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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.
Operator: Good day, and thank you for standing by. Welcome to the ATN International Q3 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Michele Satrowsky, Head of Investor Relations. Please go ahead. Michele Satrowsky: Thank you, operator, and good morning, everyone. I'm joined today by Brad Martin, ATN's Chief Executive Officer; and Carlos Doglioli, ATN's Chief Financial Officer. This morning, we'll be reviewing our third quarter 2025 results and our outlook for the remainder of 2025. As a reminder, we announced our 2025 third quarter results yesterday afternoon after the market closed. Investors can find the earnings release and conference call slide presentation on our Investor Relations website. Our earnings release and the presentation contain forward-looking statements concerning our current expectations, objectives and underlying assumptions regarding our future operations. These statements are subject to risks and uncertainties that could cause actual results to differ from those described. Also, in an effort to provide useful information for investors, our comments today include non-GAAP financial measures. For details on these measures and reconciliations to comparable GAAP measures and for further information regarding the factors that may affect our future operating results, please refer to our earnings release on our website, ir.atn.com or the 8-K filing provided to the SEC. Now I'll turn the call over to Brad. Brad Martin: Good morning, and thank you for joining us to discuss ATN's third quarter 2025 results. Before I dive into our performance, I want to take a moment to recognize the exceptional work of our teams across our markets. Today's results reflect their commitment to operational excellence, their dedication to building long-term value. Our third quarter results show the continued execution of our strategic plan and validate the operational improvements we've been implementing across our business segments. The 3% revenue growth and 9% increase in adjusted EBITDA year-over-year demonstrates the positive momentum we've been building and the effectiveness of our operational efficiency initiatives. During the third quarter, we grew our high-speed broadband homes path by 8% and increased our total high-speed subscriber base by 1% year-over-year. These operational metrics underscore the value creation potential of our fiber and broadband investments. Let me take a moment to review the performance of our 2 business segments in the third quarter. In our International segment, we continue to make steady progress on our key priorities: enhancing mobile networks, improving service quality and driving operational efficiency. The investments we've made in network quality and data capabilities are translating into measurable results. better customer retention and higher average revenue per user, preparing the segment for sustained profitable growth. Third quarter revenues were up 1%, with adjusted EBITDA growing 3%. The stronger EBITDA growth reflects the operational leverage we're achieving through improved efficiency initiatives. We remain focused on driving sustainable value across our international markets by deepening customer engagement optimizing operations and enhancing profitability. In our U.S. segment, we're seeing tangible benefits from our investments in carrier and enterprise solutions with new site activations from our carrier-related services efforts, and continued momentum in our fiber-fed deployments. We're particularly encouraged by gains in Alaska's enterprise revenue and consumer fixed wireless wins, demonstrating improved operational execution and stronger pipeline conversion compared with last year. Third quarter revenues in the U.S. segment increased 4.6% year-over-year with sequential improvement driven primarily by carrier services growth. Adjusted EBITDA for the quarter was up 19.6% compared with the same quarter last year, reflecting both our strategic transition from legacy revenue streams to higher growth, higher margin services and recovery from a challenging third quarter last year. We remain focused on our key priorities. Expanding fiber and fiber-fed fixed wireless across markets where we have a durable consumer presence, while growing our base of business and carrier solutions. We are aligning our network strategy and capital deployment with this long-term vision. And while the transition continues, we're building the foundation for a more resilient, higher-margin domestic business. Domestically, our broadband infrastructure expansion continues to progress as planned. With several government-funded projects advancing through key milestones during the quarter. These fiber network investments remain central to our long-term U.S. growth strategy. Enhancing our network capabilities while creating new revenue opportunities as deployments reach completion. We continue to actively monitor federal broadband policy developments and funding mechanisms, including BEAD. Which offer opportunities to further penetrate underserved areas. As always, we're maintaining our careful approach to capital deployment while positioning ATN for additional infrastructure opportunities. Across our international operations, we are tracking geopolitical developments and the conclusion of hurricane season in our Caribbean markets, with business continuity and network resilience remaining key priorities. Our network teams work collaboratively with local authorities and partners to address potential disruptions while maintaining our service standards. To support these strategic and operational initiatives, we remain focused on the strength of our cash flow from operations to support our business initiatives while preserving the financial flexibility needed to capitalize on growth opportunities. Looking ahead, we're encouraged by the steady momentum across our business segments and remain focused on executing our operational road map. The revenue growth in our domestic operations led by carrier managed services expansion, and targeted enterprise sales execution reinforces our confidence in the direction we've set. While internationally, we're seeing stabilization in mobility trends and improving operational metrics. With 3 quarters of solid execution behind us, we are refining our adjusted EBITDA outlook while reaffirming our guidance for revenue, capital expenditure and net debt ratio. We're methodically strengthening our operational foundation and improving our cost structure to position the business for sustainable growth as we move towards 2026. We remain confident in our ability to generate long-term value for our shareholders. With that, I'll turn it over to Carlos for a detailed review of our financial performance. Carlos Doglioli: Thank you, Brad, and good morning, everyone. I would also like to echo Brad's recognition of our team. Their disciplined execution has been critical in our third quarter results as well as in our stabilization efforts to better position us for the future. I'll walk you through our third quarter financial performance in more detail. Total revenues for the third quarter were $183.2 million, representing a 3% increase from $178.5 million in the prior year quarter. This growth was driven by increases across multiple revenue streams, including fixed services, career services, construction and other revenue categories, which more than offset the expected decline in mobility revenues as we continue our transition away from legacy products. Operating income improved significantly to $9.8 million in the third quarter, compared to an operating loss of $38.4 million in the same quarter last year. While this improvement was primarily driven by a $35.3 million goodwill impairment charge in Q3 2024. Our underlying operational performance improved year-over-year. Key drivers of the year-over-year improvement included a $5.1 million reduction in depreciation and amortization expenses reflecting our disciplined capital allocation strategy and the natural completion of certain asset depreciation schedules, a $3.3 million reduction in transaction-related charges compared to the prior year, and a $1.1 million improvement in cost of services to our ongoing cost reduction and containment initiatives. Net income attributable to ATN stockholders for the third quarter was $4.3 million or $0.18 per share. This compares with the prior year's net loss of $32.7 million or $2.26 per share. Adjusted EBITDA increased 9% to $49.9 million compared to $45.7 million in the prior year quarter. This improvement is the result of the company-wide efforts to improve cost management and drive margin expansion. Turning now to segment performance. Our International segment continues to deliver solid performance with Q3 revenues up 1% to approximately $95 million adjusted EBITDA growing 3% to $33.3 million. The investments we've made in network quality and data capabilities are translating into measurable results. Retention, sequential increase in postpaid customer base and higher average revenue per user. Combined with our cost management actions, these efforts are positioned in this segment for adjusted EBITDA growth. In the U.S. Telecom segment, third quarter revenues, excluding construction revenues, were $87 million, up 3.5% year-over-year. With improvement driven by carrier services and fixed business revenue growth. Adjusted EBITDA for the quarter was $21.2 million, up 19.6% compared with the same quarter last year. Our balance sheet position strengthened during the quarter. Total cash, cash equivalents and restricted cash increased to $119.6 million at September 30, 2025, up from $89.2 million on December 31, 2024. Total debt was $579.6 million, resulting in a net debt ratio of 2.47x, improving sequentially from 2.58x at the end of the second quarter. Our disciplined capital allocation continued during the quarter. Capital expenditures for the 9 months ended September 30, 2025, totaled $60.9 million, net of $67.3 million in reimbursable capital spending. Compared to $85.7 million in CapEx and $71.8 million in reimbursables in the prior year period. We also maintained our totally dividend of $0.275 per share paid in October. This dividend reflects our confidence in sustainable cash flow generation and our commitment to consistent shareholder returns. Based on our improved year-to-date performance and outlook for the fourth quarter, we are refining our adjusted EBITDA guidance for full year 2025, while reaffirming our other key financial metrics. Revenue, excluding construction revenue is expected to be in line with 2024's results of $725 million. Adjusted EBITDA is expected to be flat to slightly above 2024's result of $184 million. Capital expenditures are expected to be in the range of $90 million to $100 million net of reimbursements, down from 2024's $110.4 million. Net debt ratio is expected to remain flat with full year 2024 at approximately 2.54x with potential for slight improvement exiting 2025. Our refined guidance reflects our continued focus on cost containment and enhanced capital efficiency initiatives that we have been executing over the past several quarters. We expect some residual activity from these efforts in the fourth quarter, resulting in minor reorganization and restructuring costs anticipated to be less than $1 million. We remain confident in our execution capabilities and our path towards sustainable long-term value creation. With that financial overview, I'll turn the call back to Brad for closing comments before we open it up for questions. Brad Martin: Before we open the call for questions, I want to leave you with a clear takeaway. We are focused on disciplined execution, grounded in financial responsibility and confident in the strategic path we set. Our revenue and adjusted EBITDA improvements demonstrate that our key initiatives are gaining traction and translating into stronger performance. These results underscore our ability to execute effectively while adapting to evolving industry dynamics. Our long-term objective remains unchanged: to build a stronger, more efficient and more resilient ATN that delivers sustainable value for our shareholders. The foundation we've built through operational stability and strategic investments positions us well to achieve this goal. With that, operator, we'd like to open it up for questions. Operator: [Operator Instructions] Our first question comes from the line of Greg Burns of Sidoti. Gregory Burns: Are you being impacted in any way by the government shutdown? Is it affecting any -- awards for government subsidy programs or maybe like the rural health care market in Alaska? Are you seeing any impact from the shutdown in any of those areas? Brad Martin: Yes, really all payments. We've not seen any impact with regard to payments on programs, subsidies that we typically participate in. And we expect no impact here really through Q4. On that -- things preventing the future longer, things like permitting, we do a lot on Bureau brand management lands. Permitting things into '26 to pose some challenges. But as of right now, no. Gregory Burns: Okay. And it's not delaying the any like new awards? Or is there any other impact to maybe new business development? Brad Martin: No. So I mean, one of the primary areas we referenced in the call is BEAD and BEAD is still in the review cycle under [ NTIA ] expected results from that will be in January. So we're expecting those schedules to be held. But no, no impact does it yet. Gregory Burns: Okay. And you kind of mentioned maybe better pipeline conversion or execution in Alaska. Can you just maybe talk about some of the initiatives you put in place over the last year or so? Kind of get the close rates and the improvement in the execution in Alaska up and what you've done and what you're seeing there in terms of results from those initiatives? Brad Martin: Yes. So a couple of fronts there, Greg. And we've had a new team in Alaska. There has been new management in the last year. So with any new leadership team, they come in and really establish their ground game on the ground, and we're happy what the team is doing there. We are, we have been in the process of working with key partnerships. Keep partnerships with the LEO operators to help address more of the -- some of the rural health care opportunities that are in that market, it's a pretty large part of the telecom market in Alaska. And again, and that's some of the progress we're seeing here this year. Gregory Burns: Okay. And then just lastly, in terms of cash flow. It's obviously improving nicely this year. What are your priorities going forward -- are you okay with where the leverage is on the business? Or do you want to bring that down? Or do you have other priorities for the improved cash flow that you're seeing? Andrew S. Fienberg: Greg, this is Carlos. So look, we're happy with the way the cash flow is trending as you say, the operating cash flow is doing well. And with a more normalized level of CapEx, we expect to continue to trend leverage down. And at the same time, we are very pleased with the support that we're getting to the business with some of the grants on reimbursable programs that we have there. So we believe that things are working the way we have been expecting and we should continue to be able to push leverage down. Operator: Thank you. I am showing no further questions at this time. So I would like to turn it back to Brad Martin, Chief Executive Officer, for closing remarks. Brad Martin: Thank you, operator, and thank you all for joining us today. We appreciate your continued engagement as we execute our strategy. We look forward to sharing more progress on our fourth quarter call. Have a great day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good afternoon. My name is Tyler, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 Holdings' Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I will now hand the call over to Josh Yankovich, Investor Relations. Sir, please begin. Josh Yankovich: Thank you, operator. Good afternoon, everyone, and thank you for joining us for our third quarter 2025 conference call. With me on the call today are Matt Flake, our CEO; Jonathan Price, our CFO; and Kirk Coleman, our President, who will join us for the Q&A portion of the call. This call contains forward-looking statements that are subject to significant risks and uncertainties, including among other things, with respect to our expectations for the future operating and financial performance of Q2 Holdings and for the financial services industry. Actual results may differ materially from those contemplated by these forward-looking statements, and we can give no assurance that such expectations or any of our forward-looking statements will prove to be correct. Important factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included in our periodic reports filed with the SEC, copies of which may be found on the Investor Relations section of our website, including our quarterly report on Form 10-Q for the third quarter of 2025 and the press release distributed this afternoon and filed in our Form 8-K with the SEC regarding the financial results we will discuss today. Forward-looking statements that we make on this call are based on assumptions only as of the date discussed. Investors should not assume that these statements will remain operative at a later time, and we undertake no obligation to update any such forward-looking statements discussed in this call. Also, unless otherwise stated, all financial measures discussed on this call other than revenue will be on a non-GAAP basis. A discussion of why we use non-GAAP financial measures and a reconciliation of the non-GAAP measures to the most comparable GAAP measures is included in our press release, which is available on the Investor Relations section of our website and in our Form 8-K filed today with the SEC. We also have published additional materials related to today's results on our Investor Relations website. Let me now turn the call over to Matt. Matthew Flake: Thanks, Josh. I'll start today's call by sharing our third quarter results and highlights from across the business. I'll then hand it over to Jonathan to walk through our financial performance and guidance. In the third quarter, we delivered strong financial results with revenue and adjusted EBITDA, both above our guidance. We generated revenue of $202 million, representing 15% year-over-year growth and adjusted EBITDA of $49 million or a 24.2% margin. We also generated free cash flow of $37 million in the quarter. In addition to the strong financial performance, we had the best third quarter in company history from a booking's perspective. As we shared earlier this year, we expected our larger deals to be weighted toward the second half, and we saw that begin to take shape with 7 total Tier 1 and enterprise deals in the quarter. This concentration, combined with a solid mix of new and expansion wins, drove the record third quarter bookings activity. Several of the Tier 1 and enterprise wins were net new, showcasing continued momentum in acquiring new customers, and all 3 major product lines contributed to the quarter's performance. On the digital banking front, we saw continued success upmarket, including a net new win with a bank exceeding $80 billion in assets that will begin by using our platform for retail and small business. We also signed a major expansion with a $60 billion bank that started with commercial and will now add retail. As demonstrated by these wins, our single platform approach, unifying retail, small business and commercial continues to differentiate Q2, help us compete more broadly and creates meaningful expansion opportunities over time. During the quarter, we also had 2 instances where a Q2 Bank was acquired by a larger institution. And in both cases, the acquiring bank selected Q2's platform to serve the combined entity. This is an indicator of our competitiveness and the scalability of our technology, especially as bank M&A activity continues. Our fraud solutions continued to gain traction as well. We signed the largest fraud deal in company history during the quarter, a significant expansion with an existing $200 billion digital banking customer. This win was for our check and ACH fraud solution, which continues to see robust demand in the market. With the cost and complexity of fraud growing, customers are increasingly turning to Q2 as a strategic partner to help them manage risk more efficiently and effectively. We also had our strongest relationship pricing quarter of the year, highlighted by multiyear renewals with 2 top 10 U.S. banks. Our relationship pricing solutions continued to be an important lever for financial institutions seeking to optimize yield, profitability and growth across both loans and deposits. Beyond our strong sales performance, we also recently hosted Dev Days 2025, our second annual conference for partners, customers and employees, who build on the Q2 platform using our APIs and SDK. While our annual client conference, Connect, is our venue to showcase production-ready innovation and customer adoption proof points, Dev Days is an event where we share architecture and technology enhancements and explore the next frontier of our platform. At this year's event, AI was front and center, and we showcased several ways we intend to bring leading AI capabilities to our platform for the benefits of bankers, account holders, developers and our fintech partners. We demonstrated a range of planned AI offerings that illustrate the breadth of our strategy. The first was an AI Copilot that can help account holders and bank staff alike, enabling account holders to receive guidance and manage money through natural language prompts and customer service representatives to retrieve and summarize information. We demonstrated AI-assisted coding in our SDK, which makes all of our developer documentation available via conversational developer tools and will help customers, partners and even Q2 go from idea to execution faster. We shared a customer-facing extension of our internal AI assistant that indexes the vast archives of our internal Q2 knowledge and makes it available through an LLM, which we believe will help our customers self-serve and get faster customer support outcomes. And finally, we shared a new partner data integration strategy that is intended to enable us over time to turn our wealth of 1,000-plus back-end integrations and more than 200 fintech partners into a unified data and capabilities ecosystem that will empower agentic innovation. The key takeaway from Dev Days was our customers need to invest in innovation, which requires mission-critical partners with expertise in handling highly regulated data and managing complex integrations to enable AI adoption. We believe we are well-positioned to be that partner of choice, as we have a proven track record of innovation, can leverage our network of customers, partners and integrations to build new capabilities on our platform, strengthening it with every generation of innovation. Our platform and the ecosystem that surrounds it can facilitate AI innovation in financial services. As technology and financial services continue to evolve, we believe advancements in AI will flow through Q2, not around it. Looking ahead, we feel very good about the success we've had heading into the final quarter of the year. Our pipeline remains solid. We expect demand to remain strong as we close out 2025. And as Jonathan will share in a moment, we're raising our financial outlook, reflecting our confidence in our ability to deliver on the full-year expectations we set earlier this year. Before I hand the call over to Jonathan, I wanted to share some exciting updates to our leadership team, which we believe will better align our talent and efforts with our long-term strategy. First, Hima Mukkamala has been appointed as our Chief Operating Officer, expanding his role to include our service delivery and customer experience functions. In Hima's time overseeing our engineering team since 2023, he has demonstrated operational excellence and an extreme focus on AI enablement, both to drive internal efficiencies as well as external innovation. In conjunction, Kirk Coleman will continue to lead our go-to-market functions as Chief Business Officer, reinforcing his focus on sales and customer success, leveraging his deep industry expertise to advance our product strategy and next phase of growth. I want to thank Mike Volanoski, our Chief Revenue Officer, for his contributions during his time at Q2, and he will remain with us through December 12 to ensure a smooth transition. With that, let me pass it over to Jonathan. Jonathan Price: Thanks, Matt. Our third quarter results demonstrate continued strong execution across several key metrics, including revenue and adjusted EBITDA, both of which exceeded the high end of our previously issued guidance. These results highlight the progress we have made towards our profitable growth strategy, reinforced by the strongest third quarter of bookings in our history and sustained margin expansion. I will now discuss our financial results in more detail and conclude with our guidance for the fourth quarter and full year 2025, as well as an updated financial outlook for 2026. Total revenue for the third quarter was $201.7 million, an increase of 15% year-over-year and up 3% sequentially. Our revenue growth was primarily driven by subscription-based revenues, which grew 18% year-over-year and 4% sequentially. Subscription revenue as a percentage of total revenue continued to increase, ending the quarter at 82%, highlighting the ongoing shift in our revenue mix towards this higher-margin revenue stream. The year-over-year and sequential revenue growth was primarily driven by a combination of new customer go-lives and expansion with existing customers. Our services and other revenues increased 5% year-over-year, reflecting an improvement compared to the prior quarter's year-over-year trends. This growth was driven by an easier comp versus the prior year as we lap the impact from First Republic Bank, which we indicated on the prior call. In addition to the easier comp, we benefited from higher professional services revenues from core conversions. These increases helped offset ongoing declines in more discretionary professional service offerings, which remain under pressure. Total annualized recurring revenue or total ARR grew to $888 million, up 12% year-over-year from $796 million at the end of the third quarter of 2024, driven by strength in our subscription ARR, which grew to $745 million, up 14% year-over-year from $655 million in the prior year period. Total ARR growth was fueled by continued strength in subscription-based bookings across both new and existing customers. As expected, subscription ARR growth also benefited from a normalization in churn following a concentration of churn in the second quarter, and we continue to expect churn in the second half to be more favorable than the first with full year levels remaining in line with or better than historical averages. Our ending backlog of approximately $2.5 billion increased by $161 million sequentially or 7% and $485 million year-over-year, representing 24% growth. Year-over-year and sequential increases were primarily driven by expansion with existing customers as well as solid net new activity and was broad-based. We entered the year expecting enterprise and Tier 1 opportunities to be more heavily weighted towards the back half, and that proved out with strong third quarter performance in those segments, which represented the majority of our booking's growth for the quarter. And as we have mentioned previously, the sequential change in backlog may fluctuate quarter-to-quarter based on the number of renewal opportunities available within that quarter. Gross margin was 57.9% for the third quarter, up from 56% in the prior year period and above the 57.5% we saw in the previous quarter. The year-over-year and sequential increases in gross margin were driven by an increasing mix of higher-margin subscription-based revenues. We continue to expect gross margin to expand in Q4 with full-year 2025 gross margin expansion of at least 200 basis points. Total operating expenses for the third quarter were $76 million or 37.7% of revenue compared to $73 million or 41.5% of revenue in the prior year quarter and $75 million or 38.2% of revenue in the second quarter. The year-over-year improvement in operating expenses as a percent of revenue was driven by G&A, which benefited from lower personnel-related costs and higher revenues, which impacted all categories. Total adjusted EBITDA was a record $48.8 million, up 50% from $32.6 million in the prior year period and up 7% from $45.8 million in the previous quarter. We ended the third quarter with cash, cash equivalents and investments of $569 million, up from $532 million at the end of the previous quarter. As we indicated on the prior call, the third quarter included a material cash payment, which drove the slight sequential decline in cash flow. In the third quarter, we generated $46 million in cash flow from operations, driven by improved profitability and continued effective working capital management and delivered $37 million in free cash flow. We continue to anticipate the fourth quarter will be our strongest free cash flow quarter of the year, consistent with typical seasonality. As announced in our press release, Q2's Board of Directors authorized a share repurchase program for an amount up to $150 million. Given the significant progress we have made on improving the balance sheet and our cash flow generation, we believe we are in a strong position to exercise all components of our capital allocation strategy. These priorities include investing in the business to elongate our subscription growth trajectory, evaluating opportunities for highly synergistic inorganic growth, retiring our convertible debt and opportunistically utilizing the share repurchase program over time. Let me finish by sharing our fourth quarter and updated full year 2025 guidance. We forecast fourth quarter revenue in the range of $202.4 million to $206.4 million, and we are raising full year revenue to the range of $789 million to $793 million, representing year-over-year growth of 13% to 14% for the full year. We forecast fourth quarter adjusted EBITDA of $47.2 million to $50.2 million and are raising our full year 2025 adjusted EBITDA guidance to $182.5 million to $185.5 million, representing 23% of revenue for the full year. Looking ahead, we are also providing an updated financial outlook for 2026. We expect full-year subscription revenue growth of approximately 13.5%, which is up from the approximately 13% we previously provided, reflecting the strong bookings momentum we've seen year-to-date and the durability of our subscription model. Total non-subscription revenue is expected to decline in the mid-single digits year-over-year in 2026, driven by ongoing secular pressure in bill pay and discretionary services revenue. In addition, we expect our full year 2026 gross margins to be at least 60%, and we expect adjusted EBITDA margin expansion of approximately 250 basis points. As a result, we are increasing our 2024 to 2026 3-year annualized average adjusted EBITDA margin expansion target to 450 basis points, up from our previous expectation of 360 basis points. Finally, based on our performance to date and anticipated second half strength, we reiterate our full year free cash flow conversion outlook of at least 90% for 2026. In summary, we delivered a strong financial performance, which exceeded the high end of our previously issued guidance. This performance, coupled with our outlook for the remainder of the year, has given us the confidence to raise our full year guidance on both revenue and adjusted EBITDA for 2025 and our improved 2026 outlook. We remain dedicated to delivering growth, profitability expansion and strategic capital allocation and believe that our results to date collectively illustrate our progress and potential as we continue to evolve our business and drive shareholder value. With that, I'll turn the call back over to Matt for his closing remarks. Matthew Flake: Thanks, Jonathan. Before we open it up for questions, I'll close with a few final thoughts. In summary, Q3 was another good quarter defined by strong financial results and record third quarter bookings. The record bookings execution was driven by broad-based sales performance with 7 total Tier 1 and enterprise wins. We also shared some exciting developments in our AI journey, showcasing several solutions in development at our Dev Days event that demonstrated how we're using leading-edge AI technologies to empower our customers, their account holders and partners in the months and years to come. Looking ahead, our record 3Q bookings performance and the strength of our pipeline gives me confidence that we'll close the year strong and enter 2026 positioned for continued subscription revenue growth and an improved profitability outlook. Thank you. And with that, I'll turn it over to the operator for questions. Operator: [Operator Instructions] And your first question comes from the line of Parker Lane with Stifel. J. Lane: Congrats on the quarter. Matt, some changes on the management team that you outlined here. I guess, coming off of bookings, a record bookings quarter here for 3Q. Maybe just talk about why now is the right time to make some of these changes to the structure of that organization? And what you expect the biggest changes we'll see in the near term are under the new leadership here? Matthew Flake: Yes. Thanks, Parker. For us, it's -- yes, you guys live quarter-by-quarter. We didn't just do this overnight. We've been trying to structure the business in a way to align the technical resources where our delivery support, the people that build the product and host the product are aligned because so much of that is connected to the engineering team. And so Hima is a proven commodity for us. We've been really impressed with him. Kirk hired him as a big advocate for him. And then putting Kirk in a position to do go-to-market and the product side of things, where he has deep experience. He's been a buyer. He's been a seller. He's been on our side as well. So it's just a perfect fit at this time, and we wanted to get it done before the end of the year, so we could put our plans together for '26 and beyond. So it's -- coming off a strong quarter just happened to be what happened. But really excited about these changes, and I think they put us in a position to really accelerate our products, our go-to-market as well as our initiatives around AI. And I'm sorry, what was the other part of the question? J. Lane: I think you touched on most of it there, Matt. Maybe just to pick up on AI, you highlighted some of the new development from the Dev Days. Obviously, AI is a huge focus area for every industry. But just wondering, if you look at year-end markets, what sort of appetite there is there, and more importantly, budget there is around AI? How much of a prioritization is this in your end markets? And what are you expecting the timeline to be there for contributions and benefits to your deal cycles as a result of it? Matthew Flake: Yes. Keep in mind, we've been using AI for fraud and cross-selling and products like that for a while. Our buyers were the most conservative business people in the country, arguably in the world. And so they are leaning in and learning. We're having a lot of conversations around it. We're trying to understand the problems they want to solve from a product's perspective. And so that's how you educate yourself and build the right products. The Dev Days, obviously, there's a lot of activity there. So encouraged by their engagement with us, and we think there's a lot of opportunity there. When it folds into the revenue and the cost side of things, I'm not in a position to share that at this point, but we definitely think there's going to be a lot of opportunity there on both of those lines. Operator: Your next question comes from the line of Terry Tillman with Truist. Terrell Tillman: Matt, Jonathan, Kirk and Josh, my first question, you actually have -- you beat me to it a little bit. I was going to have a lot to ask about AI. So you had a lot in your prepared remarks, and then, Parker had a good question on it. I guess, maybe another question kind of coming at this AI kind of angle or opportunity is, you talk about a single platform approach and how folks tend to cross-pollinate across commercial, small business and retail. Do you see maybe a quickening of the pace of, hey, we really need to clean up our digital banking front end though if we really want to do this AI stuff the right way? I'm not trying to put words in your mouth, but do you see this as potentially helping kind of accelerate some of this kind of brownfield replacement opportunities for digital banking before they actually buy some of these AI tools? And then I had a follow-up. Matthew Flake: Yes. I think a couple of things to understand about what I think are differentiators in our space, in particular. Everybody has horizontal and vertical software in the trash right now. I would point out some things about our industry in particular. Number one, I think incumbency and trust are both factors that provide meaningful and durable advantages for us. We have hundreds of customers. We have thousands of long-standing integrations to complicated back-office systems that require constant care and feeding. We have 20 years of compliance frameworks around securing the data that is accumulated on our single platform, as you mentioned, for retail, small business and commercial banking workflows. I think financial institutions need, and are going to require, a trusted partner to help them adopt AI safely and responsibly when you're talking about the buyers we're dealing with. And from -- and then there's a data and distribution advantage we have. We have 27 million end users, average of 3 accounts per user with probably an average of 7 years of history. That includes posted transactions, balances, payments, behavioral data, demographic data. And we're going to continue to use that data to enhance our customers' end-user experience, back-office operations, fraud prevention, cross-selling capabilities, efficiencies for us. And then you have a vast partner network that we believe will continue to work with us to distribute their AI solutions focused more on use cases that we will work to integrate into our workflows and complement the digital banking experience. And so that, coupled with the announcement we made today around the structure of this company in a way that it'll empower us to capitalize on the strategic advantages over the coming years. For us, the customers and Q2 team are excited about this opportunity. We just have to execute on our plans, which we have a track record of doing. So there's a lot of opportunity there. We're using it internally, externally with customers and everything else, and we're seeing real progress in that area. And we don't anticipate to sit on our hands and wait for somebody to come do this. But I do believe the incumbency and the trust aspect and the data and the distribution capabilities are significant tailwinds for us in this race. Terrell Tillman: That's great to hear. And I guess, I don't know if this is for you, Matt or Jonathan. And I'm not usually wanting to start looking at numbers and asking numbers questions on the calls. But it does look like it was a pretty substantial uptick versus the prior year on like RPO. And I know the subscription ARR picked up some, and I know some of this was kind of churn timing from last quarter. Where I'm going with this is we knew second half or we thought second half would be stronger than the first half on just the seasonality of your bookings. But I usually think of 4Q as the big quarter. Is there any tilt that's different potentially this year in 3Q to 4Q bookings? Matthew Flake: No, we are cautiously optimistic about the fourth quarter. We're focused on getting deals done. We have a lot of activity. I see a lot of good indications, but I don't know anything until it's done, but we are -- the pipeline is strong. We didn't drain it in the third quarter, and we're going to -- we intend to execute on those and continue to build the pipe for '26. Jonathan Price: Terry, the only thing I'd add is, as we talked about at the beginning of the year, the mix of first half versus second half was going to -- we predicted would be slanted towards Tier 1 and enterprise in the second half. The third quarter was a great start to the second half in that regard because we did see a really strong performance in that upper tier in that Tier 1 and enterprise segment and saw from a sub's ARR bookings perspective, by far, the strongest quarter of the year as that -- as we expected. And as Matt said, no feeling like we borrowed from the fourth quarter. So I feel good about the opportunity moving forward, but we got to execute on it. Operator: Your next question comes from the line of Andrew Schmidt with KeyBanc Capital Markets. Andrew Schmidt: Guys, good to be back on the call. Great results here. Great to see the sub ARR acceleration on top of a tougher comp. I wanted to ask about just the 2026 sub's ARR growth of 13.5% you outlined. Continue to see good long-term growth trends. But I guess you have to make some assumptions when you're providing that outlook. Obviously, you have good visibility given the recurring revenue base, but there's cross-sells, there is existing user growth and things like that. Maybe you could talk through just some of the assumptions that are in there. And then also, you commented on the bank M&A environment. Historically, it's been a positive for Q2, and we seem to kind of be in the sweet spot here given the current environment. Maybe talk about whether that's layered into those assumptions or whether that could be incremental? Jonathan Price: Yes. Thanks, Andrew. So, to hit the first part of the question, when we think about sort of the 13.5% for 2026 subscription revenue growth, that's mostly informed by the bookings outcomes year-to-date and the mix of those bookings, which gives us good visibility into 2024. When you think about what we do in the fourth quarter of this year, smaller deals, cross-sell, renewal activity, that can have an impact. But the bulk of it, we have visibility into based on actual bookings that we've obtained so far year-to-date. So we feel really good about that number, have conviction. And most importantly, the performance in the third quarter gave us the confidence to lift it from what we had predicted and communicated all throughout the year at 13% up to 13.5%. So it has assumptions around ongoing performance in line with what we've done when it comes to the near time to revenue levers, like cross and renewal activity, but there's no sort of incremental impact from the net new stuff that we're experiencing -- expecting significant impact in '26. From an M&A perspective, that's a little bit different. There, we don't really build that in from the standpoint of upside for our subscription revenue base. We do have some visibility, and we certainly make assumptions around services work tied to M&A. And I think that's informed a little bit in some of the non-subscription line item guidance we gave on the '26 front. But to the extent that goes more in our favor than it has historically, that would be upside to the plan. But we've seen a pretty strong year from an M&A standpoint. I mean, Matt talked about 2 deals this year, where we won up into the acquirer tech stack and for the combined bank, which is a great sign for us. But overall, M&A activity from a services perspective has been pretty high in 2025. And so we expect that to continue in 2026, but not necessarily to see the same growth we saw year-over-year relative to 2024. Andrew Schmidt: Perfect. And then if I could -- if I just could ask about just quickly on pricing, it's been a topic of conversation with investors. And I think typically, Q2 has been premium priced just given the value that you bring to clients. But maybe to comment if you're seeing anything different in the environment since it has been a discussion that's come up, not specifically Q2, but just broader in terms of the industry. But any comments there would be helpful. Matthew Flake: No, there's nothing abnormal. I mean, a lot of people that don't have the feature functionality we have, they use price as a tool to try to win deals. And sometimes banks go for that. We have a lot of discipline around that. We will walk from a deal if it doesn't fit our economic model and hope to pick them up later. But there's no significant change on the pricing side of things from what we've seen from people. Operator: Your next question comes from the line of Matt VanVliet with Cantor Fitzgerald. Matthew VanVliet: Curious on -- given your recent success of upselling, cross-selling your existing customers, how should we think about the renewal cohort over the next 5 quarters or so? Any differences in sort of the shape or size of the cohorts coming up for renewal? And within that, is there any outsized opportunities where maybe you're already on retail to sell commercial or commercial to sell retail and things of that nature? Jonathan Price: Yes. Thanks, Matt. I'll take that. I mean, to your last point, yes, we have lots of those opportunities, and that certainly make up some of the larger, what we call internally, cross-sales significant deals that are in the pipeline. But when it comes to the makeup of the '26 renewal cohort, we did -- we talked about this earlier in the year. But when you look at the performance on renewals in '23 and 2024 combined and look at the composition of that cohort and compare it to the '25-'26 cohort, it really is very, very similar, both in terms of number of opportunities and the mix within them. So we feel really good. It's not -- and it's not as though the renewal performance so far in 2025 has borrowed from '26 or anything like that. So we feel really good for the fourth quarter of 2025 and throughout '26 that the opportunity set in front of us, both in terms of number of deals and the size and shape of them, are comparable to what we've done in recent periods. Matthew VanVliet: Great. And then, as you look at the opportunity for Innovation Studio, not needing to build every little agent or AI widget out there by leveraging partners, seems like a big opportunity. And maybe as banks are a little more willing to accept AI technology is sort of where we're going, should we think about Innovation Studio maybe even further accelerating here now that you have at least one product in virtually all your customers? And how should we think about the overall revenue contribution in '26 versus still being a couple of years away from real materiality? Matthew Flake: Kirk, why don't you take the Innovation Studio product question, and then, Jonathan