potential. Now looking beyond the near-term conditions, our competitive advantages are compounding. We have an unmatched portfolio of brands. We have the industry's strongest innovation pipeline. We're making targeted strategic investments in new and growing addressable markets such as ice and beverage, and we are leading in next-generation automation and IoT capabilities that position us ahead of competitors for the years ahead. And most importantly, we have a world-class team around the globe whose commitment and execution continue to drive our success. While we're navigating some market volatility, Middleby is stronger today than any point in our history. The foundation we've built positions us exceptionally well to capitalize when markets fully normalize. With that, now I'll turn it over to Bryan to discuss our financial performance in greater detail and guidance for the fourth quarter. Bryan Mittelman: Thanks, Tim. Looking back at the third quarter, we were pleased to see revenue, adjusted EBITDA and adjusted EPS performance all exceeding the guidance we initiated last quarter. I note that adjusted EPS was positively impacted by $0.15 related to stock comp. For commercial foodservice, despite market conditions that continue to be challenging, we delivered 1.6% organic revenue growth. Positive impacts we're seeing from general market, institutional and fast casual customer segments. We delivered $606 million of revenue and a solid EBITDA margin of nearly 27%. This would have exceeded 28% if not for tariff impacts. Customer engagement and interest in our leading technologies remain strong, especially in beverage dispense and ice products. At residential, on a year-over-year basis, we saw growth across our premium indoor businesses. Tariff impacts had a rather detrimental impact on outdoor products revenues and also pressured margins. Revenues were nearly $175 million, and our EBITDA margin was slightly below 10%. The cost impact of tariffs was a drag of more than 150 basis points on margins. At food processing, Q3 revenues exceeded $201 million, and our organic EBITDA margin was 21%. This would have been nearly 22% if not for tariff impacts. Margins were further impacted by geographic mix. The Q3 performance exhibited some of the short-term lumpiness that can sometimes be seen in this business ahead of what will be a rather strong Q4, especially across our brands serving the protein space and in automation solutions. We are experiencing a strengthening order rate and growing backlog. On a consolidated basis, total company adjusted EBITDA for Q3 was over $196 million and adjusted EPS was $2.37. As noted in our earnings release today, we recorded impairment charges of $709 million during the quarter to write down the book value of the Residential segment to its estimated fair market value. Regarding tariffs, the adverse net impact to EBITDA in Q3 was approximately $12 million, and we estimate that the Q4 impact will be $5 million to $10 million. This continues to be a subject where tariffs -- this continues to be subject to where tariffs finally land and is also subject to risks, particularly in key supply chain markets of China and India, which continue to be especially volatile. The benefits of pricing and operational actions we have taken are expected to fully offset tariff impacts as we begin 2026. Q3 operating cash flow exceeded $176 million, up 12.5% year-over-year, and free cash flow was over $156 million. Our leverage ratio per our credit agreement at quarter's end was 2.3x. Please recall that on September 1, our convertible notes matured. Accordingly, borrowings on our revolving credit facility have increased, and our interest expense will be higher in Q4, estimated at $28 million to $30 million. Regarding capital allocation, earlier this year, we communicated the decision to deploy the vast majority of our free cash flow to share repurchases. Year-to-date, our free cash flow is $365 million, yet we have used $500 million to repurchase over 3.5 million shares at an average price of $144.55 per share. We've reduced our share count by 6.4% during 2025. Looking ahead to the coming quarters, we will continue to be opportunistic as we have excess capital to deploy. We will do so while maintaining the financial flexibility needed for strategic growth investments. Regarding today's updated outlook for the remainder of the year, I offer the following perspectives. At commercial foodservice, we are seeing pressure at a few of our largest QSR customers, which is constraining delivering sequential revenue growth. For food processing, with improving order activity, the fourth quarter will be the strongest of the year as is the normal pattern for this unit. Lastly, in the Residential segment, I characterize market conditions as fairly stable. And for Q4, which will also be our strongest revenue quarter of the year, we are forecasting a typical yet modest seasonal step-up in revenues. So for Q4, we expect to achieve the following: total company revenue of $990 million to $1,020 million. And by segment, this is comprised of commercial foodservice at $570 million to $580 million, residential kitchen at $180 million to $190 million and food processing at $240 million to $250 million. Adjusted EBITDA is forecasted to be between $200 million and $210 million, and adjusted EPS is projected to be in the range of $2.19 to $2.34, assuming approximately 50.4 million weighted average shares outstanding. Then for the full year, we expect to achieve the following: total revenues of $3.85 billion to $3.89 billion, adjusted EBITDA of $779 million to $789 million and adjusted EPS of $8.99 to $9.14 based on the sum of 4 individual quarters. Please refer to Slide 7 of the presentation we have posted online at our website for all those details. We will provide guidance for 2026 in conjunction with our release of fourth quarter results. I will conclude my comments with a quick update on the food processing spin-off. We remain confident in our ability to execute the necessary actions to have a successful transaction. Activities to ensure the spin company will be operating effectively, efficiently and independently at inception remain on track. I reiterate what I noted last quarter and that we expect to complete the spin-off in the first half of 2026 and more specific information about time lines and business matters will be provided later in the year. In the meantime, I do note that as part of the registration process with the SEC, we will first need to complete the 2025 financial statements audit. This will happen by the beginning of March of 2026 and will be quickly followed by a filing of a registration statement. Potential transaction effectiveness then is currently anticipated in May of 2026. That concludes our prepared remarks, and we are now ready to take your questions. Operator: [Operator Instructions] We'll move first to Mig Dobre with Baird. Mircea Dobre: So -- gosh, there's a whole lot to talk about here, I guess. And maybe where I would start is with a question on just the strategic evaluation of the company more broadly. You've obviously told us that residential is now part of this review process. I understand you don't want to comment further. But the way I interpreted your statement, Tim, is to suggest that there's more to it than just the spin of processing, maybe strategic evaluation of resi. Is there something going on in commercial foodservice as well that maybe you're working on or that shareholders need to be aware of? And then for food processing specifically, I appreciate the time line. I'm curious as to how you're thinking about the management team that will be running this business? Anything that you can share with us procedurally in terms of the things that you have accomplished thus far in anticipation of this spin? Timothy FitzGerald: Yes. So I'll take the second one first. So as Bryan just kind of mentioned in his remarks, we have made significant progress, I'll say, in separating -- standing up the company. So we feel like we are on track. I know that there -- we've made kind of limited announcements thus far, but we do anticipate in the fourth quarter that we'd start shedding light on some of the things that we've already accomplished and the plans going forward, kind of along with maybe a little bit more details around the time line of execution of the spin in the first half of next year. So we do feel like we are in good shape and have line of sight of separating of the companies and remain excited about that. Yes. I mean, I think the -- as I said in my comments and said probably for a long time, we have 3 industry-leading portfolios. So we think they're best-in-class. They have highest margins, and they are well positioned with a lot of the strategic investments that we've made in each of those portfolios. So really, as we've kind of undergone this exercise, which started last year is really how do we maximize the value of those portfolios for the long term, make sure they all reach their full potential, and we think there's a lot of shareholder value creation there. So it's really a continuation of that process and kind of our long-term vision for each of those segments. So I mean you shouldn't read anything into commercial. Commercial, it's our core business. It's a phenomenal business. I think as we kind of go through this process, that will allow us to ensure that we've got greater focus on that segment and each of those segments. So I think the strategic review aligns with the journey that we've been on in each of those platforms for a long period of time. Mircea Dobre: Okay. Okay. That's helpful. Then my follow-up on commercial foodservice. I'm looking at the fourth quarter guidance, and there is -- if I'm doing the math right, it seems to imply an organic decline of somewhere around mid-single digit on a year-over-year basis and the business down sequentially. And from a seasonal standpoint, this is a departure from what we normally see in the fourth quarter being down, call it, mid-single digits sequentially. So I guess I'm curious as to what's driving that. It sounds like QSR is driving that. But the point here is that while we're looking at Q3, we saw a bit of a recovery, that's not carrying into Q4. So was Q3 unique in any way? Was there some demand pull forward or stocking or anything of the sort? And how do you assess the broader trends in this business, especially as we start thinking about 2026, is that going to be yet another year of erosion based on what you know thus far? Or is there any reason to be more optimistic? Timothy FitzGerald: I think Bryan can comment on the numbers. I'll start off and then kick it to Steve. I mean the markets are volatile, right? Like I think as we mentioned in the comments, like we are seeing strength in certain areas, and we're performing well in those areas. So the general market with our dealers, I think we're doing well there. Some of that is because of the investments that we've made over time. Other areas of growth, the emerging chains, retail. But QSR has been tougher, right? Like I mean I think you can look across the segment and what's been reported over the course of the year, not just this quarter with traffic, et cetera. So that -- we feel we're very well positioned in the QSR segment. I think our relationships are stronger. The pipeline of opportunities, the products that we've got approved were a meaningful part of what we think is the future plans that they have for, I'll say, operational efficiencies and menu development. But because of the market backdrop, you see different purchasing patterns across those chains, right? So I think that's what we've been challenged with and create some volatility from quarter-to-quarter, but it does give us optimism as we go into next year because of how we are positioned. And I think some of the things that we see them executing on strategically today are benefits, I think, that they will see in their business next year, and we're kind of part of those plans. So I'll say that's kind of a broader comment. Steve, I think why don't you... Steve Spittle: Yes. Mig, I would just add on a couple of thoughts to comment on what Tim just said. Again, I think the chains, the QSR specifically that Tim said, obviously, have been challenged the last really 12 to 18 months. And as Tim said, I think the relationships that we have there continue to be strong. And I think as traffic in that space continues to be tough, it remains obviously challenged for the fourth quarter and probably into early next year. I think the positive is what you're seeing in the third quarter is investments we've made in other segments beyond just the QSR space that are starting to come through, the dealer segment, which Tim talked about. But I also want to highlight, as we think about emerging chains, there's a lot of focus in the U.S. There's a lot of focus internationally as well for us. It's a completely new white space that I feel like we're very underpenetrated in, and we've made a lot of investments in our people, in our innovation kitchens we've opened in Europe, both now in Munich and in Spain. And I think there's so many emerging chains in those spaces that probably many of us in the U.S. have not heard of that are big opportunities for us. So I think as we think about how next year unfolds, I think the dealer business, the emerging chain business, a lot of the fast casual space is very positive next year. And I think even though the QSR space remains challenged, I do think you're starting to see some of the QSRs even this quarter as they've reported, start to see some trend in the right direction. So I think QSRs as we get into next year, to answer the question, trend better. But I also think there's so much underlying demand in the other segments that we're just starting to see our investments pay off. And so I think that's why we feel good about next year, even though fourth quarter with the QSRs remains somewhat challenged. Operator: We'll move next to Saree Boroditsky with Jefferies. Jae Hyun Ko: This is James on for Saree. I guess sticking with the commercial foodservice here, you just talked about like QSR traffic like remains a headwind. And like based on the data, that's kind of weakening further as of the latest data available. And in this backdrop, like what are the like non-traffic levers that can still drive sales among QSRs? Or is traffic the sole driver here? And how many periods of like traffic recovery would you need to see before chains kind of step up investment here? Steve Spittle: Yes, James, this is Steve again. Good question. I do think traffic is certainly a major driver. And I think as traffic starts to inflect, I think that's when you start to see the QSRs pick back up, whether it's on new store openings or investment in the kitchen. I think one of the trends that we have spoken about that we're really seeing in the QSR space is, as they are challenged on, I would say, traditional traffic through the restaurant, they're all looking at how do I drive additional dayparts. A big trend there has been the emphasis around beverage. And I think you're seeing in the QSR space, concepts that you would never expect to have a premium beverage offering in their portfolio are moving towards that. And that is 100% to drive new dayparts. If breakfast is challenged, how do I get people coming in, in the afternoon between lunch and dinner as an example. That is very well -- we're very well positioned from that front because there's really no other company that can offer a full beverage solution that goes anywhere from ice to dispense, coffee, beer, water. And so if you're incorporating a new beverage platform as a QSR to be able to go one company that can give you the whole solution and support from a global standpoint is, we think, a very powerful proposition for our customers. But like that's how I think the QSRs are trying to overcome the traffic challenges is by looking at additional dayparts for traffic. Jae Hyun Ko: Got it. That's very helpful. And I guess on the guidance here -- on EBITDA guidance, can you kind of please walk us through like the contribution by each segment for 4Q, how you think about it? Bryan Mittelman: We've provided the level of guidance that we're going to provide for now. So I don't have specific numbers for each segment. But I think if you do the math, I mean, there's not going to be significant deviations from where we've been currently. Operator: We'll move next to Tami Zakaria with JPMorgan. Alec McGuire: This is Alec Mcguire on for Tami. So my first one is on the tariff front. I was wondering if you're taking any incremental pricing for the latest Section 232 tariff announced back in, I think it was August. And if there's any additional color on how the customer reception on pricing has been in the industry across the board? That would be much appreciated. Steve Spittle: Yes. This is Steve. Maybe I'll take the first pass, then -- and pass it around. Specific in commercial foodservice, again, our approach when tariffs first broke in the beginning of the year was to take a little bit more of a wait-and-see approach before we went announcing massive potential price increases as so many of our competitors did. So I think we were -- we tried to be very thoughtful to get as many facts and data to support pricing initiatives to offset the tariffs. So we did announce and execute a July 1 increase -- price increase within commercial that has as this year -- back half of the year has unfolded, obviously, comes through more and more. We've additionally spent a lot of time focused on operational initiatives, whether in-sourcing more and more into the U.S. or leveraging capabilities we have in facilities like Nogales, Mexico, where we have some in-house manufacturing, coupled with supply chain, just our overall supply chain leverage that we have from a broad base. So as this fourth quarter finishes up, we have expected to be covering the tariff impact from a cost standpoint through pricing and those other initiatives by the end of the year. And as you go through the other 2 platforms, residential is slightly more -- is more impacted than food processing just because of the grill platform in the China space. Food processing does not source as many components from the China space as well. So that's why they're a little bit less impacted. But really still across all 3 platforms, we have said since the middle of this year that our expectation was to be neutral in terms of covering the tariff cost impact through pricing, supply chain initiatives and operational initiatives, and we remain on target to do so. Alec McGuire: Understood. And just a quick follow-up. I think FP appears to be seeing some improved market dynamics, realizing solid order growth in the quarter. But I was wondering if you could, I guess, share some additional color on what the key drivers were for improved conversion of some of those larger projects that are out there? Bryan Mittelman: This is Bryan. I will address that one. As I noted, it's skewing a little bit more to the protein side of things as well as automation and washing type of solutions we have, I'll call it, adjacencies to just handling the proteins. You may also understand that we tend to be a little bit more exposed to red meats and dry cured meats and the like, and we're just seeing some greater investments coming together there. Having said that, there's a little bit of signs of some improvements on the bakery side as well. I will say we have seen good strength in snacks and are very happy with the performance that we're seeing in acquisitions made over the past year that address positive trends in things related to tortilla chips and prepared cakes and the like. But again, it's -- we're seeing further investments and I think some of our customers' confidence in the protein markets that we serve. Also benefiting some in poultry, too. Obviously, our exposure there is not significant, and that is an area we've noted for desire for growth and expanding our capabilities. Operator: We'll take our next question from Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: I guess just on res kitchen, just I think when you did the food processing spin, you got a lot of questions on why not res kitchen. And just from your view, what's changed to kind of revisit that? And then just on the grill business, around tariffs. Just what are you doing or thinking about to structurally change your footprint going forward to kind of manage those -- that tariff issue? Timothy FitzGerald: Yes. So we did start moving some of our production from China to other parts of Asia and elsewhere. So that was something that we mentioned last quarter. So that actually is underway and being executed in the fourth quarter. So that will better position the platform going into next year. The slight reduction also kind of announced in tariffs here recently in China does help that platform as well. So we pick up a bit on the bottom line, but it also better positions us on the top line from a pricing standpoint going forward. Part of the outdoor platform is manufactured in the U.S. as well kind of on the premium end of things with the Lynx Grills. And certainly, we're continuing to evaluate opportunities to onshore some of the products there. Yes, I'm sorry. So Jeff, your first question, I mean I think that's been an ongoing review of the portfolio. And I'll say I'll probably just be repetitive with the comments I made earlier. I think we were looking at the portfolio holistically even as of last year that kind of led us to the sequence of activities and announcements, which has led to most recently, the announced review of residential. Jeffrey Hammond: Okay. That's helpful. And then just on food processing, margins have stepped down quite a bit year-to-year, and I think you mentioned mix and tariff and maybe you can spike that out a little more. But as you look at the pipeline and you look at maybe some of the incoming orders, how are you thinking about margins as we go into 4Q and as we go into '26 and the spin? Bryan Mittelman: Yes. Jeff, this is Bryan. And I'll -- as I go through my comments here, I am thinking of things on an organic basis because obviously, there's always an impact of, I'll say, improving the operations once we've acquired them. So in terms of, I'll say, the year-over-year margin pressure because that's really what we're seeing, I think Q3 and Q4 are pretty close together, even with a little less operating leverage that comes through in Q3 given the volumes and also how -- there's a fair amount of our factories are in Europe that have different, I'll call it, work patterns in the third quarter. So we did notice a note -- and I'll say, in the neighborhood of 100 basis points of impacts from tariffs that we'll continue to try and work through on a cost-wise perspective. But there are also, I'll call it, market dynamics at play that are driving a pricing impact as well. So that would be the other factor, I would say. As we look into Q4 with the improving revenues and trends, we do expect the fourth quarter to be better than the third quarter. And as we take more of that medium-term outlook, as we do have larger orders and we're selling on return and the great benefits that we bring our customers, that does tend to be margin enhancing for us. There are actions we've been taking on pricing, whether it's on the parts and service side of the business or also making sure we're being responsive in how we manage pricing on the contract. So I think, again, given the actions we're taking, given the improving orders and backlogs, with that should drive a positive margin trend as we think about what may come in '26 versus '25. Timothy FitzGerald: I think just from a spend standpoint, I mean I think we're inflecting right now. So I mean I think it's a good -- we've got some momentum building as we go through the latter part of the year and the first half of next year. The pipeline has been strong. And now think -- now as orders convert, that puts us in a pretty strong position. And I think typically, that's going to be the biggest driver with margins. And I think then as Steve kind of talked about, we'll have overcome some of the tariff challenges as well. So I mean I think we feel like it's a pretty good setup for the first half of next year as we start to execute on the spend. Operator: [Operator Instructions] We'll move next to Tim Thein with Raymond James. Timothy Thein: I've got 2, if I may, on the commercial business. The first, just thinking back to the framework we talked about a couple of years ago with respect to kind of what's going to drive EBITDA or what can drive EBITDA margins in that commercial business, sales mix was one of the big levers that we saw. And obviously, you fast forward and the volumes quite haven't come through probably like we expected. But I'm just curious, as you kind of revisit that and think through that technology and automation was highlighted earlier. So presumably, that continues to be an emphasis. But I'm curious how that -- how kind of that has developed in terms of -- as a catalyst to support margins, but also the emphasis and the strength in ice and beverage. I'm just curious, I'm assuming that would be additive or kind of supportive of that sales. But not sure given that -- given the growth in that channel, is that a fair assumption, i.e., it is favorable to mix. So we'll start with that one, please. Timothy FitzGerald: Yes. So you are correct. That has been part of the strategy to expand our margins, right? So as we went through, I'll say, kind of post-COVID, we've cut a lot of SKUs that were lower margin. We've launched a lot of new products. Those new products, we still expect to be a big part of the future, yet to be seen, although certainly, we've gotten traction and there's been announcements of wins that are out there. We see that as continue to be a building pipeline, both to drive automation and efficiency in the kitchen in our core cooking categories as well as new market share gains in categories that we've not been, which is the ice and beverage, and we think those are both attractive margins and will be margin accretive over time. Ice and beverage is still -- it's relatively large now, but it's still a new part of Middleby, and it's got slightly lower margins than the hot side, but they're kind of mid-20s. So they're very attractive and expanding. And as a lot of the new products that James has highlighted on calls come out, we think those are going to be pretty attractive margins kind of as we go forward. As you kind of think about the immediacy, right, like we're, I'll say, holding serve as we're going through all these tariff challenges as well, right? Like those are not insignificant. So there's a lot of puts and takes as we kind of go through the current period, but I think we're well positioned for the next several years as a lot of these new product initiatives, I'll say, come online with our customers, which we feel pretty confident with. Timothy Thein: Got it. Okay. And then just can you update us on the backlog in that business and where -- I don't know where the end of the third quarter, where you're expecting to end the year? And just thinking if that's supportive of kind of the earlier discussion as whether or not '26 could be a growth year? Just maybe put that order backlog in the context of where you normally operate into a fiscal year. Timothy FitzGerald: I mean backlog is pretty short in that business. So I mean I think we really look at kind of the pipeline of opportunities and how we're pretty close with the customers, both our dealer partners and the chain. So backlog is really not the measurement for the commercial business. Operator: [Operator Instructions] We will take a follow-up from Mig Dobre with Baird. Mircea Dobre: And -- I just want to go back to commercial foodservice. And you talked about some areas of growth. You talk about international, for instance, as being an area of growth. There are portions of your business, however, that are challenged. And I guess I am wondering, as you're conducting these strategic reviews and you think about growth through the cycle as it were, how do you separate what is cyclical in compressing the growth in your -- in this segment versus what may be more structural in nature? And how do you think about adjusting the portfolio? Do you have the right portfolio in this segment to ensure a return to more sustainable long-term growth? And if the answer is no, that adjustments are needed, what are some of the things that you're contemplating in this regard? Steve Spittle: Yes, Mig, this is Steve. I'll take a first crack at it. I think, I think about it in the portfolio in 2 ways. So I'd say, okay, what is the core part of the commercial portfolio that are, again, the core brands that have been part of the portfolio for the last 15 and 20 years that I think support -- I don't know if it's the cyclical growth, but just the core growth that has kind of built Middleby Commercial Foodservice to where it is today. So like I think you have that core platform that I think as we work through these macro backdrops that we've had to navigate whether COVID or supply chain, now tariffs, I do think will support sustainable quarter-over-quarter growth. I then think as we have expanded the portfolio into the new categories that are going to drive growth beyond the core, I think that's where the secret sauce is going to come from. And I think that's what has not been unlocked yet. And I think those, again, are all the categories that we keep talking about, around beverage, ice, automation. And we're such early days, I feel like in those platforms. But -- so I think that we do have the right portfolio because, again, I think we are uniquely positioned that we're the only company that has both of those pieces to it, but the core business and I think the right pieces from products, from technologies that support exponential growth in years to come. So I don't know if it's quite answering your question, but I think the answer is yes, we have the right products in the portfolio. I think we've appropriately added over the last 5 years throughout all this disruption, the right products to the portfolio for when things really get going after, hopefully, the macro backdrop is a little bit more favorable. Timothy FitzGerald: I just -- yes, I mean -- and I'll maybe round that out, and it's a little bit repetitive. But I mean, I think a lot of the things that we have talked about with innovation and new investments are around categories that we do think are the longer-term growth drivers in food service, right? So in cooking, you've heard us, we focus on in ventless, we focus on electrification. We see the industry moving to digital, right? So we've invested in a control platform across our portfolio. We've combined that with IoT, which we think we've got long-term significant benefits, right? And that actually cuts across our core cooking portfolio. So we are trying to position where we see the long-term trends and growth and then expanding into the faster-growing categories. That is why we've selected ice and beverage, right? And you can see those trends with our customers. So we've kind of been very specific in the areas that we've invested in and emphasized and shifted to. So I mean I think that's why we feel the portfolio is well positioned, and we'll continue to evolve that thinking. And I think it's a good question. We've always got to go back and review the portfolio in its entirety. But I mean, I think the big levers and themes, those are the areas that we've gone after. And I think that's why we've got a very unique portfolio that is very well positioned as we kind of go through the next 3 to 5 years. Operator: And it does appear that there are no further questions at this time. I would now like to hand it back to management for any additional or closing remarks. Timothy FitzGerald: Thank you, everybody, for joining today's call. We appreciate it, and we will speak to you next quarter. Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.