can take over. Go ahead. Kirk Coleman: Yes. From an Innovation Studio perspective, really 2 important points in there. One is that if we sort of think about our existing partner ecosystem and the new partners we're bringing to the ecosystem, it continues to be really important for them to have a partner like us who has great technology, great distribution, but also kind of like this very strong technical backbone on which to build their solutions to because you can have these features and functions that these fintechs deliver. But if you don't have all the data, all the APIs, all the integrations that we do, you really can't get as far with them. So that continues to be really important. If we think about it from an AI perspective, what we're seeing is those partners are really kind of continuing to come to Q2 to co-develop and distribute their AI solutions. And that's not just our existing fintech ecosystem, but it's also what our customers are building for themselves and also new players that you might see in the market like the services companies and others that want to build kind of specialized AI agents that they can distribute into the financial services. Again, all of that is really important for our Innovation Studio because if you think about the legacy financial services infrastructure, if you don't have a partner like us, it's really hard to scale any kind of solution into that environment. So that's where we see a lot of strength currently. Jonathan Price: And what I'll add up from a revenue growth perspective, '24-'25, we've seen phenomenal revenue growth from the Innovation Studio ecosystem. And you're right, we are seeing some use cases that are pretty exciting in terms of the adopted fintech partners and the entire ecosystem all thinking about AI in terms of their own point solutions and then us getting the benefit of that as there's adoption inside the platform. So we're excited about it. We think '26 will be another great year of growth from an Innovation Studio revenue perspective. And as a reminder, like that is very high-margin revenue. We're only recognizing it on a net basis. So it's a valuable revenue stream to us, and we are building a go-to-market apparatus and investing in the go-to-market team to try and capture that growth opportunity that you're asking about, Matt. Operator: Your next question comes from the line of Ella Smith with JPMorgan. Eleanor Smith: So first, I was hoping to ask about seasonal trends. Are there any seasonal trends to note when it comes to cross-sell from existing customers? And how long does it usually take cross-sell commitments to hit your revenue line? Matthew Flake: From a seasonality perspective, yes, the fourth quarter is usually our biggest cross-sell opportunity. It's the end of the year, people trying to fill out their budgets. I was really happy with the third quarter. Some of that was from our Connect conference that built up and the excitement from seeing the products. And then the fourth quarter should be as strong as cross-sell opportunity. Jonathan Price: Yes. And from a time-to-revenue perspective, unlike net new, these can go to revenue much, much faster. It just varies depending on the product. And so some of the stuff can get live really quick, especially when you're talking about cross-selling, let's say, an Innovation Studio partner that's already in production to certain products that maybe there is a, call it, 3- to 6-month timeline on the outside, in some cases, if it's not sort of a cross-sell of the digital banking component like retail to commercial or vice versa. So if it's an ancillary product, the timelines are faster. Eleanor Smith: That's very clear. And for my follow-up, can you speak to the appetite of existing and prospective customers to reinvest in technology? Is it changing given it's a somewhat lower interest rate environment? Matthew Flake: The demand environment has been strong, and it remains strong. I think interest rates, there's still uncertainty about what they're going to do. I think from a customer perspective, whether it's a bank or a credit union, they don't want to be caught in the situation they were in, in the 2012 to 2022, which is they were doing the loans, but they didn't have the operating accounts. So they learned their lesson, and they're trying to get the best digital banking, retail, small business, commercial solutions so that they can get the operating accounts when the lending environment comes back. And so they want to have the best product, and that's why we continue to win in that space, and I think we're going to continue to. So demand is strong, and I anticipate it continuing to be strong even as rates go down, assuming they will. Operator: Your next question comes from the line of Cris Kennedy with William Blair. Cristopher Kennedy: Just wanted to follow up on the gross margin outlook for next year. Can you just talk about some of the levers that you have to get to that 60% target? Jonathan Price: Yes. For sure, Chris. So the single biggest lever that we will see driving that upside in 2026 is the completion of our cloud migration project on the digital banking side. And so we'll be completing that here at the end of '25, very early in 2026. And so as we exit the data centers, you see that depreciation roll off, the very clear cost savings coming off. And then, as you think about operating in the environment that we're in from a cloud perspective, there's just so much opportunity for learning that environment and operating with more elasticity, more understanding of how to be efficient in that new world. And so we feel really good about the guidance we've given. But there's also all the other things that go into that in terms of revenue mix, AI efficiencies, all the things we're doing across support and delivery to become more efficient that are all accruing into that gross margin line. Operator: Your next question comes from the line of Alex Sklar with Raymond James. Jessica Wang: This is Jessica on for Alex. So sort of touching on what you've been saying about the strength in your risk and fraud solutions and your cross-sell, how should we be thinking about the contribution of risk and fraud to -- as a percentage of bookings year-to-date relative to previous years? Jonathan Price: We've never discreetly given projections around risk and fraud because so much of that solution is embedded within digital banking, but we can say that the growth of that business exceeds that of most of the other product lines that we have. And so you are seeing a greater mix in 2025 than we have historically in terms of the contribution from the fraud tech solutions. And I can say, as we think about the plans for 2026, we see a demand environment that suggests that will continue. Jessica Wang: Got it. And also, thinking about -- so we've been hearing some concerns in the end market about credit risk over the last couple of months. I think earnings have been turning up better than feared. But can you provide some color on what you're seeing from the health of your customer base? And any changes in demand patterns in terms of your solutions that may be are more focused on the credit side? Matthew Flake: Kirk, why don't you take that? Kirk Coleman: Yes. On the credit -- so if you sort of look broadly, and we -- again, we pull all the call reports on all of our customers. So we watch this really closely. The banks are really well reserved right now. I think we would start to start there, and that's -- if you look back kind of like even on a 10-year basis. So what we see is, although there's been a couple of banks that have had to report some losses here recently, if you kind of look more broad-based, even in those banks, they were well reserved to be able to handle those losses that they reported. And so right now, credit quality is actually holding up pretty well. Those credit provisions look like they're in a healthy range. What we see in our PrecisionLender relationship pricing line of business, continues to be very strong in terms of the demand for that product as customers are thinking about how do I reprice relationships as the interest rate environment changes, particularly since there's still a little bit of uncertainty in terms of exactly how that's going to play out and as they're thinking about '26 and what their growth trajectories look like. So don't see any red lights on the credit front yet. Operator: Your next question comes from the line of Charles Nabhan with Stephens. Charles Nabhan: Congrats on the results. A couple of quarters ago, you gave some real good metrics around the cross-sell opportunity between retail and treasury management. And I wanted to revisit that to get a sense for how much runway or wood there is to chop within the customer base in terms of cross-selling those 2 products. Also, I wanted to touch on whether you're seeing more uptake of both commercial and retail solutions on your newer deals. Jonathan Price: Yes. Thanks, Chuck. Yes. No, that's a metric we track closely. It's a huge -- you call it TAM or SAM opportunity inside our customer base. When you think about cross-sale of significance, what we call it internally, we still have, call it, in a customer -- Tier 1 customer base, so financial institutions over $5 billion in assets. Only 10% of them have all 3 of retail digital banking, commercial digital banking and PrecisionLender or relationship pricing as we call it now. And so that is a huge cross-sell opportunity. And that dovetails well into your second point. We still see a good mix of deals that start with commercial, go to retail. We had a great one like that this quarter, and we see that all the time. But you also have some really good. We had a great net new win that went for the full platform. And so it just -- it depends, and both of those were Tier 1 institutions. So it just depends on the strategy and the timing and the budget of the financial institution. But we feel really good about that. That's why we win a lot. That's a big differentiator for us. And again, from a cross-sell perspective, that continues to be a huge opportunity given how few of our Tier 1 institutions have all those different products. Charles Nabhan: Got it. And as a follow-up, I wanted to talk about your product roadmap and get a sense for how you balance M&A, partnership and organic growth as well as what specific products or areas you might look to as a means of either enhancing your existing functionality or broadening your TAM? Matthew Flake: Yes. I mean, I think the platform, we look at it and say, on the retail side, we want to make it more personalized for users as they log in and they can have things that are relevant to what their day looks like. From a business perspective, we want to continue to -- we want to add that functionality as well. Plus we want to add deeper commercial functionality that allows people -- the banks to go help there -- to go acquire larger businesses in their region. Fraud, obviously, we're investing heavily in that. Innovation Studio gives us a lot of scale in a lot of different products. And then, also the ability for us to cross-sell and market products. And then you have AI tied to all of this, whether it's operating efficiency for the bank, agentic AI to help people understand what they need to do. So there's all of these products that we have. We have a core modernization strategy with Helix. There's a lot of different things that we're doing that are going to expand our TAM and kind of grow with our customers as they try to get into new areas and sign new customers and gather more deposits. So strategically, we are really well positioned. Kirk, if you have anything to add, feel free to add. I don't know if I broadly covered it. Kirk Coleman: No, I think you broadly covered it. I mean, again, what we see from our customers, and we've had 3 really great customer events over the last 45 days, and they reinforced this in addition to our Customer Advisory Board, but they're really looking to us to help guide them through this current stage of innovation. We brought them through digital, we brought them through mobile, we brought them through cloud. We're going to bring them now into AI. And so having that trusted partnership and really being very interactive with us in terms of the feedback that they give us and the feedback we give them in terms of what the roadmap should look like is a really powerful kind of flywheel for us. Jonathan Price: And Chuck, to the first part of your question around build versus buy versus partner, I mean, we think about that all the time. It's an equation where we want to be able to exercise all of those different levers. And obviously, we're building products, and the Innovation Studio ecosystem along with some of our long-standing partnerships pre-Innovation Studio, we have a very robust partner strategy. And then when it comes to buying, I think it's obviously a part of our long-term strategy and one we've exercised in the past. But the bar has been raised for what it would take for why we need to own an asset and how we think about valuing the asset and what the financial criteria of those businesses would need to be. So all 3 of them are relevant, and Matt and Kirk covered the areas where we would be interested, and that would be the same in the context of M&A. Operator: Your next question comes from the line of Dan Perlin with RBC Capital Markets. Daniel Perlin: I just wanted to touch base on kind of the macro, kind of the state of what's been happening here as of late in that there's a bit of a dislocation, I think, happening with one of the large core providers. They're going to go through a lot of, I would say, change over the next couple of years in terms of their core consolidation. And I know we're not specifically talking everything on your business. But I'm just wondering how much kind of the derivative fallout from that could create some really interesting RFP opportunities for you guys over the next couple of years. And just how would you frame that in that context? Matthew Flake: Yes. Historically, as I've seen core consolidation happen over the last 25-plus years, it generates opportunities for us. So when a bank is forced to -- or credit union is forced to switch off of the general ledger they're running on, it pushes them to go evaluate all their technology and what they want to do because it's such a disruptive thing for them. So I -- RFP volume, I looked at it before, is similar to what it was last year right now, but this stuff is just kind of hitting the market now. So it's something to watch. Obviously, we're paying attention to it. For us, we know all the prospects in banks and credit unions. We're calling on them all the time, marketing to them and keeping our name in front of them. So when they do decide to take a look, hopefully, we get called. That's the objective. So other vendors have different challenges. We've all had challenges at different times. And I don't -- I expect those to get fixed. And so we can't rest on our laurels and think some of that stuff is going to be a problem. And so we're going to continue to attack the market we're going after and use our product and our customer experience and our culture as a differentiator. Daniel Perlin: Yes. No, that's great. Just a quick follow-up. On the '26 guide, if I'm just looking at the numbers, and they may differ a little bit, but like it looks like the incremental margin on EBITDA somewhere in the high 40s, low 50s versus kind of in the 60s kind of where you are maybe going to land this year. Again, maybe there's a little bit of squishiness in the numbers. But net-net, it looks like it's coming down a little bit. Is that because there's like this investment opportunity cycle that you're going into, especially given the fact that you've got this migration on the gross margin side, and it does feel like there's plenty of other opportunities for leverage? So I'm just wondering what's maybe a little bit more embedded in that. Jonathan Price: Dan, let me make sure I'm getting your question right. Are you referring to Q4 EBITDA? Daniel Perlin: No, '26 guide EBITDA, 250 basis point margin expansion year-on-year. Just the incremental margin on that would suggest it's probably closer to 50 versus maybe 60 that you're going to land on in 2025. Jonathan Price: Yes. I got to make sure I'm following you. When we look at our 2024 to 2026 financial framework, one of the metrics we talked about was EBITDA margin expansion. And what we talked about there was the 3-year average, '24 to '26 would see 360 basis points of improvement on average. With 2024 in the bag, and 2025, the guide we just provided, both well over 500 basis points of expansion each of those years, the implied 2026 EBITDA margin expansion before the color we gave today was quite low. It was sub-100 basis points in terms of the implied '26 margin expansion. In providing that 250 basis points of expansion, I think what we're trying to show is we actually expect more operating leverage in 2026 than what those numbers implied. So hopefully, that helps. I just -- I didn't reconcile that to the 40 to 50 number you were talking about. Daniel Perlin: Yes. No, that -- believe me, I'm not knocking on the 250 basis points. That's a great number. I was just referring to the incremental margin associated with that embedded for '26 versus '25, but we can have that in our follow-up call. Thank you. Jonathan Price: Okay. Operator: Thank you. There are no further questions at this time. This concludes today's call. Thank you all for attending, and you may now disconnect.
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 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: 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. My name is Janice, and I'll be your conference operator today. At this time, I would like to welcome everyone to the ACI Worldwide Inc. Third Quarter 2025 Financial Results. [Operator Instructions] And I would now like to turn the conference over to John Kraft. You may begin. John Kraft: Good morning, everyone, and thank you for joining our call. On today's call, we will discuss ACI's third quarter 2025 results and our financial outlook for the remainder of the year. We will take your questions at the end of the call. The slides accompanying this webcast can be found at aciworldwide.com under the Investor Relations tab and will remain available after the call. As always, today's call is subject to safe harbor and forward-looking statements. You can find the full text of these statements in our presentation deck and earnings release, both available on our website and filed with the SEC. Joining me today are Tom Warsop, our President and CEO; and Bobby Leibrock, our CFO. Before I turn it over, I did want to share that we will be attending some investor conferences, including Citi's 14th Annual Fintech Conference in New York City on November 18, Stephens Annual Investment Conference in Nashville on November 20, and the UBS Global Technology and AI Conference in Scottsdale, December 3. With that, I'll turn the call over to Tom. Thomas Warsop: Thanks, John. Good morning, everyone, and thank you for joining our Q3 earnings call. I'm going to share some key takeaways, and then Bobby will review our financials and guidance before we take your questions. We've spent the last couple of years investing in our leading software and working hard to structurally reshape ACI for accelerating growth and financial predictability. Q3 was another strong quarter for ACI and another proof point that our efforts are working. We delivered 7% year-over-year total revenue growth with double-digit recurring revenue growth in the quarter. For the year so far, both total revenue and adjusted EBITDA are up 12%, reflecting consistent execution and operational efficiency across the business. Given this momentum, we're again raising our full year guidance, and Bobby will share more about that shortly. As I've mentioned on prior calls, our team is working hard to reduce some of the variability introduced by our historic term license software business model. While we can't completely eliminate it, our focus on getting deals closed earlier in the year, movement toward more ratable pricing structures in our Payment Software segment and consistent growth in our biller business is helping lessen the quarter-to-quarter variability. We're continuing this effort, and I expect to continue to see benefits. Looking at our segments, the Biller business continues to perform well, with Q3 revenue up 10% compared to a year ago. We're seeing particularly strong growth in the utility and government verticals. Our Payment Software segment delivered 4% growth compared to last year, and it's up 12% year-to-date with the strong start we had to 2025. We continue to see strong demand from both traditional banks and established payment processors as well as from up-and-coming fintechs. Bottom line is the winners in the marketplace are investing, and they're often choosing ACI for their software needs. I've been talking about our ACI Connetic platform for several quarters now, and I'm happy to report we signed our first new ACI Connetic customer in Q3, Solaris, a German fintech and bank. We were very selective in choosing our first customer, as I've indicated we would be, and we're committed to working closely with the Solaris team to successfully implement the technology across their system. They are an ideal partner focused on the future and on dramatically improving their business, supported by our industry-leading technology and services. Solaris CEO, Carsten Holtkemeyer, was a featured speaker at our recent Payments Unleashed event in New York, and he talked about the many challenges and opportunities in the financial services industry and specifically about how we are working together to take advantage. Looking ahead, Connetic's architecture and capabilities are resonating with customers who are looking to modernize and simplify their payments infrastructure. We have expanded our pipeline. We've deepened relationships with existing customers, and we're excited about what's ahead as we roll out this compelling new platform. In addition, we made a small but important acquisition of a European-based fintech Payment Components that provides software for financial messaging translation, orchestration and integration. Although the direct impact to our revenue will not be material, the software they provide and the great team of technologists that have now joined us will augment our AI-first initiatives and help accelerate the development road map of our ACI Connetic offering. We will continue to be opportunistic in our approach to M&A grounded in disciplined capital allocation. I also want to point out our ongoing commitment to returning capital to shareholders and point you to our other announcement today. Year-to-date, we've repurchased 3.1 million shares for $150 million. And just today, we announced the increase of our repurchase authorization to $500 million. Stablecoin has obviously been another hot topic in our industry and on our recent earnings calls. Just a few weeks ago, we announced a partnership with BitPay, which supports our ability to unlock even more potential as cryptocurrencies and stablecoins continue to grow in importance. This partnership strengthens our existing commitment to digital currency innovation by expanding our payments orchestration platforms and established capabilities for our customers. I mentioned Payments Unleashed briefly, and let me take a moment to give you a bit more insight on this great event. Payments Unleashed was ACI's premier payments summit and a celebration of our 50th anniversary. We brought together some of the brightest minds, thought leaders, innovators and visionaries to discuss the future of payments. Topics included stablecoins, real-time payments, AI, modernization strategies for banks, merchants and billers. The feedback was overwhelmingly positive, and we're proud to be at the center of these important conversations. On the topic of thought leadership, ACI has also been active in the media. Most recently, I joined Bloomberg TV's Crypto show to share our perspective on stablecoins and its role in cross-border real-time payments. A couple of weeks earlier, I discussed similar topics, including the role of Europe in the growth of stablecoins on CNBC's Squawk Box Europe. This is all part of a focused campaign to make ACI's points of view clearer and more widely shared. Expect to see me and the entire ACI leadership team much more often. Before I turn it over to Bobby, I'd also like to touch on the ongoing Board refreshment that has continued to be a priority for us. We recently appointed Todd Ford and welcome back Didier Lamouche as independent directors. Todd's many years as CFO of high-growth software technology companies in combination with Didier's successful track record of leadership in global technology companies will add value to our Board and additional support for our management team as we focus on accelerating sustainable growth, delivering industry-leading software solutions and generating shareholder value. Overall, we're pleased with our progress and optimistic about the remainder of 2025. And none of what we're doing would be possible without the hard work of our team members. I want to thank our talented team for their steadfast commitment to our customers and to all of our stakeholders. As I mentioned earlier, our strategy to sign contracts earlier in the year continues to pay off, and our pipeline remains robust. We will continue to focus on increasing shareholder value through operational excellence and technology leadership, solidifying the durability of our improving growth. With that, I'll turn it over to Bobby to walk through financials and guidance. Robert Leibrock: Thank you, Tom, and good morning, everyone. I'll start with our third quarter financial results and then cover our year-to-date performance and outlook. Q3 was another solid quarter, and we exceeded our expectations. Total revenue was $482 million, up 7% year-over-year and up 6% adjusted for foreign exchange. Recurring revenue was $298 million, up 10% and represents 62% of our total revenue. Adjusted EBITDA came in at $171 million and was up 2% year-over-year. Both of our segments contributed to this growth. The Biller business continues to perform well with revenue of $198 million, up 10% year-over-year. Segment adjusted EBITDA for Biller was $32 million, a 4% increase. In Payment Software, revenue grew 4% to $284 million, and adjusted EBITDA was $182 million, up 1%. We're pleased with our recurring revenue momentum, which was $100 million in Q3 and accelerated to 9% growth year-over-year. Looking now at the first 9 months of the year, we generated $1.3 billion in total revenue and $346 million in adjusted EBITDA, both up 12% compared to the first 9 months of last year. That growth is the same as reported and adjusted for foreign exchange, so no impact from currency fluctuation. This strong performance reflects consistent execution across the business and the strong start we had in first quarter license sales. Payment Software revenue year-to-date grew 12% and adjusted EBITDA grew 13%. This includes growth across issuing acquiring, merchant, fraud management and real-time payments. Biller revenue is also growing 12% year-to-date and adjusted EBITDA grew 4%. Our revenue momentum is driven by our continued bookings strength. Net new ARR bookings year-to-date grew 50% to $46 million, and new license and services bookings grew 8% to $189 million. And as Tom mentioned, we were pleased to welcome Solaris as our first Connetic customer. These results reflect the execution focus across our team and the growing customer demand across both segments. Turning to the balance sheet. We ended the quarter with $199 million in cash and a net debt leverage ratio of 1.3x. We continue to generate strong underlying cash flow with $201 million cash flow from operations year-to-date. That compares to $232 million last year and reflects the anticipated timing of receivables and tax payments between periods. We also repurchased approximately 400,000 shares in the third quarter, bringing our year-to-date total to 3.1 million or about 3% of our shares outstanding. As Tom mentioned, we have increased our share repurchase authorization to a total of $500 million, underscoring our commitment to returning capital to shareholders. Based on this strong year-to-date performance and a healthy fourth quarter pipeline, we are again raising our 2025 guidance. We now expect total revenue to be in the range of $1.73 billion to $1.754 billion, up from our prior range of $1.71 billion to $1.74 billion. We expect adjusted EBITDA to be in the range of $495 million to $510 million, up from our previous guidance of $490 million to $505 million. As I complete my first full quarter as ACI's CFO, I want to thank the team for their seamless collaboration and disciplined execution. Over the past few months, I've had the opportunity to engage with employees across ACI and more deeply with our Board. I've heard directly from our customers and partners and had a chance to meet many of you, both current and prospective investors. And after these first few months, I'm even more energized by the opportunity ahead for ACI. I've been impressed by the strength of our team, the quality of our technology, and the clarity of our strategy. This is a strong, well-run company, and I'm excited to be part of it. I'm also very pleased with the operational discipline and financial controls across ACI. There is a strong tone from the top, both our Board and Tom, and we have the processes and assurances to back it up. We are prudent in how we manage financial risk. For example, as you know, our Payment Software business operates across approximately 90 countries with nearly 75% of revenue generated outside the U.S. While this demonstrates our global scale and leadership, we've always managed this exposure carefully and transparently. In hyperinflationary markets, we transact almost entirely in U.S. dollars to mitigate risk and we consistently disclosed the impact of foreign exchange on our results, providing visibility into our underlying operational performance. Looking forward, we remain focused on maintaining a proactive dialogue with the investment community. Transparency remains a top priority, and we're actively exploring ways to provide even greater clarity into our business and the progress we're making. I look forward to spending more time on the road again in Q4, continuing the conversation and deepening our engagement with investors. Tom, back to you. Thomas Warsop: Thanks, Bobby. We're proud of our performance in Q3, and we're energized by the momentum that we have heading into Q4. Our strategy, execution and innovation, especially with ACI Connetic, position us well to enter 2026 on track to achieve our longer-term targets. Thank you for your continued support and for your continued interest in ACI. We're ready to take some questions. Operator: [Operator Instructions] Your first question is coming from the line of Trevor Williams from Jefferies. Trevor Williams: I wanted to start on pricing. Tom, maybe bigger picture, I'm curious how you would frame the runway for pricing as a lever within the longer-term growth algo. I know it's something you've talked about increasing monetization has been a focus over the last year plus. So I'm curious kind of where you still see the most opportunity? And then any way to put into perspective how impactful pricing has been this year relative to '24, maybe the historical growth algo? Any context around that would be helpful. Thomas Warsop: Yes, sure. Thanks, Trevor. So it's a lever that we always pull as appropriate against the value that we provide to our customers. We -- essentially, we always get a price increase when we do a renewal or when a customer needs additional volume. And I think we -- I'm sure you and I have probably talked about the way we structure the capacity purchases by customers. We try to encourage through our pricing model, we encourage customers to buy as close to exactly the number of transactions they need as possible because if they need to come back and buy more, they're more expensive. So there's a lot of levers that we pull there. I don't see that fading at all. In fact, as we add more value with new versions of software as we start to move customers on to Connetic, the value we add is higher, and we expect to get our fair share of that. So this is an important lever. It's been an important lever in '24 and '25. You specifically asked about those. It's always been an important lever. But '24, '25, it's been an important lever, will continue to be. And I think we're just excited about continuing to add new, more valuable features, functions and capabilities for our customers and then getting our share. Trevor Williams: Okay. Understood. And then on Payment Software, just as we're getting closer to '26, anything we should be mindful of in terms of the cadence of renewals, just thinking whether renewal cadence has been a tailwind to '25, if that potentially abates in '26? Any context you could give us around that would be helpful. Robert Leibrock: And Trevor, I'll jump in. This is Bobby. So one -- let me put it in the context of our backlog, and I'll give you the total number. We were healthy growth, again, double digits in our $7.1 billion 60-month backlog. And that's across both Payment Software, as you asked about, and our Biller business. As I look into 2026, as I mentioned, we feel good about continuing to be on track for our longer-term high single-digit growth model and EBITDA tracking along that revenue growth. As you think about the cadence of the renewals, as you put it, we got off to a great start here in the beginning of this year, overall growing 25% and almost 50% in Payment Software. That level is something we're continuing to be focused on to have deals spread out throughout the year. But I do expect things to be more balanced throughout the quarters next year, especially against that compare against the first quarter. So in terms of cadence of renewals next year, we feel good about achieving our longer-term growth model. But I do expect it to be the levels we have this year, more balanced from a SKU standpoint. Thomas Warsop: Yes. Trevor, just one more comment on that. I sometimes get the question, is it highly variable year-to-year, the volume of renewals? And if you just do the average math, obviously, it's -- if you have 5-year terms, you think kind of 20% per year. It's not exactly 20% per year, but it isn't that far off. So we don't -- the good news, I think, is that we don't have huge variability year-to-year. A little bit, yes, but we feel very comfortable managing that relatively small level of variability. Trevor Williams: Okay. Great. So it sounds like there's not going to be some major change in the percentage of the portfolio that's renewing next year that we need to be mindful of. You're on track for the high singles. So all that sounds good. Operator: Your next question is coming from the line of Jeff Cantwell from Seaport Research. Jeffrey Cantwell: Congrats on the signing of your first Connetic client. Would you mind just telling us high level about the progression from here? Maybe talk about the pipeline. Do you think you'll start seeing more contracts signed from here? And what is the timing on when that converts into revenue? Any thoughts on sizing or the magnitude of that revenue would be great. Thomas Warsop: Yes. So we're really excited actually about the pipeline. These are big decisions, Jeff, first of all, thanks for the question. Good to talk to you. But we've -- these are complicated decisions for financial institutions and fintechs. And as I've -- hopefully, I've been clear that we want to make sure we get the right first few customers. So we've got a strong pipeline. It's getting stronger literally every month as we look at it. So I feel great about that. Obviously, we never know the exact timing of when sales are going to happen, but they're progressing really well. So we'll continue to keep everybody informed as we add new customers. And you were asking specifically about the -- when it converts to revenue. The first couple of these are highly likely to be SaaS models where we're hosting the solution on behalf of our customer. And those -- the way that revenue model works is when the implementation is finished and transactions start to flow, that's when we'll see the revenue. So it will be a few months in the case of this first customer, several months, but we feel great about that. And I expect the first few will probably be like that. Robert Leibrock: Yes. I think -- and Jeff, if I can add to Tom's comments. The other comment I'd say is this is the first proper Connetic customer that will start getting revenue as we onboard but it's not a large discrete amount, but it is across every one of our customer conversations. We talked about Payments Unleashed and those conversations we had 2 weeks ago, it was across every one of them. And right now, we're focusing on our European and U.S. capabilities for Connetic. We'll have more of a global rollout through the medium term. But every customer in Mexico loves it. Every customer in Asia we talk to is excited about it. So I like the effect that Connetic has had to raise those conversations and encourage customers and get them to commit to the continued long-term ACI relationship they've had. Thomas Warsop: Absolutely. Jeffrey Cantwell: Okay. Great. And then you made a lot of moves during the quarter. So I want to ask you about a couple of them. Can you talk more about the payments components acquisition, why you wanted to capitalize on that opportunity, what that does for you? How should we be thinking about the revenue contribution for your results going forward? And also, can you elaborate on the BitPay announcement? Maybe just explain what that unlocks for ACI? Is that domestic, international? I'm just trying to get a sense of how that becomes part of the story and what we should expect to see from here on that one as well. Thomas Warsop: Yes. Thanks, Jeff. So I would say super high level, they're similar. The reasons that we did both the BitPay partnership and the Payment Components acquisition, they're similar in that they allow us to accelerate progress in terms of adding or enhancing capabilities in our solutions so we can go faster through the partnership and the acquisition, different capabilities, obviously. But the BitPay partnership, we already have a lot of capabilities around crypto and stablecoin. We talked a little bit about that on the last call. We have good capabilities. BitPay allows us to improve those -- the way that we serve our customers in those really important and increasingly important areas. And they -- frankly, that partnership allows us to add a few things that we didn't have. And so it's really an enhancement of the tools that we already have. We're excited about it. I think BitPay is excited about it. So that's a great one, good strategic reason to do that. So we're excited about that. On the Payment Components, we were faced with a decision as we continue to build out and enhance ACI Connetic, we needed world-class payment message translation and orchestration. And we either had to build some of the capabilities that Payment Components has or we needed to buy them. And we did tons of research, lots of due diligence. We really think highly of the Payment Components team and the capabilities and software that they already have, ready to go on the shelf was exactly what we felt we needed for ACI Connetic. So it's not -- it's a small acquisition, as I said, but really important strategically. We didn't buy it for immediate revenue growth. We bought it because the capabilities they have and the talent they have is a great add to ACI. So we do not expect to say to you next quarter, oh, Payment Components added a bunch of revenue. That's not the reason we did it. But it makes ACI Connetic more impactful and gets us where we want to go faster. That's why we did that. Operator: Your next question is coming from the line of George Sutton from Craig-Hallum. George Sutton: A highlight at Payments Unleashed for me was Scotty's Connetic presentation and demo. And it seemed clear to me that, Tom, when you originally announced this, it was really meant for an SMB type of a customer, potentially a mid-market customer. And it would appear that this is now potentially an offering that could be delivered to virtually any size. Can you just talk about that? Thomas Warsop: Yes, absolutely, George. Thanks for joining us. So you're 100% right. And when we were talking about the -- what new markets could we potentially tap or new segments could we potentially tap with ACI Connetic, if you're thinking about really new, then it really was focused on the -- it still is focused on the mid-market because they -- those customers may not have made enough investment or have enough experience and expertise to take advantage of the historical ACI offerings. So that -- from a new market perspective, that was true. We always expected that large financial institutions, large merchants would eventually be ready to take advantage of ACI Connetic and what we're building. So we always believe that what I -- maybe I should say it this way, we didn't want to get people too excited about that opportunity because that's going to take some time. These very big banks, for example, they've made so much investment in their infrastructure, and they have so many processes and ways of doing things that making a change to a new platform, no matter how good it is, is a big, big, big change. So we absolutely see what you said, which is this is super appealing to a large customer, a large potential customer. Absolutely, yes. I think the early adopters are likely to be a little bit smaller, but we are in active conversations with people -- customers along that whole continuum. I couldn't think of the right word, along that whole continuum. So we have smaller financial institutions, smaller merchants, we have midsized and we have very, very large. They're all interested in the capabilities, and we're just trying to work with them to make them comfortable and get them ready for the transition. George Sutton: Got you. And just one other question on Biller. It sounds like utilities were really a key component of the growth this quarter. Can you just talk about your win rates and what you're broadly seeing in terms of opportunities for continued growth there? There's definitely a movement we see in the market from bespoke solutions to kind of moving to an outsourced model like yours. So just curious your thoughts and that would be helpful. Thomas Warsop: Yes, sure. So I think we highlighted that utilities and government were very -- a big contributor to the growth in this quarter. That's been true through the year. But we see very good pipeline and pipeline growth across all of the verticals that we serve. So we feel good about the business. I agree with what you just said that there continues to be a real interest and a move away from -- I think you called them bespoke, good the name as any, solutions per Biller to outsource. And that's been happening for quite a long time. It continues to happen. Obviously, that's the reason that we're so excited about this business. We have a great offering, great client base. And what we're -- our new customers are all going on to our Speedpay ONE platform, which is our new -- I don't know if you saw that one, George, at Payments Unleashed, but we also had a demo of Speedpay ONE, which is our new cloud-native solution around Biller. And it's exciting. And so we're putting new customers on that platform. It gives them much faster time to market for new capabilities, better experience for the consumers, better experience for the Biller themselves. So we're really excited about that. We're happy with the performance of the segment, and we're just focused on accelerating that growth. Robert Leibrock: Yes. Maybe I'll just add one comment on Tom, too. I think I mean besides the financials that you'll see, George, right, 10% in the period and a backlog that's growing at the same level going forward. The other part I'd say, I met with a lot of those same customers you asked about at Payments Unleashed in the utility space. The reason they're coming to us and some of the top players is the complexity is increasing. And that's what a player like Speedpay can actually bring to them is to address that complexity that some of those bespoke ones can't. So that -- in terms of win rates, that's one of our bigger competitive advantages I see in that segment and one of the reasons we're winning more. Operator: Your next question is coming from the line of Alex Neumann from Stephens Inc. Alexander Neumann: Just to double-click there, there's another great quarter for Biller with double-digit growth. I was wondering if you could just provide some additional detail on the drivers of growth there, whether it's new customers, volume, price and maybe the relative contribution there? And then just the same for the Payment Software segment, which had some nice growth over which was a pretty tough comparison this quarter. Robert Leibrock: I can jump in, Alex. One, it's pretty broad-based across both. I'll start with the second part on Payment Software. As I mentioned in my opening comments, all key cylinders, all key solution areas are growing in that -- across that business on a year-to-date basis. In the third quarter, we saw a great contributing -- contribution from the issuing and acquiring space. We saw real-time and fraud in Q2, they had really blowout quarters there on a year-to-date basis, all growing. You go into the Biller side of it, it's -- I would emphasize it's new customers and retention. The price lever I view -- there was an earlier question that Tom was answering around pricing. I view that as untapped potential in our billing business actually. I view it more as success rates on getting new customers, onboarding them and expanding those into more use cases across there. Operator: [indiscernible] Q&A session. I will now turn the conference back over to the company for closing remarks. Please go ahead. Thomas Warsop: Well, thanks, everybody, for joining us. We do look forward to catching up with individually -- with you guys individually in the coming weeks at the various events that we mentioned earlier. Have a great day. Robert Leibrock: Thanks, everybody. Operator: Ladies and gentlemen, that concludes our today's call. Thank you for joining. You may now disconnect.