Operator: Good morning, and welcome to Quarterhill's Q3 2025 Financial Results Conference Call. On this morning's call, we have Chuck Myers, CEO; and David Charron, Chief Financial Officer. [Operator Instructions]. Earlier this morning, Quarterhill issued a news release announcing its financial results for the 3 and 9 months ended September 30, 2025. This news release, along with the company's MD&A and financial statements are available on SEDAR+. Certain matters discussed during today's conference call or answers that may be given to questions could constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's annual information form and other public filings that are available on SEDAR+. During this conference call, Quarterhill will refer to adjusted EBITDA. Adjusted EBITDA does not have any standardized meaning prescribed by IFRS. Please refer to the company's Q3 2025 MD&A for full cautionary notes regarding the use of forward-looking statements and non-IFRS measures. Finally, please note that all financial information provided is in U.S. dollars unless otherwise specified. I will now turn the meeting over to Mr. Myers. Please go ahead, sir. Charles Myers: Good morning, everyone, and thank you for joining us on today's call. In terms of agenda, I'll discuss the highlights for the quarter, after which David Charron will take a look at the key financial results. Following David, we'll open it up for questions. Looking at the Q3 results, our performance reflects significant progress in the turnaround and marks an important inflection point for Quarterhill. Revenue increased year-over-year. Adjusted EBITDA was positive $1.4 million, a more than $4 million swing from Q2, and we generated $6.4 million of positive cash from operations. Importantly, we also grew cash on the balance sheet to more than $24 million, even while reducing debt for the quarter. As a reminder, on our Q2 call, we laid out a 4-point plan to strengthen the business, improve margins and return to consistent positive cash flow. We made significant progress on each element in Q3, which enables us to now largely pivot our focus to growth and higher-margin performance. One, during Q3, we took decisive steps to rightsize the organization and improve financial performance. We reduced approximately 100 positions, about 15% of our total workforce across both contract and full-time roles. The financial impact of this restructuring is meaningful. The majority of the changes were with our cost of sales line and should save us approximately $12 million annually. Subsequent to the quarter end, we executed a smaller reduction of approximately 20 positions focused throughout the business. The benefit of this follow-on action will begin to show up in Q4 and further strengthen our cost structure going into the new year. Throughout this process, our commitment to service delivery has not wavered. These changes are about increasing efficiency, sharpening execution and positioning the business to scale profitably, not cutting corners that would impact customers. And importantly, these actions have helped create the financial capacity and operational focus required to pivot toward growth. Two, a significant development in Q3 was the successful mediation and renegotiation of an underperforming contract, which we announced on August 31. Earlier in the year, this contract was generating approximately $1 million in monthly losses. Through the renegotiation, we have restructured the arrangement to be profitable going forward. This was the right decision for the long-term health of the company and it eliminates the largest source of operating drag we faced over the past year and allows us to redeploy capital and focus towards higher-margin opportunities. The remaining commercial matters on a second smaller contract have also improved. These are now being managed through normal course of business channels and don't constrain our outlook. With this successful changes behind us, the financial impact of legacy issues is hardly resolved, and we can increasingly focus on growing the business from a stronger foundation. Three, growing the top line with higher-margin business. In Q3, we continued to convert pipeline into revenue and are winning work with better economics. Year-to-date, we've added $137 million in change orders and wins across both business units. Our Safety and Enforcement unit delivered another quarter of top line growth and gross margins that were above 40%. The unit secured multiple contract wins, including a modernization initiative in Arkansas to improve freight movement using advanced AI-enabled inspection technology and a project in Washington State to enhance truck parking safety along the I-5 corridor. Our [indiscernible] product continues to gain market traction with recent deployments in Pennsylvania, Oklahoma, New York and Oregon. These wins demonstrate how we are capitalizing on growing demand for nonintrusive AI-driven solutions that provide real-time traffic data while prioritizing safety and privacy. In our tolling business, we were awarded follow-on work with an existing customer to expand capabilities on a major Express Lane corridor. This work expands and strengthens our long-standing relationship. These wins reinforce the confidence that transportation agencies have in our technology, our teams and our track record of delivery. Our roughly $2 billion pipeline gives us strong visibility into future growth with active pursuits in both tolling and enforcement. We're also maintaining strict commercial discipline, ensuring every contract we bid is cash positive throughout implementation is a meaningful shift that strengthens financial performance as we scale the business. Four, we're investing in next-gen technology. We continue to invest in our next-generation technology platform built on micro services and AI architecture. This platform is designed to increase the mix of recurring, higher-margin software revenue, reduce development costs through reuse and scalability and enable faster expansion into the adjacent segments of the ITS market. The platform brings important enhancements and advancements for our customers, including AI-driven vehicle identification, predictive analytics and anomaly detection to improve accuracy, reduce revenue leakage and support faster issue resolution. By unifying data from field to back office with automation and real-time insight, we are helping agencies operate more efficiently while enhancing traveler experience and safety. This work is critical to our long-term strategy, delivering more software-enabled value, expanding margins and differentiating Quarterhill as a technology leader in the industry. As evidence of our product progress, we recently demonstrated our Agentic AI customer service model to a large group of our industry customers at the IBTTA in Denver. Our outlook as we are entering Q4 with a stronger operational footing, a healthier contract portfolio and improved profitability. The work to stabilize and simplify the business is largely complete, and we are shifting more of our attention to capturing growth and expanding margins. Our priorities remain straightforward and unchanged: drive top line growth in both Tolling and Safety and Enforcement, sustain margin improvement through disciplined execution and maintain positive cash generation on a strong balance sheet. We believe successful delivery against these objectives will lead to a more resilient business and will create increasing value for our shareholders. In conclusion, I would like to thank our teams for their focus and commitment -- during this transformational period, the results demonstrate that the strategy is working, and we are turning the corner towards a more predictable, profitable growth-oriented future. With that, I'll turn it over to Dave to discuss our financial results in more detail. David Charron: Thank you, Chuck, and good morning, everyone. I'll start the financial review with a look at revenue in the quarter and year-to-date period with a reminder that all figures are in U.S. dollars. Q3 revenue was $39.7 million, up 4.5% from Q3 last year. Year-to-date, revenue was $116.7 million, up 2%. The Q3 increase was due to the growth in both the Safety and Enforcement and tolling business units. At quarter end, we continue to have significant backlog of more than $427 million, providing good visibility into revenue for the next several years. A large portion of the backlog is higher-margin revenue, which we expect will drive higher margins in the future. The gross margin in Q3 increased significantly both year-over-year and sequentially. The gross margin percentage was 26% in Q3 compared to 13% in Q3 last year and 15% in Q2 of 2025. The increase year-over-year and sequentially is due to the Q3 restructuring, the renegotiation of certain tolling contracts and continued strong margin performance from the Safety and Enforcement business unit. Total operating expenses for Q3 were $13.7 million compared to $11.3 million in Q3 last year. The increase in Q3 and the year-to-date period is primarily due to investments in leadership and resources for our project, bid and product development teams. While the restructuring we announced in Q3 was focused mainly on the cost of sales line, we see the potential to generate additional OpEx savings through rationalizations in certain third-party IT contracts as those agreements come up for renewal over the next 12 months. In addition, as Chuck mentioned, in Q4, we undertook a smaller rep of about 20 employees and whose savings will be partially reflected in Q4 and fully thereafter. Q3 adjusted EBITDA was $1.4 million compared to negative $2.8 million in Q3 last year and negative $2.7 million in Q2 of 2025. This significant improvement year-over-year and sequentially reflects the actions previously discussed regarding revenue and cost of sales as well as continued strength in the Safety and Enforcement unit. We expect our margin profile to continue to improve in future periods, though there may be some variability from quarter-to-quarter depending on the timing of new contracts and/or seasonal factors. Q3 was a strong quarter for cash flow with the company generating $6.4 million in cash from operations compared to cash used in operations of $1.7 million in Q3 last year. Cash from operations in Q3 benefited from the restructuring, the contract renegotiation and the improvement in working capital, specifically the focus on reducing unbilled revenues. Turning now to the balance sheet. Our cash balance grew sequentially to $24.1 million at the end of Q3, up from $22.7 million in Q2 of 2025. Both our convertible debentures and bank debt mature in the fall of 2026 and are classified as current liabilities. We are looking forward to having discussions with both current and potential lenders regarding the refinancing of our credit facilities, including the long-term debt and converts. These efforts reflect our commitment to optimizing our capital structure and enhancing financial flexibility. I'll now turn the call back over to Chuck for his closing comments. Charles Myers: Thanks, David. Our restructuring has delivered the cost savings we expected, and we've improved the economics on certain key programs going forward. Separately, both our business units are winning higher-margin work and our next-generation platform continues to advance towards commercialization. With this foundation in place, as I mentioned earlier, our focus shifts decisively to growth and margin expansion, building a more resilient technology-led business that consistently generates strong cash flow for our shareholders. I want to thank our employees, customers and shareholders and analysts for their continued support. This concludes our formal remarks, and I'll now turn the call over to the operator for questions and answers. Operator: Your first question comes from Gavin -- the line of Gavin Fairweather with Cormark. Gavin Fairweather: Congrats on the strong results. Maybe just on Safety and Enforcement to start. It sounds like the business has continued to perform well. Can you help us understand the size and growth and profitability of that business, if possible? And any kind of thoughts on the forward outlook? I mean it kind of feels like it's being obfuscated and maybe it's some hidden value that isn't reflected in the stock. So I think anything on that front would be helpful. Charles Myers: Thanks, Gavin. Thanks for the kind words. So that business is roughly $60 million a year. It's roughly 25% EBITDA, continues to grow nicely. We continue to focus on new products there. We're getting a lot of traction with our AI product. I see out of that. I think we're in 10 states and 60 sites at this point, and that continues to grow. We have a number of other installations in. So that business is still heavily focused in enforcement. We're working on some direct enforcement where we can provide commercial vehicle ticketing, basically ticketing autonomously without intervention from law enforcement. And then the other side of it, though, is very heavily weighted towards our AI model in terms of where we look for growth for classifying the vehicles and what we call fingerprinting them. Gavin Fairweather: That's helpful. And then maybe shifting gears to tolling. It sounds like the business posted some solid top line growth this quarter. It sounds like a bit of an inflection from earlier in the year where maybe it was down a little bit. So was that some of these new wins that you've had earlier in the year ramping up? And anything else you'd call out on the tolling top line this quarter? Charles Myers: From the tolling perspective, it has been -- I think we've mentioned we've added about -- through the end of the third quarter, we had added about $137 million in new contracts. That's both tolling and enforcement. But the business from a top line perspective is up in tolling as well. But really, it's -- I think you probably noticed there's a very dramatic improvement in our gross margins in that business as well. Gavin Fairweather: Yes. And that's kind of where I wanted to go next. I mean lots of kind of puts and takes on profitability this quarter. I think that you got some back payments from prior losses tied to the renegotiation. I don't think you got the full run rate of savings from the [indiscernible] that you did in July. I'm not sure if you've got. Charles Myers: Yes, we got... Gavin Fairweather: Revenue from renegotiations. So maybe you can just help level set us on where we are at on profitability for the tolling business and the outlook there. Charles Myers: Well, the tolling business was losing about $1 million a month. We shifted that substantially to profitable monthly with the conclusion of that contract negotiation. And we did receive some revenue that had been disputed, and we received that as well. That's booked as just normal revenue. There's nothing unusual about it. I hope that answers your question. David Charron: Maybe the other thing I'd add here, Gavin, is we had the 2 press releases after Q2. The RIF that we did, which we -- as we mentioned, was focused mostly in the tolling side of the business that helped greatly improve the gross margin there. It was -- those actions were targeted at the cost of sales area. And then as Chuck just mentioned, with the contract renegotiation, both of those really significantly helped the profitability of the tolling business. Gavin Fairweather: Very helpful. And then you've got another renegotiation ongoing or mediation ongoing with that second customer? Charles Myers: No. That's -- we're -- I think I mentioned in my -- we've gotten that where we feel comfortable with that contract, and it's just a normal course of business. Gavin Fairweather: Good. That's good to hear. Good to hear. And then you talked about the bid book at $2 billion for tolling. We did see the backlog come down a little bit in the quarter. Maybe you can discuss the timing of RFP decisions and how you're feeling about being able to build that backlog back up here going forward? Charles Myers: Well, as I say every quarter, we have a huge backlog. It goes up and down. We don't really track it. I mean you guys may track it closer than we do. A lot of it's got to do with just delivery milestones at different times. As you know, it's almost 4x our revenue. So it's pretty substantial. And the -- we kind of look at that how we think of it. We think of it as just a kind of a big chunk of money sitting on the balance sheet because as our margins improved, even the NPV of that cash flow, we think is worth well over $100 million. So it's kind of sitting there on our balance sheet. That's kind of Chuck and Dave's view of the world there, not necessarily a GAAP system. The -- so we're comfortable with the backlog. Again, we added about $137 million. We have about $2 billion in bids that we're tracking regularly. And then we have a number of large bids in progress as well. Gavin Fairweather: And then maybe just on the new tech platform. When do you think that, that will be ready for kind of release or. Charles Myers: Well, we're talking to customers right now about rolling out Phase 1. So I suspect that we'll probably get something here in the fourth quarter. Gavin Fairweather: And do you think that -- is there any kind of upsell tied to that? Can you -- any revenue opportunity there? Charles Myers: Absolutely. Now do we -- will we see significant revenue in the fourth quarter for that? No, but we could see revenue from a customer for that. We've got the -- as we -- as most people know, we've been working on this about 10 months. We've made substantial progress. We have the platform architected, the microservices platform. We have the AI-based image recognition and image review process automated in there. And we have an Agentic AI call center interface as well incorporated to that at this point. And we're now over time, we're moving some of our existing platform, the knowledge base and the functionality from our existing software into the new platform. We're also doing a substantial amount of work actually with Oracle on that using their Apex product. Gavin Fairweather: Probably if you're automating more of the customer service function, there's probably some gross margin benefit as well. Charles Myers: Yes. As you know, we're focused on being about 40% to 50% gross margin. I mean those are our targets. And our gross margins have moved up substantially. We're well over 40% right now in the Safety and Enforcement. That's definitely our goal in the tolling business as well. Gavin Fairweather: And then maybe just lastly for Dave, nice to see the unbilled revenue ticking lower quarter-over-quarter. Do you still think that there is some working capital that balance that's still to be released here? David Charron: Yes, that's right, Gavin. We might not see the same step function improvement quarter-over-quarter, but we're going to be continually focused on meeting project milestones that will release unbilled revenue, turn it into billed AR and then turning it into cash. That's the cash cycle that we're focused on. The team has done a great amount of work on this over the last, I would say, 12 to 18 months. We're just starting to see the benefit of that coming through, and we'll continue that focus. Gavin Fairweather: Congrats on the results. Charles Myers: Thanks. Operator: As we have no further questions at this time, I will turn the call over to Mr. Myers for closing remarks. Charles Myers: Thank you, everybody, and thanks for those that attended the call. As always, I'd like to big shout out to our employees. They're working hard. As we know, risks are never easy for anybody. And the company has responded unbelievably well. And thanks to our shareholders. We feel pleased where we're going, and we're going in the right direction, and we've tried to uphold our vision and the message we've been putting out for the last year. And so far, I think we're kind of on track to continue that. So thank you for your support as well to the shareholders and the analysts. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 Conference Call for AirBoss of America. [Operator Instructions] I would now like to turn the call over to Gren Schoch, Chairman and Co-CEO. Please go ahead. Peter Schoch: Thank you, Eric. Good morning, everyone, and thank you for joining us for the AirBoss Third Quarter results conference call. My name is Gren Schoch. I'm the Chairman and Co-CEO of AirBoss. With me today are Chris Bitsakakis, our Chairman -- sorry, our President and Co-CEO; Frank Ientile, our CFO; and Chris Figel, our EVP and General Counsel. Our agenda today will start with a review of the operational highlights of the quarter, followed by a discussion of our financial results before we open the conference line to questions. Before we begin, I would like to remind listeners that our remarks today contain forward-looking statements, including our estimates of future developments. We invite listeners to review risk factors related to our business in our annual information form and our MD&A, both of which are available on SEDAR plus on our corporate website. Also, we discuss certain non-GAAP measures, including EBITDA. Reconciliations of these measures are available in our MD&A. And finally, please note that our reporting currency is U.S. dollars. References today will be in U.S. dollars unless we indicate otherwise. With that, I'll now turn the call over to Chris Bitsakakis for the operational review. Chris Bitsakakis: Thank you, Gren, and good morning, everyone. AirBoss experienced some real positive traction in Q3 2025 compared to Q3 2024, mainly driven by significant increases in AirBoss Manufactured Products defense products business, partially offset by reduced volumes at AirBoss Rubber Solutions. During the quarter, AirBoss maintained its focus on risk mitigation plans, including further cost reductions and efficiency improvements to build both momentum at ARS and AMP while continuing to navigate obstacles related to economic and geopolitical challenges, including market softness, the U.S. government shutdown, tariffs, inflationary pressure and the potential for further escalating in retaliatory tariffs. Uncertainty is expected to persist in the short to midterm with volume recovery difficult to anticipate as any recovery could be impacted by further tariffs, duties, other restrictions or trade or geopolitical and economic challenges. The company commenced the relocation of its facility in Jessup, Maryland to Auburn Hills, Michigan, a key step in improving long-term efficiency at AirBoss Manufactured Products. This transition will consolidate operations and is expected to reduce fixed costs and better align AMP's defense production. Now given the cross-border nature of the company's operations, a significant portion of the products manufactured by the company in Canada are sold into the United States and may be subject to current or pending tariffs as well as additional tariffs, which could be enacted. Despite the fact that the majority of AirBoss products are covered under the USMCA, CUSMA, the company continues to evaluate and execute on contingency plans to deal with any future potential challenges that may present themselves as CUSMA gets renegotiated. Despite the increased economic uncertainty, disruption of trade flows and increased costs and strains on supply chains, management remains focused on the successful conversion of key opportunities to support future growth. ARS experienced continued softness in Q3 2025 compared to Q3 2024. Compared to last year, the segment experienced both revenue contraction and reduced margins, driven by overall softness in most customer sectors, primarily caused by the shifting tariff situation as customers in the United States continue to manage their exposure created by tariffs on global supply chains. ARS remains committed to executing on its strategy to deliver strong results by focusing on specialized products, expanded production of a broader array of compounds and enhanced flexibility in securing and launching new accounts. As a segment, ARS continued to invest in research and development during the quarter to support enhanced collaboration with customers while preparing to launch new products. AMP experienced notable improvement in Q3 2025 compared to Q3 2024, primarily due to the defense products business continuing deliveries on previously announced contracts and a focus on its footprint optimization to help support profitable growth. Despite the disruptions associated with the U.S. government shutdown, management at AMP maintained its focus on operational improvements during Q3 2025 with further initiatives focused on fixed cost reductions and continued work with key customers to leverage opportunities aligned with its growth initiatives. The defense products business continues to work closely with its suppliers and government partners to mitigate the previously announced delays to the Bandolier program with deliveries resuming in the final weeks of Q3 2025 and into Q4 2025 with completion expected in early 2026. The rubber molded products operations were impacted by continued volume softness related to the original equipment manufacturers, the OEMs, due to evolving impact of tariffs in the automotive sector. This business continued its focus on managing costs and a commitment to drive efficiencies and best-in-class automation as well as diversification of its product lines into adjacent sectors. Despite the many ongoing challenges in the U.S. industrial economy, year-to-date, AirBoss consolidated performance has shown significant improvement year-over-year. EBITDA is up by $13 million. Adjusted EBITDA is up by $9 million. Cash from operating activities up $24 million. Net debt is down by $16 million from the beginning of 2025. And most importantly, net debt to trailing 12 months adjusted EBITDA has dropped from 4.67x at the end of Q3 2024 to 2.7x at the end of Q3 2025. These metrics are strong indicators that the efficiency improvements across the enterprise, along with successful launch and execution of new program awards are driving strong improvements year-over-year for AirBoss. While our short- and medium-term actions are driving measurable improvements, the company's long-term priorities continue to be the growth of the core rubber solutions by emphasizing rubber compounding as the core driver for sustainable growth and productivity, focusing on innovation and custom rubber compounding while aiming to expand market share through organic and inorganic means. At the same time, driving a growth strategy in AMP is critical for us as we focus on an expanded range of rubber molded products and making sure that we are well positioned to take advantage of increased defense spending globally. AirBoss continues to focus on these long-term priorities while investing in core areas of the business to expand a solid foundation that will support long-term growth on the foundation of the recently implemented efficiency improvements. I will now pass the call over to Frank for the financial review. Frank? Frank Ientile: Thanks, Chris, and good morning, everyone. As a reminder, all dollar amounts presented today are in U.S. dollars, except for dividends per share, which are in Canadian dollars. Percentage changes compare Q3 of 2025 to Q3 of 2024, unless otherwise noted. To be respectful of your time today, I will aim to be brief in my summary of our Q3 2025 results. Starting from the top line, AirBoss' consolidated net sales for Q3 2025 were $100.4 million, an increase of 4.4% from the prior year. The increase was primarily due to higher volumes at manufactured products, partially offset by lower sales at Rubber Solutions. Consolidated gross profit for Q3 2025 increased by $0.4 million to $16.5 million compared with Q3 of 2024 and consolidated adjusted EBITDA for Q3 2025 increased to $7.3 million from a prior year of $6.4 million. In both cases, the increases were driven by improved volume and mix at manufactured products, partially offset by volume softness at Rubber Solutions. Turning now to our individual segments. Net sales in the AirBoss Rubber Solutions segment for Q3 2025 decreased by 5.5% to $51.5 million from $54.5 million in Q3 2024. Volume decreased by 7.9% with decreases in most sectors. Tolling volume was down 43.8%, while non-tolling volume was down 6.7%. Gross profit at AirBoss Rubber Solutions for Q3 2025 decreased by 23.9% to $6.3 million from $8.3 million in Q3 2024. Gross margin percentage decreased to 12.2% of net sales from 15.1% of net sales in Q3 2024. The decreases were due to unfavorable mix and lower volume driven by market softness, economic uncertainty, partially offset by managing controllable overhead costs and continuous improvement initiatives. Net sales at Manufactured Products for Q3 2025 increased by 27.7% to $58.1 million from $45.5 million in Q3 2024. The increase was mainly due to improved sales in the defense products business in addition to improved sales in the rubber molded products business. Gross profit at Manufactured Products for Q3 2025 increased to $10.2 million from $7.8 million in Q3 2024. Gross margin percentage increased to 17.5% of net sales from 17.1% of net sales in Q3 2024. This was primarily the result of improvements in the defense products business operational cost improvements and reduced overhead costs executed in the quarter, in addition to favorable volume and product mix in the rubber molded products business. Turning again to the consolidated results. Free cash flow for Q3 2025 was $4.9 million compared to negative $2.9 million in Q3 of 2024. During Q3 2025, the company invested $3.6 million in property, plant and equipment versus $1.6 million in Q3 of 2024. The capital expenditures were related to cost savings initiatives, growth initiatives and minor plant upgrades within ARS and AMP. By the end of Q3 2025, our net debt balance was $82.9 million versus $98.9 million at the end of 2024. We expect to fund the company's 2025 operating cash requirements, including required working capital investments, capital expenditures and scheduled debt repayments from cash on hand, cash flow from operations and committed borrowing capacity. The company has a revolving credit facility that provides for a maximum borrowing up to $125 million with a $25 million accordion. As of September 30, 2025, the total available borrowing capacity under this facility was $76.4 million with $41.3 million drawn. With that, I will now turn the call over to Chris. Chris? Chris Bitsakakis: Thank you, Frank. To wrap up, Q3 2025 demonstrates the resiliency and adaptability of the AirBoss team. We are executing against our strategic priorities, streamlining operations, investing in innovation and reinforcing our balance sheet to ensure sustainable growth and value creation. As we move into 2026, our focus remains clear: delivering consistent cash flow, advancing our defense programs and taking advantage of the recently announced increases in defense spending throughout the world, expanding specialty rubber solutions and continue to improve operational efficiency across all our businesses. Operator, at this point, we can open up the line for any Q&A. Operator: [Operator Instructions] Your first question comes from the line of Ahmed Abdullah with National Bank Capital Markets. Ahmed Abdullah: Just to start, for the AirBoss Rubber Solutions, how are volumes tracking early in Q4? Are you seeing any signs of a rebound, acknowledging what you mentioned in terms of macro uncertainty having an impact there? Chris Bitsakakis: You'll notice that the Q3 revenue in ARS was actually a slight improvement over Q2. So we started to see a rebound already in Q3, even if it's fairly slight. And we've also been able to bring on new customers that are launching in Q4. So we feel that there is some room for optimism there. The only issue with that is quite often, December is a bit of a strange month, as you know, Ahmed, because of holidays and that sort of thing and the November holidays for Thanksgiving. So if you consider the net numbers in Q4, we're not prepared at this point to provide any guidance for that. But like I said, Q3 represented a slight rebound from -- if you would consider Q2 the trough, and we are launching new customers in Q4. So the other part of that is a lot of people are analyzing what's going on in the U.S. industrial base and quite a bit of the slowdown that we're seeing across all the customers that we have, including the big tire companies, truck tire sales are, as you probably know, way down so -- which is why the tolling business, not just for us, but all of our competitors has virtually disappeared. But as the supply chains get rebalanced from all these tariffs around the world and the customers no longer have the inventory that they need to build their products, we expect a rebound. We're just not sure exactly when we'll see that in any sort of material way. But like I said, if you look at the numbers, Q3 was a slight improvement over Q2. Ahmed Abdullah: Yes, that's fair. I mean you're also entering the easier comps going forward. So we would hope a rebound would materialize at that point. On the defense business, how much of this quarter saw part of the Bandolier recommencing deliveries? Because you do mention that it started in the last few weeks of 3Q. So I'm just trying to gauge how much of the Bandolier has contributed here. Chris Bitsakakis: Yes, it's very small. We were able to -- as we had announced a problem with the supply chain of a key raw material ingredient for the Bandolier, which we were able to solve that problem in conjunction with our customer and our suppliers during Q3. So we resumed shipments, but it's a fairly lengthy revenue recognition for those shipments. So we expect to see a fairly strong spike in Bandolier sales for Q4 based on the resumption of our shipments late Q3. Ahmed Abdullah: Okay. And when you announced that contract, it was $45 million. And you had mentioned that $20 million was already shipped prior to that. Are you still expecting $25 million of that to still be shipped out in Q4 and into early 2026? Chris Bitsakakis: Yes, that's right. As you can imagine, we're playing a little bit of catch-up from that little delay that we had to take to solve that issue. So we're trying to drive the revenue to the left as much as we can. But again, with the fact that it's a fairly lengthy delivery process, we're not exactly sure how much of that will be in Q4 versus Q1. But the numbers that we had reported on previously, we expect to fulfill in that same time frame. Operator: There are no further questions at this time. I would now like to turn the call back over to Chris Bitsakakis for closing remarks. Please go ahead. Chris Bitsakakis: Great. Thank you very much. I appreciate everybody's time this morning, and we look forward to speaking to you again after our year-end numbers are available in early 2026. Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Simon Roberts: Good morning, everyone, and welcome to our '25/'26 interim results presentation. Thank you for joining us today. I'm going to start with a brief introduction before handing over to Blathnaid to cover the financials. I will then share some more detail on our strategic progress over the first half of this year. You may remember this slide from our primary results in April. This is the plan that we set out to you then with a commitment to accelerate into the year with a clear set of balanced choices, but with a priority above all else to sustain the strong competitive position we've built over the last 5 years. We have delivered on this priority in the first half, focused and effective investment in our customer proposition has consistently delivered on our winning combination of great value, trusted quality and leading service. And that has resulted in more and more customers choosing us for their big weekly shop, driving continued volume growth and market share gains. Now we came into this year with great momentum. We planned for a strong summer and we really delivered through playing to Sainsbury's strengths. We invested where it mattered most to customers, extending our Aldi Price Match to even more everyday essentials and building on our market-leading personalization capabilities, making personalized Your Nectar Prices available to all supermarket customers. And our product innovation continues to really set us apart. With more than 600 new products this summer, we focused on units on summer sharing products and outdoor eating. Alongside outstanding fresh food availability, this allowed us to fully capture the benefit of the weather when demand was at its highest. And Argos delivered a good seasonal performance, grew market share and improved profitability. Our entire team stepped up again and really delivered for customers. I want to take a moment here to thank all our colleagues, partners, farmers and suppliers for their hard work, their dedication and their care which really helped us to deliver this strong summer performance. So we started the year with strong momentum and a clear plan. We set ourselves up for success over the summer, and we delivered. Our offer has never been stronger. And you can see here how that comes through in our overall customer satisfaction, which continues to lead against our full choice competitors, but also in terms of our position in the market, reflecting a fifth year of outperformance. We are now at our highest H1 market share in 5 years. As you know, our key focus over the first 3 to 4 years of Food First was resetting our value proposition investing over GBP 1 billion through this period. We learned how to invest in the most focused and effective way, selectively investing where it matters most to customers. And we have found a winning value formula that really works for our customers with the combination of Aldi Price Match, Nectar Prices and Your Nectar Prices. And so in a year where competitive intensity has stepped up, and where as an industry, we are facing into higher employment and regulatory costs, we have made balanced choices to keep price inflation behind the wider market and to ease cost of living pressures for customers. Customers are responding to the value we've consistently been delivering on the items that they buy most often. And this is why at a time when inflation is very much back in the headlines we are the only grocer improving value perception with customers year-on-year. We are balancing our investment in value whilst driving forward our focus on innovation and quality. Customers have always trusted and expected Sainsbury to deliver a leading quality, and we are further extending our reputation here through the continued growth of our premium Taste the Difference ranges. As we continue to drive innovation and with a real focus on fresh food, more and more customers are choosing Taste the Difference. We achieved 18% growth in Taste the Difference fresh sales over the first half. And as you can see here, customer perceptions of our quality continue to be significantly ahead of competitors. Through the strength of our value proposition with our passion and reputation for quality and innovation, and the consistent availability and customer service we're now achieving, we are delivering the winning combination. As a result, we have almost 1 million more loyal primary customers those who are doing the bulk of their grocery shopping with us week in, week out. And the strength of our grocery proposition is clear. 65% of customers shop both Aldi Price Match and Taste the Difference products in the same basket during the first half. This is a clear demonstration of the way customers are now shopping with us across the full spectrum of our offer. Now we know that the strength of our own brand assortment is the reason many customers choose to shop with us and delivering the breadth and quality of our own brand products is only possible through the support of our suppliers and a commitment to long-term partnership. We continue to work collaboratively with our farmers and suppliers to face into food industry challenges. Long-term agreements enable suppliers to invest for the long term and in outcomes that are great for customers and positive for the environment. And these commitments to resilience extend further than the U.K. Our partnership with Fair Trade is a great example of the work we're doing to strengthen our supply chains around the world and support the communities from which we source. Having switched all our by Sainsbury's black tea to Fairtrade in July, we are now the biggest U.K. grocery retailer of Fairtrade tea. Now everything we do comes back to our purpose to make good food, joyful, accessible and affordable for everyone every day. And our partnership with Comic Relief supports us here through a shared vision of a future where everyone has access to good food. Our Nourish the Nation program is helping fund meals and holiday club places for families that need them most. We will work with charities such as FareShare, City Harvest and the Felix Project to distribute over 5 million meals this winter. So as we reflect on where we are halfway through the 3-year Sainsbury's Next Level plan, I'm pleased with the progress we're making against our commitments through making balanced choices, we have delivered sustained strong momentum. We have invested where it matters most. And as a result, more customers are trusting us to deliver great value, trusted quality and leading service. And it's this winning combination that has driven grocery volume growth ahead of the market for a fifth consecutive year, and helped deliver a profit performance ahead of our expectations in the first half. And we head into this festive season with great momentum and confidence in the strength of our Christmas offer. We have the most important part of the year still ahead of us. And while we are strengthening our profit guidance today for the full year, we are deliberately giving ourselves the capacity to sustain the strength of our competitive position through continuing to make the right balanced choices. With that, I will now hand over to Blathnaid to cover the financials. Blathnaid Bergin: Good morning, and thank you, Simon. I will now cover the financial highlights for the 28 weeks to the 13th of September. Starting first with a reminder of our financial framework. This lays out the factors that underpin our commitments to deliver profit leverage from sales growth, strong sustained cash flows, higher returns on capital employed and enhanced shareholder returns. We made good progress on delivering profit leverage in the first year of the Next Level strategy. But this year, we have significant incremental cost pressures through higher National Insurance contributions and an EPR charge. Our priority is sustaining our strong competitive position. And so we're unlikely to move forward on profit leverage again this year despite our continued delivery of food volume growth ahead of the market. As outlined previously, we continue to invest in our business for future growth while maintaining our cash commitments. We are also delivering on our commitment to enhance shareholder returns, and we expect to return more than GBP 800 million to shareholders this year through dividends and buybacks. Turning now to our sales performance for the first half. Sales in Sainsbury's grew by 5.2% with consistent volume growth through the quarter despite higher inflation. Argos sales grew by 2.3%, helped by a good summer weather and offsetting a Q2 comparative, which was boosted by significant strategic stock clearance activity last year. Together, this delivered total retail sales growth of 4.8%, excluding fuel and 2.7% growth, including fuel. Retail underlying operating profit was broadly in line with last year's at GBP 504 million, which was ahead of our expectations. Sainsbury's profits were down slightly year-on-year, with volume growth and cost saving delivery, enabling focused investment in value, customer service and quality and partially offsetting higher employment and regulatory costs and elevated disruption from our space reallocation activity. Improved profitability in Argos year-on-year primarily reflected a stronger trading margin performance versus last year's clearance activity. We announced in January last year a phased withdrawal from core banking, that is loans, credit cards and deposits and a move to a model where financial services that are complementary to the retail offer will be provided by third parties. We've made excellent progress with this over the last 6 months. We completed the sale of loans and credit cards and savings to NatWest and transferred the Argos Financial Services book to NewDay. We additionally signed agreements on our home and car insurance back books with Allianz and completed deals on ATMs with NoteMachine and on Travel Money with Fexco. Alongside the strong execution in partnership with NatWest and NewDay, these deals have contributed to the extra cash proceeds that we announced today. We are now expecting net proceeds of more than GBP 400 million, significantly higher than our original guidance, and we will return GBP 400 million of cash to shareholders via special dividend and share buybacks. We have also established forward arrangements with these financial services partners that will give us strong ongoing commission income. In the short term, the ATM and Travel Money disposals mean that we now expect the Financial Services underlying profit contribution to be broadly breakeven this year, lower than our previous guidance as the income from these businesses drop into the discontinued line until the deals are completed and a new revenue arrangements in place. This is reflected in the restated financial services numbers. This is just a transitionary impact, and we continue to expect the underlying operating profit contribution from Financial Services products of at least GBP 40 million in the financial year to March 2028. This comprises of income from the NewDay partnership together with the commission's income from insurance, Travel Money, care and ATMs. Total underlying operating profit increased by 7%. And driven by this year's financial services profit against last year's restated loss, while underlying EPS increased 12%, reflecting a reduced share count as a consequence of share buybacks. In December, we will pay an interim dividend of 4.1p, up 5% year-on-year, in line with our policy of paying an interim dividend of 30% of the prior year's full year dividend and we will pay a special dividend of 11p also in December. The next slide lays out items excluded from underlying results. We incurred GBP 95 million of nonunderlying costs in the half with the largest item relating to retail restructuring costs of GBP 58 million. The largest element of these relate to the costs ahead of our full reopening of our distribution center at Daventry. Cash costs were around GBP 55 million, with the majority relating to redundancy payments associated with the head office restructuring that we completed and booked in the P&L last year. We continue to expect retail restructuring cash costs of around GBP 100 million in the full year and Next Level Sainsbury's strategy implementation cash costs of around GBP 150 million over the 3 years of the program. Turning to our cash flow metrics. Retail free cash flow of GBP 310 million was down year-on-year, mainly due to lower working capital inflows and CapEx phasing leaning more to H1 year-on-year. Net debt was broadly unchanged year-on-year but GBP 231 million lower versus the year-end position, primarily relating to the timing of a net GBP 250 million cash inflow from the bank that will be paid out as dividend to shareholders in the second half. This table shows the key elements of cash flow and the movements in net debt this year and last. A lower working capital inflow was primarily driven by timing and a strong benefit from inventory reduction last year. Cash contributions to the pension scheme were down year-on-year, in line with our guidance of around GBP 26 million in the full year. CapEx was higher year-on-year, primarily reflecting the phasing of work on our new store openings and store refit activity. We continue to expect capital expenditure of between GBP 800 million and GBP 850 million versus GBP 825 million last year. As mentioned earlier, we received a GBP 300 million dividend from the bank, partially offset by a GBP 50 million payment relating to the withdrawal from core banking. We expect to receive the majority of the remaining bank proceeds in the second half of this year, which will be used to fund the additional buyback activity this year and next. The movement in other is primarily driven by higher additions of lease liabilities last year, reflecting the Homebase stores acquisition and our new London office. We continue to expect to deliver retail free cash flow of at least GBP 500 million in the full year. Net debt to EBITDA is broadly unchanged year-on-year, benefiting from the bank cash inflow. On shareholder returns, we will now return GBP 400 million of bank proceeds to shareholders through a GBP 250 million special dividend and GBP 150 million addition to the share buyback. We will add GBP 50 million to this year's buyback to make the total buyback GBP 250 million, and we will add GBP 100 million to next year's core buyback. As you know, we will specify the level of next year's core buyback with our preliminary results next April, but to be clear, this GBP 100 million will be in addition to the core level. In this financial year through paying ordinary dividends of more than GBP 300 million and a GBP 250 million special dividend as well as a GBP 250 million share buyback we will return more than GBP 800 million to shareholders. In summary, we have traded strongly in the first half of the year. Together with cost savings, this has allowed us to make focus and effective investment in the customer proposition and additionally offset higher costs to deliver a retail operating profit ahead of our expectations. Strong execution in our Financial Services phased withdrawal strategy has produced higher-than-expected proceeds and this will be reflected in enhanced cash returns to shareholders. We now expect to generate a retail underlying operating profit of more than GBP 1 billion in the full year, reflecting the strength of our H1 performance, but allowing us to continue to make balanced choices to sustain the strength of our competitive position. We continue to expect to generate retail free cash flow of at least GBP 500 million. Thank you for your time. I'll now hand back to Simon. Simon Roberts: Thank you, Blathnaid. Now as I said, we're at the halfway point of the 3-year plan that we set out in February 2024. And I'll now run through each of the strategic outcomes that we put in place to define this next phase of our growth. Starting with our plan to be First choice for food. We are bringing more of our food range to more customers in more locations attracting more bigger basket primary shoppers and delivering further grocery volume share gains. We've built really strong foundations over the last 4 years, providing great momentum, and we've built on those with investment in areas that really matter most to our customers on value, on quality and freshness, on availability and on range. And this is reflected in customer satisfaction metrics across the board, where we've taken a big step forward, as you can see. But what really stands out for me is the progress we've made on value perception in every channel in supermarkets, in convenience and in online. We're making sure customers have access to great prices, however they want to shop with us. And so at a time when customers are much more sensitive to rising prices and inflation is top of mind, the consistency and focus on our pricing investments is really resonating. We've shown you before the significant improvement we've made on value versus our competitors since the launch of Food First back in 2020. And now building on this, you can see on this slide, we've made focused and effective investments in the first half of this year, and that has further improved our price position against all competitors. We have the biggest Aldi Price Match in the market, having extended the number of everyday essentials included in April and Nectar Price is now on around 10,000 products. Both of these key value platforms are included in the value index you can see here. But beyond this, we're offering more value to more