Operator: Greetings, and welcome to the Americold Realty Trust Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Rich Leland. Please go ahead. Rich Leland: Good morning, and thank you for joining us today for Americold Realty Trust's third quarter 2025 earnings conference call. In addition to the press release distributed this morning, we have filed a supplemental financial package with additional detail on our results. These materials are available on the Investor Relations section of our website at www.americold.com. This morning's conference call is hosted by Americold's Chief Executive Officer, Rob Chambers; and Jay Wells, our Chief Financial Officer. Management will make some prepared comments, after which we will open up the call to your questions. Before we begin, let me remind you that management's remarks today may contain forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties that may cause actual results to differ materially from those anticipated. These forward-looking statements are based on current expectations, assumptions and beliefs as well as information available to us at this time and speak only as of the date they are made. Management undertakes no obligation to update publicly any of these statements in light of new information or future events. During this call, we will also discuss certain non-GAAP financial measures, including NOI, constant currency, net debt to pro forma core EBITDA and AFFO, among others. The full definitions of these non-GAAP financial measures and reconciliations to the comparable GAAP financial measures are contained in the supplemental information package available on the company's website. Please note that all warehouse financial results are in constant currency unless otherwise noted. Now I will turn the call over to Rob for his prepared remarks. Robert Chambers: Thank you, Rich, and thank you all for joining our third quarter 2025 earnings conference call. Before diving into the third quarter results, I would like to congratulate George Chappelle on his well-earned retirement after a long and successful career. He originally stepped into the Americold CEO role coming out of the disruptions from COVID and outlined the 4 key priorities that you have heard us talk about on our previous calls, a focus on providing excellent service to our customers, improving the retention, training and productivity of our workforce, growing our service margins and building out a robust pipeline of attractive development opportunities. I had the opportunity to work side-by-side with George along the way as we made significant improvements across all of these areas. They are now part of our company DNA and remain a foundational component of our strategy. Personally, I also benefited from having George as a mentor as he helped prepare me to lead Americold into the future as part of the Board's succession plan. Over the past 2 months, I've visited several geographic regions, both domestically and internationally, connecting with our teams and reinforcing our shared values and priorities. In addition, I've spent considerable time engaging with many of our top customers and strategic partners, most of whom I've had a relationship with for many years. The strength of these relationships, combined with our global scale and presence at all key nodes in the cold chain provides us with attractive and unique future growth opportunities. While I will continue to pursue many of the strategies we have established over the past 4 years, I believe we also have the ability to lean further into the areas of the business that we think provide the best long-term opportunities, such as growing our market share in the fast-turning retail sector, expanding our quick service restaurants or QSR business to new geographies and pursuing growth in attractive and underpenetrated markets where occupancy rates are high. I also believe that my background and experience in logistics provides a unique perspective. Throughout my history with Americold, I have played a large role in shaping our commercial strategies and business rules. This includes pursuing longer-term fixed committed contracts, which function more like a traditional real estate lease versus transactional arrangements. Although there is a large and important operational component to our business, our foundation is a REIT, and we benefit from the stable cash flows that come from having a large and valuable network of strategically located mission-critical assets. As a reminder, over 80% of our assets are owned. This is a key differentiator for Americold, both from a customer perspective and in terms of long-term value creation for our shareholders. Our customers value us for the high quality and diversification of our real estate assets. Among our top 25 customers who represent approximately 50% of our warehouse revenue, 100% of them use multiple facilities across our network with an average of 17 sites each. Most of them also store product with us in multiple nodes of the supply chain. This is a somewhat unique advantage for Americold versus our competition as we are one of the few players in the industry that has a significant presence at all 4 nodes of the cold storage food supply chain, which includes production advantage facilities, 4 distribution sites, retail distribution centers and port facilities. This is often underappreciated by investors, so let me spend a moment describing each of these facility types in more detail, along with some of their advantages. First is our network of production advantaged, or production attached facilities. These warehouses are located close to where food is being harvested or produced, such as Russellville, Arkansas; Sikeston, Missouri and Wichita, Kansas. They receive product directly from our customers' manufacturing facilities, and we often provide a variety of value-add services at these locations such as tempering, boxing and blast freezing before storing the product. Because these facilities are critical to our customers' production and distribution strategies, they generally only service 1 or 2 customers, operate under long-term fixed commitment agreements and tend to have some of the highest economic occupancy rates in our network as our customers want to protect the space. These facilities also see the highest gap between physical and economic occupancy, which is expected given the value our customers get from controlling the space around their production facilities. Given the geographic locations, longer-term agreements and higher level of customer intimacy, these relationships often last for decades, making them highly immune from speculative capacity. Our automated expansion in Russellville, Arkansas, for example, was completed in 2023 and is committed to a single customer under a 20-year agreement. This site has won numerous awards since launching and was recently named Cold Storage Facility of the Year from Refrigerated & Frozen Foods Magazine. Production advantaged facilities today make up about 30% of our capacity and revenue, and we view them as very valuable assets in our portfolio and an attractive area for future expansion. The next node in the cold chain is 4 distribution centers. These facilities are almost exclusively multi-tenanted with product from various food producers and are typically located near large population centers in key distribution corridors such as Atlanta, Dallas, Eastern Pennsylvania, Southern California and Chicago. This is also where the vast majority of the speculative development has been deployed over the last few years, creating more pricing competition compared to the other supply chain nodes. We estimate that over the last 4 years, approximately 3 million pallet positions have been added in North America, most of which is in this node, representing over 15% of incremental capacity. Due to the more transactional nature of these facilities, coupled with the speculative development and pricing competition, this is where we have seen the most pressure on fixed commitment renewal levels and rates, and we expect these headwinds to continue throughout next year. About 50% of our capacity and 40% of our revenue is derived from 4 distribution centers. Despite the excess capacity in the 4 distribution node, our strong operating platform and focus on customer service does provide Americold with a competitive advantage. One great example is our recently launched Allentown expansion, which was underwritten on strong demand from existing customers and is ramping nicely since being completed last quarter. We have a similar development underway in Dallas, where we are building automated capacity attached to an existing conventional facility that is rail served. This is a unique value proposition that other speculative developments can't offer. And we are leveraging our existing customer relationships in the region, along with our track record of operational excellence to make this building a success. Next, food product often leaves these 4 distribution locations many times on an Americold brokered refrigerated truck and are sent to a retail distribution center where the retailer takes ownership of the product. Product typically enters the facility on hold pallets from the manufacturer. When a grocery store needs replenishment, our teams will pick the product at the case level and the cases are then reassembled into multi-manufacturer and multi-SKU custom pallets based on the store order. The product is then staged and loaded in a way that mirrors the truck delivery route. The vast majority of this business today is currently in-sourced by the retailer as it's operationally intensive and a missed order can result in a stock out and missed sales. This is where Americold has built a strong leadership position. We have decades-long relationships with some of the largest retailers in the world and have built a reputation for mastering this complex work, which is out of reach for most cold storage providers. Similar to production advantage locations, these facilities typically have a single tenant and operate under longer-term agreements. Given the high services content and fast-turning nature of this business, these facilities have much higher levels of NOI per pallet position than any other node. Approximately 10% of our capacity and 20% of our revenues are retail distribution centers today, and that number is growing. You may remember that earlier this year, we announced an acquisition in Houston to accommodate a new fixed committed win with one of the world's largest retailers. We're expanding our capabilities overseas. And last quarter, we highlighted 2 new retail wins in Europe with 2 of the largest supermarket operators in Portugal and the Netherlands. We also have a strong presence in Australia and New Zealand and serve several customers in the retail and QSR space. Given that most of this retail business is in-sourced today, this is a great opportunity for Americold to continue to grow despite the market pressures impacting other parts of the business. The fourth node in the cold chain is port facilities. These warehouses tend to be multi-tenanted with limited fixed commitments as product is typically only in the warehouse for a short period of time before moving to the next location. This is an area where we have also seen speculative development as ports are the next logical choice for a new market entrant after the key logistics corridors. We've seen this occur recently in markets like Jacksonville, Charleston and Savannah. Port facilities in total are about 10% of both our capacity and our revenues today, but we're actually taking a somewhat different approach to new port opportunities and looking to leverage the expertise of our strategic partnerships that new entrants to the market aren't able to access. A great example is our development in Port Saint John in Canada, done in collaboration with CPKC and DP World. Later this month, I'll be traveling to Dubai to further celebrate the grand opening of our import/export hub at the Port of Jebel Ali, which was also built in partnership with DP World. These world-class partnerships provide us with opportunities to build unique supply chain solutions, and we're expecting strong customer interest for both facilities. While each node of the supply chain is mission-critical infrastructure, I hope you can see why we place particular importance in the benefits of both the plant attached and retail distribution facilities. Despite the current headwinds facing our industry, we believe our presence in these 2 nodes differentiates Americold from our competitors and provides us with potential opportunities to further expand our leadership position as the vast majority of our competitors don't have these customer relationships, network or operational expertise to capture these opportunities. Turning to our financial results for the quarter. I'm pleased that our third quarter results were in line with our expectations, delivering AFFO per share of $0.35. Despite the ongoing industry challenges from lower consumer demand and increased supply, our teams remain focused and continues to execute very well. We are fortunate to have 2 experienced leaders overseeing our regions. Bryan Verbarendse, who succeeded me as President of the Americas, has extensive experience in retail and wholesale grocery supply chain operations, which is instrumental to gaining additional market share in the retail distribution node of the supply chain. Richard Winnall, our President of International, has done an excellent job of capturing new business opportunities, particularly in the QSR space, which Australia excels at. The Asia Pacific region has seen their total warehouse NOI increase by approximately 16% year-to-date and their economic occupancy is well over 90%. The macro environment, however, remains a challenge and recent customer commentary has reinforced this view that demand remains constrained, especially with lower-income consumers. On our last call, we detailed several headwinds that are simultaneously converging, both on the demand side as consumers continue to struggle with food inflation, elevated interest rates, tariff uncertainty and governmental benefit reductions as well as on the supply side as our industry absorbs the speculative capacity that has recently come online. We believe these factors will continue to impact pricing and occupancy throughout 2026, and we have started to see this reflected in our renewal activity over the past several months. However, I think it is important to point out that we do believe these headwinds will be largely transitory. On the excess capacity side, for example, we have already seen a slowdown in new development announcements, and we are past the peak of new deliveries. Many of these competitors do not have a sustainable long-term business model. And some of these new market entrants have already begun to exit. We are also not standing by waiting for conditions to improve. Our business development teams are out meeting with customers to identify new sales opportunities, while also expanding our aperture into potential new sectors, including both food and nonfood categories. We are also actively managing our real estate portfolio, exiting certain facilities, while also evaluating triple net lease arrangements to help strategically drive occupancy levels across our network. We remain confident in the long-term trajectory of the cold storage industry. Our value proposition and assets are unique and difficult to replicate, especially in an industry that is critical to the global food supply chain. This provides an exceptional opportunity for increased shareholder value when volumes ultimately recover. Now I'd like to turn the call over to Jay to review our financial results and outlook for the remainder of the year. Jay Wells: Thank you, Rob, and good morning. First, I'd like to discuss the results for the quarter, then our capital position as well as our outlook for the remainder of the year. As Rob mentioned, third quarter AFFO per share came in at $0.35, which was in line with our expectations. Same-store economic occupancy was 75.5%, down year-over-year, reflecting the continued demand pressure that we have seen in the market and flat sequentially to the prior quarter. Same-store throughput increased slightly sequentially from Q2, largely due to the start of the annual agricultural harvest as expected. Same-store NOI contracted from the prior quarter, primarily due to the seasonal increases in power costs, in line with our guidance, and we continue to diligently control our expenses. While the fundamentals of the business remain pressured, the team continues to execute well. Despite the competitive pricing environment, our rent and storage revenue per economic pallet increased on both the sequential and year-over-year basis, as we continue to balance both price and occupancy. In addition, our services revenue per throughput pallet also increased both sequentially and year-over-year. Customer churn remains in the low single digits, while rent and storage revenue from fixed commitments held steady at 60%, maintaining the record level that we achieved earlier this year. As a reminder, we may see some quarterly fluctuations in this metric. However, 60% remains our long-term goal based on the fact that approximately 70% of our revenue comes from our top 100 customers, and most of them see the benefits of the fixed commitment contract structure. At quarter end, net debt to pro forma core EBITDA was 6.7x with approximately $800 million of available liquidity. We remain disciplined and prudent in our capital allocation decisions, focusing on customer-driven and strategic partnership projects that are lower risk and also allow us to grow with our customers. Our development pipeline remains strong with approximately $1 billion of attractive opportunities. However, maintaining our dividend and investment-grade profile remains a top priority, and we are balancing our development pipeline accordingly. We remain committed to our 10% to 12% ROI benchmark before committing capital to any project. We are also continuing to make strong progress on our portfolio management initiative. We exited 3 facilities during the quarter with a target to exit an additional 3 in the near term and additional facilities under review. Most of these sites are leased and customer inventory is often moved into nearby owned locations. This is part of a robust process we have in place to review all low occupancy sites across our portfolio. As we look to the remainder of the year, our customers continue to communicate that they are hesitant to build inventory until they see a sustained increase in demand. This aligns with the assumptions in our current guidance framework. Therefore, we are reiterating guidance for the remainder of the year. While we believe most of the headwinds in the industry are transitory, we do expect them to create pressure on both pricing and economic occupancy in 2026. As Rob mentioned, most of the pricing pressure has been in the 4 distribution node, which is about 40% of our business and where the industry has had the most speculative developments. We anticipate that this excess capacity will be absorbed over time, and we have seen a few instances of this already, but we think it could take a couple of years for this to be fully resolved. In the interim, we anticipate that pricing gains will moderate in the fourth quarter and could be a headwind of about 100 to 200 basis points next year. From an occupancy standpoint, we believe physical occupancy has stabilized, but we do see some risks in economic occupancy and expect next year's contract renewals will likely be at lower space commitments as customers continue to manage inventory tightly in this low demand environment. As a result, we anticipate that total economic occupancy could decrease by approximately 200 to 300 basis points next year. Despite these near-term headwinds, we continue to be confident in the long-term strength of the business. Cold storage revolutionized the way that people eat, and the industry is a foundational component of the end consumers' day-to-day lives. We own a portfolio of mission-critical infrastructure that is well diversified across all nodes of the cold chain, and we believe that we are the best operator in the business. As these headwinds gradually abate, we are positioned to reap the rewards of the investments we have made over the past 2 years in labor, operational excellence, IT systems and our commercial leadership. Now I will turn the call back over to Rob for some closing remarks. Robert Chambers: Thanks, Jay. While the current environment presents no shortage of challenges, the strength of our management team and diversification of our real estate gives us a strong competitive advantage in the market. Our value proposition remains strong, and we are managing the business to set ourselves up for the long-term success, leaning into opportunities and finding new ways to grow. The presence of the previously discussed headwinds does not diminish the importance and value of our operational excellence, deep customer relationships, industry expertise and mission-critical scale and diversification. I think it is important to highlight that Americold today is trading at a significant discount to our intrinsic value, and this is supported by several different measures. From a replacement cost perspective, it would be impossible to acquire the land and replicate the 5.5 million pallet positions in our real estate portfolio for anywhere near our current $8 billion enterprise value, not to mention the incremental value of our operating system and experienced team of associates. We are also currently trading at a historically high cap rate of around 10%, which is unusual for a business like ours that owns mission-critical infrastructure backed by long-term agreements, fixed committed contracts with high credit quality tenants. And finally, we have an enterprise value to EBITDA multiple that is well below valuations for most of our publicly traded industrial and commercial real estate peers. My job, along with our management team and all of our associates around the world is to operate this business to maximize the value of these assets for the benefit of our customers and shareholders, and I believe we are taking the right actions to ultimately deliver outsized earnings growth. With that, I'll turn the call over to the operator for questions. Operator? Operator: [Operator Instructions] And our first question comes from Samir Khanal with Bank of America. Samir Khanal: I guess, Rob, when I look at the KPIs in the quarter, occupancy and pricing did improve sort of when you look at it year-over-year, but throughput got a little bit worse. I guess how should we think about kind of throughput over the next 12 months? And maybe sort of expand on kind of what you're seeing on the ground over the last couple of weeks? Robert Chambers: Sure. Thanks, Samir. So yes, from a throughput perspective, I mean, I think we still hear from our customers that the same thing that they're saying on their earnings releases, which is demand is challenged, largely because of lower and middle-income consumers that are still significantly under pressure from all of the factors that I mentioned in my prepared remarks. And so while there still should be some seasonal demand for Thanksgiving and for Christmas, it is muted. And that's largely what we had anticipated. And as we go forward into next year, we're not yet at a point where we feel like we can predict an inflection point. And so we think throughput will still be challenged as we go into next year. What we're hearing from customers on the ground is similar to what I just described. I think you've got customers that are hesitant, to be honest with you, to build inventory in the current environment until they really see a sustained increase in demand. And so as we're going through our discussions for next year, we factored all of that into some of the foundational elements that Jay talked about on the call in terms of what our expectations are for next year. Jay Wells: And if you look at sequentially, last call, I did talk that we'd see a little bit of lift sequentially in throughput, which we did. And that was really driven by the start of the harvest season and us starting to see those products come into our sites. And then next quarter, you will see we have a small lift in occupancy, about 100 bps, give or take, and that's really driven by the harvest season, too. So actually, throughput sequentially came in right around where we expected it. Samir Khanal: Got it. And then, Jay, I guess, when I look at your guidance and also all the assumptions you have there, most of the items were unchanged, but interest expense did come down. So all else being equal, I mean, we should have probably seen an increase in AFFO, but that didn't go up. So maybe provide some color around this. Jay Wells: Yes. Sure. If you also look, it's a little bit, there was a move in classification from other income over to interest expense. So you'll see that the other income went down a similar amount. So overall, net-net, it didn't benefit AFFO. Operator: And our next question comes from Greg McGinniss with Deutsche Bank (sic) [ Scotiabank ] . Greg McGinniss: This is Greg McGinniss with Scotia. I appreciate your ability to kind of project the business into the back half of the year. I'm curious on the margins that you're seeing quarter-over-quarter, some margin decline year-over-year as well. What are you doing to control the cost in the business? And what are your expectations there going forward? Robert Chambers: Sure. So on the margin side of the business, with lower occupancy and lower throughput, obviously, that's going to challenge your margins a bit and you don't get the same leverage across your fixed cost base that you like to see when volumes go the other way. But we continue to do a really good job of controlling costs. We've been able to manage and match our direct labor to our throughput in a way that I think has really helped boost handling margins. We've delivered handling margins in excess of 12% and are on track for that, which was our goal when we came into the year and continues to be outsized relative to historical margins on that side of the business. I think that we are seeing really good progress and results out of Project Orion. And so we're continuing to implement that across the regions and Europe will be a big beneficiary of that as we go into next year. And then every single year, we have productivity targets that we set for our operations team. We have 2 great leaders of the P&L, like I mentioned on the call, and Bryan Verbarendse and Richard Winnall, who are very skilled and experienced at driving productivity through the Americold operating system and our technology platform. So I think we're going to be able to continue to control costs in a way that will allow us to deliver margins that we're comfortable with. Jay Wells: And on call, I discussed, we do have a very robust process of evaluating all of our low occupancy sites. We did remove another 3 sites this quarter with more targeted. And as we continue to do that, that's also taking cost out and will help us maintain our margin levels. Greg McGinniss: Great. And I just wanted to follow-up as well on the pricing impact expected from new occupancy -- sorry, new supply delivered over the last few years. Are you -- is Americold going to need to adjust fixed commitment pricing down as those contracts expire given the supply that's hit? Robert Chambers: Well, I think you see that reflected in our prepared remarks in terms of what Jay outlined for our expectations as we go into next year. What I'd say is the team has done a remarkable job over the last few quarters. We've been in a tough demand environment now for a while, and you've seen us be able to maintain the fixed commitment levels at that goal of 60%. You've seen growth in pricing, both on the storage and the handling side over the last several quarters. But there are certainly some markets and some nodes. We called out the 4 distribution centers in particular, where there's pressure on both of those KPIs, both from a pricing standpoint and from a fixed commitment standpoint. So we've chopped a lot of wood in terms of getting through a lot of our contract renewals during this tough environment, but there is more to go. And in certain instances, we're seeing some of the fixed commitments get tightened up. We generally don't see our customers moving away from fixed commitments because they do want to protect the space. They understand the value. But in instances where their physical inventory has decreased to a point where they can bring down the fixed commitment a bit, we've seen some of that, and we've planned for that in terms of some of the building blocks that we outlined in the prepared remarks. Operator: And moving next to Michael Carroll with RBC Capital Markets. Michael Carroll: I guess, Rob, in prior quarters, you highlighted a pretty sizable sales pipeline that reflected roughly 8% of total revenues. I know your updated guidance range has assumed that this comes online in later periods kind of pushing out to 2026. I mean is that still the case? I mean, are these customers still going to bring product into your facilities? Or has that kind of pulled back and that sales pipeline kind of got smaller over the past few quarters? Robert Chambers: Thanks, Mike. The sales pipeline has been a bright spot. I'll tell you; we're going to have a very good sales year this year. It will be a record for us in terms of new business wins. It's definitely been slower to materialize than we had originally planned. And in some cases, a lot of these programs are not immune to the same challenges that the rest of the business has had. So as they come into Americold, they come in, in lower amounts than what were originally anticipated or contracted for. So it's still a highlight for us. I think new business. The team has done a great job acquiring it. But in the end, we have seen some of that offset by both reductions in the base business and just traditional customer churn. Michael Carroll: Okay. And then on the fixed commitment side, is that -- should we expect more of those contracts to be up for renewal in the beginning of the year? I mean is there kind of seasonality? Or is it kind of spread out throughout the year? Robert Chambers: That really is spread out through the year, Mike, is the contract terms tend to be based on when they're signed. So it's contract years more than it is fiscal years. So you'll see, I would say, a relatively consistent renewal cadence throughout the course of the year versus anything outsized in one quarter or another. Operator: Your next question comes from Michael Griffin with Evercore ISI. Michael Griffin: Rob, I want to go back to your comments just on the fixed commits and how you're negotiating with them, realizing that maybe you're prioritizing the stability of those cash flows that we might consider traditional REIT income types, so to say. But would you say that you'd be willing to give a bit on pricing in order to secure a longer-term commit? Or maybe walk us through the push and pull of a longer fixed commit contract versus what the pricing might be there? Robert Chambers: Yes. I mean we balance all of those things. I mean we're looking at existing profitability. We have all the tools to be able to understand what market rates are, what profitability is by activity. We have a great activity-based pricing model. And so any time you have conversations with customers about a contract renewal, there's going to be dialogue around price, around volume, around length of contract, around business across the network. So we balance all of those things to try to make sure that we're doing the right thing to maximize the value of those agreements and ultimately be able to defend our market share, while also maintaining the appropriate level of profitability. So there's not -- I think the most important thing to say is there's not a one-size-fits-all strategy there. You have to take each agreement kind of as they come and understand where the current profitability is and what levers you can push and pull to get the right outcome for both us and our customer. Michael Griffin: That's some helpful context. And then maybe, Jay, you talked about the facilities that you're taking offline. What happens there from a P&L perspective? Are you capitalizing the costs associated with those facilities now? And what would be the ultimate plan for those? Would it be reposition it, sell it? Maybe walk us through that a bit. Jay Wells: Thanks for the question. Many of these are leases, and it really is end of lease term that we evaluate them. So overall, once we remove all the pallets from the facility, those types of costs will go below the line. They are capitalized, but they're generally pretty minimal at that point in time. But it is predominantly lease facilities that are either being repurposed by the landlord, removed for residential purposes, so a variety of different uses. So it's mostly a small amount moves below the line when they become inactive assets, but that's only for a very short period of time. Robert Chambers: And obviously, the benefit from our standpoint, too, beyond reducing some of the costs and eliminating some maintenance expense is the fact that you get to move a lot of the existing customers from those leased facilities into owned infrastructure, and that provides a nice benefit. Operator: And our next question comes from Blaine Heck with Wells Fargo. Blaine Heck: Rob, you talked about spending considerable time engaging with customers and strategic partners. Can you just talk a little bit more about what you learned on the customer side, particularly how they're thinking about cost pressures on their businesses and what impact that's having on their inventory planning versus kind of the lower demand environment that has been mentioned several times as kind of the driver of that inventory management going forward? Robert Chambers: Sure. So I mean every customer is looking at ways, obviously, to find opportunities to be efficient as they look out and they say that demand may be softer for a longer period of time than what anybody had originally anticipated. I think from the discussions with most of our customers, what they are really having their internal discussions and debates about are when is the right time to build inventory. This, as an example, would be the typical time of the year that you would see significant builds in inventory to support what are seasonal spikes in demand. What is a bit of a different approach at the moment are some of our customers saying, we're going to try to manage these shorter-term or seasonal spikes in inventory with the existing product that we already have in the system. So they're hesitant to build because nobody wants to be in a position where they have excess inventory like what happened, say, 18 months to 2 years ago, where many of the food manufacturers got their workforce rebuilt and back into their production plants, overbuilt and then took a long time to bleed down that inventory because they were in an environment where the demand just wasn't there. And so the internal conversations that most of our customers are having is looking out over the course of the next few quarters and saying, what are some of the indicators they can see to show that maybe any of the increases from a demand perspective are sustainable, and it would allow them to ultimately start building. The other big question that a lot of our customers on the food manufacturing side are having is when is the right time to introduce new innovation, new products, new SKUs. Those are things that we very much look forward to because obviously, as you see more innovation, more SKUs, that drives incremental safety stock. So I think our customers are trying to have those conversations. And then lastly, I would say it would be what levels of promotional activity are really going to drive volume. So all of our customers do want to continue to invest in their product. They have over the last few quarters in a variety of ways with mixed success, to be honest with you. I think when customers have historically made the investment in their product to support promotional activities, they've probably seen better results than what they've seen over the last few quarters. And that's simply because the cost of food has gone up at such a pace that even a slight discount off of that elevated price isn't enough to stimulate demand. So those are really the 3 questions that our customers are having every day with themselves and with the retailers. Blaine Heck: Okay. That's really helpful context. Secondly, you talked about some of the newer competition in the industry that don't have a sustainable long-term business plan. I think you mentioned some of them already exiting. I guess when do you think you see those exits really accelerating? And how much of that product is likely to be the quality and potential price that you're comfortable with and maybe an acquisition opportunity? Robert Chambers: I mean it's certainly something that we believe will become opportunistic over time. We're just not there yet. So most of the new market entrants that have come in really thought about, okay, let's get some scale. And then I think they were potentially encouraged by a lot of the acquisition activity that have been happening going back a few years and thought that, that would be a great exit strategy. With that not in the cards at the moment, it puts a lot of pressure on that business model. And so when you don't have the same level of, let's say, network that Americold has or you don't have the same operating system we have or the technology stack that we have, there's not a lot of levers to win new business. Prices may be one. But if you start deeply discounting space to fill up your buildings and you can't get to a point where you're at full occupancy, the P&L looks very bad. And I think that's where we are for a lot of these new market entrants. How much and how long folks want to deal with that is certainly not our call. But we're not in a position where we're going to be bailing any of the new market operators out. And so I think we're in a position where we can sit focus on driving our business, focus on growing our relationships with customers. And over the next few quarters, as some of that maybe results in more capitulation, then we're here to listen. But at this point, we're focused on driving our business. Operator: And moving on to Michael Goldsmith with UBS. Michael Goldsmith: You talked about how it could take a couple of years for the excess capacity to be absorbed. So what are the assumptions that you're using to arrive at that conclusion? And how can you best position yourself to navigate that sort of backdrop? Robert Chambers: Sure. So we called out in our prepared remarks that we've seen what we believe is in excess of 15% of additional capacity that has been added. And this is an industry that, for a long time, had grown more with GDP and population growth. And so if you just do that math, it would be a few years for it to be absorbed. I think as we continue to gain market share, that certainly helps absorb some of the capacity. I think as I've said, with the business models or the business plans that a lot of these new market entrants had, if those business models don't work, and we really believe that a lot of them are struggling at the moment. That potentially accelerates the ability for Americold to play a role in absorbing some of that capacity. And then outside of that, I think the other thing that's important to keep in mind is Americold is not standing still in this environment. We have a lot of different ways to open the aperture in terms of how we drive new business into our portfolio, which isn't just waiting for the core kind of frozen food on the manufacturer side to grow. We're going aggressively after retail business, which is largely in-sourced. We're going aggressively after quick service restaurant business that today we play a very little role in. I think there's opportunities to look at triple net lease deals that historically we've been not as open to because we want to do both the storage and the operation. I think there are commodities outside of just food. So there's a lot of things that we're in early stages of exploring. And I think as some of those initiatives ramp up, we'll see our own capacity fill up, and we'll see the ability to potentially take some of those capacity in the. Michael Goldsmith: Appreciate that color. And my follow-up is on pricing. You're telling low occupancy facilities. Can you talk a little bit about the pricing from like low occupancy facilities is something that may be more full? Robert Chambers: Yes. I mean it really does depend on a lot of different things. It's -- our customers signing up for commitments, are they signing up for longer-term agreements? So it can be a pretty big variety across the board. I think we understand well, given our size and our scale, what market rates are in many of the different geographies. And so what we tried to articulate on the call was that when we look at it across the nodes of the supply chain, which we think is a great way to talk about this business, the ones that are under the most pressure are the 4 distribution locations. That's where most of the speculative capacity has been added. And so we are being more thoughtful about the way that we defend our market share and win new business in those geographies. And the net of that is the potential outcome that Jay outlined in his prepared remarks. Operator: And Nick Thillman with Baird has our next question. Nicholas Thillman: Rob, I appreciate all the commentary on all the different nodes, but one knock that generally is put on Americold is just the age of the portfolio relative to all the new builds and optimization of networks and kind of the effect there. I was wondering if you could break down or dig a little bit into -- you're talking about the new supply issues just broadly in the forward distribution node. But if you look at the portfolio age and you look at sort of your composition, how does that all break down? Is it pretty similar across all 4 of those? Or is it maybe a little bit more skewed one way or the other? Robert Chambers: Yes. I don't -- to be honest with you, I don't have the numbers right off the hand. So I don't want to share anything without all the facts. But I do want to say that the first point we would disagree with vehemently. We spend a tremendous amount of effort, dollars, time maintaining these facilities. Our buildings are world-class. They provide a great service to our customers, and they're mission critical. If anything, other than that was the case, you would see Americold losing market share, not gaining market share. And so because we've got the team that we have in place that maintains these facilities, we're very proud of our network. It's led to Americold being able to lead the industry from commercial excellence in terms of the most fixed commitments and the pricing type gains that we've been able to achieve over the last few years. All of that is because of the mission-critical high-quality infrastructure that we have. And so we would vehemently disagree with anyone that says that the age of our network is a knock on Americold. Nicholas Thillman: No, that's very helpful. And then I wanted to get your -- pick your brain a little bit on the comments. Jay, you mentioned sort of the hurdle rates for new developments. And as we look at your development schedule just over the last 3 years, haven't necessarily hit the stabilized yields yet even for like the 3-year vintage assets. So I want to kind of pair that with Rob's comments on driving shareholder value, thoughts about -- and the discount in the stock price. I guess where does stock share repurchases kind of rank in the deployment side of things as we look at capital allocation going forward? Robert Chambers: So let me start, and then I'll hand it off to Jay. I think when we look at our development projects, the important thing to keep in mind is that these projects largely are not immune to the macro environment that impacts the broader network. So any time we're building a facility, whether it's dedicated or multi-tenanted, if our customers' volumes are going to -- are down, that's going to impact the current returns. We still have a very high degree of conviction that our development projects will meet our stabilized returns and underwriting. It just takes a longer period of time in this environment. And we're very encouraged by the significant improvements that we've made in our development platform over the last few years in terms of the team that we've been able to bring in. And you see that reflected in the fact that just over the last 2 quarters, as an example, we've delivered multiple projects on time and on or under budget. So feel very good about the development platform when it comes to some other capital allocation decisions. Jay anything else? Jay Wells: No. I said a couple of things on my prepared remarks. Number one, we have got to provide the growth requirements for our customers for our partnerships with CPKC, with DP World. That is a must do to maintain our customer base and our great partnerships that we have. And then second, I mentioned on the call, maintaining our dividend, maintaining our investment-grade profile our top priorities also. So really, we're balancing those 2 items in development pipeline and maintaining our dividend and our investment-grade portfolio based on our current leverage. Operator: We'll go next to Mike Mueller with JPMorgan. Michael Mueller: A couple of questions. So for the first one, for the 200 to 300 basis points of economic occupancy erosion for the year that you're talking about for '26, should we think of that as being ratable throughout the year or starting off worse and ending the year better, which is obviously better for '27 or just kind of vice versa? And the second question is, I apologize if I missed this. You talked about the economic occupancy down. But for '26, is it safe to say that you're expecting year-over-year pricing to be negative as well for services and storage? Robert Chambers: Sure. On the pricing side, yes, what we called out there is we think that it could be a headwind next year of 100 to 200 basis points. We'll continue to do our general rate increases. But when we think about what it takes on the renewal side of the equation, when we take -- think about what it takes on driving new business and defending our market share, we think when we aggregate all those things, we could see it being a potential headwind for next year. So that's on the pricing side. Jay Wells: And that's across both storage and services to answer your question. And then when you look on the occupancy side, it really is going to come as Rob talked throughout the year as we redo our fixed commit. So there will be some headwind to start the year, but we also have a little wrap headwind from this year. So I would say we're not giving specifically quarterly guidance at this point on our occupancy. We feel at this point of doing our budget, very confident that the guidance I gave on the call is appropriate. But quarterly, you have a little bit of wrap because we've seen some headwinds to start this quarter and next quarter that will flow