customers through Your Nectar Prices with personalized offers and up to 10 items each and every week that are tailored to each customer based on their shopping habits. We are leading the way in personalization across U.K. grocery, having first launched this capability back in 2021. And we've gone even further this half, fully scaling Your Nectar Prices across all supermarket tills, enabling many more customers to access this really meaningful personalized value. And it's worth highlighting here that if we did include Your Nectar Prices within the value index, this would further strengthen our position against every competitor. Now the consequence is that more customers are choosing Sainsbury's for their main grocery shop. We also did something quite different with our marketing investment and focus in the first half cutting through a much noisier market. Through the peak summer weeks, we've dialed up our marketing across Aldi Price Match and at the same time, Taste the Difference, and we delivered a campaign focused on everyday trade-ups. This helped drive the strongest brand consideration for Sainsbury's since 2013. Now our reputation for food quality, range and innovation sets us apart. Working closely with suppliers, we delivered more than 600 new summer products with the result that we were the go to for customers' key summer occasions. And from an already strong position, the strength of our Taste the Difference momentum delivered the biggest premium own label market share gains. And we can see great opportunity here. The potential for gaining more in-home dining occasions is clear from the chart on the left. And we've taken a further step forward in the last month with the launch of Taste the Difference discovery, a range of restaurant-quality meal solutions and premium specialty products and ingredients. The response from customers has already been really strong with premium dining sales growing 40% since launch. Now these new ranges really lean into the core strengths of our brand and customer demographic and we're really excited about how far we can take this. Now a key part of the strategy we laid out in February last year was to build on the renewed strength of the Sainsbury's grocery proposition and to bring it to more customers in more locations. What we didn't know then was that we would be presented with an opportunity to achieve some of that through new supermarket openings, filling in a number of key target locations through the acquisition of stores from both Homebase and the Co-op. We've now opened 4 of these stores, 2 of each in the first half, and we're delighted with the results. Collectively, the 6 new supermarkets and 12 new convenience store openings we achieved in H1 are trading around 20% ahead of budget. And specifically on the Homebase stores, we're particularly pleased with the look and feel we've been able to deliver in these stores, but on a much lower than standard fit out cost. While the feedback from colleagues and customers on the transformation of the former Co-op stores, has been exceptional. Now subject to final planning consents, we plan to open another 6 supermarkets in the second half, including 3 Homebase conversions and up to 12 more supermarkets next year. In total, we expect our new store opening program and the growth of food space in existing supermarkets to have added more than 1 million square feet of grocery space by the end of next year, an increase of around 6% over the 3 years. And we remain excited about the opportunity we have to reach new customers in new key target locations, and we expect this to be a strong driver of market share gains over time, particularly as the new stores mature and the disruption from refit activity reduces. Now alongside new store openings, we have been continuing to invest selectively in our existing supermarkets through our More for More plan, reallocating space to provide more food range. And there's no cookie-cutter approach to our store refit program with the level of capital spend, change and space reallocation adapted to fit the trading profile and potential of different supermarkets. We're learning as we go, and we're rolling out rapidly the most successful elements. So in particular, we have improved the prominence of Nectar Prices and the look and feel of our center aisles. We have extended range and enhanced presentation in beers, wines and spirits, also often relocating the department within the store, delivering a sales uplift. Our free from hubs combining fresh, frozen and ambient products in 1 aisle are contributing to a growth of 14% in free from across the business. That's a 7% market outperformance. And we've made our Food to Go fixtures more compelling and easier to shop with new formats delivering double-digit sales outperformance. So in those stores where we have come through the disruption, we're really pleased with progress with the stores delivering higher food sales, higher trading intensity and a good customer response to the range improvements. So in two, the work we've been doing over the last year to improve the customer offer is really delivering. We've been investing in leadership and enhanced capabilities across our clothing business. And as a result, we're now seeing improvements in ranges, product design and in our operational performance, too. Our combination of great value and quality design is driving stronger customer perception metrics, and we've also significantly improved availability. We delivered sales growth of 7.8% in the first half, with higher full price sales, and we've achieved our fifth consecutive quarter of market outperformance. So turning next to Loyalty everyone loves. We continue to believe that our well-invested loyalty in retail media capability is a fundamental requirement for success in grocery retail. And Nectar is at the leading edge here in the U.K. and globally in terms of enabling personalized rewards for customers and in delivering leading retail media capabilities. As a result, Nectar continues to generate very strong returns. A reminder here of the 2 sides of Nectar. On the left-hand side, our customer-facing Nectar loyalty scheme, which is how we deliver value to customers through points earned inside Sainsbury's and with coalition partners as well as through Nectar Prices and increasingly through personalized Your Nectar Prices. On the right-hand side is our Nectar360 Retail Media business. We help our suppliers and other clients understand how customers shop and help them talk directly to the millions who visit our stores and our websites every week, either directly through our media in-store and online or using our targeting capabilities to address customers on third-party media. Retail Media continues to grow its share of total media spend in the U.K., driven by the high return on investment it delivers, and we're at the forefront of making it easier and more effective for clients and agencies to tailor the effectiveness of their digital media investments. Nectar Prices continues to deliver outstanding value for customers, supported by suppliers, Nectar Prices were available on up to 10,000 products in the first half delivering customers an average GBP 14 saving on an GBP 80 weekly shop. We also extended the availability of Your Nectar personalized prices. Previously, this was only available to customers shopping online or through using SmartShop in stores. We have now extended this to be available for all our customers in our supermarkets. As a consequence, more and more customers are now accessing individual and personalized value, which is even more meaningful and accessed every week through the Nectar app. And an important reminder here on how much customers can earn through collecting Nectar points in Sainsbury's and also through our coalition partners, particularly given the growing number of customers who now use the Nectar app. Now at a time when value for money is much more on customers' minds and there's a lot of noise out there in the market, it's been important to increase visibility here on the extra value benefits Nectar customers are seeing. These benefits are getting stronger and stronger and becoming increasingly valued by Nectar customers, and this is reflected in the value perception scores we have presented today. We talked in July about the launch of Nectar360 Pollen. This is a bespoke platform built in-house that helps clients assemble tailored omnichannel retail media campaigns. Now we're just starting to roll it out to clients now, and the feedback has been every bit as good as the response we got when we first announced it. We think this will be a game changer for clients' return on investment and another driver of significant growth for us. We're also getting really good returns on our investment across the connected digital media screens in store, particularly where we're rolling these out to our center aisles. All in, we're comfortably ahead of our profit plan. So turning to Argos. We're making good progress with our More Argos, more Often strategy. Our focus is on building a more profitable business through improving the customer proposition, investing in product range and the digital customer experience. We're building on our reputation for convenience and value and continuing to optimize the efficiency of our fulfillment network. We're making progress on the key customer metrics outlined here on value for money and promotions, but also on quality and range. This is driving higher online traffic and an increase in both volume growth and basket size in a deflationary market. Our digital performance is where we are really starting to make a key difference, most notably through investing in the Argos app, with strong results, as you can see from the chart on the right. But also through investing to make sure that customers find Argos as a solution more often and more easily, driving greater engagement through social channels and launching our own podcasts as well as scaling the use of AI and personalization in our digital channels. With an improving conversion by making the customer journey easier once customers find us from search tools and personalized recommendations to enhance product pages all the way through to payment. This is how we will build a more sustainable, profitable sales base and the move we made earlier this year to put in place a dedicated leadership team for Argos is really making a difference to the focus and the effectiveness of our strategic actions and operational delivery. Range wise, alongside the sharpening of our own brand ranges, we're building deeper partnerships with key brands and bringing new brands and ranges into the offer through supplier direct fulfillment. We're also now giving the customers the option of Click & Collect on these SDF ranges. Customer familiarity with our Big Red promotional events is building too as reflected in the promotional and value perception scores shown earlier. And we're trialing a delivery subscription offer, Argos Plus for the first time. We're continuing to refine and reset the store operating model, investing in the store network and in technology. This improves colleague productivity and the customer experience, particularly through easier collection and returns processes. Now turning to Save and invest to win. The strength of our cost-saving program is a key differentiator. And at the time of higher-than-normal operating cost inflation, it means that we can offset more of that incremental cost than our competitors. It's not just about finding ways to save money, it's about delivering sustained cost savings through structural efficiency gains, particularly through capital investment in improved technology and infrastructure. We have a well-developed program with a good pipeline of initiatives and some of the big capital investments are starting to generate savings, which will build over multiple years. And we continue to be encouraged by progress in driving end-to-end productivity and efficiency benefits. Now having delivered around GBP 350 million of savings last year, we're well on track to deliver to our plan this year and GBP 1 billion of savings over the 3 years to March '27. Our investment in the replatforming of our general merchandise logistics network will deliver savings of around GBP 70 million when the program is complete and we're just going live in our Daventry warehouse. This is centralizing Argos and general merchandise stock in fewer locations, bringing more automation and improving productivity and capacity. And we're building on the strength of the machine learning forecasting platform. This has already significantly improved our forecasting and our stock accuracy and we're now extending the benefits further down the supply chain by giving suppliers greater visibility and self-serve functionality. As you can see on the right-hand side of this chart, our use of video analytics technology to reduce shrink at self-checkout locations has significantly exceeded expectations, and we're now rolling this out rapidly to more stores. As a reminder, these are the commitments that we made at our Capital Markets Day in February 2024 with the launch of the 3-year Next Level Sainsbury's plan. We're now halfway through our Next Level plan. And in a year like this, where competitive intensity has stepped up, making the right balanced choices has never been more important. So while we have very clearly prioritized sustaining the strength of our competitive position this year, we remain on track to deliver these commitments over the 3 years of the plan. We are continuing to drive forward progress against our Next Level plans, and we are strengthening our capabilities for the future. We're consistently delivering for customers and more and more are trusting Sainsbury's for their weekly shop. And as you will have seen in the latest Kantar reads, this momentum has been sustained into the third quarter despite some tough comparatives to the same period last year. We expect Christmas to be very competitive, and hence, we're giving ourselves the capacity to make the right balanced choices with really strong plans for Christmas across value, innovation and quality, and by making sure that our service is at its best, both in store and online. Our whole team and I are really excited about what we can deliver this Christmas, and we look forward to updating you on that in January. Now before Blathnaid and I take your questions, we wanted to share our Christmas ad, which went live just a couple of days ago. [Presentation] Operator: Hello, and welcome to Sainsbury's 2025-'26 Interim Results Announcement Analyst Q&A Call. On the call this morning is Simon Roberts, Chief Executive; and Blathnaid Bergin, Chief Financial Officer. We'll now go to the Q&A. Operator: [Operator Instructions] Our first question is from Freddie Wild from Jefferies. Frederick Wild: Congratulations on a very strong set of results. So my 3 questions. First, if you could give us a bit of help on the consumer outlook into Christmas. You've obviously just made some really quite encouraging comments. But how do you see the sort of Grocery business into Christmas? And how do you see Argos into Christmas as well? Then second, Simon, you were very impressively accurate on your food inflation outlook when we talked at the full year. So I wondered if you could give us an update on where you see food inflation going from here? And finally, obviously, you've now over delivered a bit into half 1. Could you help us understand the half 1 versus half 2 phasing dynamics for retail EBIT? Simon Roberts: Freddie, thank you. Okay. So let me -- let's take those in turn. Look, I think for obvious reasons, the consumer is very focused on the cost of living. And that's why as you can see in our first half, we set a very clear priority back in April, and that priority was to sustain the strength of our competitive position given all we've done over the last 5 years. And what I think we can see is value for money is absolutely, of course, at the center of how households up and down the country are thinking, a lot of uncertainty out there. And so what we've been able to do is give customers real confidence and the fact they can trust value at Sainsbury's. We extended our Aldi Price Match in the half, the biggest Aldi Price Match in the market, 10,000 products now in Nectar Prices. And so what you can see, I think, is customers are going to be very focused on value, and our offer is really matching that expectation. That will continue, to your question right into Christmas. We have a very strong plan for this Christmas. And also, I think, importantly, particularly at this time of year, at this point about celebrating without compromise, and that's where Taste the Difference and trading up into Taste the Difference is playing a very important role for us. We always said, didn't we? If we could get value at Sainsbury's really working for customers and our reputation for quality would come alongside that. And we're now really rolling forward both on quality and value and service, and the combination of all those things is giving customers the reason to do more of their big shop with us. And I make the point that we shared in the presentation, which is we've seen value perceptions in Sainsbury's customers improve year-on-year. We're the only grocer in the U.K. where that's happened, and you can see the impact on our volume share. In terms of your question on inflation, look, I think what can we see? We can see that actually the industry has largely solved for the higher costs that have come through this year. There's still more inflation, I would say, to get through. But when we think about the impacts of National Insurance, EPR, the higher costs, both in retailers but also as they've come through in the cost of COGS, we can see how the industry has responded to that. We also know, and we said this in April, didn't we? It's intensely competitive out there. This is an intensely competitive industry. Competition has stepped up. There's a lot of noise out there in the market. And so we've got both this inflation passing through, but also very clearly at a higher level of competition, and that's the reason we set such a clear priority for us to make sure that we sustained our competitive position in the first half, and you can see how that's played through for us. Look, I think as we look ahead, clearly, cost pressures are going to continue to be there in terms of the increases to living wage and other costs as well. And so very importantly, for us, our Save and invest to win strategy is super important. We have a very mature efficiency and cost program now. We've committed to save GBP 1 billion over the 3 years. In fact, at the end of this financial year, since we started our Food First, we'll deliver close on GBP 2 billion for the cost savings in the first 5 years. And that's really important given the obvious continued cost pressures that are out there. And then on your last question on the balance of the half, look, I think -- we're encouraged with the first half. We've seen that focus on value and quality and service with customers really play through into our results. Actually, as you've seen profits a little bit down at Sainsbury's in the half, improved a bit year-on-year and Argos in the half. And so therefore, we were able to deliver a profit outcome a bit ahead of our expectations actually for the first half. We inflated a bit behind the market in the half. That was all about the fact we wanted to make sure our value position was right. And so we come into the second half, actually with really strong momentum. You'll have seen the recent market reads. And we're very deliberately giving ourselves the capacity to continue to make balanced choices. There's a lot of customer expectations on value out there, there's some uncertainty out there. I think probably a bit of caution in the GM market. Let's see how that plays through in the second half, given nondiscretionary spend will be more cautious. So for all those reasons and giving ourselves that capacity through the second half, Freddie. Operator: Our next question is from Sreedhar Mahamkali from UBS. Sreedhar Mahamkali: Maybe just a couple of questions on Argos and on the buyback, please. And I guess the first one is, clearly, you went through a process with JD.com. Can you discuss a little bit more the context for this and why you terminated the talks and how we should think about any potential future conversations? And I guess second one from an investor's point of view, something that I get fairly regularly these days is like JD.com progressed, which means there was a clear ability to separate Argos growth and its financial performance. I guess why shouldn't investors get the same level of visibility of Argos profits in the segmental disclosure. And I guess the third one, maybe just on the buyback. I think you talked about a core buyback. Given the cash flow outlook already for next year as part of the plan, is it reasonable to think that will carry on at the GBP 200 million sort of run rate into next year. And then we add GBP 100 million so taking the total to GBP 300 million. Does that sound reasonable at this point of the year? Simon Roberts: Sreedhar, thank you. Well, why don't I take the first question and then Blathnaid, maybe on your second and third question. Okay. So yes, just to recap. And as we said early September, look, of course, our obvious and key question is to make sure we continue to secure the strongest and most successful feature for Argos. And as we said early September, we've been in a process of discussions over a number of months to explore the discussion around acquisition of Argos. And look, I think as we said very clearly, early September, those discussions had reached a relatively advanced stage, but then given there was a substantial representation of the terms of those discussions, it was clearly in the interest of shareholders actually and our wider stakeholders as well that we stop those discussions and we pulled away from that. And look, clearly, we're very focused on delivering the best outcome for shareholders. And we have a very clear More Argos, more often plan. You can see in the half, we grew sales, we improved profitability year-on-year. We grew market share in Argos. And I think this is beginning to show the first encouraging signs of the work the team are doing to really focus on what we need to do in Argos. And that's about making sure for customers, we deliver exactly the range and assortment that customers want to be able to access through Argos. We know customers love Argos. They love the convenience it brings. So we're extending our ranges, as you've seen in the presentation this morning, making sure we're absolutely on our A game at Argos on value, and also improving the digital experience. You saw in the presentation the big step-up in online search that we're able to now achieve. And so all of our focus is on delivering More Argos, more often. Of course, the market out there is highly competitive. We've got to make sure that we really deliver that plan well. And as part of that, you remember, we put a dedicated leadership team in place earlier this year, totally focused on the Argos business. And that's beginning to drive some of the improvements that we're seeing as the team really gets around the things that we need to do. And so clearly, a period of time through the summer. I'd make the point that while these discussions were going on, I think one of the things that we can draw from today's results is we weren't distracted at all by that. The team were very focused on delivering the plan and a smaller team, a much smaller team working on these conversations whilst they continued. They stopped early September and now we're completely focused on what we need to do. Blathnaid? Blathnaid Bergin: Great. So Sreedhar look segmental reporting is very much on our minds at the moment and a live discussion in the business today, particularly as we exit Financial Services, so we'll update you on that in the prelims at the moment, but something we are looking at. And on the buyback, look, we are really pleased today to be able to announce the addition of the incremental bank proceeds taking our buyback this year to GBP 250 million. That's core of GBP 200 million and GBP 50 million of additional coming from the bank proceeds. We've committed an additional GBP 100 million from the bank proceeds next year. And if you look at our capital allocation policy, we have committed to at least GBP 500 million retail free cash flow. If you assume GBP 300 million goes back in dividend we don't have a better use for shareholders' money, we'll return that to shareholders. So I think that's a reasonable working assumption for your model for next year. Simon Roberts: Thanks, Blathnaid. Maybe just one last point to your question as we wrap all that together. Look, I think the other important point to make is we learned a lot to the process that we went through in the summer. We learned how we can make Argos even better. We also learned that Argos is separable. It's not something that's wholly straightforward immediately, but it's something that we identified a read through. So we learned a lot through this process, which is also very helpful to us, too. Sreedhar Mahamkali: Maybe just a very short follow-up. Just on that slide where you present the Argos and Grocery, Sainsbury's EBIT. You show Argos as preconcessional rents. Is that the way you look at it in the business? Or is there further granularity that we probably could expect in time? Blathnaid Bergin: It is the way we look at it in the business today because it was one of the synergies we took when we acquired Argos. That's one of the discussions that's on our mind as we head into sort of prelims on that, and we'll give more visibility as we complete those discussions. Operator: Our next question is from Lizzie Moore from Citi. Elizabeth Moore: So firstly, I was just wondering around Nectar360 Pollen. Obviously, it's quite early, but really interested to hear any more detail around the early momentum you've seen there. And then related to that, you mentioned you're tracking ahead of your target for GBP 100 million of incremental Retail Media EBIT by March '27. Just wondering if you could give us a sense of how much we might expect you to be able to exceed that target by. And then second question -- sorry. Simon Roberts: No, it's okay. Next question, yes. Elizabeth Moore: Yes. Just ahead of the budget. I was wondering if you could give us some color around the latest discussions you've had on potential increases to business rates on properties over GBP 500,000. And if you could just share how you're thinking about the potential headwind from that in fiscal '27. Simon Roberts: Okay. Got it. Thanks, Lizzie. All right. So let's start with Nectar -- well Nectar and Nectar360 to your question that we're very energized and encouraged with the progress we're making across Nectar actually as a platform to really deliver for customers and really create value in our business. And look, I said in the presentation, I think as we think about the strategic capabilities that are necessary to really win in this industry, having a leading loyalty program, having personalized value and having the retail media platform that we're building out are absolutely essential. And you can see more and more now how that strategic capability is making such a difference for what we can deliver for customers, but also what we can deliver clearly for shareholders and in value terms, too. Nectar360 Pollen, clearly something we built earlier this year. We're actually going live right now. We had our first series of client conversations this week. The feedback is exceptional. Because clearly, what we're doing here is building a capability that's dynamic, is agile and gives clients and brand partners and suppliers the ability to build their campaigns using the platform, getting live quickly in a very dynamic way in what is a first-to-market solution. So obviously, over the coming months, that will scale out. It's going to really revolutionize how brands and agencies can work with us. And we think it's going to create both a lot of connectivity and a lot of value as we do that. In terms of your question on our ambitions financially for Nectar, look, we're really encouraged with progress here. You heard in the presentation today how both sides of Nectar are really powering the business forward. We'll talk some more about this at the year-end. Clearly, we see the launch of Pollen is very important in the progress we're making, and we continue to build momentum on Nectar ahead of what we expected. So really, really good news. Yes. I think turning to more nearer-term questions in terms of the budget. Look, I think as you'd expect, we have had, as an industry, actually, a series of discussions at the most senior level of government on the topic of business rates. We've been given the opportunity to present our case really clearly as to why there shouldn't be any further impacts on retail cost through business rates. Everyone on this call is very well aware of the scale of costs that have come to the industry this year on National Insurance, EPR and hence, the reason why we've made our case very clearly, particularly important, as you say, for large retail stores, not least given the importance of the role those stores play, but also a huge number of people that we employ as large retailers. And so clearly, we need to hope and expect our politicians now to make the decisions based on the very strong case we've made, and we'll see that at the end of the month. And I guess the broader point here, no one wants to see inflation go up further. We're doing a lot through our internal efficiency and cost saving programs to contain the effects of inflation. As I said, we actually inflated a bit behind the market in the first half. That was to make sure we were almost competitive. We clearly don't want to see any impact on business rates adding further cost to the system. Operator: Our next question is from Rob Joyce from BNP Paribas. Robert Joyce: So firstly, just on the Sainsbury's core business. I guess we look at last year, second half, you kind of grew profits there, double the rate you did in the first half. So 2 questions, I guess. First one, do we think we can grow profits in the second half of this year to come? Or should we expect it to be down again? And then looking into next year, in a more normalized cost environment, do you think the business should be back to kind of that mid- to high single-digit sort of growth or EBIT growth next year? And the second one, just on Argos. I think this year -- this time last year, you gave us a bit of an update on how you're trading in the first 6 weeks of the quarter or so. Wonder if you could give us an update on how Argos is trading thus far in the quarter? And are we expecting it to be sort of in growth over the next couple of periods? Or do you think we're sort of back to a more normalized sort of flat to down Argos position? Simon Roberts: Thanks, Rob. Well, let's talk first to your question on the half and how we think about the second half of the year. Look, I think first point I would make here is -- and forgive me repeating this, we set out our plan for this year very clearly with that priority of sustaining the strength of our competitive position. And as you can see in today's results, we made very focused and effective investments in our value proposition in that first half. And you can see how that's played through, both in improving our value perceptions year-on-year, the only grocer to have done that, but also the fact we've continued to grow our volume. And I'd make the point against some strong comps last year. So the strength of the Grocery performance in the first half really underscored by the strength of our competitive position. And as you've heard me say a number of times, making balanced choices, making sure we have the capacity to do what we need to do has been a very important part of our plan over a number of years. We set that out way back in 2020, 2021, and that continues to be very important for us. And so when we think about the first half, obviously, we invested a bit more in areas like Aldi Price Match. We invested more in areas like marketing. I talked about that in the presentation this morning. And we also had clearly the benefit of some very good weather in the first half, which was clearly helpful to both the Grocery business, but also the Argos business, too. So there are a number of tailwinds that came alongside how we thought the first half would go. And that's why we've performed a bit better than we expected in the first half. When we look to the second half, to your question, look, in the Grocery business, and you can see this in the recent market reads, our momentum continues. And we continue to deliver strong volume share growth against strong comps last year. We're carrying that momentum into the second half. But look, despite the fact it's the first week in November, and there are 7 very critical weeks to come. And until the end of the year, we want to make sure we just retain the capacity in our guidance to continue to make those balanced choices given the significance of the part of the year to come, and that's what we're doing today. We're going to sustain the strength of our competitive position, as I said at the start of the year, and we'll continue to make those balanced choices. And look, I'd say just to double underlying that, those balanced choices have always served us well and have served the outcome we've been able to achieve well. In terms of how we then think about Argos, look, probably not a lot to add to what I've said other than obviously to say the customer is going to be more cautious here given all of the uncertainty that's out there. And so as part of those balanced choices, we want to make sure we've got the capacity for probably a bit more of a cautious customer in GM, certainly until things are clear on the other side of the budget, likely to be a very competitive sector, I think, through the last few weeks of Christmas this year for all the obvious reasons. And as you say, we've got a very strong plan in Argos, but competition will be intensified. Customers will shop later. Customers will hold back a bit on spending for all the reasons that are out there. And those are the things that we've obviously factored into making sure we've got the capacity to make the choices we need to over the second half. Operator: Our next question is from Fran ois Digard from Kepler Cheuvreux. François Digard: Three questions, if I may. What were your expectations going into H1? Because you mentioned you exceeded your expectations, but could you quantify that excess -- what were you prepared to see your H1 underlying profit decline by how much? Second question is Argos' performance benefited partly from favorable weather. You have mentioned in the past wanting to make the business less volatile. How far along are you in that process? And what level of volatility should we expect going forward as normal? And third, on Retail Media, I understand you will share more details in final results. But could you help us to see how the market is evolving? You mentioned growth, but what is your share of it? Or at least what is the food retailers share versus players like Amazon right now? Simon Roberts: Fran ois, thank you. So why don't I pick up the questions on Argos and where we're getting to there and also Retail Media and maybe just to your question on our kind of expectations and how they played through in H1. Blathnaid, do you want to pick that up? Blathnaid Bergin: Yes. So look, we entered H1 cautiously. If you remember the backdrop as we entered H1, there was a few things that went on there. We exceeded our expectations largely because we had some really good weather and we known good weather because we're South-based. In food, we tend to outperform and take more market share and the same in Argos as well with those seasonal products. So if you think about the good weather, we got good sell-through in Argos, and we got an uplift in the food as well. So that's why we exceeded expectations in H1. Simon Roberts: Thanks, Blathnaid. And then just to the question on what is More Argos, more often all about, Fran ois, in terms of us building a really clear plan out in Argos such that we can deliver for customers, really inspiring choice that gives them confidence to make Argos their first choice, a digital experience that's friction-free and really easy to access and then trusted value given the obvious competition in the market. And so we are in the early phases of delivering that plan. I think what we saw in the first half was an encouraging performance given we grew share. Clearly, the weather helped us grow sales year-on-year. We know that Argos benefits seasonally when the weather is good. Last year, we had a particularly difficult year because the summer was so poor. That led us to a lot of clearance in the second quarter last year. And so the reason the sales were softer in Q2 compared to Q1 was we anniversaried that very significant clearance activity last year. And so in the second quarter, actually, sales were a bit up, but less than the first quarter, but actually profitability improved in the second quarter as we anniversaried what was a high level of clearance last year. And so when we look at what we're doing in the Argos business, we've said before, our priority here isn't a short-term profit outcome. It's to build the base of the Argos business in customer traffic, in loyalty, in value, in assortment, in the digital experience. And then, of course, in the efficiency programs we're delivering to make sure over time, we can improve the level of outcome that we can achieve. And as we come into the second half and also to Rob's earlier question, we've got stronger momentum in Argos, but it's a cautious customer and a cautious market out there. And so we're going to need to be a really strong position coming into this Christmas and really competitive, which we'll make sure we're able to do. Look, on Retail Media, I made the point just before to Lizzie's question, this is an essential capability to win in this industry. And our team across Nectar360 and Nectar more broadly are really leading out here in terms of the capabilities we've been investing in. We've really put a big focus on this key part of our business over the recent number of years. As we built out our Next Level strategy, we were very clear that Loyalty everyone loves was a core part of how we're going to power both our customer delivery, but also our value creation narrative. And we're clearly on track to deliver the GBP 100 million additional that we committed to over the life of this plan. And we are also very focused on making sure in Retail Media as we launched Nectar Pollen and the other work that we're doing that we continue to take a leading position here. I just would make the point that the launch of personalized Nectar value is so important in this because obviously, it's bringing more customers into our Nectar ecosystem. Thanks, Fran ois. Operator: Our next question is from William Woods from Bernstein. William Woods: In terms of -- you've shown some quite good data on your value and quality perception, growing or improving ahead of the market and Tesco with your volume market share gains have been softer than Tesco maybe even slightly in the last few months. Do you think there's a disconnect there between the value and quality perception improvements versus the market share gains? The second one is on Argos. Just trying to understand the underlying Argos performance here. How much do you think things like Switch and the iPhone contributed to growth in H1. And then the final one is just on your gold, silver, bronze store strategy. How are you seeing your gold stores preform? Are there any learnings or kind of further adaptations you're taking there? Simon Roberts: Thanks, William. We just about heard your question. The line wasn't great. But I think just where are we on value and the balance of the value market share gains and quality, the underlying Argos performance and then how we think about our store space program. So I'll take each of those in turn. Look, on the first one, we're really encouraged actually by our volume market share gains, as I said, year-over-year. And the reason I talk volume market share gains, we've always said from the start that we're focused on volume because that's clearly a very clear measure of customers choosing to trust Sainsbury's to put more items in their basket, and that's why we measure ourselves against volume market share. In the presentation today, you can see actually the growing evidence that customers are both trading down in the basket but also trading up in the basket. 65% of customers in the half both bought in the same basket Aldi Price Match line and a Taste the Difference line. And I think that's a very important example now of the fact that we're getting trusted at the entry price point, and we're getting trusted on the trade-up. 1 in 3 baskets can train Taste the Difference, 65% of baskets customers are buying in Aldi Price Match line and Taste the Difference line. And we set out a very clear plan, didn't we this year to make sure that we sustained our competitive position. We inflated a bit behind the market, and that's really played through. And the other final point I'd make to your question is that our value investment has been very anchored in the products that people buy most often. You remember going way back to the beginning, we talked about the importance of the center of the plate. If I look at a category level where we've seen the strongest performance, the key big fresh food categories are the ones we're winning against the market most, and that's because customers are trusting that center of the plate and then doing the rest of the shop and filling their full basket across the whole supermarket. In terms of the question on underlying Argos performance, look, as I've said, the weather definitely helped us in Argos. We saw the strength of seasonal products come through, particularly actually in the first quarter where the year-on-year comps of the weather were clearly much stronger. And so when the sun shone, Argos really came into its own. Look, I'd be really clear to say, look, we planned for a good summer, but we clearly sold a lot of our seasonal products in the first quarter. And look, I'm pleased we did that, right, because what we didn't have was any stock overhang going into the second part of the year. We did a very effective plan to max out the summer when it came. We sold through well, and that meant we could get ourselves on a really stable and good footing coming into Q3. Yes, of course, the Switch is an important part. Technology is an important part of the Argos overall performance, but seasonal really came through in the first quarter, and we really planned for that. And then on your question on our space, 2 key components to this. So you remember, we laid out a plan More for More, which is bringing more of Sainsbury's range to more customers in more locations. You remember, too, we've always said there are key target locations in the U.K. We'd like to have a Sainsbury's store, and we haven't got one today. That's why when the Homebase opportunity came to us, we really looked at that, and we're well on now with getting the Homebase conversions open. We've opened the first of those, trading ahead of expectations and really working actually. What are we seeing? We're seeing trading up, and we're seeing the ability to fit out those stores at a lower cost than we expected. Our property team are doing a brilliant job actually on the ground, making sure we get the Sainsbury's offer landed really well in some of these sites and customers are responding really well. And on the other side of our More for More program, this was about taking space from GM into food. And in this year, we'll land just over 50 schemes Obviously, we're constantly solving to make sure we get the best trading intensity outcome, improvement in volume, improvement in customer satisfaction and obviously, a good return on the capital that we're investing in these schemes. And you can see a lot of the stores out there now. What we can particularly see, as you saw in the presentation, is the areas of the shop we've really focused on Food to Go, our center aisles on Nectar, beers, wines and spirits, free from. These are the areas where we're really making sure that those elements of the store, we're getting the best returns, we're rolling them out as fast as we can. Operator: Our next question is from Benjamin Yokyong-Zoega from Deutsche Bank. Benjamin Yokyong-Zoega: Congratulations on the results. I just had a couple, one on Grocery and one on Argos. On the Grocery, I mean, it's great to see the volume outperformance and the inflation behind the market. Just wondering what impact, if any, you've seen from recent price cuts from competitors? And is it your intention to broadly maintain your value position over the rest of the year? And then on Argos, you've outlined the cautious near-term outlook for discretionary. But I just wanted to check how inventory levels are compared to last year? And if there's any color you could give on the deflationary market backdrop you mentioned and if this is more pronounced in certain categories? Simon Roberts: Benjamin, thank you. Well, why don't I pick up kind of the key grocery themes you've had. I know Blathnaid will want to comment on where we are in our stock position in Argos, and we can add to it from there. Look, I think at the risk of repeating myself, so forgive me for this, Benjamin, I think look, we set out a really clear plan to make sure this year we sustain the strength of our value position. I think we were clear in April to say there was a lot of noise in the market, and it was important, therefore, that the clarity of the Sainsbury's value quality and service message really cut through in that context, and that's exactly what we've done in the half. As you can see, we inflated a bit behind the market. You can see, as you indicated, our volume share improved year-on-year-on-year despite some strong comps. And that's because we invested a bit more, but in a very focused and effective way. We increased the Aldi Price Match on to more everyday essentials. We increased the number of products in the Nectar Prices range. And as I said in the update as well, we also did some more marketing this summer. And we, for the first time, ran a very bold marketing campaign on Aldi Price Match right alongside our focus on everyday trade-ups on Taste the Difference. And so we invested some more in marketing as well as sustaining the strength of our value position. And net-net, when we look at where that's brought us to over the half, we're really pleased with what that's meant because, as I said, we've seen value perceptions in Sainsbury's customers improve year-on-year, and we've been the only one in the market to do that. And we're going to carry that momentum into the second half, right, because it's absolutely a core part of our formula. And we've shown that by growing our volume, volume over fixed cost is what we said over the life of our plan. And when we look out over the 3 years of Next Level, we're very focused on growing volume market share and making sure that we can drive the right financial returns as we do that over time. Argos, Blathnaid. Blathnaid Bergin: Right. So what we're seeing in the Argos market is it's largely electricals and furniture that are a little bit deflationary. But just to sort of talk about working capital, we have a real discipline in the business around cash and around working capital. Last year, we ran a pretty big working capital program in Argos. We reduced inventory by just over GBP 90 million while improving availability. So it's really important to get the right balance on that, and we exited the year-end clean on inventory as well. As we came out the back end of this summer, you've seen in the numbers, we had a good sell-through on seasonals. And again, we exited the period clean. So inventory is reducing ever so slightly this year in Argos as we wrap up the end of that inventory working capital program, and we'll continue that discipline to make sure we're delivering our cash targets for the business. So pretty pleased with the position, particularly as the availability is improving. Simon Roberts: Thanks, Benjamin. Operator: Our next question is from Manjari Dhar from RBC Capital. Manjari Dhar: My first question is just on marketing spend. I know you mentioned that you've done a little bit more this summer. I was just wondering how you're thinking about your spend running into Christmas? And are you deploying that marketing spend any differently this year? And then my second question is just on Argos. I wondered if you could give us some more color on the economics of the Argos Plus trial. How does this work? And I guess, what do you need to see from this trial to pass that as a success? And then finally, I just had a question on the cost savings for this year. I just wondered if you could give us some color on sort of how that phases between H1, H2. How much have you seen so far? And how much should we expect still to come? Simon Roberts: Thanks, Manjari. Okay. Let's take those in turn, and if I take the first 2 and then Blathnaid can speak to where we are on our cost plans, both this year and as we look ahead. So look, I think right back to the start of the conversation, sustaining the strength of our competitive position was our clear priority this year. That's why balanced choices play such an important part. You can see, Manjari, to your question how that's played out in the first half. We invested more, as I've said, in Aldi Price Match. We extended Nectar Prices. That really converted with customers such that the value perception improved year-on-year as we've talked. Yes, and it was an important shift actually for us to run value and trade-up side by side through the summer. That was a very specific choice we made actually to test what we could see in terms of the returns on those campaigns. And we were really pleased with them actually. As I said in the upfront presentation, we saw the highest return in terms of brand consideration for Sainsbury's on the Taste the Difference campaign that we've seen in over a decade. And so that's given us real confidence in how our marketing is coming through, both digitally and in all above-the-line channels. Our marketing team have done actually a fantastic job over the last number of years, resetting how we think about Sainsbury's and more recently, Argos marketing, and we can see that cut through with customers. And look, when I talk about retaining the capacity for the second half, you've seen us go live with our Christmas campaign last weekend with the return of BFG. And as you would imagine, we have a very focused and very intentionally focused on value and quality as we come into this Christmas to make sure that our resonance with customers is where it needs to be. On Argos -- on the Argos Plus trial, look, I'd make the point, this is a trial. We're just testing how customers think about this, whether by paying an annual fee and getting delivery for free is something that customers would respond to. We're in the early phases of testing that. And obviously, we'll update you when we know some more. It really speaks to making sure that convenience at Argos is a standout reason that customers would choose to shop with us. And so obviously, we're doing lots of things in the More Argos, more often plan to make sure we're getting the proposition right. But importantly, we can deliver that proposition at the right cost and the right efficiency. So that will work through and we'll update in due course. Blathnaid Bergin: Great. Maybe then on cost savings, look, we're really pleased with the progress we're making against the GBP 1 billion target over the 3 years. We delivered GBP 349 million last year. We estimate it will be broadly split 1/3, 1/3, 1/3. And if you think about this year, you think about the phasing pretty flat across the 2 halves is the way to model it. So about half of it delivered and about half of it to come in the second half of the year. Simon Roberts: Yes. And just to reiterate, clearly, the GBP 1 billion cost saving target over the 3 years, which we remain on track for with a strong pipeline into next year as the maturity of this program continues to build out. Thanks, Manjari. Operator: Our next question is from James Anstead from Barclays. James Anstead: Two questions on Argos, if that's okay, please. You mentioned that you learned Argos is separable, which is an interesting lesson. But I guess that also during those discussions, you must have had a lot of time to think about some of the complexities in the relationship between Argos and Sainsbury that makes it harder to separate. So my question is when you think about the structure of Argos going forward and how it fits together with the core Sainsbury business, will you be deliberately chipping away at some of those relationship complexities, if you understand the question? And a much quicker second one, which is it looks like the Argos losses narrowed significantly in the first half. Is it fair to assume it would have been profitable without the EPR charge that was registered in 1H? Simon Roberts: Thanks, James. Okay. Why don't I speak to what we learned on your question separability and then Blathnaid can come back on the question of the first half and how the profit shaped up. Yes, without repeating myself, for obvious reasons, we really stared through this process of what it would take to separate Argos out to the fullest extent. I would make the point that back in February '24, when we laid out our Next Level plan, we were really clear at the time that we saw Argos and Sainsbury's in terms of what it needs to deliver for customers and the operating model of both businesses as being quite separate. And we made that statement clearly then. And that's one of the reasons why in our strategy, we were very clear about first choice of food and More Argos, more often as being 2 distinct elements of our Next Level plan. And as you've seen actually over the last period of time, one of the things the team and I have been really focused on is how do we make sure we set up Argos with what it needs and how similarly, do we make sure that the focus in the Grocery business and in Sainsbury's is what's needed there. And I think what we can see in these results is that approach continuing to build through and build momentum. And so in Argos, we have a dedicated management team now. Graham is the MD of the Argos business. That team is completely focused on making sure we land and deliver and drive through More Argos, more often plan. Obviously, there are elements of how we're organized where we still share resources across the group. Obviously, areas like how our technology operates. If we were to fully separate that, we would need to understand what's required there. And that's one of the things we've looked at quite closely. So we definitely learned what it would take to separate these 2 businesses. We've made progress in organizing ourselves to make sure that Argos has what it needs and Sainsbury's has what it needs. And so clearly, that's one of the things that we continue to drive through as we execute the strategy that we laid out. Blathnaid? Blathnaid Bergin: Very short answer, James, yes, it would have been breakeven if we hadn't had the charge. Simon Roberts: Thank you. Thanks, James. Operator: Our next question is from Clive Black from Shore Capital. Clive Black: Some short ones from me. You've mentioned the cost headwinds from the government policy in this current year. Could you just -- you might have done this before, so apologies, but could you just quantify what the EPR, NIC and National Living Wage elevated cost base was or is for FY '26, given you achieved flat profits in the first half? Simon Roberts: Sure. So thanks, Clive. Well, let me just recap on the key parts of this. So clearly, on NIC, that was GBP 140 million of cost for us. And we made that very clear at the time when we talked about the impact of National Insurance. We then did, obviously, our