in. But hard to say exactly how to phase it throughout the year at this point. Robert Chambers: Yes. I think the point, Mike, is we don't do annual resets of these. So it's not like, hey, on January 1, all of our contracts reset. We negotiate our agreements as they kind of come online throughout the course of the year. When we sign an agreement, that tends to -- that date that we sign the agreement tends to be the annual kind of check-in point for when we -- when contracts ultimately are renewed. So it's not on a calendar basis. It's more on a contract year basis. Michael Mueller: Got it. So -- but that's 100 to 200 average. And if you're talking about the ratable contract, I guess, negotiations occurring throughout the year, it just seems that you would end the year possibly at a lower point than that 100 to 200. Is that a fair statement? Or am I kind of off on that? Robert Chambers: No, no, that's not how we're thinking about it. We're not really thinking about ending next year below those -- the points that -- or the metrics that Jay called out in the script. I think the way to think about that is that's the annual impact of it. Operator: Moving next to Todd Thomas with KeyBanc Capital Markets. Todd Thomas: I guess I just wanted to follow up first on that line of commentary around economic occupancy. I guess, as we look at expirations over the next few years, is there a potential risk of further decreases in economic occupancy beyond 2026 if demand does not improve much in the quarters ahead or if conditions do not really pick up from here? Robert Chambers: I mean we're really not at a point now where we're talking about anything beyond what we think is going to potentially happen in 2026. I mean you see the renewal schedule. So our agreements with the large customers. So again, 70% of our revenue comes from our top 100 customers. They tend to be the ones that sign longer-term agreements. Those agreements are anywhere between 3 and 7 years. So they average 4 to 5. So every year, there's going to be a tranche of contracts that come up for renewal, and they're all based on what the current market conditions are at the time. So if the environment improves, we think it becomes certainly a tailwind for us. And if the environment doesn't, it could become a headwind. Jay Wells: And keep in mind, we have been in a difficult environment for a while now. So we've already rolled through several renewals of agreements already, and we really see next year as being really the key year to get through the predominant amount of these type of agreements in the current difficult environment. Todd Thomas: Okay. And then, Rob, you spent some time talking about the current portfolio mix today. There was a lot of commentary sort of back and forth around some of the different nodes. And I was just wondering if you can expand your comments around that in terms of emphasizing capital deployment, whether you plan to sort of reshape the complexion of the portfolio. I guess, how should we think about the portfolio mix going forward? And are there any significant changes that we should anticipate to that mix? Robert Chambers: So we wanted to highlight that we put particular importance on those production advantage in the retail locations because those are areas where we feel like we've established leadership positions that are very difficult for anyone else to come in and replicate. I mean on the production advantage side, there's a tremendous amount of benefit there in terms of those agreements tend to be longer term, fixed commitments. And it takes relationships with the big key customers that have been built over decades to really get them to trust you to build or run their plant advantage or plant attached sites. So we think there's opportunity to continue to grow at that node. Retail is also an area where we're going to lean more into. It's very opportunistic from the standpoint of the fact that most of this business is in-sourced today. And there's a moat around it because you have to have a great operating platform to be able to deliver the type of service in retail that's required from that group of customers. So I think you'll see us probably lean more into those 2. Certainly, we're not very interested in adding speculative capacity in the 4 distribution locations right now, given what we've seen occur over the last few years. And then even in the port facilities, we're really going to focus our efforts if we're going to grow in that node by aligning to the strategic partnerships not just adding speculative capacity, but adding capacity that's in conjunction with our 2 strategic partners that creates a value proposition and an ecosystem that nobody else can match. Operator: And moving next to Brendan Lynch with Barclays. Brendan Lynch: Maybe just following up on that last one. Rob, in your prepared remarks, you mentioned you're considering expanding into other food and nonfood categories. Maybe you could expand upon that a bit. Robert Chambers: Sure. So again, I mean, there are certain categories that we're already in like retail and QSR that we want to lean more into. But we do hear from our customers that there's opportunities, as an example, to co-locate some of their dry product closer to where their frozen or refrigerated products are. So we're having dialogue about that to potentially absorb some capacity. There are other markets like floral, pharma, components that all need refrigerated that today, we essentially do-nothing in. Pet food is a fast and growing market that we view as opportunistic. So as we look at opening the aperture here to continue to drive occupancy, I think we have a lot of avenues that today, we're just dipping our toe into that could be very opportunistic and look forward to talking about more of that over the next few quarters. Brendan Lynch: Great. That's helpful. And then it looked like your power costs didn't really increase that much year-over-year in the same-store pool. Can you talk about any related risk that you see coming related to power cost increases going forward and what protections you have in place? Robert Chambers: Yes. I think, look, on power, I think we're doing a lot to drive power costs down in the business. We have solar programs. We do a lot of the maintenance programs that we have are focused on driving down power, the LED lighting type of initiatives that we have are all focused on ways that we can take cost out. We -- some of the continued maintenance that includes the rapid open and closed doors helps to save on power. So we've got a lot of different initiatives that drive those down. And I think the other thing that we've done a nice job of over the last few years is making sure that to the extent that we do see power increase in certain markets, that would be considered a cost change that's largely beyond our control that we would look to pass on. Operator: And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to the TerrAscend Corp. Third Quarter 2025 Financial Results. [Operator Instructions] This call is being recorded on Wednesday, November 6, 2025. I would now like to turn the conference over to Valter Pinto. Please go ahead. Valter Pinto: Thank you, operator, and good morning. Welcome to the TerrAscend Third Quarter 2025 Financial Results Conference Call. Joining us for today's call are Jason Wild, Executive Chairman; Ziad Ghanem, President and Chief Executive Officer; and Alisa Campbell, Interim Chief Financial Officer. Our remarks today include forward-looking statements, including statements with respect to the company's outlook, including the company's expected financial results for the fourth quarter of 2025 and the estimates and assumptions related thereto. The company's expectations regarding its growth prospects in new and existing markets such as Ohio and New Jersey, its M&A strategy, anticipated timing and benefits regarding the sale of the company's assets in Michigan and the expectations regarding regulatory reform and the potential benefits thereof. Each forward-looking statement discussed in today's call are subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Actual results and the timing of certain events may differ materially from the results or timing predicted or implied by such forward-looking statements, and reported results should not be considered as an indication of future performance. Additional information regarding these factors appear under the heading Risk Factors in the company's Form 10-K filed with the Securities and Exchange Commission and other filings that the company makes with the SEC from time to time, which are available at sec.gov, on SEDAR+ and the company's website at terrascend.com. The forward-looking statements in this call speak as of today's date, and the company undertakes any obligation to update or revise any of these statements. Also during the call, the company may present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in the company's earnings press release and our quarterly report on Form 10-Q for the quarter ended September 30, 2025, which you can find in the company's Investor Relations website or on the SEC and SEDAR+ websites. I'd now like to turn the call over to Mr. Jason Wild. Jason, please go ahead. Jason Wild: Good morning, everyone, and thank you for joining us. Third quarter revenue from continuing operations totaled $65.1 million, flat year-over-year and in line with the expectations we communicated on last quarter's earnings conference call, while gross margins improved 110 basis points year-over-year to 52.1% and adjusted EBITDA margin improved to 26.1% as compared to adjusted EBITDA margin of 25.9% for the same period last year. Gross margin and adjusted EBITDA margin for the quarter also increased sequentially 210 basis points and 150 basis points, respectively. We generated positive cash flow from continuing operations of $7.1 million for the third quarter after net tax payments of $5 million during the quarter and positive free cash flow of $4.9 million. This marks our 13th consecutive quarter of positive cash flow from continuing operations and ninth consecutive quarter of positive free cash flow. Consistent performance in the Northeast markets of New Jersey, Pennsylvania and Maryland were the key drivers of these results. In New Jersey, we maintained our leadership position according to BDSA. And in Pennsylvania, 4 of our 6 stores ranked among the top 10 statewide. In Maryland, our success story continues with a 14.8% increase in revenue year-over-year and gross margin in the high 50s. As we mentioned during our last earnings call, in the second quarter, we made the strategic decision to exit the Michigan market. As expected, this move has unlocked value for TerrAscend, both in terms of additional cash flow generation and enabling the team to focus on our higher-value markets. The divestiture transactions currently consist of all cash deals and all proceeds will be applied to pay down existing debt. Ziad will provide additional details. While our team has worked tirelessly on finalizing our exit from Michigan, we remain focused on our M&A pipeline. In New Jersey, we are working through the closing of our Union Chill dispensary, a well-situated dispensary with limited competition within 10-mile radius, which will bring our total dispensaries in the state to 4. Union Chill currently generates over $11 million in annualized revenue and will be immediately accretive to EBITDA and cash flow. We plan to vertically integrate Union Chill after closing, which is expected to further enhance margins, provide our full array of state-leading products and brands to local customers and enhance our leading market share position in the state. We anticipate the acquisition will be approved soon and look forward to providing more details at the appropriate time. We are evaluating additional opportunities in New Jersey and have a robust pipeline, which we continue to work through in a disciplined manner. During the quarter, we completed a $79 million non-dilutive upsizing to our senior secured syndicated term loan with Focus Growth. The majority of the proceeds were used to retire existing debt across other lenders and the remainder is designated for future growth initiatives. This financing extends the maturity of all of our senior secured debt until late 2028. It also provides us access to an additional uncommitted term loan of up to $35 million for strategic M&A. This transaction reflects Focus Growth's confidence in TerrAscend's vision and strategy, and I'd like to thank their team for their continued support. On the topic of regulatory reform, we are closely monitoring developments at both state and federal levels. There is real potential for reform under the Trump administration. As we have mentioned many times, we have operated and will continue to operate our business independent of federal reform. In PA, we continue to have conversations with lawmakers to gather support for the passage of an adult-use bill. When adult-use implementation happens, we will be prepared to meet the increase in demand by bringing additional capacity online at our 150,000 square foot facility. Our PA canopy space is larger than the canopy at all of our other facilities combined. In summary, TerrAscend has a unique pathway to growth organically and through M&A due to our deep presence in our existing markets and a wide open map for further expansion. Not only have we demonstrated consistent delivery of positive operating and free cash flow for many consecutive quarters, but our steady improvement in operational efficiency has yielded us margins amongst the leaders in the industry regardless of size. Considering the improved performance of our existing business, strength in the balance sheet, having no sale leasebacks, over $36 million in cash, the potential for Pennsylvania to convert to adult use and multiple attractive acquisition opportunities, we believe that our equity is significantly undervalued. With that, I'll now turn the call over to Ziad to provide an update across our key markets. Ziad? Ziad Ghanem: Thank you, Jason. Let me walk everyone through our performance in each of our key markets this quarter, beginning with New Jersey. In the third quarter of 2025, we maintained a leadership position in the state according to BDSA. Both retail and wholesale revenue were stable quarter-over-quarter. We are proud that all 3 of our stores in New Jersey rank in the top 15 stores in the state with our store in Phillipsburg being #1 out of nearly 250 licensed dispensaries according to LIT Alerts. Our Kind Tree and Legend brands have consistently remained in the top 10 across the state even as the number of brands in the market have doubled to more than 200 in the past year. With the launch of our new pre-rolled assortment, we grew category sales by 32% and improved our share and rank quarter-over-quarter. Kind Tree Cherry Slushee is our best seller and a statewide favorite, ranking #8 out of over 3,000 flower products sold in Q3 according to BDSA. The performance in New Jersey is driven by the quality and consumer appeal of our brands. In the state, our penetration rate and average order size remains stable, and we continue to sell into an increasing number of stores across the state. As Jason mentioned, in early May, we signed a definitive agreement to buy Union Chill in New Jersey, an $11 million revenue run rate dispensary, which upon closing will bring our total number of dispensaries in the state to 4. Long term, we intend to acquire up to an additional 6 dispensaries in New Jersey, extending our retail footprint to the maximum of 10 in the state. Turning to Maryland. We entered this market in 2021 through the acquisition of a small cultivation facility with negligible revenue and then acquired 4 dispensaries during the first half of 2023. Maryland generated another record revenue quarter in Q3, outperforming the market's 2% decline in sales in the state according to BDSA. During the third quarter, retail revenue decreased slightly quarter-over-quarter, while wholesale revenue increased slightly. Our verticality and increased efficiencies have allowed us to maintain our gross profit margin in the mid- to high 50s since the fourth quarter of 2024, with this quarter improving to nearly 58%. The expansion of our Hagerstown facility drove immediate gains in flower sales and share, and our Kind Tree pre-roll sales have doubled since Q1. We delivered positive growth in vapes and extracts and gained share with our Valhalla edibles brand for four consecutive quarters. Our Cumberland and Salisbury stores are top 5 dispensaries in the state according to LIT Alerts. This is yet another reflection of our operational excellence, the quality of our products, customer service and retail experience. Today, we are on an approximate $75 million revenue run rate in the state. In Pennsylvania, during the quarter, 4 of our 6 Apothecarium stores rank in the top 10 across the state. TerrAscend's market share is around 5% of total Pennsylvania cannabis revenue, even though our stores make up only 3% of the total state store count. Said differently, we are capturing more market share per store compared to our competitors. Our vape sales grew 11% quarter-over-quarter and our Ilera branded tinctures consistently rank among the top 10 products in the category according to BDSA. Last week, I spent a day in Pennsylvania with Mike Tyson, meeting with Governor Shapiro, Senators and House Representatives from both parties, answering questions and gathering more support for the passage of an adult-use bill. I remain optimistic that the bipartisan bill will be passed. We have a fully built out large-scale cultivation and manufacturing facility in Pennsylvania with no need for additional investment. In Q4, we are bringing additional capacity online in preparation for the prospects of an adult-use launch. Turning to Ohio. We entered the state during the second quarter, becoming the fifth U.S. state we operate in. The third quarter represented the first full quarter of revenue contribution from Ratio Cannabis, a well-situated and profitable dispensary, which is now fully integrated into our existing operations. Our goal in Ohio is unchanged, to assemble a leading retail footprint by acquiring high-quality stores at the right price, just as we did in Maryland. This will allow us to leverage our existing infrastructure and SG&A to drive higher profitability. Regarding Michigan, as Jason mentioned, we are actively engaged in selling our Michigan assets, and it's going according to plan. I'm proud of the team's effort in working through the exit and exercising diligence and strength as we negotiated transactions for our assets. The majority of our assets are already under contract and awaiting regulatory approval, and we continue to expect the exit to be substantially complete by the end of 2025. In closing, TerrAscend continues to show strong numbers across the board. Our business remains solid due to strong business fundamentals, a targeted M&A strategy, no material debt maturing for the next several years, consistent positive operating and free cash flow quarter-over-quarter, best-in-class sponsorship and a strong leadership team. Given all this, I am more confident in our future than I have ever been. With that, let me turn the call over to Alisa to provide more detail on our financial results for the third quarter of 2025. Alisa? Alisa Campbell: Thanks, Ziad. Good morning, everyone. Thank you for joining. I'll take you through our financial results for the third quarter of 2025. The results that I'll be going over today have already been filed on both SEDAR+ and with the SEC, and all results that I will reference today are stated in U.S. dollars. Given our announcement in Q2 of our decision to exit the Michigan market, all financials discussed today reflect results from continuing operations unless otherwise noted. Net revenue for the third quarter of 2025 was $65.1 million compared to $65.2 million for the third quarter of 2024, which was in line with the expectations communicated on last quarter's earnings conference call. Retail revenue increased 3.4% year-over-year. The increase in retail revenue was driven by organic growth in Maryland and a full quarter of sales from the recent Ratio acquisition in Ohio, which was offset by price compression in the New Jersey market. Wholesale revenue declined 6.7% year-over-year, which was driven by organic growth in Maryland and offset by a decline in New Jersey, while Pennsylvania remains steady. It is worth noting that New Jersey wholesale revenue increased sequentially. Gross profit margin for the third quarter of 2025 improved to 52.1% as compared to 51% for the third quarter of 2024, driven by continued strong performance in New Jersey, Maryland and Pennsylvania. G&A expenses for the third quarter of 2025 were $21.3 million and 32.8% of revenue compared to $24.7 million and 37.9% of revenue in the third quarter of 2024. GAAP net loss from continuing operations for the third quarter of 2025 was $9.9 million compared to a net loss of $15.8 million in the third quarter of 2024. Adjusted EBITDA from continuing operations was $17 million for the third quarter of 2025 or 26.1% of revenue compared to adjusted EBITDA from continuing operations for the third quarter of 2024 of $16.9 million or 25.9% of revenue. Turning to the balance sheet and cash flow. Cash and cash equivalents were $36.6 million as of September 30, 2025. Net cash provided by continuing operations in the third quarter of 2025 was $7.1 million after net tax payments of $5 million during the quarter. This represents the company's 13th consecutive quarter of positive cash flow from continuing operations. CapEx spending was $2.2 million in the third quarter, mainly related to expansions in the Maryland and New Jersey facilities. Free cash flow was $4.9 million in the third quarter of 2025, representing the ninth consecutive quarter of positive free cash flow. During the quarter, the company closed on an upsized senior secured syndicated term loan of $79 million, the majority of which was used to retire existing indebtedness with the remainder designated for future growth initiatives. As part of this transaction, the company executed an additional uncommitted term loan facility in the aggregate principal amount of up to $35 million for future M&A. As Jason mentioned, as the Michigan deals begin to close this year, the proceeds will be used to pay down existing debt, reducing our interest expense in 2026 and beyond. During Q3, the Board of Directors authorized the company to renew and replenish its normal course issuer bid to repurchase up to USD 10 million of the company's common shares from time to time over a 12-month period. Looking ahead to Q4, we expect revenue and gross margins to be similar to the results we reported in Q2 and Q3. In closing, our third quarter results marked another period of solid revenue and gross profit margin performance with adjusted EBITDA margins among the best in the industry for our size. In addition, we have now delivered our 13th consecutive quarter of positive cash flow from continuing operations, and our ninth consecutive quarter of positive free cash flow. We look forward to sharing our continued progress on the business during the next quarterly call. This concludes our prepared remarks. I'd now like to turn it over to the operator for questions. Operator: [Operator Instructions] Your first question comes from Frederico Gomes with ATB. Frederico Yokota Gomes: First question on Maryland. You said you're outperforming the market, but you also saw a 2% decline in sales in the state overall. I'm just curious what's driving that decline in sales in the state? Is it price or volume? If you could comment on that? And then secondly, what's the growth outlook here that you see for your business, specifically in Maryland, just given that decline in state sales? Ziad Ghanem: Fred, just to be clear, and we apologize if the script was not ready. The 2% decline was the state decline, not TerrAscend. We continue to be on a $75 million run rate in Q3, similar to what we had in Q2. Our wholesale business after we expanded our cultivations continue to grow in the state. Looking into Maryland, we are starting to see some retail stores opening, but we haven't seen any impact on our business yet. The cycle where the state is being 2 years behind New Jersey, we expect it at some point to be similar dynamic where our wholesale growth makes up for any pressure in Maryland. But we are looking in 2026 to expand cultivation further because of the reception of our brands, the new product performance and the order size and the new penetrations we're seeing from a wholesale perspective. Fred, does that answer your question? Frederico Yokota Gomes: Yes. Yes, I appreciate that. And then I guess the second question, just on New Jersey. I guess, can you just talk about the -- maybe the delay in terms of closing that transaction there? And then secondly, how is the M&A environment looking there for your target of additional 6 dispensaries? Are valuations coming down or are pretty much in the same place that they were before when you talked about it? Ziad Ghanem: Yes. Starting with Union Chill, we're not happy with the delay. There's still full alignment between the seller and the buyer. It's driven by the regulatory body. We've been active with answering questions. We do believe, as we mentioned on our script, that we will be on the next agenda, and we expect to get approval and closing this year on Union Chill. As far as the pipeline, the pipeline is still robust. The dynamic is still very similar. The valuation is still very attractive, and the deals are accretive, and we are negotiating same format that we have negotiated with Union Chill. But then to expand more on M&A, for us, going deeper in New Jersey continue to be in the core of our strategy, but also expanding in new states and going deeper in other states is -- will be a major play for us in 2026. There are a few assets that perform very well independently for some of the companies who have faced balance sheet troubles. Those assets need homes, and we are prepared to house some of those assets, and we are excited about some of those. So we expand -- we expect, in 2026, a major part of our growth in addition to some of the organic growth to come from some of those transformative deals. And we can't wait to share more news on that. Operator: Your next question comes from Kenric Tyghe, Canaccord Genuity. Kenric Tyghe: So very encouraging comments around Pennsylvania. It certainly sounds like a warmer discussion. What do you believe is driving the change in tone? I mean, I realize it's a stretch with Virginia expected to start legalized adult-use sales next year, but Pennsylvania really is increasingly looking like something of an outlier. Can you provide any more insight around the discussions or the change in tonality around those discussions? Ziad Ghanem: Yes, Kenric, first, welcome back. Good to have you back and look forward to our discussions. Pennsylvania is a very important state to us. Before I talk about the regulatory environment, I want to remind what we said on our prepared remarks, our cultivation facility in Pennsylvania is fully prepared. We have expanded it fully. And with a plane switch -- flip of a switch, we can expand and increase that capacity by up to 100%. In Q4, in this quarter, we plan to turn some of that facility on and bring in more inventory. And we're in a position that allows us to do this. I'm super proud of the team of the inventory level that we have. We're at an all-time best inventory level with all of it being healthy inventory. My optimistic -- or being optimistic about Pennsylvania did not only come from last week being with the champ in Pennsylvania, talking to the Governor, Senators, Representatives from both sides of the aisle, but from multiple visits that myself and many of our peers have done in Pennsylvania. And we've heard from many decisions makers that there's not a cannabis challenge in Pennsylvania, there's a political challenge. And the political challenge continue to play to our favor because the budget has not passed yet, and it's almost at a record delay. So connecting all the dots from all those meetings, I believe that it's not if, it's just when. And the biggest takeaway that I saw last week and made me feel that optimistic is if the President reschedule cannabis at a federal level, then that would be the catalyst that will flip Pennsylvania almost immediately, in my opinion. And that confidence is along some of the M&A comments that I've done is what's given me the confidence to expand our capacity in Pennsylvania with sensitivity analysis that if one event happened or more than one event happened, what would we do? And I feel pretty good about our plan. Kenric Tyghe: Great color. And just on that rescheduling since you mentioned it. Asking the M&A question another way, to what extent in quarter did all the rescheduling chatter perhaps cloud or color the timelines on Michigan divestitures or your target acquisitions in each, New Jersey and Ohio? Jason Wild: Yes, I would say the rescheduling conversations have not had any impact on our divestiture conversations in Michigan or any other M&A conversations. I think everybody over the last several years has learned to sort of run their M&A and operate their business regardless of what we're seeing from the rescheduling perspective just because it hasn't happened, and it's been delayed for a lot longer than people have expected. Operator: [Operator Instructions] Your next question comes from Andrew Semple, Ventum. Andrew Semple: Congrats on the results here. First off, I just want to maybe call out that a few other of the larger MSOs appear to be getting more constructive on M&A. I know TerrAscend has been fairly early on this and certainly engaged in -- or prospectively engaged in a number of conversations. Are you starting to see some increased competition on M&A deals? And has there been any change in prospective valuation multiples as a result? Just want to get a sense if that's getting more competitive out there. Ziad Ghanem: Andrew, thank you for your comments. But from an M&A perspective, for an optimal discussion and negotiation of M&A, a few factors needs to exist. You have to have the advantage of having an open map and having the ability to go in the state, whether it's deeper or new state. You have the ability -- you have to have the ability to have the balance sheet and the support from your lender for accessibility, and we have that and then have the ability to integrate and move quickly, but also stay disciplined. We are doing all this, and we have the advantage of doing all this. In some places, we do see some competition. In other places, we see less competition. But we don't make our decision based on competition at all. We make our decision based on the value we bring to our shareholders, and the deal has to be accretive. And the third filter we have that we cannot afford to inherit any buddy's problem or balance sheet cancer or anything that we've worked so hard as a company to get where we are. Jason Wild: Yes. Andrew, the only thing I'd add is, the competitive tension has not increased over the last few months. We're not seeing any more on the deals that we're relatively far down the road on, or do we think that we might be able to get over the finish line. We have not been dealing with a high level of competitive tension with other bidders that are sort of bidding us up. I mean if that does happen, then we just walk away, but it really has not -- we haven't encountered that. Andrew Semple: Great. That's helpful. And then maybe turning to cost controls. Well done on that this quarter. I guess, excluding share-based comp, your kind of cash operating expenses have been continuing to decline as a percentage of sales. And it's been that way for a number of quarters. I'm just wondering how much further that could go and whether you see room for continued operating leverage opportunities within the business. Ziad Ghanem: Yes. Andrew, I'm so proud of the team for the discipline to get us where we got on our cash-based expense. We've done a robust exercise starting from a zero-based budget, looking at every line, asking, is that a nice to have, must-have. And the team has done a lot and put a lot of their plate and continues to perform and do well, and I couldn't thank them enough. The way I look at cash-based expense, we are where we need to be, $20 million on a $65 million revenue with the absence of leverage for our scale is a place I'm happy. Will we be able to save more? Yes, but it wouldn't be hitting the bottom line. It would be more safe to invest. One area that I am focused on is the wholesale business, is investing in platforms, investing in infrastructure, investing in analytical platform that supplement and complement our ERP. So it would be a little saving to reinvest it, but I would say this is where our cash-based expense would be. Now as we bring in more revenue from an M&A perspective, we are prepared to add disproportional expenses. So think about labor model and leases being around 12% to 15% on every $10 million that we bring in. So that will continue to push that efficiency in OpEx below that 30%, but being around 30% is a target that we declared, and I committed and promised to the Board, and we delivered on. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call over to Jason Wild. Please continue. Jason Wild: Thank you so much for joining us today. I'm really proud of this team and what we've accomplished this quarter and what we've accomplished actually over the last several quarters. We will see you on the next quarterly conference call in March. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Delphine Deshayes: Good morning, everyone. It's my pleasure to welcome you to ENGIE's 9 months conference call. Shortly, Catherine and Pierre-Francois will present our 9 months performance, following which we will open the lines to Q&A. [Operator Instructions] And with that, over to Catherine. Catherine MacGregor: Thank you very much, Delphine. Good morning, everyone. Welcome to the presentation for our 9 months 2025 results when we can report a resilient set of numbers in what we could perhaps say is the new norm of a choppy economic, political and geopolitical environment. We have continued to grow in renewables and flexible power, and we've done it as always, by executing with efficiency. We are dynamizing our performance, and we are further simplifying our asset portfolio. With our ideal combination of green and flexible energy plus expertise in energy management, we are putting ourselves in pole position to meet the challenges and opportunities of booming data center demand and in general electrification. In Nuclear, we embark on a new chapter with the restart of both reactors in our new joint venture with the Belgian government, triggering the transfer of the remaining waste liability off our balance sheet, a big step for ENGIE delivered at last. Finally, on the basis of our 9 months results and final quarter outlook, we are on track to achieve the upper end of our net recurring income group share guidance range of EUR 4.4 billion to EUR 5 billion. Before moving on, I want to take a moment to remind ourselves what we are at ENGIE. We are, first and foremost, a utility, which means that we are here to bring people something useful, something that they really need. And as a utility, we are focused on the energy transition, which means affordable, greener energy in a new environment of rising demand fueled by electrification and data center. Green Power is often quickest to market, the more so given procurement bottlenecks for new gas plants. Component costs have fallen drastically. But that alone doesn't automatically imply that greener output is cheaper than what we have today as there are negative prices, there is curtailment, which are undoubtedly a challenge, which shows that the system needs further optimization. And how are we doing this? We are moving faster to combining green output with batteries, pump storage and flexible gas. And also being pragmatic about what can be electrified, gas will remain an indispensable part of the energy system and gas in turn will need to be decarbonized. As a utility focused on the energy transition, we have an ideal combination of assets and market know-how that is making greener energy more affordable and more attractive, which is why I am more excited than ever about the ambition we have at ENGIE to become the best energy transition utility. Moving on to this next slide, some headline numbers. EBIT excluding nuclear was down 7.3% on an organic basis at EUR 6.3 billion, with a rising contribution from networks and recording a high basis of comparison in terms of energy pricing in SEM and hydro volumes in our Renewables and Flex Power GBU. Our performance actions achieved a tripling of boost to the EBIT over the first 9 months of 2025 versus last year to an unprecedented amount of EUR 477 million. You remember that we are targeting EUR 1 billion minimum of performance improvement over the '25 to '27 period, which represents an increase versus the previous years. In particular, a Culture & Competitiveness plan, also known as a C2 plan, is taking on a real momentum. The initial top-down approach is now complemented by a bottom-up approach, meaning that every manager is responsible for developing and implementing the most relevant action plan covering the key areas we have identified, bringing efficiencies in procurement, improving span and layer, reducing general and administrative expenses to name a few. I am really pleased to see the level of ownership from our management team on this topic and the promising results. Moving on. Cash flow from operations stand at a strong level of EUR 11.4 billion. The structure of our balance sheet remains solid with economic net debt equating to 3.2x of EBITDA at the end of September, well below the ceiling of 4x. In conclusion, we approach the final part of 2025 with confidence, and I can confirm our guidance for the full year with net recurring income group share at the upper end of the range. Turning to this next slide. We added over 2 gigawatts of renewables and BESS in Q3 alone, making 4 gigawatts for the first 9 months. Two major projects to mention, the Dieppe Le Tréport offshore wind farm, which in September installed its first turbine foundation. Also the signing of the 1.5 gigawatt solar project in Abu Dhabi a few weeks ago, our largest renewables project that demonstrates our global reach and ability to compete successfully for the biggest ticket project within our investment criteria. In terms of green PPAs, we saw a big acceleration in Q3 with 3.1 gigawatts signed to date. In the U.S., we are moving forward with 1.7 gigawatts under construction, supported by demand for PPAs where buyers are anticipating scarcity and are looking to secure their supply. An example of that is our recently announced PPA with Meta covering the entire output of our 600-megawatt Swenson project in Texas, which is due on stream in 2027. Some uncertainty in that market remains still with, for example, the risk of delays in permitting from the impact of the U.S. government shutdown. As with renewables, I want to stress a similar breadth of geographical presence and optionality in ENGIE's flexible power assets. This slide shows that we are expanding our portfolio in several European countries where we enjoy an integrated business presence. We've been actively contributing to Belgium security and flexibility of supply. Our 875-megawatt Flémalle CCGT is now operational. It achieved full power at the end of October and is currently undergoing final test to fine-tune processes. And at the start of October, we connected the first phase of our 200-megawatt BESS at Vilvoorde ahead of schedule. And early next year, we'll be starting construction of an 80-megawatt BESS at Drogenbos. In Italy, we acquired 2 BESS projects of 200 megawatts combined in the Puglia region in July, enhancing our 4.2 gigawatts of generation portfolio and our supply business in that country. In Romania, where we have 240 megawatts of wind and solar as well as a regulated gas distribution business, we are launching the Sibiu BESS project with 80-megawatt capacity due on stream late 2026. Moving on to this next slide, I want to share with you quickly how we are leveraging our key strengths in order to capture the opportunities presented by the data center boom, a boom that leads me to state with conviction that in the U.S., particularly, even those who don't believe in the energy transition believe in energy additions. What are these key strengths and how do they fit the needs of data center developers? First, we have a massive portfolio of over 1,000 generation and flexibility sites while data centers need land as well as grid access. So we can help. We aim to co-locate a substantial data center capacity with our production plan. Second, we will leverage our pipeline of over 100 gigawatts of renewables and BESS as well as our recognized capability to provide anything from basic as-produced PPA to sophisticated 24/7 as-consumed products. How? By stepping up the pace of new tech and data center PPAs and providing the quick-to-market additional energy that tech so badly needs. Worth mentioning here that ENGIE has so far signed a cumulative volume of over 505 gigawatts -- sorry, 5 gigawatts of renewable PPAs with tech and hyperscalers. And third, we have best-in-class B2B supply and energy management while data center developers want to maximize their energy competitiveness. So here, we can help as well. Finally, it's a pivotal year for our business in Belgium, one of our 2 home markets. I already mentioned the opening of our flexible Flémalle gas-fired power plant plus 2 further BESS projects to add to the Kallo project, which is already underway, bringing us to 380 megawatts of storage capacity. Since then, we won significant volumes in the recent Belgian CRM auctions with around 2 gigawatts in each of these 3 auctions, thereby giving long-term visibility to the operations of our existing fleet while contributing to Belgium security of supply. Last but not least, in nuclear, we are delighted at the success of the first stage extension work of the Tihange 3 and Doel 4 reactors and their timely reconnection to the grid with full availability for the winter season. This is the final milestone for our Belgian agreement, which is now fully in force, meaning that the transfer of nuclear waste liabilities has now been completed. Our liabilities are now limited to dismantling and low category nuclear waste. And for nuclear operation in Belgium, our exposure to merchant will end from the start of December. It is really a new chapter that kicks off for ENGIE in Belgium, nuclear, which encompassed relatively modest, but more importantly, derisked earnings and a derisked balance sheet. With that, I will pass it over to Pierre-Francois. Pierre-Francois Riolacci: Thank you, Catherine, and good morning, everyone. Thank you for being here with back-to-back calls. So apologies for this busy day. I'm pleased to present, of course, ENGIE's 9 months financial results for '25, a period which is marked by resilient earnings and also robust cash flow. EBITDA, excluding nuclear, reached EUR 9.8 billion; and EBIT, excluding nuclear, came in at EUR 6.3 billion. Both metrics reflect the normalization in our markets, lower hydro volumes and also some FX headwinds. Organic variance stand at minus 4% and minus 7%, respectively, after several years of exceptional performance. Against these headwinds, growth and performance, our growing momentum and our quality of earnings is evident in our cash flow from operations, which stands at EUR 11.4 billion. Net financial debt increased by EUR 2.7 billion only due to the Belgian nuclear agreement, while economic net debt decreased by EUR 1.4 billion, highlighting our disciplined approach to managing our balance sheet with credit ratios that leave us with significant headroom. Importantly, our 2025 guidance is confirmed. And based on Q3 performance, we actually expect to reach the upper half of the range for EBIT excluding nuclear and the upper end for net recurring income. ENGIE continues to demonstrate resilience and agility, positioning us well for the remainder of the year. Consequently, we foresee sustained growth in our fourth quarter, outperforming last year's Q4 and taking H2 '25 above H2 '24 as expected. This reflects our confidence in ENGIE's ability to deliver consistent and predictable growth over the coming years with a low point expected in 2026 net recurring income following the phase down of our nuclear activity. Let's now turn to the evolution of ENGIE's EBIT over the first 9 months. As you can see, EBIT excluding nuclear stands at 6.3%. The headline story is very simple. It's one of investments and performance initiatives offsetting the impact of market normalization and lower volumes. On the negative side, indeed, we faced significant headwinds from FX and scope as well as from price and volatility, particularly within our supply and energy management activities, where market normalization led to lower reserve reversals and also reduced results on gas and LNG. One-off items such as positive impact of renegotiated gas contracts in 2024 and increase in 2025 for gas transport tariff also weighed on the results. Those impacts were partly compensated by the tariff increase in our French gas networks. Volumes were another challenge, especially in renewables, where lower resources in Europe, most notably hydro in France, but not only drove a substantial decline. Networks also saw reduced consumption, particularly in Germany and France, contributing to the overall volume effect. However, these pressures were partly offset by strong commissioning activities, plus EUR 327 million with new assets in renewables, networks and local energy infrastructure coming online and contributing positively to EBIT. Performance improvements across all segments, a striking plus EUR 477 million, as Catherine was alluding to, added further support, demonstrating the effectiveness of our operational excellence and competitiveness programs as well as the successful upturn of some loss-making activities. Other effects include notably the cost of our employee shareholding plan for a bit more than EUR 50 million. Nuclear EBIT is down EUR 577 million with negative volume effect linked to the permanent shutdown of Doel 1 in February '25 as well as conformity outages of Tihange 3 and Doel 4. This decrease is also explained by some lower prices captured in Europe. In summary, while market normalization and lower volumes presented clear challenges, ENGIE's disciplined investment and performance initiatives are enabling us to land our EBIT trajectory at a much higher level than precrisis. If we review now ENGIE's EBIT evolution by reporting segments for the first 9 months, you should note that Renewable and Flex Power EBIT is negatively