pay increase in January of this year. Now we've had a policy of living the market on colleague pay over a number of years now. And so our annual pay award was ahead of the National Living Wage. But clearly, that's an inflationary cost that we plan for through our Save and invest to win program. So I wouldn't classify our pay award for colleagues as something that we didn't plan for. We had that planned. And then on EPR, it's GBP 53 million to your question. So GBP 140 million on National Insurance and GBP 53 million on Extended Producer Responsibility. Clive Black: And I just wanted to look into next year. I'm not seeking any form of guidance, but just in terms of moving parts. Firstly, in the expectation that inflation -- food inflation will probably ease, although remain in the system. First, would you expect volumes to positively respond to that inflationary easing? And secondly, I just wonder how you feel about the balance of mix in terms of what are the drivers to either trade up or trade down going forward, given you have spoken about a strong value quotient, but equally your traditional traits around quality and innovation really coming through. Simon Roberts: Yes. Thanks, Clive. Look, I think as you say, look, clearly, we'll talk into next year at the end of this year. But I think, look, I mean, most importantly, in the latest read, good to see inflation stop going up. And look, I think there's clearly going to be ongoing cost pressure in the system. I think the fact that the industry is largely either solved or continues to solve for the inflation there. I'd make the point, there's still inflation to get through the pipe. The industry continues to behave, I think, broadly rationally. Cost pressures clearly exist across the board and everyone is working to retain their own competitive position and pass through inflation. I expect that to continue. We know, to your question on the link to volume. We know don't we were the kind of trigger point is for an impact in volume to start to become more pronounced. You've seen in our own performance, the fact we've been able to grow volume on volume, on volume share. So I think we've got that balance exactly right for us and for Sainsbury's customers actually, but it's something we pay a lot of attention to because our plan is based on winning and growing volume market share. And so the balance of our value position, how we pass through inflation in a way that makes sure our value position is strong is one of the things that is the sort of first priority of how we think about these things. And then look, I think we've learned a lot since 2020 about the power of the Sainsbury's grocery proposition when all the components of it really come together. And we knew back then that our reputation for quality was indisputable, but customers weren't really seeing it all because we were too expensive. And so 5 years later, we're now seeing value perceptions improve year-on-year again at Sainsbury's, a combination of all the things that we've done. And that's meaning that the strength of our quality, and I'd go further and say the strength of our assortment more broadly is becoming even stronger in terms of customers' consideration of where they shop. And that's what we're seeing these big trolley shops continue to grow with 1 million more customers shopping with us. And so when we look ahead, we feel very confident about the grocery proposition that we've been building as a team. We still think there's plenty in front of us to do. But our own brand assortment, the strength of Taste the Difference, what we've done in the entry price point, the fact now that 65% of customers in the first half, both traded down and traded up in the same basket, all this points to the importance of making sure we make these balanced choices to maintain the value position because when our value is as strong as it is, customers see so much more in Sainsbury's that they didn't see before. And so linking the 2 questions together, we're confident we'll continue to grow volume market share as we continue to strengthen and improve the combination of value, quality, service and availability, too, which has also really stepped up. Clive Black: And then just look, a quick last question for me. You've got a very strong balance sheet. I mean your fixed charge cover went up in the half. I noted once you distribute the Financial Services dividends and buyback, you're still going to be barely geared. I just wonder how you characterize your balance sheet from a capital discipline perspective. What ratios do you want to work to on an ongoing basis? Blathnaid Bergin: Good question, Clive. Look, we like to -- if you look at the capital allocation policy, we like to operate within 2.4 to 3x net debt-to-EBITDA. We'll continue to target to be in the middle of that range. As we travel over the next few years, we have great capability to invest in our business. If any opportunities come along, we'll be in a position to take advantage of those, but we'll continue to operate within that range of the capital allocation policy, and we'll make choices to keep us in that range. Operator: Our final question is from Sreedhar Mahamkali from UBS. Simon Roberts: Sreedhar, round 2. Sreedhar Mahamkali: I'm so sorry, I almost never do this, but I thought somebody would pick this up, but I think it's helpful to understand there. This is really about the VI, I think the slide -- there was a really interesting Slide 27, there it is. I just wanted to better understand this, please, and where you show 90 basis points improvement versus Asda in the first half. Please explain how you actually measure this, how narrow or broad-based this is? And then really kind of taking a big step back, what is the right price position for you on the Grocery side? Is it protecting where you've got to after 4 or 5 years of investing? Or do you proactively need to improve it further steadily each period? Simon Roberts: Sreedhar, thank you. So look, this is -- I mean, first of all, this is value reality. This is actual value measured at the beginning of the financial year in March versus where we are at the end of the half. And clearly, what this reflects is our actual value position when you take into -- include our Aldi Price Match and our Nectar Prices. What it doesn't include, which is an important distinction to make to your question, it doesn't include the added value of your Nectar Prices because obviously, they're unique to every customer that accesses them. And so when you think about this slide, this is on the value that's available to everybody and then personalized value comes on top of it. The key point clearly is that we set ourselves a very clear priority this year to sustain our competitive position. That meant we inflated a little bit behind the market this year. I've made the point before, our value investment goes into the products people buy most often and that's how our value perceptions have improved. That's at the core of building baskets and trolleys out. That's at the core of customers saving GBP 14 on an GBP 80 weekly shop, and that's before Your Nectar Prices, which is additive to that. You're on mute, Sreedhar. Blathnaid Bergin: You're still on mute. Sreedhar Mahamkali: You can hear me now? Simon Roberts: Yes. Sreedhar Mahamkali: Yes, sorry, I just wanted to understand how many SKUs, like how much of the basket is covered in this index? Or is it narrow? Simon Roberts: It's a very wide SKU count included in this. I mean this is the broadest context of the shop. Okay. Just to check any final questions. Operator: That was our final question. Simon Roberts: There is one final question, yes? Operator: No. That was our final question. I will hand it back to you for the final remarks. Simon Roberts: Okay. Great. Sreedhar round 2 was our last question. Okay. Well, thanks, everyone, for joining us this morning. I know it's a busy week. As you can see, we're really encouraged and pleased with our H1 performance, but importantly, the momentum in the business into this really important second half of the year. Plenty to navigate over the second half. But as you can see, we continue to make the right balanced choices, and we do that as we go into this Christmas with really strong plans both in Argos and in Sainsbury's. So plenty for us now as a team to get on and deliver for customers and deliver more broadly, and we look forward to talking with you again in early January. Thanks very much.
Operator: Good morning, and welcome to the Celsius Holdings Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Paul Wiseman, Investor Relations. Please go ahead. Paul Wiseman: Good morning, and thank you for joining Celsius Holdings Third Quarter 2025 Earnings Webcast. With me today are John Fieldly, Chairman and CEO; Jarrod Langhans, Chief Financial Officer; and Toby David, Chief of Staff. We'll take questions following the prepared remarks. Our third quarter earnings press release was issued this morning with all materials available on our website, ir.celsiusholdingsinc.com and on the SEC's website, sec.gov. An audio replay of this webcast will also be accessible later today. Today's discussion includes forward-looking statements based on our current expectations and information. These statements involve risks and uncertainties many beyond the company's control. Celsius Holdings disclaims any duty to update forward-looking statements, except as required by law. Please review our safe harbor statements and risk factors in today's press release and in our most recent filings with the SEC, which contain additional information and a description of risks that may result in actual results differing materially from those contemplated by our forward-looking statements. We will present results on both a GAAP and non-GAAP basis. Non-GAAP measures like adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share, adjusted SG&A and adjusted SG&A as a percentage of revenue and their GAAP reconciliations are detailed in our Q3 earnings release, and non-GAAP financial measures should not be used as a substitute for our results reported in accordance with GAAP. With that, I'll turn it over to John. John Fieldly: Thank you, Paul. Good morning, everyone, and thank you for joining us today. The third quarter of 2025 was another pivotal period in what continues to be a transformational year for Celsius Holdings, setting the stage for our next phase of growth. Building on the Alani Nu acquisition in April and our ongoing international expansion, we've deepened our partnership with PepsiCo, added Rockstar Energy to create a total energy portfolio and strengthened our leadership team to lead the next era of modern energy. Before getting into the highlights of our business, I want to thank our employees, our retail and distribution partners and our loyal consumers for their commitment and belief in what we're building. Their energy continues to drive ours. In August, we announced an important expansion of our long-term partnership with PepsiCo, a milestone that deepens our collaboration and establishes Celsius Holdings as PepsiCo's U.S. Strategic Energy Drink Captain. This new role gives Celsius a leadership position within PepsiCo's energy portfolio and greater control over the distribution of our leading portfolio of brands, including Celsius, Alani Nu and now Rockstar Energy. With the expanded partnership, we're further increasing our ability to shape planograms, prioritize SKUs, align promotional periods and bring a unified commercial strategy to life across channels. In short, we're helping lead how energy shows up in retail for the consumer from the aisle to the checkout cooler and everywhere in between. As part of the same transaction, a large portion of the U.S. Alani Nu-based DSD network is joining the PepsiCo distribution network starting December 1, 2025, a move that over time is expected to expand Alani Nu's reach and accelerate its growth trajectory. For Celsius Holdings, this is a meaningful near-term catalyst, and we intend to execute the transition with the same efficiency that made our original Celsius integration into PepsiCo's leading distribution system a success. We also acquired the Rockstar Energy brand in the U.S. and Canada at the end of August, adding one of the most recognizable brands in energy to our total energy portfolio. Rockstar extends our reach into new consumer segments and strengthens our ability to serve a broader spectrum of energy consumers from fitness to lifestyle to culture and music. Together, we believe that these steps, category accountancy, Alani Nu's expanded distribution and the Rockstar acquisition represent a meaningful advancement for our company. It gives us greater scale, control and the platform to compete from a position of strength. Importantly, this also comes with an endorsement of PepsiCo's increased ownership stake in Celsius Holdings and an additional Board representation, a vote of confidence in our shared long-term trajectory. In the third quarter of 2025, our combined portfolio represented more than 20% share of the U.S. energy drink market in tracked channels and grew 31% year-over-year according to Circana, nearly twice as fast as the overall energy drink category. Only 2 years ago, Celsius Holdings was celebrating after surpassing a 10% share with the Celsius brand alone. Now through both organic growth and strategic expansion, we've doubled the share position with our total energy portfolio. It's a remarkable achievement that validates the power of our brands and our disciplined execution. Over the last 52 weeks, our portfolio generated more than $5 billion in retail sales in U.S. tracked channels according to Circana. That success is supported by strong retailer partnerships and consistent consumer demand for functional, great tasting modern energy innovation. Across major retail and convenience partners, we continue to expand our space and distribution. Winning new displays at Target, end caps at Walgreens and CVS and achieving double-digit growth in unit sales across Walmart, Circle K and Dollar General, just to name a few. In Walmart alone, Celsius Holdings portfolio gained more than 2 share points year-over-year, and Alani recorded its best ever sales week in August, led by Witches Brew. The Celsius brand achieved double-digit retail sales growth in the third quarter of 2025 at a 13% year-over-year. Alani Nu grew triple digits at 115% year-over-year, and Rockstar began selling under our ownership. Together, these brands are defining what a modern energy company looks like, inclusive, functional, culturally relevant and growing. Marketing and culture continue to drive how we win. Seasonal flavor offerings once again delivered strong results with Alani Nu, Witches Brew notching record sales, reinforcing the power of flavor, innovation to excite consumers and drive velocity. In October, we launched our first Celsius limited time offering, Spritz Vibe, and we are seeing strong consumer response from U.S. and Canada retailers. Our Celsius Live Fit Go campaign continues to strengthen awareness, trial and repeat purchase for our core brand, connecting performance energy through an inspirational lifestyle. And we're extending the same storytelling across the entire portfolio, ensuring each brand stands for something clear and inspirational. Celsius, fitness and lifestyle performance. Celsius Essentials, high performance energy; Alani Nu, female-focused lifestyle energy; and Rockstar Energy, culture, music, next-generation energy. Last week, I and along with several of our leaders had the opportunity to speak directly to 30,000 PepsiCo employees at one of their national town halls. We showcased our total portfolio approach and shared how Celsius Holdings has become the energy partner capable of powering every consumer occasion. Our goal in the conversation was simple, to inspire 30,000 teammates across PepsiCo to rally behind our portfolio and help us win in the category together. At the National Association of Convenience Stores Trade Show in mid-October, we spent time on the floor meeting with retailers. The excitement around our new portfolio was incredible. You could feel the confidence building for our growth in 2026. We believe that the message from consumers was clear. Celsius Holdings continues to be the growth engine of the energy category and retailers want to partner with us to share in the opportunities that lie ahead. We're also proud of how we continue to invest in our people and culture. Our annual Celsius University Summit brought together more than 200 of our student marketing ambassadors from across the U.S. and Canada, the next generation of marketers who are helping us stay culturally connected to our consumers. It's one of the many ways we build brand advocacy from the inside out. As our business grows, so does the depth of our leadership team. We've recently welcomed Rishi Daing as Chief Marketing Officer, who brings more than 2 decades of global marketing and commercial leadership experience, including senior roles at PepsiCo and Mark Anthony brands. We also had 2 other important leadership appointments, including Garrett Quigley as President, Celsius International; and Ghire Shivprasad, as Chief Human Resource Officer. Each brings valuable experience that complements the strong bench already leading the company. Our approach remains team first, execution-driven, focused on empowering our people and integrating new expertise, while at the same time, maintaining the entrepreneurial energy that defines Celsius. Across the organization, we're executing with focus, advancing Alani Nu's integration, capturing early synergies, onboarding Rockstar and preparing for what we believe will be an even stronger 2026. The third quarter was another step in a series of transformational moves for our global functional beverage portfolio future. We're now operating at true scale in the U.S., and we're currently beginning to build that same foundation internationally. In markets like Australia, performance has continued to exceed our expectations. In the U.K., we've learned valuable lessons that will make us even stronger as we enter 2026. We're refreshing the Celsius Fizz Free line and incorporating new limited time offers into Celsius brand portfolio, starting with Spritz Vibe, which has now launched in the U.S., Canada and the Nordics. Alani's highly successful Witches Brew proved again in the third quarter that limited time offers that create consumer excitement also can lift the whole trademark around them. This week, another Alani fan favorite, Winter Wonderland, returns for the holidays, and we have more great innovation in store for 2026 that I'm excited to share with you soon. We're optimizing our Rockstar Energy portfolio with a medium-term goal of stabilizing the brand and recapturing the magic that makes Rockstar an iconic and powerful force to grow the next generation of energy drink consumers. We've entered a new era for Celsius Holdings in 2025, one defined by scale, partnership and purposeful growth. We're building a portfolio that reaches more consumers during more occasions, and we're doing it with discipline, collaboration and a commitment to organizational excellence. I look forward to what's ahead in 2026 and beyond. I'll now turn the call over to Jarrod to discuss third quarter financial results. Jarrod? Jarrod Langhans: Thank you, John, and good morning, everyone. Turning to the financials. For the quarter ended September 30, 2025, consolidated revenue was approximately $725 million, up 173% from a year ago. The Celsius brand's third quarter 2025 U.S. scanner growth rate was 13%, driven by favorable product mix and increases in total distribution points. A number of factors can cause the scanner data to vary from reported results such as promotions and incentives and the success of such programs, timing of acquisitions and timing of customer orders, which can vary from time to time based on various inventory builds for promotions, cash management programs, limited time offering programs as well as a number of other factors. The difference between the 44% revenue growth rate at the Celsius brand versus the U.S. scanner growth rate of 13% was primarily driven by year-over-year inventory movements across the company's customer base, including a net benefit relative to the inventory optimization program with our largest distributor in the prior year quarter as well as increased promotional activity and our international expansion. Alani Nu revenue nearly doubled, up 99%, driven by strong limited time offerings, particularly Witches Brew, which delivered record sell-through as well as organic core SKU growth. Rockstar Energy contributed roughly $11 million in revenue in its first month under Celsius ownership. An additional portion of Rockstar sales, roughly $7 million was recorded in other income due to GAAP accounting. Combined, the total impact from Rockstar Energy was about $18 million in Q3. We expect this accounting treatment to continue through Q4 before normalizing in 2026. Year-to-date, consolidated sales are up roughly 75% or $770 million with Alani Nu accounting for the majority of that growth and Celsius up 12% through the first 9 months of the year. Gross margin for the quarter was 51.3% compared with 46% a year ago. Year-to-date gross margin was 51.6%, up from 50.2% last year. The improvement reflects the lapping benefits of the prior year inventory optimization, lower net portfolio promotional spend, pack mix, favorable channel mix and scale benefits on raw materials from higher volume, partially offset by tariffs and the impact of Alani Nu and Rockstar Energy's lower margin profiles. We expect to improve Rockstar Energy margins over time, starting in the first half of 2026 as we integrate sourcing and production, much like the progress we've seen with Alani Nu since its acquisition. Sales and marketing expenses were elevated, reflecting continued investment behind brand building, including the Celsius Live Fit Go campaign. Sales and marketing represented about 20% of sales, consistent with our reinvestment strategy. In connection with Alani Nu transition into Pepsi's DSD network, we recorded approximately $247 million in distributor termination expenses during the quarter. These costs are fully funded by PepsiCo under our long-term agreement. And while they are recognized in our P&L under GAAP, the reimbursements are deferred on the balance sheet and amortized into gross sales over the life of the distribution agreement, making the transactions cash neutral to Celsius Holdings. General and administrative expenses remained well controlled at approximately 6% of sales, excluding acquisition costs, down from 9% last year, reflecting efficiency initiatives and cost discipline. Operating income benefited from higher margins and overhead efficiency, partially offset by marketing and integration investments. We ended the quarter with a strong balance sheet and cash position, giving us flexibility to fund future growth and integration initiatives. Shortly after quarter end, we reduced debt by $200 million and reduced our term note by 75 basis points, bringing total debt to roughly $700 million and reducing our annual interest rate expense by approximately $20 million beginning in 2026. Our near-term priorities remain unchanged: continue investing in brand growth, capture synergies from our acquisitions and further strengthen the balance sheet through debt reduction and disciplined capital allocation. As Alani begins distribution in the U.S. Pepsi system in December, most of the financial benefit is expected to be realized in Q1 2026 due to a phased load-in approach ramping from Q4 into Q1 as retailers reset and inventory builds across the Pepsi network. Looking ahead, we expect continued growth in both Celsius and Alani Nu with a focus on stabilizing Rockstar Energy as we optimize the product assortment and reestablish the identity that makes that brand so relatable to consumers. We anticipate Q4 will be a noisy quarter, reflecting year-end timing effects from promotions, integration activities and cash management from our larger customers, along with some incremental freight and tariff pressure. We are looking at the potential for more pressure on our gross margins in Q4 2025 relative to the prior 3 quarters due to promotions, higher scrap and freight from the integration of Alani into the Pepsi system and tariff pressure before re-expanding in Q1 2026. We also expect sales and marketing to represent 23% to 25% of sales in Q4 as we continue investing in our Celsius Live Fit Go campaign and complete the Alani Nu transition. In summary, we delivered strong top line growth, maintained margins above 50% and continued investing for the future. Celsius is once again growing ahead of the category. Alani Nu continues to outperform expectations, and Rockstar Energy strengthens our total energy portfolio by expanding our reach to new energy consumers. We remain focused on balancing investment with profitability, maintaining a strong balance sheet and creating sustainable long-term value for shareholders. With that, I'll turn the call back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Gerald Pascarelli with Needham. Gerald Pascarelli: I just wanted to go back to core Celsius here. The 44% growth in core Celsius off of that depressed year ago base period implies a meaningful negative delta between the 13% growth that we saw in measured channels when you add back the $110 million to $120 million to the base. So I'm just curious on some of the mechanics on what's driving that negative delta. It would seem that the add-back to the base period should have been maybe much lower than the $110 million to $120 million. So I'm just curious if that's part of what happened in the quarter? And then if that's not the case, how do you explain just the wide variance between what you reported versus what we saw in the measured channels? John Fieldly: Yes, Gerald, thank you for the question. In our prepared remarks, Jarrod touched on that and some of the deltas that we're seeing in regards to the variety of numerous factors that are really impacting that difference from the 44% to the 13%. But I'll turn it over to Jarrod just to further reiterate some of his remarks he had. Jarrod Langhans: Gerald, the short answer is yes, but there were a bunch of puts and takes. It's not a perfect apples-to-apples comparison. Over the 52 weeks, mix can change, promos can change, timing can change. For instance, Q2, we had some benefit from the Prime Day buildup, which happened in early Q3. So there's a number of factors built into that, but it was a lower number. It wasn't a perfect one-to-one comparison year-over-year when you're talking about the inventory optimization. With that said... Gerald Pascarelli: Understood. So sorry, go ahead Jarrod. Jarrod Langhans: Yes. With that said, we're at 13% on the scanner growth. We believe the scanner is a good barometer of the health of the business. If you look at October, we're up ahead of the category growth from an energy perspective. So yes, definitely a lot of noise in the quarter with timing and sequencing of various things and Q4 will be a bit noisy as well. Gerald Pascarelli: Understood. So lower base and then maybe just a little bit more of a variance than we saw over the past couple of quarters, given multiple factors. Jarrod Langhans: Yes. John Fieldly: Yes, that's correct. And I think when you look at the 13% growth rate at the register, as Jarrod mentioned and reiterated, it was great to see really the rally come behind the brand. We started off slow in the first quarter and second quarter, not keeping up with the category growth rates. And heading into the back half, especially the end of the quarter, our Live Fit Go campaign that we kicked off really is adding more excitement around the brand, gaining more trial, more repeat purchase, which sets us up really nicely heading into resets in 2026 for the Celsius portfolio. Operator: Your next question comes from the line of Kaumil Gajrawala with Jefferies. Kaumil Gajrawala: A lot of conversations these days about pricing. Monster has announced some pricing. It sounds like it might be even higher than the 5% they have announced despite some promotions back. Curious how you're thinking about the price point, not just of Celsius, but also Alani and Rockstar. John Fieldly: Yes. Kaumil, it's something that is an extremely hot topic with a lot of the headwinds, even on the last earnings call that we had, we talked about some of the headwinds we're seeing, especially with tariff impacts, higher cost of commodities and then the investments behind these brands. So it's something we are contemplating and looking at. There's a variety of ways in addition to taking frontline price, promotional strategies we're evaluating. We're really also building out a revenue management team as well to further enhance our capabilities around that. So we can be more precise, building out further our key accounts team. But there is -- we think there's opportunities there. We're tracking it very closely, but we're not going to make any formal announcements today. Kaumil Gajrawala: Okay. Got it. And then on some of this timing and integration stuff for Q4, if you could just go over it maybe in a little bit more detail. It sounds like there's some additional integration stuff and timing that moves into 1Q or Q4? Or is Q4 messy and then it's back to sort of ordinary course of business by the time we get to 1Q? John Fieldly: Yes, I'll turn it over to Jarrod to further enhance some of his prepared remarks. Jarrod Langhans: Yes. So it's -- I mean, it's Q4 and it's December when the activity is happening. If you go back to when Celsius went into the Pepsi system, it was October 1. We're going in on December 1. So obviously, a lot of CPG companies, there's not a lot of activity at the very end of December. Also, if you recall, when we went in, we were replacing Bang. So it was a one-for-one swap out. So there was a ton of space that needed to be filled immediately. So it was a bit quicker of a push. So it's going to be more of a phased approach. And because we're so close to kind of the timing of resets and when the OTS, the kind of up and down the street programs are reloaded, we're going to kind of phase it in as opposed to have all this open space that will get shoved into. So I think -- it won't be quite as quick as you saw back in '22. But across kind of December and Q1, you'll see us really ramp up from Alani perspective. But there will be some crossover in the quarter as we build that inventory and as we roll it out across really Q1. John Fieldly: And I'll just add additional color around the strategic energy drink case within the Pepsi partnership further enhances those capabilities. So it's not a one-for-one replacement. But as Alani rolls through the network, we're able to really have control over the planograms. And we have over 30,000 PepsiCo team members and our dedicated team really working to further penetrate, gain ACV, distribution and really maximize the sets for the highest quality offerings for the specific channels and regions that we'll see the expansion. Operator: Your next question comes from the line of Michael Lavery with Piper Sandler. Michael Lavery: You cited that this transition could lead to optimized warehouse and distribution that may affect inventory levels. Can you be more specific, what exactly are you expecting? And how much does the intra-quarter transition mitigate disruptions that might be puts and takes within 4Q? Any just more detail on 4Q and into next year, what your comments there are pointing to would be great. Jarrod Langhans: Yes. I think we're just trying to be transparent and lay out what some of the puts and takes you could see in the quarter are. So typically, if you look at most large CPG companies, they do have some cash management activity in Q4. You'll also -- if we're going into a system in a warehouse and we're starting to build some inventory, last time, we didn't have any inventory in that system. So when we went in, it was just us going in as opposed to us being a part of that process. So I think there's just going to be some movement as we build the line and as we roll it out across really kind of December and Q1. And so we just wanted to list out some things that could cause some noise and really just let everybody know that there's going to be a lot of puts and takes in the quarter. It's going to be a really noisy quarter. So expect it to be noisy and not to be perfect. Michael Lavery: Can you just maybe unpack noise a little more? I mean you cited puts and takes. Where does it net out? Jarrod Langhans: Well, again, it's going to depend on how quickly we roll things out. So there's a lot that could happen over the course of the next 6 weeks. So instead of kind of put my foot in my mouth and throw a bunch of numbers out at you, I'm going to say it's going to be really noisy. I'd look at the scanner data that's going to tell you about the health of the business, and that's what all we're going to give you right now. John Fieldly: Yes. I'll just -- Michael, I'll jump in, in regards to some of the additional variances. As an example, we'll be picking up inventory on returns from the prior distribution network. So you've got increased costs there on logistical movements, also secondary warehousing, right, that you wouldn't have under a normal course of business. Also, as our really supply chain is not optimized and fully integrated as now we are strategically tied in with the routes servicing the warehouse through the PepsiCo network, and we're going to need to optimize that. We need to optimize the co-packing facilities, procurement, logistics. We want to make sure we're running 1-day hauls to optimize the freight lanes and making sure we have the right inventory in the right locations around the U.S. So there will be some pressure on margins as well and then also the puts and takes on inventory levels and returns. Michael Lavery: And just a quick clarification. So I appreciate some of the cost headwinds or the margin drags. As you get these returns, that's a reduction of sales, correct? And if so, would we hear you correctly that directionally you think that coming in could come more quickly than you refill pipeline going out that maybe directionally net that you at least are trying to make us aware of the possibility of a net drag as opposed to kind of all else equal? John Fieldly: Yes. I think we're not -- I mean, we need to be conservative on that, and that could be a scenario that plays out. We're just -- it's too early for us. We're not -- we don't have year-end orders in yet. So we got several weeks of orders in initially, but we got to see how the rest of the quarter plays out in Q4. And really, the return pickup is unknown right now. So we're evaluating that, but we'll have to see as we get closer. So making any firm predictions at this point is not really plausible. Jarrod Langhans: I would say if you go back to '22, we did -- the team did a great job managing that process so that there wasn't a significant impact. But with that said, it is a different time of year. There is different timing and sequencing that's going on. So we will manage that to the best we can, and we'll look to manage it as efficiently as we did before. And that's the plan. But we'll see what -- where things kind of pan out when you're talking about 250-plus distributors that you're working to drive down their inventory, build up another set of inventory and take returns at the same time. Operator: Your next question comes from the line of Eric Serotta with Morgan Stanley. Eric Serotta: Great. Just a housekeeping item to not try not to beat a dead horse on the inventory and situation with respect to the third quarter. But did your inventories with Pepsi decline sequentially? I know you referred to the year-on-year variances, Jarrod, but was there any change sequentially? And then bigger picture, in terms of Alani growth, we have seen it flow in scanner over -- really since the second quarter. You obviously had 2 totally incremental LTOs in the second quarter, one large but not fully incremental LTO in the third quarter. So how are you thinking about the Alani growth rate on a going-forward basis for sort of the core brand and then whatever sort of incremental contribution from LTOs that you expect over time, realizing the LTO timing is going to always vary a bit. John Fieldly: Yes. Thank you, Eric. I'll take the second part of that question in regards to Alani. We're really excited about the portfolio. And we've talked about in prior, there will be some lumpiness in regards to the timing of these LTOs and then the phase out. And we're seeing that right now with Celsius, with Spritz Vibe that's now rolling out. But in the quarter, you had Witches Brew, which was phenomenal, great success, amazing flavor. It was its fifth year, more than doubled prior year sales results and got everyone really excited. It was the talk of NACS with a lot of retailers as well. When you're looking at the growth rates and you look at the ACV where Alani is to where Celsius is in the PepsiCo system, I think there's a lot of underlying distribution and TDP gains that we're going to be able to capture as we move through 2026 and really leverage the benefit of the PepsiCo distribution network as well as the excitement behind the brand and all the work our key accounts team has been working on. When you look at large format, especially within food and mass and you look at Celsius and Alani, it is a large percentage of the overall energy drink category sales. So that really gives us a great leverage and to really further optimize and really create some unique programs for that channel. And as I mentioned in the prepared remarks, coming out of NACS, retailers are really excited about what Alani is doing to the category. It's incremental, really driving increased female consumption rates. And they really like the uniqueness of what Alani brings to the table within the category, some of its flavor profiles, Sherbet Swirl and so on. And right now, we have Winter Wonderland launching, which is rolling out in retailers. So we do anticipate that will not be as large as Witch's Brew. Witch's Brew historically has been one of the larger LTOs. And also Winter Wonderland, amazing flavor profile, check out the social media activations and in-store execution. It's been phenomenal. But it is crossing over through a transitional period with Alani moving from the prior distribution network into Pepsi December 1 in North America or in the U.S. So that likely will not be to its full potential as we're hoping to see next year there. So those are some of the puts and takes. The good news is and which we're really excited about is these LTOs bring up -- are growing the core SKU offering, which is great to see as well. So adding excitement, bringing incrementality and growing the base within Velocity. Jarrod Langhans: Yes. On the first part of the question, back on to the LTOs, John was talking about it, the Spritz Vibe was great for brand Celsius. I think we've got a great lineup for next year as well across the entire portfolio, in particular, Alani and Celsius. So I think that we were setting ourselves up well for 2026 from. In terms of the inventory rollover, it's not perfect. It's always a point in time. There was some noise in there. Pack size will change, mix will change over the last 52 weeks, the promos have changed. So there's a lot of puts and takes that went into it as well as timing of the inventory movements. And so that's where you got a little bit of a lower number that came through than maybe you had expected if it was a perfect one-to-one rollover. Eric Serotta: Okay. And any comments sequentially? I know the year-on-year is tougher, but given all those noise factors you mentioned, but any change in the inventory sequentially. I realize there's probably some seasonality to it. But going back 1.5 years or so, you would talk inventory impact sequentially. Jarrod Langhans: Yes. I think what we've said thus far, that's really all we're going to go with. Operator: Your next question comes from the line of Bonnie Herzog with Goldman Sachs. Bonnie Herzog: I had a question on gross margins in the quarter. I guess I'm hoping for some more color on the puts and takes and how we should think about gross margins moving forward. Maybe remind us of the impact, if any, from tariffs and then how big of an impact was the inflation we're seeing on the Midwest premium and then your hedging strategy on that? John Fieldly: Thank you for the question. And that's an area of opportunity for us within the gross profit line, especially as we further integrate Alani and Rockstar into the network we've built. And there's a lot of efficiencies in the areas we're focusing on. Midwest premium is impacted. We don't do hedging, but that is -- we do some forward buys that -- but long-term hedging is something we haven't implemented, and it's an opportunity and something we continue to evaluate. And as we have a larger purchasing power and a greater number of capacity, that's something that's on our radar. So more to come on that. In regards to tariff, we're seeing greater tariff impacts. We started to see it slightly in Q2, a little bit more in Q3. We anticipate even larger in Q4. Now we're trying to offset some of that with the scale and the synergies we're seeing as we're bringing and starting to really kick off the production of Alani. So also leveraging the vertical integration of our co-packer we acquired back in November. There's opportunities there as we look to '26, we'll be adding a second line to further enhance the capabilities of that and drive more efficiencies. But I'll turn it over to Jarrod, do you have any additional color in regards to addition to your prepared remarks. Jarrod Langhans: Yes. So I mean, John kind of covered the tariffs. We talked about last quarter that we'd see a little bit in Q3. It would increase a bit in Q4. At the same time, as we're integrating Alani, we were driving improved margin as an offset. Also with our scale, we're seeing the opportunity, and you've seen that across the last year from a raw material perspective. Even with the tariffs, there's still opportunity to take some of that pricing down. We've seen some movement internationally with the U.S. and other countries where we may actually see some benefit from tariffs. And then there's a variety of other tactics and other programs that we're putting in to further drive raw material savings across the board as we scale up. Like John said, we've got a new line coming in our plant next year that will help drive some savings as well. We're looking to continue to save freight as we bring all 3 brands together. If you look at brand Celsius, it's roughly kind of 3% of sales. Alani is a bit ahead of that as is Rockstar. So we'll be able to bring that down as an offset. But that will take some time. We talked about Rockstar, really, you'll start to see the margin from that business improve in the really first half of '26. Alani, we're on track to capture most of that by, I believe, in the modeling call we did in May, we'd look to capture it by the end of Q1. So there's a number of good guys coming through. They're just not coming through necessarily as quickly as some of the pressures. So that's why we called out there's probably going to be a little bit of pressure in Q4. We'll have some scrap and some returns and things like that, that will drive some pressure on the margin like you saw back in '22 when we transitioned Celsius into the Pepsi system, and you saw kind of some of those onetime impacts that came through and then we were able to then leverage the business from there on. So you'll see a similar thing happen in Q4 before we start to see a lot of those benefits come through in the first half of '26. Operator: Your next question comes from the line of Sean McGowan with ROTH Capital Partners. Sean McGowan: Questions about international. Now that we're deeper into the ownership of Alani and you've had some time to think about what to do with Rockstar. What are the plans there internationally? And then more broadly, how do you feel about how the performance has gone internationally? John Fieldly: Yes. No, great question. Thank you, Sean. Lots of opportunity in international. We just hired our first President of our international expansion. We've been really building a foundation over the last several years. As you know, we've started off in Sweden and Finland, been great markets for us for a long time and really just expanded into Australia, the U.K., Ireland, New Zealand, France and Benelux markets. And just getting started there. We started -- we built out small but yet impactful sales organizations and marketing organizations and really building that first foundation. And I think as you look for '26, we're going to lean in further. Those same opportunities we see in the health and wellness trends in the U.S., they're global trends. We're getting a lot of excitement from retailers and consumers as the world is just one click away. So as we look for '26, we are making further strategic investments in given markets. We've had a lot of key learnings as well, taking those key learnings and going to continue to build upon them. Our biggest successful market in the last -- from last year and into this year and an early expansion market has been Australia, really 7-Eleven leaned in, and we're seeing some great expansion opportunities which will position us really well as we're entering '26. And then when you look at the other markets in Europe, they're really foundational and working really closely with retailers and some of our key partners we kicked off our university ambassador programs and leaning into fitness, health and wellness. We're really well positioned. Celsius is our first push leading in, and then we see opportunities with Alani as well. So more to come on that, but definitely a growth driver for years to come. Operator: The next question comes from the line of Jon Andersen with William Blair. Jon Andersen: Quick question on Alani Nu, kind of a 2-parter. Currently well below the Celsius on ACV and TDPs in particular. How do you see the distribution kind of ramp for Alani Nu kind of playing out? And do you think it has the -- ultimately has the potential -- the appeal to kind of reach the kind of level that Celsius is in the market today? And then the second part is, I know there '24 or '23 was a really strong distribution build with Pepsi for Celsius. It did seem to result in quite a bit of inventory optimization in 2024. How do you kind of work with PepsiCo? Are you collaborating with them this time to avoid that kind of experience as you look to take aligning to new levels? Jarrod Langhans: Let me take the second one, and then John can jump on the first one. So from an inventory perspective, I think together, we've learned a lot. We've already gone through the process of putting a fast triple-digit growing business into their system. So we've got a lot of learnings. I think our teams are much more tightly connected today than they were in the past. We also have the captaincy, which gives us more control and more say in terms of what products we're putting in the coolers and how we're going to set that up within the Pepsi system, but also within our key accounts across the board. So I think overall, there's a lot more communication, and we also have brought Eric on, who was a long-time Pepsi person who is coordinating pretty tightly with them. So we're very confident that when it comes to kind of inventory movements, we've got a lot of learnings that we'll be utilizing so that we can make sure it flows efficiently and smoothly on a go-forward basis with the Alani business. And then I'll throw the other one over to John. John Fieldly: Yes. In regards to ACV and TDP and the opportunity and the appeal, I think specifically looking at Alani, and we're really attracted to it. And what we hear is there's a lot of appeal for it. It's done extremely well in convenience. If you look at the latest convenience numbers, it's performing well. Huge opportunity there, especially, as I mentioned before, coming out of NACS. I think the one-for-one swap out with Celsius moving into the bang really planograms and a lot of the AOM accounts and broader distribution within Pepsi. I think that happened very rapidly versus Alani with the captaincy, we're able to control those planograms. So the opportunity still lies there, but it could be more of a quarterly transition over the next 3 to 6 months as we continue to really reset those and work our way through 2026 and the resets. Eventually, -- but the same opportunity on ACV and TDPs lies within Alani. And it's -- we have a bigger key accounts team. We have a bigger distributor management team and the excitement just last week when we were up at the Pepsi Town Hall meeting, really excited about that. And then in food service is a big opportunity. Now as the -- really the category energy captain, we're able to get further enhancements and placements within the food service opportunities throughout PepsiCo. So I think the same opportunity within ACV and TDPs lies with all of our portfolio. Operator: And that is it for our question-and-answer session. I will now turn the call over to John Fieldly for closing remarks. John Fieldly: Thanks again for joining us today. Q3 was another strong quarter and a transformational year, marked by strength, partnerships, portfolio expansion and our commitment to organizational excellence. The energy drink category is a standout growth area in staples, supported by consumers' growing preferences for functional better-for-you modern energy offerings. We believe that we're very well positioned to continue to benefit from and lead the execution of this revolution that's taking place in the energy category. Thank you to all of our employees and partners for all their hard work, dedication that enables our success. Until next time, grab a Celsius and live fit. Operator: This concludes today's conference call. We thank you for your participation. You may now disconnect your lines. Have a pleasant day.
Operator: Welcome to the Eurazeo 9 Months 2025 Trading Update Presentation. Today's conference will be hosted by William Kadouch-Chassaing, Co-CEO. [Operator Instructions] Now I will hand the conference over to the speaker. Please go ahead. William Kadouch-Chassaing: Thank you very much. Good morning. Thank you all for joining this call. I'm pleased to welcome you to our trading update for the first 9 months of 2025. To remind everyone, for the trading update, we don't update the NAV that will be done at the end of the year, but I'm, of course, ready for questions you may have on the topic. In a nutshell, Eurazeo continues to gain market share in asset management. We had another quarter of dynamic fundraising and AUM growth outperforming the market. Second, we continue to outperform the market in realizations and distributions, which is, as you know, a key differentiating factor in the current market environment. And third, the quality of our balance sheet portfolio remains strong with healthy operational metrics across the board and realizations confirming our ability to monetize our balance sheet above its carrying value. Let me start with fundraising. We raised EUR 3.2 billion from our clients in the first 9 months of 2025, which is 4% above last year and well above market as global fundraising is estimated to be down this year at about 10% according to PitchBook, you may find as well other sources that will go in the same direction. This confirms our ability to gain market share in a more and more competitive and polarized market. This also highlights the quality of our investment franchises, the relevance of Eurazeo positioning as a focused European mid-market investment platform as well as the strength of our distribution capacities. Indeed, we make progress both with institutional and with individual clients. In terms of asset classes, whilst private debt continues to perform strongly, our private equity franchises have connected well. Private equity fundraising in Q3 was fueled by our secondaries and mandates franchise on top of our earlier successes in H1 in buyout, growth and impact. Our PE fundraising is up 38% year-to-date. Private debt, as I said, had a very good quarter with EUR 800 million raised in Q3 alone, mainly in direct funding. Our flagship EPD VII has already raised around EUR 3 billion in total. On wealth solutions, we raised close to EUR 700 million in the first 9 months, which is 7% more than last year. We just announced that we have received the regulatory approval from the launch of our new evergreen funds in the prime line, EPIC in private debt and EPSO in secondaries. They will support our growth ambitions in Europe. Given our current momentum and pipeline for the rest of the year, we are confident, I should say, very confident that fundraising in 2025 will exceed EUR 4 billion. We continue to expand and internationalize our client franchise, which is a key strategic objective that we had articulated in our Capital Market Day back in November 2023. We added 29 new institutional clients since the beginning of the year on a base of 440. This is a significant number. 