impacted by FX, minus EUR 75 million and by scope, minus EUR 97 million with exposure to Brazilian real and U.S. dollar for FX and also with disposal of cash generation assets in Singapore and Pakistan as well as the deconsolidation in Morocco. Renewables and BESS activities decreased organically by EUR 136 million. This was due to the normalization of volumes in Europe as hydrology in France returned to more typical levels after exceptionally favorable conditions last year. Overall volume impact in Europe, net of the hydro tax amounts to EUR 419 million. This was partially offset by the very strong contribution of new commission assets, plus EUR 255 million and improved operational performance, plus EUR 55 million. Q4 should benefit from a softer base effect, also supporting a more positive outlook, significantly more positive outlook. We are also pleased to report that we have resolved all pending disputes with Nordex U.S.A. and ENGIE Renewables and the parties anticipate continuing their strong commercial relationship. Turning to gas generation. EBIT declined by EUR 126 million organically. The main driver here was a continued drop in capture spreads in Europe, minus EUR 260 million, mostly in H1 and the high comparison base, however, this was partly balanced by favorable price effects internationally, especially in Chile and in Australia and the end, of course, of the inframarginal tax in France. In Infra, the picture is positive. EBIT from networks increased by an impressive EUR 705 million, driven by tariff increases implemented last year and related to the new regulatory period. Strong performance in French activities and the annual revision of distribution tariff in France further supported results in Q3. In Latin America, EBIT grew, thanks to new power line construction in Brazil and tariff indexation in both Brazil and Mexico. While the bulk of the profit increase was secured in H1 with the full impact of tariff increase in Europe, Q3 was a good quarter. Local Energy Infrastructure saw an organic EBIT decrease at EUR 36 million, which is actually an improvement versus the first half. The anticipated normalization of market prices impacted spread captured by cogeneration facilities, but this was mitigated by improved performance and selective development of new urban heating and cooling networks. Moving to supply and Energy Management now. EBIT in B2C activities declined by EUR 131 million organically, mainly due to a strong and atypical year in 2024. Still, good margins in Europe and a market environment that allows for full valuation of risk helped cushion the impact and are supporting a full year ambition close to EUR 0.5 billion. B2B EBIT decreased organically by EUR 129 million, reflecting a drop in timing effect that had positively impacted the 9 months '24. But again, commercial performance remains solid with margins in line with expectations, and we are all set for a strong year. Finally, Energy Management EBIT decreased by EUR 75 million organically, reflecting continued market normalization, softer activity due to geopolitical and economic uncertainties and lower market reserve releases compared to last year. A negative one-off related to gas transport tariff updates in Austria and the Netherlands also weighed on results in H1, whereas last year's third quarter benefited from a positive one-off linked to gas contract renegotiations. Overall, SEM performance is on track, and we expect B2B plus Energy Management to land the year slightly below EUR 2 billion as we tailor our offerings to evolving client needs and adjust our contract time lines accordingly. So as we look across our segment, it's clear that '25 has kept us on our toes, whether it's the weather, the geopolitical uncertainty or energy market evolution. But beyond the granular explanation of each business and taking some steps back, despite persistent soft trading in EM, you can see in Q3 the first tangible signs of some parts of the business going back to growth. For R&D, volumes and prices headwinds are stalling. For generation in Europe and for ADI, the decrease of clean spark spreads, including hedging is now largely behind us. And throughout the organization, our performance efforts are gaining momentum. With our team's agility and the portfolio built for all seasons, we are ready to keep moving forward. Let's now focus on ENGIE's cash flow from operations for the first 9 months. Again, our ability to generate cash remains exceptionally strong, supported by disciplined working capital management and a solid operational performance. One thing to mention is the positive cash impact from the phase down of our nuclear activities, which has contributed to a reduction in working cap for about EUR 700 million. This effect, combined with stable operating cash flow and the positive impact of lower gas prices on storage has enabled us to sustain cash generation at a very high level. For the period, cash flow from operations stands at EUR 11.4 billion, confirming ENGIE's robust fundamentals and our capacity to navigate changing market conditions. The strong cash generation and that we expect to continue is a key enabler of our strategy. It does fund our performance efforts in digital and restructuring, our investment program in generation, flexibility and infra and last but not least, healthy dividend to our shareholders. Let's now turn to ENGIE's credit ratios and debt profile as of September '25. Our leverage ratios remained stable and well within our targets with net financial debt to EBITDA at 2.5x and economic net debt to EBITDA at 3.2x. Over the period, net financial debt increased to EUR 36 billion, driven by the cash out impact of the nuclear deal in Belgium. Our cash flow from operation has more than financed maintenance and growth investments in addition to supporting dividend payments. It is worth noting that other impacts amounting to a decrease of EUR 0.3 billion debt includes the effect of disposals for EUR 0.7 billion. Economic net debt stands at EUR 46.4 billion, down from EUR 47.9 billion at the end of 2024. The group balance sheet continues to improve, driven by disciplined working cap management and the powerful cash machines at our gas networks and downstream operations. In short, ENGIE's financial structure is rock solid, providing us with the flexibility to invest, reward our shareholders and meet our long-term commitment even as we navigate the complexities of the energy transition. Now let's wrap up with ENGIE's full year '25 guidance. Guidance remains unchanged. However, we expect now to reach the upper half of the range for EBIT excluding nuclear, and the upper end for net recurring income group share. This reflects the group's strong operational performance and well-controlled financial expenses due to strong cash generation. Our dividend policy remains attractive with a payout ratio of 65%, 75% based on net recurring income and a floor set at EUR 1.10 per share. Our strong investment-grade rating is maintained, and we continue to target an economic net debt-to-EBITDA ratio below 4 over the long term. Key assumptions for the year include updated market commodity prices and foreign exchange rates, average weather condition and recurring net financial costs between EUR 1.9 billion and EUR 2.1 billion. The recurring effective tax rate is expected to be in the 24%, 26% range, including the special tax in France. Looking ahead, we expect Renewables and Flex to deliver healthy EBIT growth in Q4, and we anticipate a very solid Q4 in B2B, continuing the momentum established in Q3 for the quarters that are not fully representative of the longer-term trend as the tail of market normalization for B2B will still impact 2026. We expect Energy Management to deliver growth in the fourth quarter versus Q4 '24 with results stabilizing in the middle of our midterm guidance in the years ahead, of course, subject to the usual ups and downs and market volatility. Q1 2025 benefited from unusually high market volatility, which set a strong benchmark. While Q1 '26 may not reach the same level, we expect solid fundamentals to continue supporting performance throughout the year. In summary, ENGIE is well positioned to deliver on its commitments with robust earnings, disciplined financial management, strong balance sheet and a clear strategy for shareholder returns. With that, I pass it back to Catherine. Catherine MacGregor: All right. Thank you, Pierre-Francois. So to conclude, the first 9 months have seen excellent execution of our growth and performance strategy. And looking forward, we will continue to build on our track record of strong delivery. We will continue to push through our cultural transformation, make fullest use of our portfolio, which is built for all seasons, and we will continue to develop and engage our top-class teams for the benefit of all our stakeholders. Now back to Delphine for the Q&A. Delphine Deshayes: Thank you, Catherine. Operator, can you please open the lines to Q&A. Operator: [Operator Instructions] The first question comes from Alex Roncier of Bank of America. Alexandre Roncier: I have three, if I may. The first one is on operational performance. And I think we've seen good and/or improving results in flexible generation and commodity trading at some of your peers and within the wider energy sector actually. So I'm surprised a bit by the guidance upgrade today that is not necessarily supported by that. But equally, I wanted to check with you that perhaps given the more volatile than expected power markets this year, you had to book more market provisions this year perhaps than expected. You did talk, I think, about lower release, which is somehow equivalent, which could explain some of the upper end conservatism in the guidance there for those specific drivers, but would support earnings into next year, I would assume. Second question, if I'm not mistaken, your guidance to 2027 does include some not -- insignificant M&A, in particular in networks. And given that opportunities are not easily seen today, at least on my side, and given the increased focus on storage at the European level, the pipeline you had acquired in U.S. and your overall strategy of 24/7 green energy, why would you not take the route of active power networks investment instead of passive ones and really boost your CapEx allocation to batteries? Last question. If I'm not mistaken, you said the 22% to 25% recurring effective tax rate for the '25, '27 guidance was excluding potentially new French taxes. So wondering if you could give some more number around that. I think you guided previously to around EUR 150 million perhaps of extra taxes in France for 2025. Any view on the current budget and potential impact, being mindful, of course, that everything could collapse in the coming weeks. Pierre-Francois Riolacci: Okay. I will start maybe with one and three. And Catherine, you will pick the number two. So yes, there is indeed some volatility in power markets. But when you double down on the numbers, you see, for example, that the intraday volatility has been reducing. You see also that the bid-ask is not what it was. And that does explain why indeed, we have a lower -- also reversal of reserves. It's also because we had a lot in '24. So you always need to look when we explain year-on-year to what was the reference. And in 2024, we had to release significant reserves. So I would not say that we have been booking more. Actually, again, the volatility -- some KPIs on the volatilities are rather going down, and we had actually less to book even if compared to '24, of course, we released less. And we are not that pleased with the current market in EM and Q3 is still soft as it was in Q2. That's not a surprise, and you may have seen that in the market everywhere. And that we have seen as well, not that much on power, but more on gas. On the tax rate, yes, the rate is -- our guidance is 24%, 26%. It does include the French [indiscernible] tax or extra tax, whatever for about 1.3%. I think it does account in these numbers. One thing which is important is that -- we -- you know that we have -- indeed, with the Belgian transaction, we are in a situation where holdings now are potentially more efficient in terms of tax, and that is supporting a lower tax rate in the long run. But we have not taken any consequence of that in 2025, and we do not plan to. That's the reason why you see that kind of guidance. It doesn't mean that we will not do it in the years to come. And our long-term view on tax is more lenient than what you see in 2025. That doesn't mean, of course, that there won't be an extra tax in '26 in France and maybe some other countries because you may have noticed that many countries are running for money. So we are on our toes and defending, of course, our position. But so far, we have not identified anything that would jeopardize our global view and also our ability to manage our tax rate in the long run. Catherine MacGregor: And maybe just to add to the noise that we are hearing from Parliament as a lot of quite exotic measures are being voted by the current parliamentary sessions, the probability or the likelihood that all this noise gets materialized into the real budget at the end is actually quite low at this stage. So obviously, we're monitoring the situation. But as you guys know, there is a difference between all the noise and what will actually happen eventually. And then maybe a point on our investment strategy. Just to remind that we have obviously 2 levers we want to action to deploy the growth and the strategy of ENGIE to further the utility and the energy transition. It's generation, green power, green electrons and indeed, in the network arena, it's about power networks. And we believe that we have a very clear capital allocation policy along these 2 levers. What is for sure is that -- on the generation, we are probably more excited than before on the opportunity set on batteries and in general storage, but battery for sure. We were very U.S. focused. And when you look at our numbers, most of our operating batteries today are in the U.S. But lately, you will see, and I showed that in my prepared remarks that there is an acceleration finally in Europe. There is also opportunities, obviously, that we are seizing in the markets where we are present in Latin America. Chile is a good example of that. But Europe is really behind. Europe has been very ahead on renewables. Also distributed solar is proving its limitation in some markets with a lot of negative hours. And here, batteries are very, very urgent. So in our key markets in Europe, we are accelerating on batteries, and that was obviously, the purpose of the examples I gave you. So remember, when we said to 2030 and 95 gigawatt, that used to be 80 gigawatt on renewables. So now it allows for quite a big envelope on battery and energy storage for sure. And on Power Networks, as you guys know, we're very focused on what we can do organically in Latin America. Inorganic, we are looking at it. We said that we would take some time. We'll be patient because, obviously, we want to do the right thing. But we do believe that is the right path to go on, and we will deliver on that strategy. Timing, obviously, will depend on a lot of things. Operator: The next question is from Harry Wyburd of BNP Paribas Exane. Harry Wyburd: So two for me. So first, it's probably one for Catherine. On gas, just thinking about the overall group strategy here. I think the strategy over the last few years has mainly been on, as you said, the green electrons. And for a while now, you've had a target or a long-term target to reduce gas capacity. But I'm wondering in Europe, given all of the newfound excitement again over data centers, I mean, I'd say my observation would be that in Europe, your biggest issue around that topic or indeed any other -- of the many other drivers of demand is around the peaks and particularly around the sort of [indiscernible] times when you don't have any winds. And given you have one of the biggest gas fleets in Europe, is there scope perhaps for a rethink on that? I mean the way I see it, you're going to be building tons of batteries and you alluded to that seeing an uptick in Europe, that's going to dilute the daily evening spark spreads. And really, the end game here, if you look at the sort of resource adequacy reports from ENTSO-E is that probably you're going to have to move to a capacity market system everywhere in Europe and capacity payments are going to go up to make sure these gas plants all stay open. So is there anything you can say to us to maybe make us a bit more interested or even excited about how much you could earn from your gas fleet in Europe, which I think we all value at a pretty low multiple. So that's the first point. And the second one is the next time you speak to us early next year, you're probably going to come out with maybe some new longer-term targets and thoughts. Has there been any advance on your thinking about how you might grow the dividend from next year? And indeed, the earnings because, of course, as you mentioned, earnings are going to trough next year. Any views on what we could think about as a sustainable long-term EPS CAGR from ENGIE once earnings trough next year? Catherine MacGregor: All right. I think -- Harry, I think you did the question, but also the answer because I mean, you're totally right. We are obviously super excited about the value that is carried by our CCGT fleet in Europe. And you're very right that batteries are really, really important, but they tend to be a fantastic complement to solar. When you don't have wind in Europe, it generally typically lasts for a few more than -- a little bit more than just a few hours. And here, the gas plants play a critical, critical role, plus the gas can be stored. So you really have a very important power insurance in these gas fleets. And you can see that the CRMs indeed, which we saw first deployed in Belgium actually pioneering a little bit the scheme, but now is being deployed at a varied degree of speed in many, many other countries in Europe, and that's obviously a positive for Gas fleet. So we are excited. In fact, if you look at the load factor in Europe recently, you have seen that -- we have seen that the load factors have increased. If you remember, last year, we were at about 15%, and now we are above 20%. So they are actually being called more, which is exactly reflecting the reality that you are describing. So Yes, overall, we are really -- I mean, we like our gas fleet. We have just put Flémalle online under the CRM scheme in Belgium. And Flémalle is for sure going to contribute to the security of supply and play that role. So that's for sure. And of course, eventually, we'll have to make sure that we can decarbonize the gas. But frankly, we see that the CCGT play a role for years to come and a nice complement to a battery. And so that's great asset for us. In terms of the dividend, we're very, very attached to the consistency of our dividend policy. And as you know, it has this 65% to 75% of net recurring income formula that has not changed, and we like that. Obviously, the way we have shaped ENGIE and our aim is really to make sure that we deliver this predictable gentle earnings trajectory, which will turn and should turn into a gently growing dividend for our shareholders. That's our intention. Obviously, a bit early to talk about next year's dividends, and we'll come back to you in February. We're hearing from the market this eagerness to see this trajectory materialize. But let's talk about it again in February. Pierre-Francois Riolacci: Just an add on EPS CAGR. Going forward, I think that -- I mean, clearly, we are pleased with the development of operation in Q3. And of course, we see some headwinds. I mean, clearly, the regulations are unstable in some countries. FX is not pointing into the right direction. I mentioned that the volatility for EM was lower in Q2, Q3, but this is a short-term point. On the other side, again, we see that Renewables are still going at pace in some significant geographies for us like India, like in Middle East. Power demand, clearly, we see that it's going in the right direction. Expectations are rising actually in the U.S. and in Europe. And also the interest rates, I mean, clearly, we had a peak and now it looks like we are going back to a normal level, and we are very pleased with the way we have been handling that in the future. So there are pros and cons. I think that today, what we see in the business -- at the end of the day, our growth is delivering EBIT. Our performance plan is getting momentum at pace. So yes, we see the good drivers of a sound EPS CAGR from 2026. And the story that we shared in the market update is absolutely the good one, and we stick to it. Operator: The next question is from Ajay Patel of Goldman Sachs. Ajay Patel: I guess mine is around Slide 7, where you highlight the booming data center demand slide and your capabilities to take advantage of it. I'm thinking, well, look, at the moment, your current CapEx program didn't really have that much demand growth put into it. And it feels by this presentation like your confidence on leveraging ENGIE's portfolio to take advantage of this demand is effectively pointing to more CapEx, more opportunity, more growth. So I'm trying to think, well, as your targets roll, are we going to see ENGIE demonstrate that leveraging in the form of CapEx, i.e., you'll start to see the benefits of it in CapEx programs? And then the other thing is just on also capital allocation. As you see it, as this has developed, has this maybe changed the emphasis in the geographies? Any insight, any sort of high-level things here would be really helpful. And then more of a just specific numbers question. Just wanted to check if there are any one-offs that I need to take into account for Q4 when modeling the full year results, just make sure that I've got everything in the bridge. Catherine MacGregor: Yes. So Ajay, just to -- the price and the opportunity that we see in data centers for ENGIE today is threefold. It's speed to power, and this is really about leveraging our existing footprint to co-site, co-locate data center near existing energy assets and taking advantage of the fact that we have connection, we have land, we have acceptability levers. We are in an ecosystem that we know very much, and we can partner with specific data centers to allow them to develop their data centers faster, including helping them on the energy side. Then we have decarbonization on energy addition depending on what your driver is, and this is about PPAs. This is about 24/7. And this is really about supporting our renewable developments. So the reason why we don't see today any need to have dedicated additional CapEx allocated to that is that this is in our underlying CapEx plan to get to the 95 gigawatts. But think of it as very supportive about -- of the quality of those gigawatts. Because obviously, when you provide energy to data center, you are providing something. And as you guys know, the cost sharing of operating a data center, the energy part is actually quite significant. And so we are an important supplier to them. There is scarcity. And so this is supportive to obviously the quality of the gigawatts that we have in our portfolio developing our renewables assets. One point here, which is really important is as you -- I'm sure you know, data centers, the acceptability topic is gaining importance. And why is that? Because if data center is only a load and doesn't contribute to energy addition, then will turn into increase cost inflation for the people, for the consumers and the acceptability is going to be a problem. We see signs of that already in a few places, particularly in the United States. So this whole notion that data centers need to contribute to the energy transition, the energy addition is obviously supportive for us in terms of having renewable projects an impact on PPA. But again, not necessarily additional CapEx for us, at least not that we see today. And then the last point, which is, in general, it's more plain vanilla B2B. So here, it's supportive to our B2B business. This is more traditional energy contracts. Again, here, there's not much CapEx associated with that, which is why you don't see these numbers. Then the question about the capital allocation. Obviously, U.S. -- I mean, as you guys know, we have a good plan on capital allocation in the U.S.. Data center is a big driver for quick energy addition in the United States. Caveating this, the fact that there is this uncertainty on permitting, for example, tariffs and that we are working around, we're managing quite well. But we have decreased a little bit our capital allocation in the U.S., not because we don't like the data center, not because we don't have customers that want what we can provide, but really because there is a bit too much uncertainty to our liking to deploy as much as we thought we would. Maybe that will change. That's a nice thing about the U.S., things change quickly. But right now, we are a little bit less -- shy in the U.S. We are excited about other places. Europe, obviously, even though the scale in Europe is not significant, but we are seeing data, digital sovereignty big topics in Europe where people want to have data center in their country. So that's one opportunity. And then the other opportunity somehow related to data center is in the Middle East and India. In these regions, it's very interesting what's happening because here, again, it's not so much about ideology, but obviously, the need to have power, fast power and a lot of power, competitive power. And here, obviously, depending on the resources, renewables are very attractive, which is why we are able to do big projects. The one that we signed in Abu Dhabi is obviously fitting well on this criteria. Ajay Patel: May I just add [indiscernible] just on the [indiscernible] securing land [indiscernible] what degree does that [indiscernible] this proposition of basically maybe signing a contract with a data center, developing a site. Can you give us any order of magnitude what kind of value it creates because it's quite a number of sites. Catherine MacGregor: Sorry, I'm just silent because I'm trying to understand the question. I mean it creates -- it's the value that you can derive from having something someone wants. It creates the value that you can derive from having a partnership with a data center. And obviously, it's supportive. Now to be honest, these projects, they take a long time to develop because obviously, they are quite complicated. So today, we have numbers. It's a single-digit number of projects of that kind that we are working through. and it takes some time to develop because they are quite complex. But eventually, obviously, these will be good deals because we have something quite unique that these guys need and want. And so these are good partnerships. But in terms of numbers and time, it takes a bit of time to develop. Pierre-Francois Riolacci: Maybe just to cover your third question, which is not allowed, but still -- any one-off in Q4. By design, one-offs are not supposed to be known in advance. That being said, what we know is that Q4, there was, last year, quite a chunky number of negative one-offs. Part of it also being -- we are very keen to make sure that when we close our books, we prepare for the future, and we also discuss with our customers so we can actually help them to manage the energy transition. And you can expect that in Q4, to a certain extent, there will be also the same kind of deals that we can structure. You remember in H1, we said that we are a bit under pressure, [indiscernible], I mean maybe you should indicate that you are going to land above mid point and say, no, we want to make sure that we can deliver a good 2025, but also taking in account the request of our customers. So we are in that situation. So I think that we will deliver a strong Q4 that we are pretty confident in and that will still allow some room to accommodate the request of our customers and our views on the market. Operator: The next question is from Louis Boujard from ODDO. Louis Boujard: I will stick to two questions then. And maybe the first one would be related to the performance of the plan. Your performance plan has contributed to more or less EUR 500 million in the first 9 months, which is, I think, quite strong. Can you elaborate on the key levers that enable this performance in terms of cost base, procurement, generation efficiency or other elements that could have sustained it? And to which extent it could be sustainable going forward according to you and if it could enlarge in the future? And the second topic would be -- maybe more related to current uncertain environment, I would say. I appreciate that you already provided some indication regarding the Supply & Trading future business performance. But considering the evolution of the lower volatility in the energy markets and potentially lower gas prices that could come in the future, do you continue to see that it's going to remain in the same level that you initially anticipated for '26 to '27? Or do you foresee eventually some headwinds to adjust this target on the Supply & Trading business? Catherine MacGregor: Maybe I'll start to talk a little bit about the performance plan because, yes, indeed, we are really happy with the progress. And we have 3 key big buckets. We have the operational excellence. We have what we call a C2, the Competitiveness & Culture. And then there is the loss-making entities. The loss-making entities has been quite strongly contributing because unfortunately, we did have a few loss-making entities. So the reversal and the correction of these entities is contributing to the plan. So this contribution of the loss-making entities is a bit front-loaded. That is expecting to come down, while the other pieces of the plan obviously will take on momentum, which is why we are following very closely the C2 and its impact on the performance result. And that's why I pointed out to the fact that it is indeed gaining momentum, and we're expecting it to gain more momentum towards the end of the plan, towards the end of the period in relation. So we have said about between EUR 1 billion and EUR 1.3 billion over the period of contribution to performance plan. And given these good results in 2025, obviously, we're comfortable that we will deliver on this with a bit of a different mix. And in terms of example, I gave a few, the span and layer. And these are really important because they contribute to the numbers, but they also help us be more efficient, change the culture, increase transparency. It has agility, the speed, the digital systems deployment are faster. So it has a lot of other benefits than obviously just contributing to the EBIT. So that's really very exciting. And of course, procurement continues to be a big lever as well that was fairly untapped at the group scale a few years ago. And now we are really working through making sure that every business benefits from these procurement gains also helped by the deployment of our ERP system, which is in early phase, but also allows us to further our procurement gains. And then customer environment. So for sure, the margins that we have embarked in our deals in general have a little bit correlated with the absolute value of the energy price. On the other hand, as we are driving our business to be more power and within power, to be more green power, we see that we are able to support good margins by shifting our business in that sense. And the other thing that we are seeing with our customers today is that they tend to want to strike longer-term deals. So the longevity of our contract or the tenure of our contract is increasing, and this is really good because it gives us obviously more visibility on the earnings of the supply business specifically. I'm not talking about energy management, but supply the B2B, where we are seeing more predictability. We have more visibility on this business than ever because of this trend to have longer tenure in terms of contracts. Pierre-Francois Riolacci: And we -- I think that we did indeed socialize some numbers on the contribution of the former GEMS, you remember, I'm sure, before and saying that after normalization, the contribution should come north of EUR 1.5 billion. And to your question, we are still comfortable with this view, even if you're right. I mean, today, we have rather at the low end of the volatility in the market. But -- so therefore, lower EM contribution, which -- that we had in 2025. But again, the point that Catherine made about B2B and the commercial margins, the longer duration of contract is a clear support to that, and that gives us confidence that we can indeed confirm what we said about the contribution of these businesses. And with regard to B2C also, we are for, again, a more normal year. And I had the opportunity to mention in H1 that today, our hedging, our sourcing process in B2C has been drastically improved during the crisis. It gives us more comfort and more visibility and our capabilities to stick to this good contribution and grow it actually in the future throughout the years. Operator: The next question is from James Brand of Deutsche Bank. James Brand: Just a couple of questions on data centers, surprise, surprise. First question, could you give us any details around how we should be thinking about pricing when you're signing a PPA? You obviously highlighted you signed a lot of PPAs in the last quarter and in general. Are you broadly pricing in line with the forward curve? Or is there a premium? And if there is a premium, is there anything you can say about how material it is? I obviously accept that this is quite commercially sensitive. But anything you can say on that would be super interesting. And then you mentioned the scale in Europe is -- I think you said not significant. I don't know if you meant not as significant as the U.S. But I guess my question is, obviously, European markets are not particularly tight at the moment, and you're seeing the margins coming down rather than up for the gas fleet. And obviously, in the last few years, we've seen overall demand come down quite materially in the major European countries. So the question is kind of if we do start to see demand picking up meaningfully over the next few years, like how long do you think it will take before we start to actually see some tightness before the volatility picks up again for the gas fleet? Obviously, it depends a bit on the market, but are there any kind of general comments that you can make that kind of help us conceptualize when demand growth will start to drive market tightness in Europe? Catherine MacGregor: Okay. So PPA dynamics. So we signed 3.1 to date. So we are pretty much in line with what we did last year with a bit of a contrasted market between the United States and Europe. Europe is a little bit more -- it's a bit softer PPA market, and that obviously translates into less premium over market price. In the U.S., there is indeed a premium for PPAs over market price, and it is sizable without going too specific, but it is -- indeed PPA prices are higher than what you can see in the forward. So this dynamic explains why we are pleased with what we've done, but we are not seeing 2025 much higher. We don't expect 2025 to be higher than 2024 just on the basis of the first 3 months on the basis of Europe being a little bit more -- less busy, let's say, as the United States. In terms of the demand dynamic in Europe, and again, you have to be careful when we talk about volatility because we do see intraday volatility in Europe today, even though that the demand has not been super strong. And this is, frankly, the reflection of the asset mix, which is why we are so excited about batteries and the CCGTs in terms of load factor and the start-stop and et cetera, which play fully their role today. The demand in 2025 on power in Europe today is increasing a little bit year-on-year. I think it's about 1%. So we're starting to see a little bit of demand pick up. And expectation is that it will continue, obviously, on the basis of the electrification. You've seen that European commitment to climate targets is still strong. Even though there are questions about, for example, electrification of vehicles, 2035 might allow for hybrid vehicles. Still, we do think -- and there is still the heat pump demand that is being pushed by quite a few member states. So we do think that demand for power will pick up. I don't know for how long it will take to get to the same level as the U.S., but we do expect power demand to increase in the coming years. Remember also that there is the demand, but there is also supply. And on the supply side, there is quite a few assets that are being retired in Europe. So we don't need a much demand increase to see tightness on the supply side. If we don't continue to develop the right renewables, the right storage and all that stuff, that needs to continue in order to just replace what is being retired in various countries, not to mention, obviously, the one in Belgium, the 5 reactors that we are stopping, but Germany is also stopping quite a few assets. Operator: The next question is from Arthur Sitbon of Morgan Stanley. Arthur Sitbon: I have two. The first one is a follow-up question on the performance plan. So you did very well in the first 9 months of the year and you seem quite ahead of your target for the plan. I was wondering if we should understand from that, that this is one of the key pillars you will develop on at full year results when I imagine you would provide 2028 targets? And how important is it going to be as a vehicle -- driver for your earnings growth post trough in 2026. And I was wondering as well if you could just tell us in the EUR 477 million, if all of that is a cash improvement on EBIT or if part of that is noncash? And the second question is, as you were flagging lots of different amendments and taxes were proposed in France as part of the budget discussion. I think several of them could apply to you. There is one on power margin cap, one on a change on the corporate tax calculation methodology. I was wondering if you could just flag to us maybe the ones that even if we're not sure that they will, at the end of the day, be adopted, the ones that could be the most material to you and if you have a rough sense of how material they would be if ever they were to get implemented? Pierre-Francois Riolacci: Thank you very much, Arthur. So we are not going to comment the full year results ahead of the full year results on the performance plan. Very pleased indeed with the strong start. Of course, performance plan will be a solid and sustainable pillar of our growth in earnings for many years, and that goes beyond '27. You're right, there will be some coming in '28, of course. Now it's important to mention and you know, I'm the CFO, so I'm the guy who is always looking at the half empty glass. It's important that we deliver on performance. This year, it was important for us because we had headwind in FX and the performance plan start was coming nicely to match what we were missing in translating some of the earnings abroad. So I think it's also -- be careful that we do manage globally our results. So yes, performance plan, a strong pillar that will stay. And I'm pleased to report that most of it indeed is cash. It doesn't mean necessarily in EBIT because there might be some costs which have been last year booked elsewhere. But really, it's cash which is moving in big time. And then on French taxes, I mean, we -- again, we see a lot of fireworks going everywhere. So far, we have not seen -- first, as Catherine said, I mean we need to stay calm and look at what is going to come through at the very end of it, and we don't know yet. There are sometimes even some provisions which contradict each other. So when our experts try to figure out what does that mean, just cannot make it. So I think that so far -- but we have not identified a catastrophe that I can tell you. But now we need to go through the full process, and we will see what comes out of it. But so far, we are reasonably confident that should land in something which is manageable for us. Delphine Deshayes: Operator, can we take one last question, please? Operator: And the final question is from Bartek Kubicki of Bernstein. Bartlomiej Kubicki: Two questions. First of all, I would like to discuss your PPA book in the U.S. If you could maybe tell us a little bit what is the duration of this PPA book and what is the size? And consequently, where I'm going to is, when those PPAs expire, do you see a potential for margins improvement in the U.S. or to the contrary? That's in the light of the increasing power demand. So consequently, can your existing renewables portfolio in the U.S. increase in profitability in the future or rather decrease given the power demand? Second of all, if we can go for your B2B book. I just wonder if we translate whatever you are saying into an absolute margin per megawatt hour of power sold, do you currently see those margins on new contracts increasing or decreasing versus the prior contracts? And this lower volatility or normalization of volatility, what specifically it impacts in your B2B portfolio? Because I guess, on one hand, you have increasing power demand. But on the other hand, you also have, for instance, decreasing gas prices and decreasing volatility. So I just wonder how to understand it better what exactly moves up and down in your B2B portfolio. Catherine MacGregor: Maybe just in the U.S., our PPAs, obviously, they tend to be quite long term. And our renewable portfolio in the U.S. is actually quite young. So right now, the PPAs are ongoing. And so we don't have a lot of expiration, at least not in the short term. In theory, you're right to point out that existing assets in the current environment and hopefully, that environment is here to stay, they have the value of the PPA today, but they will have the value of future green power, existing green power at the right place for future customers. So we see that value. But today, the PPAs are still quite young in the U.S. So we'll have to be a little bit patient to value that. Do you want to say a few comments on... Pierre-Francois Riolacci: Yes, sure. It's a very good one, Bartek. So if we take B2B, so you remember, and we have been pretty open about that. We have about 75%, 3/4 of the business, which is pure B2B market where we are selling and you're right to point to the commercial margin. What we have seen in our portfolio is that the commercial margin over the last 2, 3 years, has been actually pretty stable, maybe slightly down. And of course, part of it is coming from the prices, which are coming down. You cannot book the same absolute numbers margin depending on the absolute price of energy. But the mix has been actually going in the right direction because, again, more power rather than on gas, more green power rather than gray power. Also lengthening the duration, lengthening the duration helped to keep margins at a decent level because, of course, there is a risk management. So all in all, I mean, we have been pretty good actually in defending the absolute margin level of the portfolio, again, with a limited decrease. And to be very candid, that's one of the reasons why we have been able to keep our former gen business at a very strong level for more than expected because clearly, the market is today pricing the quality in these margin. And then there is a second part of the business, which is more limited, where we do book quantities and volumes with some customers, but then we have risk management. And the margins on this category of customers, which are significant customers, they are slightly small, but then we have risk management, and we can make money out of the portfolio out of managing the risk for these same customers, and that is more exposed to volatility. So I would not say there is none in B2B, but much less -- and because we have, again, this big bulk of contribution coming from now a duration of contract, which is above 3 years. So it's a big change also compared to where we were a few years ago. So that's why we are very happy with this business with much stronger visibility. Operator: So this is the end of the Q&A session. Thank you for joining the call today. And of course, if you have any follow-up questions, do not hesitate to reach out the IR team. Wishing you a very good day. Thank you.
Operator: Good day, and welcome to the D-Wave Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Kevin Hunt, Senior Director of Investor Relations. Please go ahead, sir. Kevin Hunt: Thank you, and good morning. With me today are Dr. Alan Baratz, our Chief Executive Officer; and John Markovich, our Chief Financial Officer. Before we begin, I would like to remind everyone that this call may contain forward-looking statements and should be considered in conjunction with cautionary statements contained in our earnings release and the company's most recent periodic SEC reports. During today's call, management will provide certain information that will constitute non-GAAP financial and operational measures under SEC rules, such as non-GAAP gross profit, non-GAAP gross margin, adjusted EBITDA loss, adjusted net loss, adjusted net loss per share and bookings. Reconciliations to GAAP financial measures and certain additional information are also included in today's earnings release, which is available in the Investor Relations section of our company website at www.dwavequantum.com. I will now hand over the call to Alan. Alan Baratz: Good morning, everyone, and thank you for joining us today. I'm really pleased to share D-Wave's third quarter 2025 results, which reflect the ongoing momentum we've seen across all key business metrics, including revenue, gross profit, bookings and a healthy cash balance. I will walk you through several of our recent business and technical highlights, starting with our continued commercial traction. The United Nations declared 2025 to be the international year of quantum science and technology, and it is evident that the world is watching the quantum industry in general and D-Wave specifically. Our esteemed leadership team has been invited to speak at events across the globe in order to address the growing interest in our quantum solutions. From Tokyo to Berlin and Taiwan to Miami, businesses, research institutions and governments around the world are eager to learn more about D-Wave, our incredibly powerful yet energy-efficient technology and the impact it is starting to have for customers right now in solving complex computational problems that are outside the reach of classical computers. Just weeks ago, D-Wave announced its participation as a founder of the Q-Alliance, an initiative designed to create a quantum hub in Italy that advances scientific discovery, industrial transformation and digital sovereignty in the country. A core objective of the Q-Alliance is the development of a state-of-the-art quantum computing and research facility in Lombardy, Italy. In support of that effort, D-Wave announced a EUR 10 million contract for a D-Wave Advantage2 annealing quantum computer in the region, ensuring accessibility for Italy scientific community, academia, and industry. In partnership with the Italian government and the Q-Alliance, the agreement includes acquisition of 50% capacity of an Advantage2 system for 5 years with the option to purchase the full system. We expect to deploy the system sometime in 2026. While other quantum companies are telling investors that sales really don't matter, we beg to differ. Sales and customer success are key to business growth and driving shareholder value in the near and long term. Our market presence allows us to learn directly from customers and rapidly enhance our systems to address their needs. D-Wave offers the only quantum computers that have demonstrated advantage on a useful real-world problem and can support customer applications in production today. Our customer portfolio includes one of the world's largest airlines, one of the world's largest chemical companies, one of the world's leading mobile carriers and one of the world's largest payment companies. So as other quantum companies remain in R&D mode, we are laser-focused on a path to profitability built on customer value. We signed a number of new and renewing customer engagements in the third quarter for both commercial and research applications. These engagements include one of the largest U.S.-based international airlines, SkyWater, the nation's largest pure-play semiconductor foundry. Japan Tobacco's Pharmaceutical division, which is exploring new Quantum AI applications in drug discovery, Yapi Kredi, one of the leading banks in Turkey and Korea Quantum Computing, a company specializing in quantum computing R&D, quantum security solutions and AI infrastructure in Korea. We continue to work with a myriad of organizations on quantum computing applications across a diverse set of use cases. Most notably in the past quarter, we worked with BASF, one of the world's leading chemical companies completing a proof-of-concept project, they use a hybrid quantum application to optimize manufacturing workflows in a BASF liquid filling facility. The hybrid quantum technology set a new benchmark for manufacturing efficiency, allowing a reduction of production scheduling time from 10 hours to just seconds. One of their key operational challenges involves scheduling liquids unloading on the filling lines for customer orders across several different products. While this may sound like a simple problem, it is, in fact, a very complex optimization problem that involves dozens of single chemical tanker trucks and hundreds of customer orders on fulfillment lines that require careful timing and coordination. The challenges often exceeded the capabilities of a classical-only optimization approach, and our solution outperformed substantially with latency reduced by 14%, setup time reduced by 9% and tank unloading durations reduced by up to 18%. During our last earnings call, I spoke to you about a hybrid proof of technology with North Wales Police to optimize deployment of patrol vehicles. I'm pleased to report that the PoT was successfully completed in the third quarter with a hybrid quantum application that significantly outperformed classical results. Our hybrid solution enabled North Wales Police to respond to over 90% of incidents within their target response time, reduced average incident response time by nearly 50% and reduced police vehicle coordination time from 4 months to 4 minutes, which significantly improves real-time adaptability. North Wales Police noted that the application could be scaled nationally. It is a valuable example of how our hybrid quantum computing solutions are beginning to show real-world potential across private and public sectors. Earlier this year, we announced the successful completion of a proof-of-concept with Japan Tobacco's pharmaceutical division, they use D-Wave's quantum technology and AI to improve the drug discovery process. We are now taking that work a step further with a second proof of concept with Japan Tobacco for molecular discovery through Quantum AI. They are running a significant number of problems to help expedite the drug discovery process and they are receiving subsecond responses from the D-Wave Quantum computer, which is leading to improved performance versus classical computing alone for the large language model training. This work demonstrates that these hybrid LLM models produce more valid generated molecules compared to classical only methods. And we believe that no other quantum computer on the market today can produce such results. This work could have a significant impact on speed to market for new drugs, which in turn could drive better patient outcomes. Our results show that quantum annealing is the most effective method of quantum optimization. A recent IBM study showed a family of multi-objective optimization problems where gate model quantum optimization could compete with classical approaches. We threw this problem at our Advantage2 processor and found that it was 1,000x faster than all the classical and quantum approaches in the IBM study, in addition to finding higher quality solutions. You can read the full research paper on the archive. Against the backdrop of heightened global awareness around quantum computing and increasing exposure for D-Wave, we held our first-ever Qubits Japan User Conference in Tokyo in September. The response was fantastic. As Dr. Trevor Lanting, our Chief Development Officer, and I, addressed a very enthusiastic audience representing many of Japan's leading companies and academic institutions. We were also honored to welcome Hidetoshi Nishimori as a presenter. Hidetoshi is widely recognized as the father of annealing quantum technology and the first to propose the concept nearly 30 years ago. Given the success of Qubits Japan, we are exploring hosting Qubits' events in other regions going forward, and our global Qubits 2026 conference will take place on January 27 to 28, 2026, in just a couple of months in Boca Raton, Florida. Registration is now open and I hope to see many of you there in person. Let me now turn to technology. As we drive important development work that is focused on helping customers realize the value of quantum computing now and in the future. Before I get to some specific product updates, I want to take a moment to discuss the underlying technologies or modalities that implement both of the 2 primary architectural approaches to quantum computing systems, that is annealing and gate model, as I believe there is a lot of misinformation and lack of understanding in this area. These technologies relate to how qubits are implemented. There are 4 primary methods for implementation, whether for gate or annealing. These implementation technologies are superconducting, high in track, neutral atom and photonics. We believe that one will clearly emerge victorious in the long run and that approach is superconducting. There are a few reasons why we believe superconducting will win. The first is gate speed, with superconducting dates estimated to be 1,000 to 10,000x faster compared to the other major technologies. While approaches like ion trap or neutral atom may hold some near-term advantages in terms of qubits fidelity, we believe that gap will substantially close over time. We do not believe that the gate speed advantage will change materially. So over the long term, superconducting is expected to have a massive performance advantage over competing approaches when one looks at the speed fidelity trade-off. We recently heard an ion trap company spent hours discussing their technology advantages at an analyst event, but not once did they mention gate speed. With a potential performance disadvantage of up to 10,000x, I can see why they might have forgotten to discuss that key metric. The second advantage for superconducting involves scalability and the role that manufacturing will play. Superconducting builds upon 50 years of integrated circuit manufacturing and packaging technology development that supports classical computing technology. Superconducting lever these established supply chains which we believe will provide the ability to scale faster and at a much lower cost. Other approaches require entirely new supply chains, which will likely require massive investments, extensive technological challenges and long time lines intel maturity as they attempt to scale. Those are the primary reasons why D-Wave chose superconducting technology for both our annealing and our gate model development programs. Unlike gate model systems, which will require error correction and thus are probably 5-plus years away from being truly commercial ready. Our annealing systems are available for commercial use today. It is also worth noting that much of the proven superconducting technology we develop for annealing systems will likely also provide a competitive advantage for our gate model system. More than 60% of our patent portfolio relates to superconducting technology that we believe could apply in either annealing or gate systems. The cryogenic control I discussed last quarter is a perfect example of a patented technology that to our knowledge, no other gate model company has today. and will almost certainly need to compete effectively with D-Wave's future gate model systems. So now I'll turn to specific product development milestones. We're making solid progress in a number of areas, including our gate model program. As you are aware, D-Wave is the only company in the world building both annealing and gate model of quantum computers, thus, the only company that is currently positioned to address the entire market opportunity for quantum. We see this as a competitive advantage that will give our customers quantum solutions that can address the full spectrum of their computational problems. As part of our gate model development initiative, we recently completed the fabrication of fluxonium Qubits chips and superconducting control chips, and we are now bonding the 2 to demonstrate scalable control of gate model qubits. This is a very important D-Wave advantage -- sorry, this is a very important advantage that D-Wave has over any of our competitors as we believe this work will enable the first ever scalable gate model system with cryogenic control. And why is that important? Well, to provide any real computational utility with a superconducting gate model system, you need scale. And we believe cryogenic control provides the fastest path to large scale gate model technology. On the annealing quantum computing site of our business, earlier this week we announced that the Advantage2 system installed at Davidson Technologies headquarters in Huntsville, Alabama is now operational. This is a significant step in advancing the U.S. government's near term use of D-Wave's Quantum computing technology. The system is capable of addressing mission critical computational problems that are beyond the reach of classical computers. Together with Davidson, we are already exploring quantum use cases in areas such as radar detection, resource deployment, military logistics optimization, material science and AI and look forward to continuing our collaborative work focused on national security and defense. The Advantage2 system, which we made commercially available earlier this year is an engineering marvel, our most highly performing quantum computer yet and the only quantum computer that has demonstrated quantum supremacy on a useful real-world problem. A testament to its technical achievements, D-Wave was recently named as winner in Fast Company's 2025 Next Big Things in Tech Awards. This is a very prestigious award that recognizes emerging technologies with the potential to profoundly impact industries. D-Wave was acknowledged for showing what quantum computing can do right now. This is something we have been highlighting for several years given the production readiness of our technology compared to others and it is gratifying to see industry recognition that unlike all other quantum companies, D-Wave has commercial solutions capable of solving real-world problems today, not 5 or 10 years from now, but today. Finally, turning to our annealing road map. Fabrication of our Advantage3 prototype chips is nearing completion, and we expect circuits for testing this quarter. As a reminder, our work on Advantage3 is focused on innovation and scaling, including increased connectivity and coherence, next-generation addressing and multi-chip processor fabric to accelerate our path to 100,000 qubits. In summary, the first 9 months of 2025 have been remarkable for D-Wave. We demonstrated quantum supremacy, sold our first Advantage system, introduced the Advantage2 system to market, further development of our gate model program, advanced the exploration of quantum and AI, worked with research and commercial customers on a variety of groundbreaking applications that go beyond the reach of classical, increased our cash position by over $650 million and much more. Our pipeline remains strong with large opportunities for both system sales and quantum computing as a service deals. And with more than $800 million in cash on our balance sheet, we remain well positioned to expand our business both organically and through M&A. We look forward to seeing many of you at upcoming investor conferences and in January in Boca Raton at Qubits 2026. But before I hand it over to John, there's one more thing that I want to say. We recently had a fair amount of chest pounding from quantum leaders. Let me be clear. Anyone who characterizes quantum annealing as not real quantum is either intellectually incapable of understanding the physics and science or has chosen to put their head in the sand because they are worried about the competitive threat. Let's look at the facts. There is only one quantum computer in the world that has demonstrated the ability to solve an important useful problem that can't be solved classically, not a synthetic problem, but a useful problem, and that's our D-Wave Advantage2 system. When we announced this breakthrough work, there were research teams that tried to downplay the significance, but they never computed anything classically that we hadn't already computed classically and included in our science paper. Moreover, their scaling claims were ridiculous, and we have demonstrated that they are totally flawed through experimental results using their code, and this has been published on the archive. But it's not just that we are the only ones that have demonstrated true advantage. We are the only ones that have shown that we can do better than classical at all. Think about that. There is no other quantum computer that has been able to demonstrate anything better than classical, let alone supremacy. For example, a quantum company that I mentioned previously recently touted multi-optimization results claiming as good as classical, not better, but as good as. We have run those same problems 1,000x faster than both their quantum computer and their classical approaches. You can find that on the archive as well. And it's not just about power. It's also about availability. Our systems are online with high uptime, providing subsecond response times. Other systems are frequently down. When they are up, they regularly have multi-hour queuing delays. So let's ask this question, which systems are the real deal and which are toys and noisy toys at that. Only D-Wave is the real deal. With that, I'll hand the call over to John to provide a review of our third quarter and first 9 months of 2025 results. John? John Markovich: Thank you, Alan, and thank you to everyone taking the time to participate in today's third quarter earnings call. In my review of the third quarter results, I will be providing non-GAAP operating metrics, including bookings, as well as non-GAAP financial metrics, including non-GAAP gross profit, non-GAAP gross margins, adjusted net loss, adjusted net loss per share and adjusted EBITDA loss as we believe these metrics improve investors' ability to evaluate our underlying operating performance. These measures are defined in the tables at the bottom of today's third quarter earnings press release with the non-GAAP financial metrics for the most part, adjusting for noncash and nonrecurring expenses. Revenue in the third quarter of fiscal 2025 totaled $3.7 million, an increase of approximately $1.8 million or 100% from the third quarter of fiscal 2024 revenue of $1.9 million. Third quarter revenue was comprised of $1.8 million in systems revenue associated with the upgrade of the Jülich advantage system to an Advantage2 system. $1.4 million in QCaaS revenue and $500,000 in professional services revenue. Bookings for the third quarter totaled $2.4 million, an increase of approximately $100,000 or 3% when compared to the third quarter of 2024 bookings of $2.3 million and an increase of $1.1 million or 80% compared to the immediately preceding fiscal 2025 second quarter bookings. As Alan previously noted, after the close of the quarter, we signed a EUR 10 million agreement to place a D-Wave Advantage2 system in Europe, which will be reflected in our fourth quarter bookings that to date have totaled over $12 million. This agreement is for 1/2 the capacity of an Advantage2 system over a 5-year period with an option to purchase the entire system at any time at a price that is within the range of our targeted system pricing of $20 million to $40 million. In terms of revenue recognition, the EUR 10 million will be recognized ratably over 5 years, commencing when the system becomes operational, which we expect to be sometime next year. I would like to also reiterate my comments from the last 2 quarters' earnings calls, with respect to the composition of our sales pipeline incorporating incrementally larger average deal sizes than what we saw at this point last year. 2 recent examples of this are the third quarter high 6-figure booking with a major U.S.-based international airline as well as the fourth quarter EUR 10 million European agreement booking. We continue to see increased activity from larger enterprises with more complex transaction structures. And as I have previously indicated, these deals typically take longer to close. That said, we remain confident in the outlook for booking activity going forward. With respect to customers over the most recent 4 quarters, D-Wave had an excess of 100 revenue-generating customers, including approximately 2 dozen Forbes Global 2000 companies. GAAP gross profit for the third quarter of fiscal 2025 is $2.7 million, an increase of $1.7 million or 156% from the fiscal 2024 third quarter gross profit of $1 million, with the increase due primarily to the growth in revenue as well as higher margin systems upgrade revenue. Non-GAAP gross profit for the third quarter of fiscal '25 was $2.9 million, an increase of $1.6 million or 131% from the fiscal 2024 third quarter non-GAAP gross profit of $1.3 million. GAAP gross margin for the third quarter of fiscal '25 was 71.4%, an increase of 15.6% from the fiscal 2024 third quarter GAAP gross margin of 55.8% with the year-over-year improvement primarily driven by the growth in revenue and the higher-margin Jülich systems upgrade revenue. Non-GAAP gross margin for the third quarter of fiscal '25 was 77.7%, an increase of 10.5% from the fiscal 2024 third quarter non-GAAP gross margin of 67.2%. The difference between GAAP and non-GAAP gross profit and gross margin is limited to noncash stock-based compensation and depreciation and amortization expenses that are excluded from the non-GAAP measures. Net loss for the third quarter was $140.8 million or $0.41 per share compared with a net loss of $22.7 million or $0.11 per share in the fiscal 2024 third quarter. The increase is due primarily to $121.9 million in noncash nonoperating charges related to the remeasurement of the company's warrant liability as well as realized losses stemming from warrant exercises, both of which increased materially due to the significant increase in the price of the company's common stock and warrants. Adjusted net loss for the third quarter was $18.1 million or $0.05 per share, a decrease of $5.1 million or $0.07 per share compared with an adjusted net loss of $23.2 million or $0.12 per share in the fiscal 2024 third quarter. The difference between net loss and adjusted net loss is primarily the noncash, nonoperating warrant related charges. The adjusted EBITDA loss for the third quarter of fiscal '25 was $20.6 million, an increase of $6.8 million or 49% compared with adjusted EBITDA loss of $13.8 million in the fiscal 2024 third quarter. The increase was primarily due to higher operating expenses, partially offset by higher gross profit. I'll now address D-Wave's operating performance for the first 9 months of fiscal 2025. Revenue from the 9 months ended September 30, 2025, was $21.8 million, an increase of $15.3 million or 235% from revenue of $6.5 million for the 9 months ended September 30, 2024. The year-over-year increase is largely due to the system sale to Jülich that has been recognized over the first 3 quarters of fiscal 2025. Year-to-date revenue was comprised of $15.5 million in revenue from the sale of an advantage annealing system to Jülich along with the associated Advantage2 processor upgrades. $4.2 million in QCaaS revenue and $2.1 million in professional services revenue. Bookings for the 9 months ended September 30, 2025, were $5.3 million, a decrease of approximately $300,000 or 7% from bookings of $5.6 million for the 9 months ended September 30, 2024. GAAP gross profit for the 9 months ended September 30 was $18.5 million, an increase of $14.4 million or 353% from $4.1 million and GAAP gross profit for the 9 months ended September 30, 2024, with the increase due primarily to the recognition of the higher-margin Jülich system sale during the first 9 months of fiscal 2025. Non-GAAP gross profit for the 9 months ended September 30, 2025, was $19.2 million, an increase of $14.5 million or 304% from the non-GAAP gross profit of $4.7 million for the 9 months ended September 30, 2024. Moving on to gross margins. GAAP gross margin for the 9 months ended September 30, 2025, was 84.8%, an increase of 22.1% from the 62.7% GAAP gross margin for the 9 months ended September 30, 2024, with the increase due primarily to the higher margin nature of the system sale. Non-GAAP gross margin for the 9 months ended September 30, 2025, was 87.8%, an increase of 15.1% from the 72.7% non-GAAP gross margin for the 9 months ended September 30, 2024. Net loss for the 9 months ended September 30, 2025, was $312.7 million or $1.01 per share compared with a net loss of $57.8 million or $0.32 per share in the fiscal 2024 9-month period. The increase is due primarily to $260 million in noncash, nonoperating charges related to the remeasurement of the company's warrant liability as well as realize losses stemming from warrant exercises. Adjusted net loss for the 9 months ended September 30, 2025, was $52.8 million or $0.17 per share, a decrease of $5.1 million or 8.7% when compared to the fiscal 2024 9-month period net loss of $57.8 million or $0.32 per share. Adjusted EBITDA loss for the 9 months ended September 30, '25 was $46.7 million, an increase of $6.1 million or 15% from an adjusted EBITDA loss of $40.6 million for the 9 months ended September 30, 2024. The increase is due primarily to higher operating expenses, partially offset by higher gross profit. Now a few comments on how D-Wave's revenue and business model are fundamentally different from most all, if not all, other quantum computing companies. Our revenue model now consists of 3 primary synergistic components. Quantum computing as a service or QCaaS, professional services and system sales. Our quantum computing as a service consists of cloud-based recurring subscription revenue derived by providing customers with access to our own Leap cloud service. While we have over 100 QCaaS customers, nearly 48% of which are commercial organizations. We believe that we are still at a very early stage in developing the QCaaS business with most of the revenue base still comprised of smaller deal sizes. Moreover, with 4 production systems now supporting the Leap cloud service, we have over $100 million in annual QCaaS revenue capacity that inherently provides us with significant operating leverage. Our professional services revenue typically involves relatively straightforward, fixed priced short-term engagements to assist customers with proof of concepts of applications that will help solve their business problems. Our objective is to transition these applications into longer-term production applications wherein customers access our systems on an ongoing basis to solve their computational problems. D-Wave is the only quantum company with applications in production. System sales is our newest revenue stream, and it is worth noting that our system sales are quite different from the systems being sold by most other quantum computing companies. Our advantaged systems are highly scalable, commercial-grade systems being used to solve real problems, whereas most other quantum computing systems are development stage, low qubit count systems that are being used for research experimentation. While our systems may be used for research in areas like AI, these are not experimental or R&D systems. Year-to-date, we have sold a system to the Jülich Supercomputing Center in Germany, entered into a memorandum of understanding to sell a system to Yonsei University and Incheon Metropolitan City in South Korea, signed a EUR 10 million contract for the D-Wave Advantage2 annealing quantum computer to be located in Europe in partnership with the Italian government and the Q-Alliance. And earlier this week, we announced that an Advantage2 quantum computer is now operational at Davidson Technologies headquarters in Huntsville, Alabama to support U.S. Department of Defense and aerospace customers. D-Wave's revenue model contrasts sharply with the revenue makeup of most other independent quantum computing companies that is typically comprised of highly concentrated government-funded research and development that is recognized under GAAP as revenue. In these arrangements, government entities are essentially funding the development of systems that they may or may not eventually purchase. This government-funded R&D revenue is typically low margin, and the systems involved are not commercial-grade, scalable production systems capable of solving real-world problems. They are experimental R&D systems. While we believe that increased government funding and quantum could provide D-Wave with incremental revenue opportunities and could speed up development in certain areas. We don't believe that a primary focus on government-funded R&D revenue is a sustainable business model. We will continue to focus on providing access to our commercial-grade systems, either through our Leap cloud service or via on-premises sales as well as providing the suite of professional services frequently necessary to transition applications into production. Now I will move on to address the balance sheet and liquidity. As of September 30, 2025, D-Wave's consolidated cash balance totaled $836.2 million, representing a 2,700% increase from the year earlier fiscal 2024 third quarter consolidated cash balance of $29.3 million and a 2% increase from the fiscal 2025 second quarter consolidated cash balance of $819.3 million. During the quarter, the company received $40.3 million in proceeds from the exercise of warrants. On October 20, we announced the redemption of all the company's approximately 5 million outstanding warrants that if fully exercised before the redemption date would provide approximately an additional $58 million in cash. Subsequent to the end of the third quarter and through November 4, we have received $21.3 million from the exercise of warrants. To conclude, our business momentum continues to build. And as we have previously stated, we believe that D-Wave has the opportunity to be the first independent publicly held quantum computing company to achieve sustained profitability and to achieve this milestone with substantially less funding than required by any other independent publicly held quantum computing company. With that, operator, please open the call for questions. Operator: [Operator Instructions] Our first question will come from Harsh Kumar with Piper Sandler. Harsh Kumar: Alan and John, first of all, congratulations on the Italy Lombardy deal and then also the very substantial 100 customer number that you mentioned on this call and the press release. My question is, I see that you are now finally getting some attention/loved from the U.S. government. This has been something that has not happened in the past. You were getting attention from foreign governments, but not the U.S. government. I saw a deal where you're part of an alliance for national security work. Obviously, I won't ask about what you're doing, but can you talk about the significance here? And is this a shift towards -- some attention towards an easing by the U.S. government? Alan Baratz: So Harsh, the key point that I want to make relative to the U.S. government is that our approach is quite different from the other quantum computing companies that are engaged with the U.S. government. We are not looking for R&D funding to aid in the development of our quantum computers. Our annealing quantum computers are at scale today and capable of solving important government problems. And so our work with the U.S. government is all about identifying areas where our systems can actually provide value to the government, whether it's in areas like military logistics or research placement or equipment maintenance. Those are the sorts of things we're focused on. And I think they're starting to become a realization in key areas of the government that our systems are capable of delivering value, and that's what's starting to open up some opportunity for us. Operator: Next question will come from Troy Jensen with Cantor Fitzgerald. Troy Jensen: Congrats on all the progress here and the great milestones. A quick question for Alan, and I love the passion here and all the speaking earlier. But can you just give us more details on the gate model product in the superconducting computer you're working on, specifically like the time line of the launch and kind of what the fidelity and qubit count would be? Alan Baratz: Yes. So first of all, we are using superconducting for our gate model quantum computer. We are not using the types of qubits that most of the other superconducting gate model companies are pursuing. They are pursuing what are known as transmon qubits or voltage-controlled qubits, we are pursuing fluxonium qubits that are controlled with magnetic flux. We're doing this because our annealing quantum computers use flex-based qubits. And so we've got a lot of experience with them, and we think they have some very significant advantages over the transmon qubits when it comes to scaling. And then, of course, we are the only company that has been able to use cryogenic control with their quantum computers, I talked about this last quarter. That's why, for example, we can control 4,000 qubits in our annealing system with only 200 I/O lines rather than needing 3 to 5 I/O lines per qubit, and we're bringing that into the gate model space. Our first demonstration will be what I discussed a bit earlier in the call, which is that we have now fabricated high-quality fluxonium qubit chips, and we have fabricated cryogenic control chips, and we will be bonding those together through a bump on process to demonstrate scale -- basically cryogenic control of gate model qubits. From there, we will be moving on to developing basically logical qubit structures starting with small surface code, but developed in a scalable fashion and then building up from there. And over the course of the coming year, we expect to have the first of this kind of capability demonstrable. And then that is on the path to scaling the logical qubits and the number of qubits on the chip to -- on the path to a scaled error corrected gate model system. But the time line for a scaled error corrected gate model system is still a number of years out. It's pretty much the same time line as you'll hear from any of other quantum computing companies who are being honest with you, in the 5- to 10-year time frame. Operator: The next question will come from David Williams with Benchmark. David Williams: I wanted to ask a little bit on -- and you talked about this earlier, but the Davidson relationship that you have. And I know you've been working on several projects there. But as we kind of think about national security and defense initiatives and things like the Golden Dome, how do you think you can play into that? Just kind of given your heritage there, and you've been working on this for a long time. It seems like you'd have a good opportunity. So just any color around that would be very helpful, I think. Alan Baratz: Yes. So look, we are just as interested in Golden Dome as every other quantum computing company, we participate in the various government forums to kind of talk about this, we're doing exploratory work in application areas that could be a benefit, but this really does fall right into the category of solving hard problems today that can deliver value to the U.S. government as opposed to trying to play with research systems, the new research experimentation. Our work with Davidson cuts across a number of different application areas, as I previously mentioned. And very interestingly, the next step in that relationship now that our system is fully calibrated, operational and online at Davidson. The next step is to secure the system. So that we can run classified versions of applications on the system, which would make it what we believe would be the very first quantum computer certified for classified government applications. Operator: Next question will come from Quinn Bolton with Needham & Company. Quinn Bolton: Congratulations on the momentum. I just wanted to follow up on the Q-Alliance transaction and SQT where they have the option to purchase the system. John or Alan, can you just sort of talk to the extent that they want to make that purchase, how would that work? You've got a EUR 10 million contract for half of the system over a 5-year period, would they get credit for money spent if they converted, say, in year 1 or year 2? Or would it be sort of a full $20 million to $40 million purchase price? And anything that had been recognized on the EUR 10 million contract you would keep and then you would get the full system sale to the extent that they move in that direction? Alan Baratz: Yes. Sorry -- I'm sorry, Quinn, but we haven't closed any of the details around how the purchase would occur. The only thing I will say is that you should certainly not assume that $10 million for half the capacity of system means double that or $20 million for the full purchase of the system. There are many benefits that a customer gets when they purchase the system, and we pass title to them, including the ability to do things that -- with the system that can't be done when the system is online and shared. And so as a result, there's a premium on the pricing for the actual purchase of a system. But the relationship with the Q-Alliance and the Italy government is for 50% capacity of the system over the course of the next 5 years, and they do have the option to purchase the full system, which would then put them into a different category where title would actually pass. Operator: Next question will come from Kingsley Crane with Canaccord Genuity. William Kingsley Crane: Just to double-click on that Q-Alliance deal, it sounds like somewhat of an innovative deployment and procurement model. So I believe that 50% of the capacity would then be available to QCaaS customers. Could this just become a blueprint to future deals and establishing points of presence across the world. Just curious your thoughts on that structure. Alan Baratz: It absolutely could. And in fact, it's not entirely new for us. We did something like this with the Jülich Supercomputing Center. Initially, they had a system on site, and they had a portion of the capacity of that system, and the rest was available for other QCaaS customers, but then they chose to purchase the system. And so this is a really interesting model for, a, kind of building out presence around the world; and b, taking it one step at a time toward the purchase of the system. Of course, then there are other companies that just outright want to purchase the system, which is the nature of the discussion that we're having, for example, in Korea, and we have actually a few others of those that have now become quite advanced as well. Operator: Your next question will come from Craig Ellis with B. Riley Securities. Craig Ellis: Congratulations on progress with large customers and advantage to engagement. The question I wanted to ask goes back to an expectation that was set 3 months ago, which was that the company would increase investment moderately about 15% half-on-half in R&D and sales and marketing as it looks to accelerate technology and its go-to-market capability. Can you just talk about how that's going? What we should expect in the fourth quarter with respect to operational things, increased capability? And what should we expect as we look at the first half of '26, more stable expenses or a further uptick? Alan Baratz: John, do you want to talk about the numbers and then I can maybe provide a little color on the use of the funds? John Markovich: Sure. So as we outlined in the second quarter earnings call, we outlined that our operating expenses for the balance of the year will increase approximately 15% on a sequential basis with the majority of that incremental spend in the R&D area. Craig, with respect to your question in the first half of next year, we're not going to provide any guidance beyond what we have provided for the balance of this year in terms of the growth in the OpEx. Alan Baratz: And Craig, just to give a little color on you. So I think that it won't be a surprise to anybody if I say that given the fact that we have significantly more cash now than in the past. And so we do have the ability to start making some modest investments in R&D. One of the key areas that we will be accelerating is our gate model program. We believe that we've got some unique, valuable technology in the gate space that's going to allow us to move in a fairly short footed fashion. And so that is a target for a bit of increased investment. And then from a go-to-market perspective, now that we have the system sales model, we are -- we've got a portion of the team that's now focused on system sales and a portion that's focused on professional services in QCaaS. So we've made a bit of an investment to kind of facilitate both of those go-to-market motions. And then we're starting to see something that is actually pretty exciting. It's still early with respect to exactly when and how this will materialize. But we've talked a lot about proof of concept and the value that we're seeing and the move to production. And we've started to have the first conversations along the lines of, well, hey, this application is looking really good. We want to move it into production, but we've got a few other applications now that we're interested in. Could we do a deal that gives us the ability to support multiple proofs of concept and multiple applications in production. I'm not entirely sure what to call it, but you could think of it as maybe something like an enterprise license that bundles a number of production apps and a number of proofs of concepts to really start accelerating the professional services and QCaaS sales and revenue. That's just getting started. I mean that's happened literally within the last few months where we started getting inquiries about that. But that could be an important inflection point for us on the PS QCaaS business. Operator: Your next question will come from Suji Desilva with ROTH Capital. Sujeeva De Silva: Congrats on the progress here. I wanted to ask a question about in the quantum market, there's a lot of discussion of ancillary quantum opportunities, communications, timing, memory, security keys and so forth. I just want to understand qubits position on these? Are you razor-focused on your core opportunity? Are you able to internally develop these, inorganic or maybe the markets are not as mature as people think? Just any thoughts there would be helpful? Alan Baratz: We are laser-focused on quantum computing. First of all, our systems for the foreseeable future don't need the quantum interconnect you hear about on quantum networking. The other modalities, the other approaches do. For example, when it comes to interconnecting traps, whether they be neutral atoms or ion traps, you need that kind of interconnect and you're going to need to interconnect the traps to scale. But for our systems, that's not a critical technology. And we don't view sensing a central to what we're doing. We don't view quantum key distribution essential to what we're doing. We are focused on quantum computing. Operator: Your next question will come from Richard Shannon with Craig-Hallum. Tyler Perry Anderson: This is Tyler on for Richard. So I wanted to double-click on some of the things that your customers are doing. You mentioned SkyWater is using your QPU, is this for magnetic material simulation or for the simulation of quantum devices? And does this help improve the chips that you're getting from them? And then also for the airline company, are they using your technology for scheduling or traveling salesmen? And then if you can have a comment on how often BASF has to run your program, if that is in production, I'd be interested in that. Alan Baratz: Okay. I'm not sure whether to call that 1 question or 3 questions. So here's what I will say. In the case of SkyWater, they're a new customer as of this quarter, and it is really all about looking into kind of optimization problems in their operations. And in the case of this very large airline, we have not disclosed the applications that we are working on. Operator: The next question will come from John McPeake with Rosenblat Securities. Unknown Analyst: It's good to hear things are tracking well. I just have a question on optimization. There's a lot of publicity around quantum, a lot of feverish commentary that you were referring to. And I'm curious relative to trial to conversion to production on the optimization side, new logos. Maybe you could just talk a little bit about what the tone is like there because that's real business. Alan Baratz: Yes. I'm not entirely sure what you mean by the tone, but what I can tell you -- and we started to see this maybe a quarter or 2 quarters ago, we are now being engaged by much larger companies interested in addressing larger and more challenging optimization problems. And that's why we can talk about one of the largest airlines, one of the largest chemical companies, one of the largest payment processing companies, that's why I commented that we're now with successful initial proofs of concept starting to get inquiries about, okay, if I wanted to do a deal that bundles in multiple proofs of concept and assuming they're all successful multiple production applications. Could I -- what would a deal like that look like. So I think, as I said before, we're getting close to an inflection point on the professional services and QCaaS business, where we're seeing now better and better results with our customers, due in large part to the fact that we're now on the Advantage2 platform. We now have our really powerful NL hybrid solver. And so the results are in some sense speaking for themselves and allowing us to move forward more aggressively. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Alan Baratz for any closing remarks. Please go ahead. Alan Baratz: Okay. Thank you, operator. Momentum is clearly building at D-Wave, and we believe that our first-mover advantage is increasingly evident in our business results and our technical innovation. As Fox Businesses Charles Payne remarked earlier this week, we are the real deal. In the sea of quantum hype, our position is clear. We're helping customers realize the value of quantum today, and I think our 2025 results to date demonstrate that we are making consistent progress toward the service of that mission. So thanks for your time today, and thanks for your support, and I look forward to updating you again in January at Qubits 2026. We'll see you all in Boca Raton. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the DIRTT Environmental Solutions Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Kristin Bradfield, Senior Vice President of Marketing and Communications. Please go ahead. Kristin Bradfield: Thank you, operator, and good morning, everyone. Welcome to today's call to discuss DIRTT's third quarter 2025 results. Joining me on the call today will be Benjamin urban, CEO; and Fareeha Khan, CFO. Today's call will include forward-looking statements within the meaning of applicable Canadian and United States securities laws. These statements are based on the company's current intent, expectations and projections, they are not guarantees of future performance. In addition, this call will reference non-GAAP results, excluding special items. Please reference our Form 10-Q as filed on November 5, 2025 with the Securities and Exchange Commission, or SEC, and other reports and filings with the SEC for information regarding forward-looking statements and reconciliations of non-GAAP results to GAAP results. I will also remind you that this webcast is being recorded, and a replay will be available early next week. I will now turn the call over to Benjamin. Benjamin Urban: Thank you, Kristin, and good morning, everyone. As referenced in our outlook, Q3 marked a shift back to normal business with improving margins and a return to positive adjusted EBITDA. Our growth strategy is showing strong results, which I will highlight later in the call. I will now turn it over to Fareeha to discuss the financials. . Fareeha Khan: Thank you, Benjamin, and good morning all. Please note that we have issued a press release discussing our third quarter 2025 results and have also provided additional analysis in a supplemental presentation. Both documents are available on our website. Revenues for the third quarter were $37.7 million, a decrease of 13% compared to the same period in 2024. We entered the third quarter of 2025 with 12-month forward pipeline 18% higher as compared to July 1, 2024, but experienced higher-than-normal order delays due to job sites not being ready, when such order delays or pushouts occur, order dates typically move out 1 to 12 months. Gross profit margin decreased from 38.8% of revenue in the third quarter of 2024, and to 30.4% of revenue in the third quarter of 2025. But sequentially compared to Q2 2025 grew from 27.8% to 30.4% and despite slightly lower revenue levels. This sequential growth is due to ongoing realization of the 5% price increase announced in March 2025 and the 3.5% surcharge announced in June 2025 to negate the impact of tariffs. Tariff costs this quarter were $1.9 million. There has been no change on tariff rates and materials impacted by tariffs this quarter. Operating expenses for the third quarter, excluding reorganization costs, stock-based compensation and impairment charges were $11.8 million, a 17% decrease from the same quarter last year of $14.2 million. The decrease primarily relates to a $1.1 million decrease in professional services and a $0.8 million decrease in compensation costs. I will now comment on our reorganization costs. Earlier this year, we set up a transformation office to accelerate DIRTT's strategic transformation by positioning construction services for new market access and continued share gains, streamlining operations and implementing margin-oriented best practices. We hope to realize cost efficiencies and also introduce future operating leverage in the business as top line scales over time. The reorganization costs to date primarily comprise of termination costs and onetime consultancy costs. Net loss after tax for the third quarter of 2025 was $3.5 million, compared to net income after tax of $7.1 million for the same period of 2024. Net loss after tax was impacted by a $5.3 million decrease in gross profit, a $2 million increase in reorganization expenses, a $7.5 million decrease in gain on extinguishment of convertible debentures, offset by a $2.5 million decrease in other operating expenses, a $1.1 million decrease in interest expense and a $1 million increase in foreign exchange gain. Adjusted EBITDA for the third quarter of 2025 was $1.2 million, a decrease of $2.9 million from $4.1 million during the third quarter of 2024. The decrease is as a result of the gross margin and operating expense variance explained earlier in the call. With respect to our balance sheet, the quarter finished with $26.1 million in unrestricted cash, an increase of $3 million from June 30, 2025. Cash provided by operations was $4.4 million while cash used in investing activities, mainly capital expenditure, was $0.8 million. Cash used in financing activities was $0.4 million and primarily consisted of routine repayments of debt and repurchase of debentures and shares through the normal course issuer bids. Working capital decreased slightly from June 30 as a result of the previously mentioned results. Liquidity was $32.3 million as of September 30, 2025, including $6.2 million of availability under our ABL credit facility with RBC. We have not drawn on this facility to date. This quarter, we had minimal activity in our debentures NCIB and shares NCIB program. We renewed our original debenture NCIB program for an additional year. To date, we have repurchased 5.6 million common shares through the shares NCIB and 0.8 million convertible debentures through the debentures NCIB and renewed NCIB program in aggregate. Looking forward to the final quarter of the year, we are pleased to see our pipeline converting into revenue. Our 12-month forward sales pipeline, excluding leads at October 1, 2025, was $333 million, an increase of 20% compared to $278 million at January 1, 2025. For the fourth quarter of 2025, we are expecting revenue between $48 million and $52 million and adjusted EBITDA between $5 million to $7 million. We are also pleased to announce on October 28, 2025, we entered into a nonbinding term sheet with the Business Development Bank of Canada, or BDC, for proposed financing of up to CAD 15 million. We expect to use the proceeds to partially settle the January debentures. The remaining January debentures of CAD 1.6 million would be settled through our cash balance. Advancement of funds remain subject to, among other things, completion of due diligence by BDC. In addition, on November 4, 2025, we also extended our RBC ABL facility by an additional year. This concludes the earnings and financial position report. I will now turn it back to Benjamin to discuss DIRTT's business updates. Benjamin Urban: Thank you, Fareeha. While 2025 has presented a number of macroeconomic challenges, we have faced these challenges head on and continued to advance our strategic growth plan. Recent contract wins and pipeline growth demonstrate the strategy is working. We recently shared news of a project with Google at the Caribbean campus in Sunnyvale, California. This marked more than 250 projects with Google during a 10-year relationship. Our repeat customer business is incredibly high, in our current 12-month pipeline, 49% are customers we have previously worked with demonstrating confidence of satisfaction and trust in what DIRTT delivers. We are also seeing success with new clients. During the past quarter, we secured over $3 million with Exxon for a project expected to begin installation next quarter, adding to our extensive list of Fortune 500 clients. DIRTT has also been evolving how we pursue and deliver projects. Last year, we established a team called Integrated Solutions to explore expanded revenue opportunities. During Q3, we formalized this team as DIRTT Construction Services to better reflect their full scope and capabilities. They provide preconstruction, design, build assistance, targeted estimating, self-perform installation and more, elevating DIRTT from manufacturing to a multi-trade prefabricated interior construction company. By expanding our service offering, we are able to take a more proactive approach in how we pursue projects and maximize the scope we can capture per project. It also gives us a significant competitive advantage over other manufacturers who rely exclusively on third parties to execute their products. DIRTT Construction Services is designed to complement our existing partner distribution network. We can provide more technical capabilities to help select partners bid on and win larger projects or helpful gaps a partner may have in their team. And we're already seeing success. Some of our largest recent projects were secured using this collaborative approach, including a $13 million project with a large semiconductor company. Construction Services also enables DIRTT to pursue projects in markets without partner coverage in sectors that require specific expertise or for our existing national account strategy. Large clients with a national footprint, executing projects in multiple regions. This expanded commercial capability is a key driver of our growth strategy. After 3 challenging quarters, we are seeing positive momentum from Q4 onwards, validating the strategy is working. We ended Q3 with a 12-month forward pipeline of $333 million a 20% increase from the beginning of the year, continuing the strong steady growth we've seen throughout 2025. This growth is fueled by our continued investment in innovation marketing and further developing the Construction Services capabilities to capture more of the total addressable market. Within that 12-month pipeline, $50 million is through the Construction Services division. To further this growth, we have invested in staffing to support execution as Fareeha discussed earlier, and marketing for awareness and increased customer acquisition. Early success indicates the potential is incredibly strong. We continue to focus on growth in our partner network. We are in the process of our annual retiering to identify our most engaged partners and those most positioned for growth. This tiering delineates the level of investment, services and business growth opportunities we provide to the network. Our highest tier, platinum receives the most, including more collaboration on construction services projects and the potential for market expansion. For example, we recently expanded a partner into Kentucky based on outstanding performance and capabilities that directly met our need in the new market. In key markets with existing strong distribution partners, we have invested in additional business development resources. In Q3, we added new sales representatives in New York, where there is significant growth across all verticals. Toronto, where commercial is strong and government and national accounts opportunities are expanding. Vancouver, to support growth in commercial, education and multifamily. And Denver to drive growth across all verticals. Each of these markets present opportunities such as significant presence of large self-performing general contractors and demand for key DIRTT value propositions like lower labor cost, compressed construction schedules and sustainability. We also continue to bring new partners on board and diversify the types of partners we work with. During Q3, 2 of our top 5 performing partners were new to DIRTT in the past 24 months. And 3 of the top 5 are outside the traditional furniture fixtures and equipment profile that we have historically worked with. All of this contributes to the continued transformation of how we do business and capture expanded scope. Our business transformation goes beyond our commercial strategy. We have continued to advance this process through talent initiatives and operational efficiency. A key driver of our success has been the quality and reliability of the products we manufacture and deliver to the market. But we need to continually innovate and identify the pain points and unmet needs of our customers to deliver solutions that solve these challenges. In Q3, we brought a new Vice President of Product Development and Strategy on board to lead our product innovation strategy for growth. Michael Mullen brings more than 25 years of strategic product design and development experience, with expertise in manufacturing and innovating to meet customer needs. We are excited to have Michael on the team and look forward to his contributions. As always, safety is a top priority for DIRTT. Our total recordable incident rate at the end of Q3 was 0.99, which is 75% below our industry standard. I'm also proud to share that DIRTT has been recognized as Canada's safest manufacturing employer in the industrial sector by Canadian occupational safety. This award reflects the strength of our safety culture and our commitment to operational excellence. Our safety team works diligently to make this possible and our manufacturing team members embodied DIRTT's dedication to safety every day. Lastly, an update on the Falkbuilt litigation. The 8-week trial covering multiple allegations is scheduled to begin on February 2, 2026. DIRTT is pursuing damages in both the United States and Canada, which could exceed $50 million. This trial will be underway when we report year-end earnings, and we will provide another update at that time. In closing, I would like to thank our entire DIRTT team for their dedication to continuous improvement and transformation, which requires reimagining how we do business, and innovating to be steps ahead of the market and competition. This takes a highly strategic collaborative process, and our team has risen to the challenge. Thank you for joining us today. I will now open the call to questions. Operator: Our first question comes from Julio Romero with Sidoti & Company. Julio Romero: Excited to be joining the call. To start, can you maybe walk us through how customer behavior has trended over the course of July, August and September in terms of decision-making and delays. And then also, could you share any initial read-throughs with respect to customer behavior in the month of October? Fareeha Khan: Yes, Julio, I'll take that question. So in Q2 we had seen a pause in decision making. But that customer behavior changed in Q3, and we felt everyone was getting back to business. The push outs we had in Q3 related to sites not being ready. The jobs have not been ready, which in a way is a good sign, right, as everyone is getting back to work. So going into Q4, we see everyone getting back to normal. So we see that as a positive development. Julio Romero: Got it. Yes, that makes sense. Very exciting to hear the continued momentum within the construction services initiative with $50 million of the pipeline relating to that initiative. Can you help us unpack some of the drivers of the momentum you've seen there? And then secondly, how big of a role has new product offerings such as the 1-hour fire-rated walls played in that momentum? Benjamin Urban: Yes. No, that's a great question, Julio. We are seeing continued expansion in that Construction Services division. We've also been balancing it as we've scaled, right, such that we were able to service that work that's been growing in it. Currently of that $50 million that we're showing in pipeline for 2026, there's actually not that much in it. It is fire-rated partitions. There's a bit, but we see that as a larger opportunity as we get into the end of 2016 and into '27. Julio Romero: Got it. Very helpful there. And then last one, if I may, is just to the extent that you can, how would you have us think about how 2026 could look like even at a high level and also what the potential contribution could be from Construction Services for '26? Fareeha Khan: So Julio, the way we would look at it, I think the pipeline is a good indicator of what's happening. So if you look at the year-on-year pipeline increase, it's $80 million. It's quite a significant increase. So I think that will be a good indication of what's to come. I think the collaboration between Construction Services and our construction partners is going to open more opportunities for us. And we hope to see that converted to pipeline and to revenue going forward. Operator: Our next question comes from Nicholas Boychuk with Cormark Securities. Nicholas Boychuk: Going to break my question up here to 2 different time frames. I just want to make sure I understood Fareeha your comments here in the first part related to Q4 '25, the adjusted EBITDA outlook, is there anything unique that's occurring within that quarter that would say, point to that pent-up demand? Like how much, I guess, of that $5 million to $7 million EBITDA boost is related to the pent-up demand, large projects that are recognized in the quarter that maybe won't repeat. The real question I'm asking is, based on the operating environment that you see right now, is that $5 million to $7 million kind of what you should expect going forward? Or are there one-off items within that quarter? Fareeha Khan: So Nick, the way I'd look at it is -- so yes, we had higher push rates in Q2 and Q3. But if you look at Q3, the year-on-year revenue decrease was $5 million. Whereas if you look at our annual pipeline movement, the increase is $80 million, right? So there will always be some push outs that go into the next quarter. But the bulk of the Q4 number is from growth. Q4 is historically always our highest quarter. So I hope that explains the revenue part of it. From an adjusted EBITDA perspective, there's a fixed cost leverage as well. Whenever we have higher revenue, you'll see our AGP goes up. So there's definitely a benefit there because of the efficiencies of the factory. Through the transformation office, we are really focusing on the SG&A side as well to find back-office efficiencies. And the key focuses there are how do we do -- how can we be more efficient, faster, better and be ready for any scale-up of revenue growth. So the adjusted EBITDA, I would not say is a surprising figure based on that revenue level. And at that revenue level, we should be able to sustain that adjusted EBITDA level. Nicholas Boychuk: Understood. And you brought up 2 themes of my next follow-up questions. On the operating leverage specifically, you mentioned again in the press release and the MD&A that the capacity of both your facilities is about $400 million and that you will get that operating leverage. Once you start to scale revenue, how much of that leverage can you extract? Where do you ultimately hope gross margins land in '26 and '27? Fareeha Khan: So there are a couple of things there, and there's so many variables in gross profit, but I'll try to answer that the best I can. So we have $400 million of manufacturing capacity. Of that, probably about 15% is -- of our COGS is straight up fixed costs. So when you have higher revenue, there are more opportunities for us to do things more efficiently, run the plants at an efficient level. So we benefit from that. Our ideal gross profit, I mean, we can always have ideals. But if you go back to last year, our AGP was 38%. So we know we can do it. Now things that will affect AGP would be what's happening with the price of raw materials. But again, even for that, we are fairly proactive. We watch the market. Our supply chain team is actively looking at prices, looking for ways to be more efficient. We can always mitigate the impact of rising raw material prices. This year, you know the tariffs did impact our adjusted gross profit. But again, going into Q4 and next year, based on the prevailing tariffs, we feel we have put in place enough actions to mitigate that effect. So I would use last year's AGP as a reference point of what we can be. And of course, we're going to continue to look for ways to improve that adjusted gross profit. Nicholas Boychuk: And then you mentioned as well the $50 million contribution into the pipeline from the customer services team. How should we be thinking about that from a quality standpoint, like if that's more internally funded or found opportunities, is there a change in quality or likelihood of conversion. So I guess of the $333 million total pipe, is it likely that the next 12 months might see a little bit higher historical conversion than the typical 45% to 50%? Benjamin Urban: Yes. I'll take that. It's an astute observation there. Typically, when we are in control of that pipeline and the construction services projects, we do see a greater conversion rate on those opportunities because we are closer to that. Of that $50 million and what that represents in the pipeline moving forward. And just a reminder, right, that's only our 12-month pipeline. We aren't disclosing the full pipeline. And many of the projects that we're pursuing now could also be into 2027. So the full pipeline is larger than that altogether. But even within that Construction Services at a point in time next year, Construction Services will represent more than 10% of our overall revenue. So we will disclose that independently. And then you will also be able to see the conversion rates associated with Construction Services against the pipeline to give you a better gauge on forward-looking revenue. Nicholas Boychuk: And then the last one for me on the transformation office and the termination benefits this quarter. That was obviously a little bit of an uptick in expense. Can you maybe walk through a little bit what it was exactly you guys have done and what you're hoping that this transformation office strategy does moving forward? Benjamin Urban: Yes, for sure. There has been a bit of an uptick in expense associated with the transformation offices. We brought in additional resources to accelerate that process. And really at its core, that transformation partnered with our corporate strategy is really coming at it at 2 ends. One is how do we take down the additional capacity that we have through growth on the top line on the commercial side, all the while driving efficiency throughout the business such that we can get that expansion in AGP and EBITDA, right? So the -- I think you'll start to see some returns. We are already seeing it internally, efficiencies that are driving out of that transformation. And we have been pursuing this for coming up on a year now. So a lot of the hard work that our team has done to identify where the opportunities reside has now transitioned into full execution of that transformation to drive that expansion. Operator: This concludes our question-and-answer session. Thank you for your participation. You may now disconnect. Everyone, have a great day.
Operator: Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Third Quarter 2025 BPER Consolidated Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Nicola Sponghi, Head of Investor Relations of BPER. Please go ahead, sir. Nicola Sponghi: Thank you, and good morning, everyone. I'm pleased to welcome you to our third quarter and first 9 months 2025 earnings conference call. Before I give the floor to our CEO, Gianni Franco Papa, please be reminded that our slides set and press release can be found on our corporate website. I would also advise you to take note of the disclaimer on Slide 2 of the presentation document. That said, after the presentation, our CFO, Simone Marcucci; and our CRO, Emanuele Cristini, will take care of the Q&A session. I will reiterate that this is reserved for financial analysts whom I will kindly request to ask a maximum of 2 questions each. So that everyone will have the opportunity to contribute to today's call. Thank you very much. I will now leave the stage to Mr. Papa, CEO of BPER. Gianni Giacomo Pope: Thank you, Nicola. Good morning to everyone, and welcome to our Q3 earnings presentation. Before giving you details on the financial performance of BPER, I would highlight a number of key features of the third quarter 2025. First and foremost, the 23 work streams identified for the integration of BPSO into BPER are all up and running and will be completed by the end of the first half of 2026. Secondly, in the context of our new organizational model, we have decided to regroup 90 overlapping branches in the central and northern part of Italy. And given our market share by branches in Lombardy, where we can almost boast a share of the market of 18%, we decided to create a new regional headquarter called Lombardia North. As far as our human capital is concerned, we are aiming to further invest in young talent. In order to accomplish a generational change in the bank, we have initiated discussions with trade unions to implement additional voluntary exit, which should amount to about 800 employees. As you have seen in our press release dated October 21, BPER signed a derivative contract, which can be summarized as a synthetic exposure to its own shares of up to 9.99% of the share capital. We decided to take this action as we strongly believe in the enormous potential to shareholder value generation of the new banking group, combining BPER and BPSO. On the rating side, we have received important recognitions from the credit rating agencies with improved ratings post the successful outcome of the business combination with BPSO. And finally, as you can appreciate on the slide, in the last 24 months, BPER shareholders have benefited from a total shareholder remuneration, which is shy of 280%. This would increase to 315% at the end of October when the market cap reached EUR 20.2 billion. The trajectory is similar if we look at the main tangible banking asset drivers, which have increased by almost 50% in the same period. And let me add that compared to our peers, I'm convinced that we continue to trade at a discount. Let's now move to our Q3 financials on the next slide. I'm very pleased about Q3 because along with the ongoing business integration, both banks performed extremely well. These outstanding results have been possible because of the remarkable commercial performance, which led to continued and robust commission growth, resilient NII and an increase in the number of net new customers. This particular slide highlights the financials of the new group based on the consolidation of BPSO Q3 results. As such, the impact of BPSO on the consolidated financials accounts for only 3 months. And in a similar way, Q4 will include only 6 months of BPSO results. Please note that balance sheet items, on the other hand, include the full 9 months consolidation of BPSO. In order to ease the reading on the right side of the slide, we have included on the bottom part of each box, BPER like-for-like results. As you can see, total revenues now amounts to EUR 4.6 billion and net profit amount to EUR 1.5 billion. On a like-for-like basis, these are the best ever 9 months results by BPER with a net profit of EUR 1.3 billion, an increase of almost 20% 9 months on 9 months. The cost/income ratio stands at 46%. BPER on a like-for-like basis decreased cost-income ratio by over 270 basis points to 46.8%, underlining the continued focus on cost efficiencies. The cost of risk stands at 24 basis points, while like-for-like, the cost of risk landed at 35 basis points, lower by 5 basis points 9 months on 9 months. The return on tangible equity stood at 19.8%. If we would operate with a CET1 ratio of 13%, our return on tangible equity would surge to 21.6%. The CET ratio continues to be very solid at 15.1% or 15.7% following the deconsolidation of Alba leasing in Q4. Organic capital generation by BPER like-for-like amounted to EUR 1.7 billion or 272 basis points in the last 9 months. In a similar way, the liquidity profile of the new group is sound with short- and long-term ratios well above regulatory thresholds. Before we start, please note that the figures reported on the left side of the table concern BPER on a like-for-like basis. For ease of reading, we have included 2 columns with the consolidated financials, which embed only 1 quarter of BPSO contribution. As already mentioned, BPER is reporting a set of outstanding results 9 months on 9 months. As you can appreciate, total revenues were up by over 2%, 9 months on 9 months, driven by resilient net interest income and a very robust result in net commissions. Please bear in mind that Q3 is normally a lackluster quarter in terms of commissions given the summer holiday period. Moreover, the resilient performance of NII, as I will later explain, was supported particularly by commercial efforts of our network, which translated into an increase in new loan origination. Our continued focus on operational efficiency ensured cost to come down by 3.5%, 9 months on 9 months and 2.4% quarter-on-quarter. Loan loss provisions stood at EUR 230 million, 9 months on 9 months. In the quarter, reported LLPs stood at EUR 88 million, increasing by almost 22% quarter-on-quarter on the back of our continued conservative approach. As a result, BPE stated net profit exceeded EUR 1.3 billion, up by almost 20% 9 months on 9 months. As you can see, given these outstanding results, we maintain our guidance unchanged. Please take note that the left part of the slide is related to BPER on a like-for-like basis, while the table on the right side is related to the consolidated financials, which includes the 6 months contribution to the 2025 group accounts. This is the first time we provide 2025 guidance on consolidated figures, including BPSO. There is an exogenous factor which needs to be taken into account that it is related to the new banking levies in Italy. The topic is being discussed at banking system level with the auditors to understand whether the impact will start from 2026 or 2025. On a conservative basis, we have taken into account the impact of the so-called extraordinary tax on the increase in interest margin, which relates to the redemption of the nondistributable reserve created in 2023 and which amounts to approximately EUR 116 million or 14 basis points on the CET1 ratio. It is yet unknown if the impact will pass through the P&L. One last note is related to the combined cost/income ratio for the end of the year, which will land at below 48%. Guidance is adjusted for approximately EUR 300 million of integration costs related to the merger. Let's move to the core part of the presentation. After some 12 months since the launch of B:Dynamic Full Value 2027, a quick glance at the progress of our plan is a must. The plan, which I remind you, remains to date stand-alone, must be read in the context of the additional 23 work streams launched for the integration. As I mentioned several times, the merger with BPSO is an accelerator of B:Dynamic Full Value 2027. Some highlights. On Pillar 1, the strong commercial push enabled new lending to increase by 20% 9 months or 9 months to almost EUR 15 billion, close to EUR 20 billion, including BPSO. Commission income growth continues to be very robust, particularly in Wealth Management, and our customer base continued to grow significantly. On Pillar 2, currently, 26% of new customers become BPER's clients via digital channels. And similarly, BPER has been awarded a leading position among the digital leaders in Italian banking. As far as Pillar 3 is concerned, our conservative risk approach enables BPER to boast the most conservative asset quality ratios in Italy. And finally, on Pillar 4, on technology, security and AI, the group data center rationalization process is fully completed with the adoption of AWS cloud services, ensuring data protection and business continuity while improving the digital customer experience. In this context, CapEx is running according to plan. Our commitment to ESG-related lending continues to be strong with some EUR 2.7 billion of new ESG lending in the 9 months. And finally, over 3,700 colleagues have already been involved in BPER's academy and training path. Let's now turn to our financial performance. Despite the overall scenario characterized by an acceleration of the reduction of interest rates and the summer months, BPER produced very positive results on a like-for-like basis. As such, total revenues increased by 2% 9 months on 9 months, and these are extremely satisfying results. Core revenues, 9 months or 9 months were stable at EUR 4 billion, driven by continued strength in commission growth, thanks to AUM, life insurance and bancassurance products. In this context, the ratio of net commission income to total revenues rose from 36.4% in the 9 months 2024 to 37.8% in the 9 months 2025, proving the high quality of our revenues. As you will see later, I wish to highlight the commercial driver on NII, where the negative impact of decreasing interest rates was compensated to some extent by the commercial push of the bank in terms of loan origination. In the quarter, lower NII was compensated by a strong performance in commissions, whereas dividends and other income were particularly affected by dividend seasonality and lower trading activities, which is customary in Q3. As you can appreciate, our productivity index measured as net revenues on risk-weighted assets has improved year-on-year to 9.8%. Let's move on to the next slide, which focuses on net interest income. Although net interest income came down by some 3.6% 9 months or 9 months, the reduction in NII, principally driven by lowering interest rates was better than expected. As you can appreciate on the slide, commercial spreads came down from 3.7% to 3.4% in the last 12 months, negatively impacting the NII line item. In the quarter, NII was basically stable, down by less than 1% and was driven by the interest rate environment, which clearly had a negative impact on NII. Lower interest rates had an important effect on commercial spreads. And in an opposite direction, but to a lesser extent, the important commercial effort of the bank had a positive effect on new loan origination. In this particular context, commercial actions aimed at increasing the quality of loan volumes have been extremely effective. This had a positive effect on credit risk-weighted assets, which we will illustrate later. As I mentioned in the slide on progress of our business plan, new lending in 9 months increased by 20% to almost EUR 15 billion. Finally, I would like to highlight that our NII sensitivity to 100 basis points movements equal to EUR 184 million in the quarter versus EUR 150 million in the previous quarter. The increase in sensitivity is related to seasonal repricing of floating rate assets. The increase of approximately EUR 30 million in the quarter is in line with the increase between Q2 and Q3 2024. Now let's move on to the development of net commission income. Commission income continued its strong progress, up by 6% 9 months on 9 months and 8.4% year-on-year. It is noteworthy to underline that net commission income contribution on total revenues increased to 37.8% in the 9 months 2025 versus 37.3% in first half '25 and 36.4% in the 9 months 2024. This is a clear indication of the increasing high quality of our revenues. The bank relentlessly focuses on capital-light, high-quality wealth management products. This accounts for over 43% of total commissions from 41.5% 12 months ago. All this was achieved despite the summer season, which is a remarkable result. In fact, contrary to 2024, net commission in Q3 were higher than in Q2. That said, the most important contributor, which represents more than 50% of commissions remain banking services fees, which reached EUR 820 million. This increased by 6% 9 months on 9 months. The fact that BPER is gradually being perceived as a go-to bank by its customer from a purely relationship bank allows the bank to capture a higher share of wallet and increasing net new customers. As I already mentioned, normally, Q3 is a weaker quarter in terms of commission generation, so we do expect a pickup of fees in Q4 versus Q3. Let's move to the next slide. Total financial assets, the most important driver of commission income grew by 5.3% since the launch of our plan, reaching EUR 320 billion. On top of the market-driven effect, TFAs are growing significantly because BPER is being increasingly perceived as a relevant player in Italian asset gathering. In this context, the contribution of BPSO increased TFAs by almost EUR 100 billion to almost EUR 415 billion. This will allow us to further strengthen our focus on asset gathering activities and will ensure the exploitation of further commission-related potential. Key drivers in the quarter have been AUCs and AUMs. Although deposits have been flat, there has been an important asset rotation from deposits to AUCs, mainly due to the issuance of certificates. This is important as we are now increasing penetration of liquidity management for both corporate, SMEs and private clients. In fact, in Q3 2025, the loan-to-deposit ratio stood at 76%, stable quarter-on-quarter, one of the lowest amongst Italian peers, which will enable us to continue to grow the loan book and to transform client liquidity into AUCs and AUMs. Let's move on to our performance on the cost side. Total costs were down by 3.5% 9 months on 9 months, underlying our relentless focus on operational efficiency. Our planned actions continue to reduce the cost/income ratio, which decreased to 46.8% from 49.5% 1 year ago. Non-HR costs were slightly lower, below EUR 250 million, in line with the previous quarter. As you can appreciate, the waterfall chart reports the key drivers of HR costs in the quarter. The reduction was mainly driven by organic turnover, which more than compensated the increase related to the national collective labor agreement. At the end of September, headcount stood at 19,144, a reduction of some 1,100 compared to September 2024 related to actions which are already in place. In terms of the combined group, the integration of BPSO will increase the headcount to approximately 22,900. This will decrease by some 260 in Q4 once Alba Leasing will have been deconsolidated. Before we move to cost of risk, let me anticipate that costs in Q4 will incorporate approximately EUR 300 million of integration costs as we previously indicated when we illustrated the BPER BPSO business combination. Let's move to the next slide. In a similar way to costs, the trajectory on the cost of risk 9 months or 9 months is decreasing from 39 basis points to 34 basis points, including BPSO. The cost of risk would stand at 24 basis points. The increase in Q3 to 38 basis points is related to our continued conservative approach totally devoted to increasing coverage and translated into an improved NPE coverage ratio, which increased to 56.3%. This remains one of the highest among Italian peers and will act as a further buffer against any potential deterioration in asset quality. Our conservative approach is further confirmed as we report a Q3 2025 coverage ratio on performing loans stable at 0.63%, among the highest in Italy. In this particular context, total cumulative overlays in the 9 months amounted to EUR 146.6 million after a reallocation of EUR 67.2 million between provisioning categories, keeping stable the performing coverage ratio at 0.63%. When including BPSO, coverage ratio are somewhat lower due to a technical factor. BPSO nonperforming loans are reported only on a net basis. As a result, the total NPE coverage ratio, which decreases from 56.3% to 50% in Q3 is driven partly by this reporting difference. On a comparable basis, the consolidated NPE coverage ratio would stand at 58% instead of 50%. Moving forward, once full integration will have been accomplished, coverage ratio and NPE ratios will be calculated in a homogeneous way. Let's move on to asset quality on the next slide. On asset quality, let me state that Q3 was characterized by lower loan disposals. This is important as there was literally no positive effect on stocks from such divestiture activities. As in previous years, we expect NPE disposals will pick up in Q4. As a result, the gross NPE stock was minimally higher than in Q2, but flat year-on-year and the gross NPE ratio was slightly higher at 2.7%, although improved year-on-year. In any case, as in previous quarters, the quality of our loan book continues to show a very healthy state with net NPE ratios almost flat at 1.2%, one of the lowest in the Italian banking system. As far as the combined banks are concerned, attention should focus on the net NPE ratio, which stands at 1.2% in Q3 and not on the gross NPE ratio. The reason is exactly the same as previously explained, which is that BPSO only reports on a net basis. Having finished with asset quality, let's move on to the development of the bank's risk-weighted assets. As you can see, in Q3 '25, total risk-weighted assets decreased from EUR 55.6 billion to EUR 54.6 billion, partly because of almost flat loan volumes and thanks to higher quality lending. As such, credit risk-weighted assets came down by EUR 0.9 billion. While in Q1 2025, operational risk-weighted assets were impacted by EUR 1.5 billion due to Basel IV, we do not expect any material impact related to operational risk due to the annual update in Q4. On a final note, the combination with BPSO would lead to a total risk-weighted asset of just over EUR 82 billion. I will now turn to organic capital generation on the next slide. In the last quarter, we mentioned that we approached the merger with BPSO in a very robust position as our CET1 ratio stood at over 16%. The combined CET1 ratio at the end of September stands at a very comfortable 15.1% or 15.7% following Alba Leasing deconsolidation. BPER on a like-for-like basis, continues to generate a very high level of organic capital with approximately 272 basis points or EUR 1.7 billion in the last 9 months. This result reaffirms BPER position as a highly resilient institution. Moving on to liquidity. Let me point out that at the end of September 2025, the bank's liquidity ratios remain high. The LCR is equal to 165% at the end of September '25, in line with the 163% reported at the end of June. With the deconsolidation of Alba Leasing, the group LCR would stand at 173%. The NSFR is equal to 132%, stable compared to the end of June '25 or 135%, including the deconsolidation of Alba Leasing. As in Q2 -- in Q3 '25, the loan-to-deposit ratio stood at 76%, stable quarter-on-quarter, one of the lowest amongst Italian peers, which will enable us to continue to grow the loan book through increased loan origination and to transform client liquidity into AUCs and AUMs, thanks to our ability to attract customer liquidity. Turning now to the bond portfolio. Italian government bonds were flat at EUR 14.8 billion and accounted for around 49.8% of total bonds. In Q3 '25, the duration decreased majority due to the position of CCTs equal to EUR 4.4 billion that were repriced in mid-October. Now a brief look at our latest bond issuance. In the first 9 months of '25, as far as main wholesale issuance is concerned, BPER successfully placed a EUR 500 million senior non-preferred bonds with BPSO placed -- while BPSO placed EUR 500 million of covered bonds. On top of all the previous upgrades, in October, DBRS upgraded BPER long-term deposits from BBB high to A low. Moreover, all credit rating agencies have positively viewed the BPSO business combination and as a result, have also increased the credit rating of BPSO itself. Following the successful completion of the voluntary exchange offer for BPSO in July, we have launched a joint project between BPER and BPSO aimed at IT and organizational integration as well as the corporate merger to be completed approximately -- by approximately mid-April 2026. Specifically, the projects involves 23 cross-bank work streams, which are all up and running. To ensure the IT and organizational migration in line with the time line, we launched discovery sessions in August to identify relevant functional and IT gaps between the 2 banks, which will be addressed and implemented through the integration. Additionally, we have defined an IT migration plan, which foresees technical migration tests and simulations in Q1 2026. In parallel, we have initiated the step leading to the merger between BPER and BPSO. On November 5, the merger plan was presented to the Board of Directors of both banks, including target organizational model, share exchange ratio and IT integration plan. Thereafter, the request to DCB for the merger authorization will be submitted. Finally, we believe that the merger between BPER and BPSO will be carried out effectively, enhancing the strength and resources of BPSO and resulting in a bank that will be even better positioned to achieve the strategic and business objectives of both entities. As previously stated, we confirm that we fully -- we will fully achieve EUR 290 million in synergies in 2027. We also confirm that integration costs amount to EUR 400 million. Of this, 75% will be booked in Q4 '25, the remaining in 2026. Now let's turn to timing and next steps. As of today, the next key regulatory step will be the extraordinary shareholders' meeting of BPER and BPSO in order to approve the merger plan in March 2026. From an operational and business point of view, we expect the IT migration and the launch of the revised organization and distribution model to be finalized by approximately mid-April 2026. On Slide 28, we report the divisional financials for BPER on a like-for-like basis. I would like to draw your attention to the important results achieved on total wealth commission income across our divisions, which amounted to EUR 689 million in the first 9 months compared to EUR 840 million achieved during the entire 12 months of 2024. These results underline the important focus of the group on asset gathering activities. Let's move to the final remarks. In conclusion, in this important quarter, the group has been focusing on business growth, execution of B:Dynamic F Value 2027 and the regulatory, IT and business integration of BPSO. As we previously stated, the acquisition of BPSO must be seen as an acceleration of our plan. The commercial strength of the bank has been remarkable despite the summer holidays. Net commissions continue to grow at an important pace with wealth management playing an ever-increasing role. Reported NII was better than expected despite declining interest rates. In this context of geopolitical headwinds, asset quality remains one of the best in the Italian banking sector. Let me underline that the bank has been able to generate an important profitability, coupled with an outstanding organic capital generation amounting to 272 basis points in the last 9 months. As such, we are confident in the potential for further superior value creation. The recent derivative transaction of 9.99% of share capital needs to be viewed as a proof of management's confidence in the enormous potential for shareholder value generation of the new banking group, combining BPER and BPSO. And finally, we are fully on track to ensure a smooth, efficient and effective integration of the 2 banks by approximately mid-April 2026. We are now ready to take your questions. Operator: [Operator Instructions] First question is from Marco Nicolai, Jefferies. Marco Nicolai: First question on capital. Can you explain all the moving parts in your above 14.5% common equity Tier 1 target for December? During the call, you mentioned 14 bps negative from the extraordinary profit tax. Is this all for this item? Or do you expect to have more, say, in the coming years if you pay dividends out of that reserve? Then another question on this EUR 300 million integration cost, is it pre or post tax? Do you include also the 60 bps positive from Alba Leasing in the consolidation? So do you have also the 60 basis in your December targets? And what is the impact of the total return swap transaction? So this is -- and is there anything else I've missed here in the capital -- in the moving parts between September and December? And then a second question on the total return swap transaction. When do you expect to deliver this roughly EUR 2 billion buybacks? Shall we consider something like 1/3 per year or so? And are you confirming that you're going to cancel the shares you buy back? And sorry, just last follow-up on this point. So where does it leave your common equity Tier 1, say, long-term common equity Tier 1 targets for BPER? Like where is the right level to run this bank? You mentioned in the past in the previous plan, 14%. Is the target still there or now closer to 13%? Gianni Giacomo Pope: So thank you very much, Marco, for your question. I'll answer first your question related to the buyback. as we already mentioned, at present, no decision has been taken in this respect. So we made the transaction to provide a strong sign of confidence in the bank's strategy. However, if we were to proceed with sale buyback, obviously, subject to all the necessary corporate and regulatory approvals, this transaction would provide us with macro hedging with respect to the planned cost to the benefit of shareholders. But let me repeat that no decision have been taken in this respect. And now I'll put through Simone Marcucci, our CFO, for the other questions. Simone Marcucci: Okay. Thank you very much for your question. Starting from 15.1% CET1 ratio at September. These are more or less the building blocks. We will have, as you highlighted, the 55, 60 bps from Alba positive deconsolidation. We will have 70, 75 bps conservative effect one-off from the derivatives, depending on how the position will be built between now and the first month of 2026. We will have the positive effect from the PPA. We do expect it to be 2 middle digit, but still under analysis. We will have minus 10 bps around of update operational risk. This is like every year, but this year is much, much less. Then we will have a business dynamic. We do expect 2 middle digit negative clearly. As we already -- as