74% of inflows came from international LPs in the first 9 months of the year, a share that continues to grow year after year, as you can see on the chart, with notable successes in Asia, Middle East and the rest of Europe. Our wealth solutions franchise also continues to grow at a steady pace with new distribution partners onboarded and already close to 10% of flows outside of our home market for the first 9 months of 2025. Overall, AUM growth and particularly fee-paying AUM growth illustrate the dynamism of our asset management business. Total assets under management were up 5% in the first 9 months, reaching EUR 37.4 billion. Third-party AUM only, which is a key focus of our strategic plan are up 11%. Fee-paying AUM were up 7% at nearly EUR 28 billion with third-party fee-paying AUM growing at also 11%. Let me stress that we believe this is above market growth. The decrease in balance sheet-related AUM reflects the successful implementation of our capital allocation strategy. Management fees stood at EUR 316 million for the first 9 months. Fees from third parties are up 5% overall, excluding catch-up fees and ForEx impact and fees from the balance sheet are down 3% year-to-date due to recent exits and reduced commitments in the funds as per the plan. On private market, we experienced strong inflows, which I just referred to, as shown by the rise in fee-paying AUM. It was partly offset by planned rate step-downs in older vintages that have been venture growth and buyouts. We also have a slight mix effect with strong fundraising from private debt and secondary and mandates in recent quarters, which carry a lower yet healthy fee level. IM Global Partners fees are up 4% at constant ForEx. Management fees from the balance sheet are logically down year-on-year, they are down 3% due to exits and reduced commitments in the fund as said. Let me now turn to deployments and realizations. As a group, Eurazeo deployments reached EUR 3.9 billion over 9 months, which is up 20% from the same period of last year, with transactions reflecting an expanding pan-European investment approach and our focus on structurally growing sectors. We deployed EUR 800 million in Q3 in private equity to support category leaders such as OMMAX, a digital and AI strategy consulting firm in Berlin based in Germany; Filigran, an AI-based cybersecurity firm; and Dexory, a U.K. leader in logistics, robotics and growth. Adcytherix, a developer of innovative oncology treatments and Proteor, a leader in orthotics and prosthetics in healthcare. And in real assets, we invested with MPC OSE in offshore wind farm servicing. Private debt continues to be very active with EUR 900 million deployed in Q3 in a dynamic lower mid-market segment. We are well placed to continue to grasp opportunities with EUR 7.2 billion of firepower, of which EUR 7.2 billion of third-party dry power powder. Realizations for the first 9 months stood at EUR 2.2 billion. Over the third quarter, we notably announced 2 important exits in buyouts. We sold CPK, a European champion in sugar and chocolate confectionery to Fera County Group, a leading U.S. confectionery linked to the Ferrero Group. The transaction returned around EUR 200 million of additional cash to our balance sheet and was concluded at a price above NAV. We also divested from Ultra Premium Direct, France leading direct-to-consumer pet food brand for approximately EUR 140 million, generating a 2.1x gross cash-on-cash return for the balance sheet. These transactions announced this summer have been closed in October. We also stepped-up realizations across the venture and growth funds with 2 important new exits, the German company, Cognigy and ImCheck. Finally, in private debt realization stood at EUR 600 million for the first 9 months. Several deals are expected to unfold in Q4. Together, these transactions illustrate the quality of our investments and our continued focus on generating liquidity and value for our investors and shareholders. At a time when the main focus of the industry, as you know, revolves around distributions, this is, we see a key competitive advantage for future fundraising. So let me illustrate that point, starting with buyouts. As you can see on the chart, the pace of distribution to LPs in the market has markedly slowed down in the past 5 years in a challenging and volatile macro environment. This is a topic for the industry. In this context, Eurazeo private equity buyout franchises have been outperforming clearly. Year-to-date, in 2025, Eurazeo's buyout franchise have already returned 10% of the NAV compared to around 5% for the broader market in H1 according to industry estimates. Looking at the '21, '24-time horizon, you'll find that the pace of Eurazeo rotation was 5 points above market and even 7 points focusing on the balance sheet portfolio only. As you know, the balance sheet, I'll come back to that, has already returned 14% of its NAV. Another positive catalyst, and we think this is a very important catalyst for future performance and the growth of our asset management activity is our proven ability to complete successful exits across the biotech, venture and growth franchises. After 3 landmark deals in 2024 Onfido, Lumapps and Amolyt asset, we've completed 2 important exits in Q3 2025 in excellent conditions. In growth, Cognigy, a German AI-based customer management provider was sold to NiCE, an Israeli American listed company for nearly EUR 1 billion, representing a 2.1% cash-on-cash return in a year our EGF IV fund. This is a remarkable outcome, which brings EGF IV, which has only completed its first closing already at 25% of DPI and 1.15x TVPI or MOIC. That's quite exceptional in the industry where DPI tends to be low. In biotech, our Kurma team sold ImCheck to IPSEN for up to EUR 1 billion if certain milestones are met. The transaction should generate between 3 and 7x cash-on-cash returns and created substantial value for our BioFund vintages, which bodes well for the future fundraising. Let me highlight that we now added the performance of the biotech funds in -- together with the performance of the rest of the fund. Pro forma this transaction, the DPI of Kurma BioFund III now stands at 75%. Let's focus more specifically on our balance sheet rotation. As you know, this is an essential part of our strategy to build an asset-light business model and execute on our promise to return more capital to our shareholders. With CPK and UPD, which closed in October, our balance sheet has realized EUR 1.1 billion of disposals year-to-date or 14% of last year's net portfolio value, already ahead of the total for the full year 2024 and as I said before, much above market pace of rotation. Since the beginning of 2024, we have sold around EUR 2.2 billion of balance sheet assets, i.e., since the beginning of the plan. This is around 27% of the net portfolio value at the end of 2023. We sold these assets at an average premium of 8% on our latest mark and a gross cash-on-cash multiple of 2.1x. Several processes are ongoing and should lead to transactions announced and realized through the end of the year. As you can see, all the exits we've announced and completed in 2025, including the most recent transactions, they are on the green in the bar charts, demonstrate again our ability to sell assets at or above NAV. Let me stress again that we believe this is the best proof point to assess the quality of our portfolio valuation approach and processes. Let me stress also, and this is a very important thing for us, that portfolio valuations only make sense if they are associated with a proven capability to generate liquidity. When you compare Eurazeo, always keep in mind that our DPIs are higher than the average market. Operational metrics of the companies in which our balance sheet is invested through the funds continue to be healthy. The average growth of our buyout companies was plus 6% over 9 months, continuing the trend seen in H1 in spite of a still sluggish and volatile economic environment. In growth, activity remains solid across the portfolio with 15% top line growth on average. Doctolib, the largest investment in this strategy, continues to grow strongly and announced it has already reached profitability in Q3 2025. The most recent investment in Eurazeo Growth Fund IV recorded an average revenue growth of around 37% over the first 9 months of the year, confirming their strong momentum together with the DPI of 25% and value creation in the fund, this bodes well for future fundraising. After years of strong growth, hospitality revenues logically have been stable in the first 9 months, while our infrastructure businesses continued to grow at a double-digit pace. Finally, before we open the floor to questions, a word on shareholder remuneration. This is a key commitment we've made to shareholders again in the plan '24-'27. By the end of 2025, we will have given back close to EUR 1 billion to our shareholders, approximately EUR 400 million in dividends and approximately EUR 600 million in share buyback, the equivalent of roughly 12% of Eurazeo share capital. As a remember, we had bought back EUR 200 million of shares in 2024 and doubled our program to EUR 400 million in 2025. With the acceleration of the program this summer, we have already bought back EUR 300 million, and we'll buy the remaining EUR 100 million before the end of the year. Thank you very much for listening to this call. We can now open to Q&A questions. Operator: [Operator Instructions] The next question comes from Oliver Carruthers from Goldman Sachs. Oliver Carruthers: I've got 3 questions. The first question on the realization rate. Just would you be able to help us just get a sense of what hurdles you have to clear to get to around that 20% realization rate this year? It seems from the press release, you're in late-stage negotiations for a number of assets. Is there any sense you could give on this would be great. Just really just trying to get a read on how sensitive this number could be to external factors, regulatory approval, financing, et cetera. So that's the first question. The second question, at the half year, you said neutral to slightly negative value creation for the full year with the first half obviously being slightly negative. I know there's no formal revaluation updates today, but can you give us a sense of how the balance sheet investment portfolio is tracking relative to expectations from the summer? And if you can, is it reasonable to assume 2H at this stage is tracking to be at least flat? That's the second question. And then the final question on fundraising. It looks like a good update today and noted the more than EUR 4 billion commentary for the full year. It looks like more and more of your fundraising is coming from non-European investors that stepped up quite a bit this year and even in 3Q. And any color that you can give on what's attracting non-European investors to the Eurazeo platform? Is it a broader theme of capital allocation to Europe? Or are there some other things at play would be very helpful. William Kadouch-Chassaing: Thank you very much, Oliver, for your questions. On realizations, we have several processes pertaining to different type of asset classes. So again, we are confident that we are able to trend towards our historical average. Now as you point out, there may be cases where there may be some delays between signing and realization. So, it's too early for me to tell you, given the fact that sometimes it requires some regulatory processes like CPK, we have to, of course, look through the hurdles of antitrust that was logical. And then we concluded in October. But expect that we will at least announce further deals through the end of the year and some of them will lead to realization soon after signing. Some of them may be realized slightly later. The portfolio, no, we don't reevaluate the portfolio every quarter, yet we do valuations of our funds on a quarterly basis for our clients. And we also have operational metrics, and we look at multiples and as they evolve. So, we have a sense of where it goes based on what we know, of course, we're missing -- we missed the last quarter of data points, but we already have a sense. So, we can confirm very firmly the guidance that we will be between 0 and slightly negative for the value of the on-balance sheet portfolio at the end of the year and which may lead to a neutral to slightly positive on the share count on the share basis given the share buyback. Fundraising, as you have seen, we reiterate the more than EUR 4 billion. We have good momentum across different asset classes. Your question pertains to our ability to grow internationally. Yes, there is a case that there is more LPs across the globe, not only in Asia, but in Asia, particularly in countries such as South Korea, Japan, Singapore, also China to Europe. This is also the case -- this is why I said it's not only Asia, in Canada, for example. But we, as you know, also have potential to expand in areas where we are already present, but not -- but have a potential to do more like in Middle East and in certain countries in Europe outside of our core home markets, if I may say so. We have France and generally Benelux, particularly Belgium and Luxembourg. So, there is a trend towards allocating more towards Europe. But I wouldn't say that Europe is just -- that Eurazeo is just suffering on the trend I think the main topic is that we have been able to position the company with a very differentiated value proposition. If you think about it, and you know very well the market of listed and non-listed companies, there is scarcity of platforms focused on mid-markets. And there is uniqueness in being a platform focused on European mid-market. At a time when the market is more and more polarized in the mindset of LPs, with LPs preferring to deal either with platform or some extremely differentiated monoliners with the rest of the industry being a bit more -- less attractive to LPs. We benefit from this. We benefit from being a platform with a unique positioning as a European mid-market/growth and impact-focused approach. And that's really what helps us in the marketing. People are confident with the stability and sustainability of the platform and what it can bring. And they understand very well that you can generate alpha and sometimes better alpha than in other regions in the world in European mid-market. Operator: The next question comes from Alexander Gerard from CIC Market Solutions. Alexandre Gérard: I have 2. My first question is related to the private debt fundraising year-to-date, which is down. How do you see the future regarding that asset class? And do you think that what happened in the U.S. with first brand and colors could more generally speaking, slow down the rate of fundraising in that asset class. So that's my first question. And the second question is regarding the gearing of the group. At the end of 2023, the gearing stood at 9%, which corresponded to EUR 0.8 billion in terms of net financial debt. And now the gearing has increased to 23% at EUR 1.6 billion. So how do you -- where do you see your gearing in 2027? And I mean, we have the feeling that you are returning cash to shareholders at a good rate, but maybe through a higher leverage. So where do you see your financial position going forward? William Kadouch-Chassaing: Thank you very much, Alex, for your 3 questions. Let's start with private debt. We have a very, very good momentum in private debt. And when I say we have already reached the EUR 3 billion, it means that we are above where we're going to fundraise on EPD VII above target. That would make of Eurazeo the largest asset manager focusing on lower mid-market direct lending, which is an attractive category given the yields and the margins that we can generate in the industry. We also have a good momentum in the fundraising of our asset-based focused franchise. So, if you look at this franchise, just have in mind we continue to have a good momentum, and we think we are gaining share both in deployment and as well as fundraising in countries in terms of deployment where we were less present historically like the Nordics and the DACH region or Italy. And as a primary brand franchise, we, as a result, gained share with key large LPs, consultants distributing us across the group. So that music continues to go very well. Now to your point on the U.S., what's happening in the U.S. and the risk for the industry and for the franchise. Let me say, first of all, that we don't see any sign of weaknesses in our portfolio to date, i.e., the default rates continue to be very, very low. The default rates historically, and this continues to be the case, is about 20 basis points. It has increased a little marginally, but it is very low. And if you factor in that the recovery rate is 50%, then you have a de facto loss rate, which is very, very low. So that's a very important point because what you have seen in some cases in the U.S. is actual defaults. We haven't seen that in our portfolio for different reasons we can talk about. I would be cautious on extrapolating what's happening in the U.S. In a sense, it reminds me as an ex-banker, what happened in the securitization market, which exploded in the U.S. as a prime. In fact, the securitization market was very safe in Europe, and there's been some confusion here. So we are -- what we're seeing in the U.S. pertains to me more to a more relaxed, a loser regulation in terms of banking and insurance being able to buy CLOs and some direct lending assets which may be lack of proper framework and ending with some losses on their balance sheet, which is -- which raises the question in some minds as to the potential systemic risk. We are very, very far away from that in Europe. The restriction that is put on banks and interest to invest in these asset categories continues to be strictly supervised. And that's probably not a bad thing. So, I think we're talking about 2 different dynamics. The gearing. The gearing has increased but continues to be compatible with a quasi-investment grade or investment-grade category when we do our own sort of shadow rating, talking to banks and relevant bodies. Let me stress that 17% gearing. I'm talking about pro forma, the sales and exits announced in Q3 with CPP and UPD, it's a gearing that is very reasonable. And as you know, it does include close to EUR 200 million of debt at IMGP, which is totally nonrecourse. So, from a creditworthiness standpoint, the group remains very safe. That was not your question. The question is more going forward, what do we see towards 2027. And there you know the answer. The answer is that we see that gradually that gearing will reduce. And at some point, we will end up with excess cash on the balance sheet. Now excess cash before we distribute back money to our shareholders, which is what we've done. If you adjust the gearing to the EUR 1 billion, I mentioned before, you'll see that the company has virtually no gearing pertaining to its own operations. So that is something we monitor that idea that, number 1, gearing should always be well contained. In and of itself, I think some gearing is a good thing in reality. Fundamentally, the gearing will continue to go down through 2027. And 3, even with that approach, we should be able to continue to serve our shareholders through the share buybacks. Operator: [Operator Instructions] Unknown Executive: There is no other question on the line, I'm going to ask the questions that are the text that we've received. So, we already answered some of them. I will say David Cerdan from Kepler asks, how do you see 2026 for fundraising given the changes within the industry? And what are the initiatives on this for Eurazeo? William Kadouch-Chassaing: Well, thank you, David. I don't know if you're on the line but at least thank you for your question. A bit too early to communicate to the market on 2026 fundraising. But as you may imagine we have a quite good view as to what would be on the road and what we can achieve in 2026. So, I'd say it's more to say. We consider that given the diverse product offering that we have linked to that good performance, in particular, in terms of distribution to clients, given what we said on the back of the question of Oliver regarding the appetite for European mid-market, we should continue to gain market share and pursue the place of having good fundraising and better fundraising than the rest of the market. Of course, it's absent a major crisis. It is assuming still sluggish and somewhat polarized market environment that we referred to. So that's all that I can say at this stage. Now we will come back to you with the pipeline, but we had already mentioned some of it. We will be full steam fundraising case in point for low or mid-market buyouts. That's a hot market. The previous vintage is running at more than 30% IRR, very good quartiles across all metrics. So that should be a success that goes into 2026. We will have the beginning of the full steam fundraising of our second vintage of infrastructure fund. As you know, the first infrastructure fund had fundraised much above its initial targets. The performance of the fund is very good. Hence, what I mentioned about the metrics that should be successful fundraising. And as a case in point, we will continue to fundraise on Growth Fund IV, which has done its first closing this year. Given the performance of the fund already and in spite of the fact that growth and venture more generally continues to be asset classes for which LP appetite is a bit more nuanced we should have momentum because that's quite a differentiated performance. And so forth, we'll have asset back on the road. Wealth, we should have the benefit of the new Evergreen funds launch. So, without going into what we're going to articulate when we publish our full year results with a detailed product offering that will be on the road, you can see that we feel confident we have enough to offer to the market and so more of the same. Unknown Executive: Maybe we'll stay on the fundraising. A question from Isobel Hettrick from Bernstein Autonomous. She has a question on the buyout space, given the multiples that you have currently on Eurazeo Capital on IRR, MOIC and DPI and considering that it is now 4 years old, how are you thinking about fundraising for EC VI and the ability to attract third-party investors on this future funds? William Kadouch-Chassaing: We think investors will look at EC IV, which is more mature funds. And then we look at EC V when EC V has enough maturity because beyond the vintage, you should look also at the pace of deployment. EC V is deployed roughly 50%. So, it doesn't have as of yet, the granularity and that would lead to a full meaningfulness of the metrics. So, if you look at EC V, we are in the good metrics, particularly on DPI and very decent in IRR and cash on cash. And we have good assets in EC V, but it's a bit too early to call given that some of them have been invested recently like Mapal, but also ERS and BMS have been invested fairly recently. So, they are good assets with strong operational metrics, but we have been quite prudent in remarking these assets over time. So, all that in a nutshell, will lead you rather towards 2027, maybe end of '26, but certainly more '27 for a full steam fundraising EC VI. So, we'll see how we perform at this time. But right now, we are very confident given the quality of EC IV and given the early metrics that we see within the portfolio of EC V. Unknown Executive: So, we have one question from an investor that we will answer directly because it's pretty specific. And for the moment, I don't have any other question on the text line. If anybody has an overall question to ask, you can still raise your hand. Operator: The next question comes from Alexander Gerard from CIC Market Solutions. Alexandre Gérard: 2 follow-up questions on my side, please. The first one regarding the -- your corporate development opportunities. Can you maybe update us on that front? For example, you have a look at committed Advisors that has just been acquired by Wendel. Is secondary segment that is attractive to you? And going forward, where are your priorities if you were to strengthen your expertise through M&A? And secondly, at the time of the CMD, you had set also a goal in terms of improving your operating efficiency. Can we have an update on that? Can we have examples of what you did since November 2023 to make your -- improve your operating efficiency? William Kadouch-Chassaing: Thank you. Well, it is true that for -- on the quarter, we don't update on IRAs and margin, but always good to remind us that we are committed to improve operating efficiency on the asset management. Regarding corporate development, I mean, we are at a stage where the industry is clearly being divided into large platforms with our own identified market. Again, Eurazeo as a platform, has a right to win as a leader in European mid-market, as we said. And monoliners,ome of them will continue to be very successful and some of them, quite a few of them may find difficult to continue the journey. And hence, there is a tendency to -- for people to try to find a home within the platform. So yes, we are having a number of discussions very often generated by people themselves who want to meet with us that we didn't have in the past. Does it mean that we want to do deals? Not necessarily. We consider that we have a strong strategic rationale in pursuing our organic growth. But as we said many times, there may be cases that may justify looking at M&A if that would help us speeding up the scaling of some of our strategies and acquiring new franchises, client franchises that we don't have. So of course, I will not comment more. I will not comment as to whether we've looked at committed advisers. But I will just remind you of the fact that our secondary franchise is bigger than the one that just acquired. And it's very successful as a franchise, both with LPs and with wealth, close to 50% of the fundraising of that secondary franchise is nurtured by our wealth channels. Secondary together with debt a category that you absolutely need to have if you want to develop successfully into the wealth market. And we also have a strong mandate franchise and fund franchise. So, it's more an organic journey, an expansion of the international footprint of that franchise that we're looking for. Operational metrics. So, this is not a topic for the 9 months. But as you know, we have already increased quite materially the operating leverage of the company. We added close to 500 basis points of margin between 2022 and 2024. What we said -- so we will continue -- so we already reached the bottom end of our mid-term target. You referred to the CMD. At the time, we had said between 35% and 40% FRE margin. So, we already crossed the bar of 35%. So, I'd say, as you can see, we are very focused on that. We continue to be focused on that, being mindful though that we are also a company that has significant growth opportunities. So, we've invested in strengthening our sales force. We have invested in some reinforcing of our investment strategies. So, you have to be also managing that growth opportunities because a lot of will come -- of the operational efficiency will be associated to our capacity to increase our revenues. Unknown Executive: Maybe we have 5 more minutes. I will take the 2 questions that I have online. First, a question on AI, much on the topic. Do you perceive AI as an important game changer for your participations with middle- to long-term horizon? Can you comment on your strategy concerning the evolution linked to AI? And maybe just the other one, could we expect some IPOs in 2026 for some of the assets that are exposed to the balance sheet? William Kadouch-Chassaing: AI is a very important topic for us. And it will require certainly more time than this call. So, I'll try to really summarize it. AI for us pertains to 3 things. Number one, are we as a company using what AI can offer. I'm talking about as an asset manager. The answer is we're going full speed in using AI in our middle back office conversal operations. We consider that everything we can automate. But beyond automate, we also use some -- we have some test using agentic AI. We also have training for the people in the firm, including CEOs as to how to prompt. So that's clearly a focus, and this is linked to the question of Alexander regarding operational efficiency. We also use it. We have quite a few experiences now that we've made to test the quality of it and the outcome for our investment processes. AI can be very forceful if you use it right, to generate analysis of deal flows as well as to process some basic analysis on numbers, projections, market data that's obviously quite efficient. And we always have a limit. The limit being that AI can't do something which we expect our good investors to do, which is to assess quality of management. And then there is the core of what we look at when we think about AI, which is how much opportunity to grow the companies we invest into AI can give or on the contrary, how much of disruption can AI cause in the companies we invest to, the companies we have invested into. It's very important to have in each of the franchises that we operate in investments, people focusing on that. So, we have operational partners very focused on that topic of assessing the opportunities and risk linked to AI. It is also very beneficial to be a company that is able to have investors in venture, in growth equities through buyouts and more mature company -- these people have a constant dialogue because when you are a buyout investor, talking to your colleagues in venture to see a few innovations that may lead to impacting the portfolio companies you're looking at is obviously extremely important. The same applies, by the way, to health care. The fact that we have in the same house people who do seed biotech or med-tech companies at the same time that we have buyout investors that invest in more mature health care company. If you manage to get the dialogue and we manage to have this dialogue between the teams, that's very forceful. So, AI is something that, of course, will be front and center for all the companies we invest into. Nobody will be unaffected. And there may be a case that there is some eating in the investment speed in the infrastructure of AI, but there is absolutely no doubt that AI will be front and center going forward. So, the answer is yes. And the second question was -- Unknown Executive: IPOs in '26. William Kadouch-Chassaing: Don't expect IPOs in 2026 pertaining to our portfolios. Now what we observe is that the market of IPOs has improved in the U.S. There's been some improvement as well in Europe. And we have some companies, particularly in the growth portfolio that are getting more and more good cases for a potential IPO. But the timing of which, of course, we will not commit because we don't master the markets today. So '26 may be a bit too early. Unknown Executive: As we have no further questions, I think it's time to end this call. The next step for us is on the 11th of March for our full year results. Thank you very much for attending this call, and have a nice day. Bye-bye. William Kadouch-Chassaing: Thank you very much. Bye-bye.