has mentioned, we will have EUR 116 million, minus 14 bps. New Italian law, as you requested, this is the first of the 4 fingers. The other 3 fingers will happen in 2026 or will not be significant for us. Then we will have EUR 190 million around net integration cost that is the 270 percent of the EUR 400 million, and this accounts for around minus 25 bps. And the rest will be positive net profit net of dividend and other minor effects. I think that on this, I have covered both questions. The last item, if there are profit and loss effect of the derivatives, it will be negligible, let me say, slightly positive among the years. Marco Nicolai: Okay. And when do you expect to take a decision on the buybacks? So when do we get clarity on this front? Gianni Giacomo Pope: As I said, it's too early. When we take the decision, we'll let you know. But for the time being, no decision has been made. Operator: Next question is from Andrea Lisi, Equita. Andrea Lisi: The first one is on the revenue dynamic, in particular on the NII and fees. Related to NII, there are several peers hinting to third quarter NII having reached bottom and 2026 to be at least in line with 2025. Is it this indication that other banks have provided something that is also suitable for you? Or do you think that the movements of the NII can be slightly different and in case which are the main drivers? The second related to fees is related to fees and in particular, on the seasonality you indicated in the fourth quarter last year. Looking at BPER stand-alone, it was more than EUR 50 million, if I remember well. Do you think that a similar seasonality should be expected this year as well? And the last point really on the distribution, you have indicated that the instrument the derivatives gives you flexibility on potentially launching a buyback. If you can provide us at the current moment, given also the conditions, which is the trade-off between potentially on a higher dividend or launching a buyback. So which are the pros and the cons that you see of both situation? And so what makes feeling that some solutions could be better than the other? Gianni Giacomo Pope: Thank you very much for the question. So yes, I can confirm that inasmuch as you are concerned on the NII side, we can give a guidance that '26 would be, let's say, broadly in line with 2025. Obviously, we believe that we are working on interest rates at 175%. Today, we are at around 2%. So we believe that there might be a further decrease of 0.25 point by the ECB next year. On the other hand, we will keep on growing and keep the trajectory that we have had in the last few quarters in terms of growth on the loan side, both on the corporate side as well as on the retail side. In as much as the fees are concerned, yes, also for last year, we had the top-up, let's say, for the premium that we received on the bancassurance activity that was around EUR 30 million, EUR 31 million. We will have this the famous [ raffle ] also this year. We are yet not in a position to indicate what is going to be in terms of overall amount, but this will be also this year. But as you've seen from our presentation from this quarter, we are taking away the indication of this because this has become, let's say, a deferred payment that we received at the end of the year in December, but it is part of the overall activity that we have across the year. So we will not be indicating anymore what is this top-up at the end of the quarter. But I confirm that we will have this raffle also this year. In terms of distribution, what is the trade-off. So as you know, we promised in our strategic plan to pay a dividend of -- I mean portion of the dividend up to 75%. I also mentioned several times that as we have a very strong organic capital generation and the capital piles up, we might be in a position also, but this is a decision that will be taken at a later stage to pay maybe slightly more than 75%. On the other hand, let's say that there has been quite a strong request quarter after quarter, and you have been present to all the quarters, the presentation of these quarters, a very strong request coming from the market for a launch of a buyback plan given the fact that we are growing our capital. Now we are going through the process of integrating BPSO, so by subscribing the derivative, we have basically taken the chance to have a macro hedge in case we decide to do it. This might be something that in the future can come to the market. But there's no very different trade-off between the 2. So we will keep on paying a dividend of up to 75% as a payout ratio. And then on top of that, there might be a share buyback in case we have a very strong capital generation as in the past. Operator: Next question is from Matteo Panchetti, Mediobanca. Matteo Panchetti: I have 2 on derivatives and on cost savings. The first one, you have decreased your CET1 target by 50 basis points, of which 40 basis points coming from the banking tax. Is it correct to say that the maximum loss amount from the derivatives, including the hedges will be worth 35 basis points? And can you tell us the sensitivity on capital for each 10% share price increase, decrease in deferred share? The second one is on -- still on the derivatives. You have announced the merger plan, which now consider the acquisition on Sondrio minorities. If you were expected to deliver the share from your total preferred swap, can those be used as a part of transactions instead of doing a share buyback? Is this something that you have considered? And finally, on cost savings, you -- can you quantify the impact from the 800 exits? And can you confirm this is only a BPER derivative? Gianni Giacomo Pope: Thank you, Matteo. I take the last 2 questions, and then I'll let Simone Marcucci to answer the first 2. So in terms of M&A plans, so the possibility of using the shares coming from the derivative to be distributed to the minority, no, this is not possible because this is a cash transaction with no delivery -- physical delivery of shares. So this is not possible to have -- there will be not shares to be distributed to minorities because of the typical structure of this transaction. Last question you put was about the impact of the 800 exits. In the -- you know that in terms of cost, we have synergies up to EUR 190 million. Of this EUR 190 million, around EUR 70 million to EUR 75 million will come from the FTE reduction driven by the agreement that has to be reached with the unions. Simone Marcucci: Okay. Regarding the building blocks, I have already mentioned before, I understand that you would like to have a clarification about the building block of the derivative. The derivative for, as I mentioned before, for the 2025, we do expect 70, 75 bps, another little part in 2026 negligible. This is the effect that we will have in '25. Clearly, it's conservative, less impact in 2025, higher impact in 2026. The sensitivities of 10 percentage of the derivatives on the EUR 2 billion, clearly will be a profit and loss, EUR 200 million up or down, but no impact CET1 ratio because all the impacts have already impacted now as a one-off. I hope I clarified. Otherwise, please let me know. Operator: Next question is from Lorenzo Giacometti, Intermonte. Lorenzo Giacometti: I have actually 2. So the first one is on synergies. And given that the integration seems to go as planned or even faster than planned, are you confirming the estimated synergies? Or do you see those numbers as actually a floor? And the second one is on the merger. And assuming, as you said, it will take place in April 2026, will it have a retroactive effect? And if so, does that mean that you won't have to pay minorities in the Q1 of 2026? And actually, I have a third one on the business plan update. And so when are you publishing an update of the business plan targets? Gianni Giacomo Pope: Thank you for the question. So in as much as synergies are concerned, I can confirm synergies up to EUR 290 million at 2027, so not in 2026. And believe me to have EUR 290 million synergies, both on cost side and revenue side by 2027 is going to be a very difficult exercise. Having said so, when we merged Carige, we have indicated -- we had indicated some synergies. And at that time, the bank was able to achieve better results. But we confirm only the EUR 290 million. And obviously, we'll see whether we are able to extract more synergies out of that. In terms of retroactivity of the merger, yes, the merger will be retroactive as at 1st of January 2026 and will have a retroactive effect, which means that the minority shareholders that will become shareholders of BPER will receive the dividends once the dividend is paid by BPER, of course. And then in terms of business plan updated, we mentioned already that we are going to present the market with a business plan update by, let's say, by the end of June in July. We'll see. We haven't decided yet when. What I can -- what I can tell you is that for the time being, the 2 banks are proceeding in terms of the strategic plan that has been presented. So for us, October last year, for VPs, I think, in March this year, obviously, within the activity of the group. So we keep on going to deliver what has been promised to the market by the 2 strategic plan. Operator: Next question is from Giovanni Razzoli, Deutsche Bank. Giovanni Razzoli: Two questions on my side. One on the share buyback. When you say that there is no decision taken on the share buyback, you mean that you have not decided yet whether to leverage on the derivative to proceed with the share buyback? So that's the first clarification. And Simone, you mentioned that there are 75 basis points of impact of the share buyback in the 15.1% CET1 ratio at year-end. So shall I read this guidance as the fact that if you were ever to proceed with the decision of the share buyback, you would consider an impact of EUR 600 million, given or taken, given the 75 basis point impact that you had guided that is 1/3 of the EUR 2 billion in total. That's my first question. And the second one is on the interim dividend. You decided to pay EUR 0.1 in interim, which I guess there will be a quite significant catch-up dividend in May. There are a lot of moving parts, clearly in the Q4, you guided for a 75% payout ratio. And the net profit in the 9 months for the combined entity was EUR 1.5 billion and the run rate of the quarter is EUR 500 million. So I was wondering whether we shall look at something like EUR 2 billion as a reference point for the final catch-up dividend at year-end because this EUR 0.1 has crowded out a lot of investors. Gianni Giacomo Pope: I'll take a couple of questions. And then for the more technical one, I'll let Simone answer. So first, no decision has been taken means nor if neither when. So I think I'm clear now. So no decision has been taken for a buyback. So neither nor on whether we are doing it, neither if and when we do it. So no decision taken, close discussion, I hope. Secondly, we paid EUR 0.10 of as interim dividend exclusively on the profit accumulated by BPER, not by the group. The dividend is equal to 17% -- almost 18% of the accrued dividend of BPER, which is whatever it is, equal to EUR 1.099 This is the accumulated amount. The 17.8% equal to EUR 186 million is the first year, as you know, that we are paying an interim dividend, and you have to consider the fact also that we are -- we had to -- we have been working on the exchange ratio for the exchange for the minority shareholders of BPSO. So we could not pay more. Otherwise, this would have moved the exchange ratio for the minority shareholders. Simone? Simone Marcucci: Yes. Regarding the effect of the derivatives in the fourth quarter, I mentioned 75 bps, but I never mentioned share buyback. This is the effect of the derivatives regarding share buyback. Nothing has been decided. I cannot comment. Operator: Next question is from Manuela Meroni, Intesa Sanpaolo. Manuela Meroni: The first one is on the total return swap. I'm wondering if there are some costs associated to this total return swap that will be accounted for in the P&L or on a recurrent basis, or the impact on the P&L will be just related to the sensitivity that you mentioned before of EUR 200 million without any additional impact on the capital? The second question regards the banking tax. You provided some guidance concerning the reserve. I'm wondering if you can share with us your thoughts about the potential impact of the remaining part of the banking tax in 2026 and going forward, both in terms of impact on the earnings and impact on the capital. And then I have just a clarification on the moving parts that you mentioned on the capital in the fourth quarter of this year. You mentioned the PPA. Could you please repeat what is the assumption that you are taking for the PPA? Simone Marcucci: Okay. I start with the cost of the total return swap. At the profit and loss level, the costs are negligible because there will be some cost, but there will be also some revenues that we will get from the remuneration of the dividend. Both effects will go in the line there for trading. We see the effect there. So negligible unless the sensitivity that I mentioned before, plus 10, minus 10, but not other effect, CET1 ratio, as I mentioned. So regarding the other questions, so for the banking tax, as we mentioned, we had EUR 116 million in the fourth quarter that is a one-off. We are not clear if we go to profit and loss or not. Then we will be -- we will have -- this was the first finger of the 4 fingers. The other 2 fingers, the ERA rate will happen in 2026 for us will be around 7 bps. And instead for the partial deduct of passive interest, this is the third finger should be in 2026 for us 4 bps decreasing in the following years. For the fourth finger, we shouldn't have any effect. Sorry, PPA, I forgot to mention the PPA. The PPA, we are still, as I mentioned, discussing. We don't have absolutely no final numbers. You can assume a middle 2-digit number, but still absolutely under discussion at the moment. Operator: Next question is from... Gianni Giacomo Pope: I'm sorry. No, sorry, just to specify the previous answer. The first finger that equals to 14 basis points or EUR 160 million, we conservatively deducted from CET1 ratio of this year. Obviously, if the decision would be not to charge, and this, as I said, is a decision taken at system level, not by us. So if this will not be charged in 2025, we will have 14 basis points higher in terms of CET1 ratio in '25 and the deduction in 2026. Operator: Next question is from Hugo Cruz, KBW. Hugo Moniz Marques Da Cruz: I have two questions. First is on the dividend for 2025. If you could clarify what are your intentions for the final dividend? My colleague, [ Razzoli ] just asked if you could pay EUR 2 billion. Yes, like if you could clarify that, I think it would be very helpful. And then the second question on the synergy potential, especially in light of the business plan that you announced middle next year. Do you see the potential for higher synergies after 2027 than what you currently target or not? Gianni Giacomo Pope: Thank you, Hugo, for the question. So dividend, as I said, we are paying 10 basis points on BPER's accumulated profit. And this 10 basis points equal to 17.8% of the accumulated profit of BPER, which equals to EUR 1.099 so far. Obviously, as we promised and we mentioned in our strategy presentation, strategic plan last year, we will pay 75% of the combined profit of the 2 banks. When it will be -- so will be decided by the Board and the assembly and then we'll pay. So we confirm the 75% on the combined but we need to have the merger, hopefully, as I said, depends also on the authorizations coming from regulator and so on with retroactive effect from the 1st of January. So automatically, this is going to be the situation. In terms of synergies, as I mentioned, we confirm the EUR 290 million at the end of 2027. Obviously, the bank doesn't cease to operate in 2027. We will keep on going in 2028. So hopefully, we'll be able to extract even more synergies. But it's too early to say because we have to proceed first with the integration, and then we will see what we'll be able to deliver. The only note that I can say is that if I look at the past, when BPER acquired Carige, at the time, the bank had indicated some synergies, both on the cost and on the revenue side and was able to beat the indication. On the other hand, we -- which means that the bank is always struggling to get better results than what indicates. On the other hand, we have to consider that these are completely 2 different situations. Carige was a bank that was suffering because of the problems that it had for many, many years. BPSO is a good bank with a good track record. So there will be, for instance, in terms of revenue synergies, there will be some synergies, for instance, as we indicated from the liquidity because we'll be able to address liquidity at a lesser cost, but will not be as much as Carige because Carige obviously was paying much more in terms of liquidity from the market. So it's a much different situation. But hopefully, we'll be able also from 2028 to deliver more. Operator: Next question is from Ignacio Ulargui, BNP Paribas Exane. Ignacio Ulargui: I just have two. One is on Alba Leasing. So do we expect any impact in the P&L from the deconsolidation of Alba Leasing in the fourth quarter? And the second one is on credit quality. If I just look to your guidance of below 35 basis points cost of risk and I compare that with the 9 months that there's a very big gap potential increase in the fourth quarter. Given the comments that you've made during the presentation about the solid credit quality, we shouldn't see any meaningful impact. But just wanted to get a bit of a heads-up on how do you see credit quality evolving from here? And what should we expect on the cost of risk in the fourth quarter? Gianni Giacomo Pope: Thank you, Ignacio. In as much as the impact from Alba Leasing deconsolidation will be negligible, really EUR 10 million, so really negligible, nothing compared to the overall activity of the bank. In as much as credit quality is concerned, I will ask Mr. Cristini, our CRO, to answer your question. Emanuele Cristini: Thank you, first of all, for your question. In general, it's worth noticing that as highlighted in the presentation, the credit risk profile of the bank remains very, very positive with very low both gross NPL ratio, stable annual default rate around 1%, stable probability of default and very high coverage ratios, both for performing and nonperforming exposures. Having said that, of course, there are still some uncertainties related to the macroeconomic scenario and the potential related to the U.S. trade tariffs. And so we prefer to be conservative as we usually do regarding credit risk. So our guidance is of the cost of risk on an annual basis lower than 35%. We continuously monitor the evolution of the credit risk profile of the bank. But as I have already highlighted, we haven't detected currently any particular signals of deterioration of the credit risk profile of the bank. Ignacio Ulargui: So we shouldn't expect any meaningful top-up of provisions in 4Q at this stage? I mean just that you are very conservative in the guidance? Emanuele Cristini: No top-up. You have seen that we keep a high level of overlays. We consider our current coverage ratio, both performing, nonperforming. Nonperforming exposure had a weight. Anyway, we will continuously monitor the evolution of the macroeconomic scenario. Operator: Next question is from Juan Pablo Lopez Cobo, Santander. Juan Lopez Cobo: And sorry for a new follow-up question on the total return swap. I don't -- I'm not sure if you are able to answer, but can we understand the counterpart will need to cover by physical shares in the market? This is my first question. And then one regarding OpEx. I don't know if you could comment in the last business plan presented both by BPER and BPSO, there was a hiring of more than 1,000 new employees in the case of BPER and more than 200 new employees coming from BPSO. Is that something that is still in place? And the last question, and probably this is for the business plan for you in July, but that's almost 6, 7, 8 months from here. Your latest guidance for the combined entity was more than EUR 2 billion for 2027. The consensus is above that figure. I don't know if you could provide any update on that one. Gianni Giacomo Pope: So for -- I don't know if you -- because we couldn't hear properly your voice. But for the TRS, there's no delivery of shares, if this was the question. This is a cash transaction. So it is a derivative, which does not provide for the delivery of any physical stock, okay? So there is no way that we receive stocks. In case of winding down of this, we will be receiving or paying the financials, so whatever is going to be, if the stock has increased in value or decrease, but no delivery of physical stock. And so this is what it is. In terms of the OpEx, when we presented our plan last year, we indicated a reduction in employees and we reached an agreement with the unions, which provided for 1 new hiring for 2 exits basically. And this is what has been happening so far. In fact, as I mentioned during the presentation, we had a reduction in 1 year of 1,100 employees year-on-year. In terms of Sondrio, they were providing for hiring. I don't remember the exact number because it was their plan. Nevertheless, as we are putting together the 2 banks now, we are coming up -- we came up with a new plan, which is under discussion with the unions for the reduction of 800 employees always on voluntary basis, which means retirement or preretirement schemes basically. And this is the number that I can indicate. So from the number we put there, which is 22,900, less the 260 I think that is the Alba Leasing employees. And once we have reached an agreement with the unions, it will be minus 800 plus the one that we will have to hire following the agreement with the unions, hopefully, will be the scheme -- will be the same as in the past. So 1 new hiring, every 2 exits, but this is under discussion with the unions, as I said. The last -- the third question was this. I don't know if I answered all your questions because we couldn't hear well. So please let me know. Juan Lopez Cobo: Yes. The last one was regarding the combined target, that was net income above EUR 2 billion for 2027. I don't know if you could provide some update on that. Gianni Giacomo Pope: No, no. Yes, yes, we confirm because if we add the 2 coming from the plan, we will be about EUR 2 billion. Operator: Next question is from Luis [ Manuel ] Pratas, Autonomous. Luis Pratas: My first question is again on the derivative structure. So we completely understand this gives you extra flexibility in executing a share buyback in the future. However, when BPER was trading well below the book, the bank always refused to do share buybacks. So my first question is essentially what led to this big change? And sometimes the press also speculate on this being a proactive M&A defensive action. Can you comment on this? And then just a clarification on the 70 to 75 bps day 1 impact from the derivative. Could you split the impact on the numerator and also the denominator? Is there any market RWA inflation from the derivative? Or is it just a deduction? Gianni Giacomo Pope: Okay. So I'll take the first question. No, definitely, it's not a defensive move. Then the market reads this as the market wants to read it. But I can confirm that it's not a defensive move. We decided to do it now, and we were not doing it in the past because in the past, we were BPER on a stand-alone basis. And the transaction on Sondrio, so the OPS on Sondrio was positive, but we knew only at the end of July. And so until we knew what would be the outcome of our offer, we could not decide whether to do this or not as we were able to reach the over 80% shares of Sondrio. And therefore, we were -- it was very clear to us that the merger of the 2 banks would have happened. Then considering, as I mentioned before, that we believe in the growth prospect of the bank, considering the integration of Sondrio into BPER and the full development of the related synergies, then we decided to do this transaction in order to show the strong confidence that the management has in the bank strategy following the completion of the public exchange offer on Banca Popolare di Sondrio and again, in view of the integration of the 2 banks. So this is the reason why we decided to do that. In as much as the exact impact of the derivative is concerned, Simone will answer. Simone Marcucci: So the 70, 75 bps impact estimated for 2025 are almost totally due to the deduction while the effect on risk-weighted assets is negligible a couple of bps. Operator: [Operator Instructions] There are no more questions registered at this time. Gianni Giacomo Pope: Okay. Thank you very much to everybody, and see you soon. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Good morning, everyone, and welcome to the Q3 2025 Invivyd Earnings Conference Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Katie Falzone, Senior Vice President of Finance. Please go ahead. Katie Falzone: Thank you, operator. A short while ago, we issued a press release announcing our Q3 2025 financial results and recent business highlights. That press release and the slides that are being used on today's webcast can be found in the Investors section of the Invivyd website under the Press Release and Events and Presentations section. Today's discussion will be led by Marc Elia, Chairman of Invivyd's Board of Directors. He is joined by Tim Lee, Chief Commercial Officer; and Bill Duke, Chief Financial Officer. During today's discussion, we will be making forward-looking statements concerning, among other things, our corporate and commercial strategy, our research and development activities, our regulatory plans, certain financial expectations, our future prospects, and other statements that are not historical facts. These forward-looking statements are covered within the meaning of the Private Securities Litigation Reform Act and are subject to various risks, assumptions, and uncertainties that may change over time and cause our actual results to differ materially from those expressed or implied today. These forward-looking statements speak only as of the date of this call, and Invivyd assumes no duty to update such statements. Additional information on the risk factors that could affect Invivyd's business can be found in our filings made with the U.S. Securities and Exchange Commission, including our most recent Form 10-K and 10-Q, which are also available on our website. I will now turn the call over to Marc. Marc Elia: Thank you, Katie, and good morning, everyone. The third quarter for Invivyd marked a turning point in our company's history, and we hope also mark the beginning of substantial change in how we may prevent COVID for vulnerable Americans in the near future. In the third quarter, in addition to growing our PEMGARDA commercial franchise, we received feedback from the U.S. FDA to develop our vaccine alternative antibody, VYD2311, for broad populations that continue to suffer from COVID and who are not adequately served by current COVID vaccines. This feedback and our next steps with Invivyd are the results of years of Invivyd innovation and dialogue on that innovation with the FDA. By focusing on molecular evolution and by demonstrating the clinical benefits of our medicines in prospective randomized placebo-controlled clinical trials, we believe we and the FDA are working within the same highly robust intellectual framework for evaluating new medicines, all for the benefit of vulnerable populations and the American public. Following receipt of FDA feedback, we immediately moved in late summer to raise capital to power our intended studies, and in total, raised approximately $87 million in capital in the quarter and shortly thereafter. This infusion of capital leaves Invivyd well funded to execute our pivotal clinical program as well as to expand our current commercial organization in anticipation of VYD2311 launch, all while staying highly disciplined on our operating expenditures. As a reminder, we have anticipated launch quantities of VYD2311 and a route to scaling manufacturing and supply further as we approach launch. The next 12 to 18 months promises to be an extraordinary time for Invivyd. On today's call, I'll briefly review some aspects of our upcoming pivotal program for VYD2311, which is on track to initiate around year-end and deliver top-line data in mid-2026. And then Tim Lee will walk through recent progress with PEMGARDA and comment on the future commercial landscape for VYD2311. Finally, Bill Duke will review our financials, and then we will be happy to take your questions. We recently conducted a webinar that contains substantial detail on our work with monoclonal antibodies and our plans for moving forward with our pivotal declaration and LIBERTY clinical studies. I will briefly touch on some design elements and background logic for those studies today, but recommended for more detail, listeners revisit our investor event webcast from last week. To start, it's important to remember that the category of COVID prevention was born with mRNA vaccines during the first year of the COVID pandemic. At that time, speed to market was priced over the collection of long-term placebo-controlled clinical data. As a result, the placebo-controlled efficacy data we have from COVID vaccination is principally from the 2 original major studies of mRNA vaccines, each with a relatively short efficacy follow-up of 7 to 8 weeks, at which point the efficacy data was unblinded and the vaccines were authorized. These studies were, of course, conducted then in immunologically naive humans rather than in today's seropositive human population and were conducted at a time of immunologically responsive original SARS-CoV-2 virus rather than against the immunologically evasive viruses we face today. So other than measuring modern antibody titers that may not relate particularly to past observed protection in RCTs, there is very little controlled data on the efficacy of COVID vaccines beyond this original 2-month look to inform current clinical protection and overall risk-benefit. The FDA has used those original data and various real-world data sets and immunologic data to construct labeling language for the vaccines in our current environment. Both mRNA vaccines are indicated for use at least 2 months after the last dose of COVID-19 vaccine. But that statement does not provide any information on likely protection in a modern context if used maximally, for example, every 2 months, or used as most people use it once a year. Finally, CDC and ACIP recommendations have generally been consistent with FDA language recommending vaccine utilization once or twice per year or no more than every 2 months for certain vulnerable populations. The point is that while COVID vaccines remain a blockbuster medical category despite widespread skepticism, as a society, we do not have any modern randomized data describing current or long-term vaccine efficacy. We do not have any placebo-controlled prospective clinical trials demonstrating the safety and efficacy profile of repeat vaccine dosing. And we do not have any prospectively designed placebo-controlled information on the relationship between vaccine-induced antibody titers and clinical protection over either the short or long term. We designed the declaration study to address several of these issues in a compact fashion in order to advance our knowledge around COVID protection while rapidly moving VYD2311 to BLA submission if the study is successful. By using a single dose of VYD2311 with a 3-month measurement and by evaluating in parallel the safety and efficacy of monthly repeat dosing, we believe Invivyd can, in one single study, provide more information on the extent, durability, and quantitative predictability of protection from COVID than we have had from COVID vaccines over the past 5 years. We are also evaluating currently our options for evaluating longer-term protection with VYD2311 as our modeling suggests that meaningful protection following a single dose would last for a year. More in the LIBERTY study, we plan to assess in a head-to-head study the safety and tolerability profile of VYD2311 versus active comparator mRNA vaccines. Why? The single most important reason Americans avoid COVID vaccination for is safety, and we see a critical opportunity to avoid the weaknesses of cross-trial comparison and by contrast, simply demonstrate what we expect to be the major safety advantage of antibody-based prophylaxis. Based on our prior studies of low-dose intramuscular antibodies, we expect a highly favorable side effect profile that reflects the absence of inflammation and immune engagement that can be uniquely offered by antibodies. Antibodies and VYD draw directly from normal human immune biology and do not require inflammation like a vaccine boost, and so a clear demonstration of safety and tolerability advantage may be a critical piece for educating HCPs, vulnerable populations, and policymakers on the merits of our approach. Net, we believe that declaration of LIBERTY provides an incredible opportunity to demonstrate the power of our antibodies in protecting people from COVID. And we anticipate that our data expected mid-2026 will add to our growing body of information that can provide major confidence in a potentially superior medical approach to protection compared to COVID vaccines. Our clinical and regulatory groups have been moving quickly to stand up these studies, and we will look forward to updating you on our progress in the coming weeks and months. I will now turn the call over to Tim Lee, our Chief Commercial Officer, to talk about our progress with PEMGARDA and our expectations for the VYD2311 commercial journey. Tim? Timothy Lee: Thank you, Marc. Last week in our investor webcast, I said that we believe there is an enormous near-term opportunity for Invivyd. Now I'll get into the future that we see. We said that Thomas Jefferson quoted, I'm a great believer in luck. The harder I work, the more I have of it. We are able to help certain immunocompromised people avoid COVID today, while planning a broad swath of Americans avoid COVID in the future with our next-generation antibody. There's a lot to digest here from this slide because we are taking the actions that I told you that we take during our Q1 earnings call, and they are working. I told you we're beginning to make progress on contracting. Today, we have more than 15,000 contracted GPO sites. I told you that we are refining messaging. And today, we have more than 1,200 sites offering infusion, and 76% of those accounts are reordering. I told you that we're beginning to be seen as a leader in COVID, and we're acting as leaders, and that means that we've been to more than 125 conferences. And all of this is enabling us to move from helping a smaller patient population today via infusion to a potential vaccine replacement with our next-generation antibody, if approved. At our Q1 call, I shared that the IDSA guidelines and the NCCN guidelines for B-cell lymphomas included HMGRDA. As you can see here on this slide, today, numerous medical societies and guidelines make that recommendation. And it's important that the medical community is recognizing the importance of antibodies in preventing COVID because the long-term impact of the disease continues to be dire. The impact on children exposed to COVID-19 in uterine to our brains, to our cardiovascular systems, we should all want to avoid getting sick with COVID. We see a future that needs a widely available and accessible option to prevent COVID for most Americans. Current options simply are not enough, and we need to provide patient choice. Now for HCPs and immunocompromised people can scale to a much bigger market share should VYD2311 be approved. We have found that people do not want to miss out on life because of COVID. They are on social media, and they are receptive to learning more. I talked about the number of conferences we've been at, and I wanted to share where we are from a commercial perspective. We're meeting HCPs who are most interested in keeping their immunocompromised patients protected against COVID and understand the damage that COVID continues to cause for immunocompromised people who are in their care. As we consider the size of the potential commercial opportunity at this point in 2025, COVID vaccine uptake is substantially below that of influenza vaccine uptake, despite people being more concerned about getting COVID than they are about getting the flip. As we've seen in the CDC data, the reason why people do not get the COVID mRNA vaccine is a concern about side effects. We see extraordinary medical value to create a business to scale. So our goal is simple, not easy, but simple. We want to provide people with a choice as they seek protection against COVID. And we believe that this has blockbuster potential because there are so many people that we can help. We see an enormous near-term commercial opportunity for Invivyd. Last year in the U.S., COVID vaccine sales totaled $3.8 billion. And yet, as we reviewed, the vaccine appears to be less than an ideal solution. We believe we make substantial safety, efficacy, and durability of efficacy of protection from COVID, and we're looking forward to getting started should VYD2311 be approved. With that, I'll turn it over to Bill. William Duke: Thanks, Tim. I will quickly review our financials, and then we will be opening the line for questions. Our revenues continue to grow in the third quarter, up 11% quarter-on-quarter and 41% year-over-year, reflecting our continued efforts on driving awareness in the market. We also substantially improved our cash position, not just from our underwritten public offering in August, but also by a reverse increase through our initial ATM facility, now effectively exhausted and at much better prices than our August 2025 financing. Invivyd is now well capitalized through anticipated pivotal data of VYD2311 in mid-2026, on continued growth and continued operational discipline, potentially well beyond. With that, we will take your questions. Operator: [Operator Instructions] Our first question today comes from Josh Schimmer from Cantor Fitzgerald. Joshua Schimmer: This is Alex on for Josh Schimmer, and congrats on a great and exciting quarter. So my first question is, do you plan on winding down PEMGARDA once the next-gen product is approved? And if so, over how much time? And then I have another question. Marc Elia: Alex, thanks for the question. I think the easiest answer right now is simply no. PEMGARDA is, as you know, perhaps a medicine that has some slightly less attractive properties in terms of scalability and accessibility, but it does remain a differentiated medicine at the molecular level. And while the market may someday pass it by, we would have no plans to actively sunset. Joshua Schimmer: And then my second question is, can you please clarify the coordination between CBER and CDER that is required for the LIBERTY study? Marc Elia: Well, I can certainly tell you what we know, but I think that sort of insight is best left as a question to the FDA. I think what you are simply observing in our work is that by virtue of a law that I think dates back all the way to 2002, there are different responsibilities between CBER and CDER, and therapeutic monoclonal antibodies have traditionally been handled by law by CDER. And so when we, in effect, comingle these sorts of prophylactic medicines in a study, I would imagine that there would be some level of dialogue between those 2 centers on the nature and boundary sets of our study. So of course, I can't tell you what they're going to talk about with one another. But I think from our perspective, it's all about essentially getting confidence and alignment on what to us looks like a relatively straightforward in, right? So there are mechanistic and fundamental questions that so far have only been answered in animal systems. For example, what does happen if you concomitantly administer both a vaccine and a monoclonal antibody? It wouldn't be crazy to imagine they might interact. Now the meaning of such an interaction, I don't know that we see a particular issue one way or the other, right? Animal work suggests that applying a monoclonal is almost like putting a little piece of masking on an antigen. And so you redirect some of the immune response to vaccine. But it's not clear to us that it will change in one way or the other. I think our suspicion would be that in seeking to advance a broadly labeled, broadly indicated monoclonal, we would want to do this sort of experiment, and the FDA would wish to reflect on such an experiment to support labeling language and a description that is useful to HCPs and vulnerable populations about what is the nature of such a combination. So again, I think it's really just from our standpoint, a logistical step that will involve a slightly unusual coordination at their end because, to my knowledge, nobody of late has actually sought to combine such assets in one single clinical study. But that's a very different statement than us thinking it involves any particular risk one way or the other in any particular extraordinary process. I think we just wanted to flag it because I think it's an unusual study in a really, really good and interesting way, and we're very much looking forward to conducting it. Operator: And our next question comes from Patrick Turchio from H.C. Wainwright. Patrick Trucchio: This is Abella on for Patrick Turchio. Congrats on all the progress. Could you please discuss the commercial team's current reach and any plans to expand beyond infusion centers as you transition towards intramuscular delivery for VYD2311? And then I have one more. Marc Elia: Yes, great question. I think as you know, right, it is certainly a foundation that we've been building out around an infused specialty medication. What we're starting to do is build upon that broad foundation to meet the specialists who currently care for immunocompromised patients, as well as those who will be the right target audience for 2311 should it be approved. And so the foundation we've built is scalable. I think you'll see more from us around some air cover around digital assets and reach into the community, and then an increase in field presence as we go forward through the next year. Patrick Trucchio: And then also, you mentioned early-stage discovery efforts in RSV and LIBERTY. How do you intend to differentiate those programs? And what's the realistic timeline for development candidate nomination? Marc Elia: Great. Well, these are programs that are in the discovery space right now. And in fact, they have very different contours. Differentiation for nasals antibody is, at this point, relatively easy to claim because there aren't any. And so we are approaching that virus with the same philosophical construct we would use for most of our discovery work in COVID and beyond. So -- by that, I mean, we want to look at virus variation. We want to look at druggable targets that are on that virus, and we want to use the platform we have to try to create the highest potency, broadest coverage, most attractive biophysical medicine we can. Now the same is true in the RSV space with one distinction, of course, which is there are already relatively, if not very high-quality, antibodies that are blockbuster commercial medicines. And so in all of these opportunities, I think we look at potential differentiation through a couple of different lenses. The first one we would think of is a differential resistance profile because when we get out of the discovery space and into the commercial market, viral resistance, just like an antibiotics, is a principal concern. And so it is advantageous if we can bring something to the world that can be a backstop or an important addition to an existing armamentarium, just different in terms of the risk profile of the medicine presents to vulnerable populations in HCP. So resistance can be thought of as one of the first key things. Now after that, there are any number of biophysical properties from overall potency to cost of goods and expression yields, advantages in dose and delivery that get to sort of more fine-tuning at the molecular level. And so I think we are interested in providing an update on both of those programs before the end of the year. And after we have sort of polished up something and found something we're happy with, our suspicion would be that they would both be candidates for relatively rapid advancement into the clinical space. After which, for example, RSV and measles will diverge. RSV is relatively well-understood clinical development territory. Measles, as you might imagine, is not. And so they could end up being pretty different-looking development campaigns with pretty different-looking use cases in effect. But we are just excited about the progress we're making in the discovery space, and we'll look forward to giving you all an update as soon as we can. Operator: And ladies and gentlemen, with that, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to Marc Elia for any closing remarks. Marc Elia: All right. Thank you all for joining us this morning and for helping us keep it nice and tight. We and the team will be around for the rest of the day to follow up with any questions you might have. Thanks very much. Operator: And with that, everyone, we'll conclude--
Operator: Thank you for standing by. This is the conference operator. Welcome to Torex Gold's Third Quarter 2025 Results Conference Call and Webcast. [Operator Instructions] The conference is being recorded. I would now like to turn the conference over to Dan Rollins, Senior Vice President of Corporate Development and Investor Relations. Please go ahead. Dan Rollins: Thank you, operator, and good morning, everyone. On behalf of the Torex team, welcome to our Q3 2025 conference call. Before we begin, I wish to inform listeners that a presentation accompanying today's conference call can be found on the Investors section of our website at www.torexgold.com. I'd also like to note that certain statements to be made today by the management team may contain forward-looking information. As such, please refer to the detailed cautionary notes on Page 2 of today's presentation as well as those included in the Q3 2025 MD&A. On the call today, we have Jody Kuzenko, President and CEO; and Andrew Snowden, CFO. Following the presentation, Jody, Andrew and I will be available for the question-and-answer period. This conference call is being webcast and will be available for replay on our website. Last night's press releases and the accompanying financial statements and MD&A are posted on our website and have been also filed on SEDAR+. Also note that all amounts mentioned in this call are U.S. dollars unless otherwise stated. I'll now turn the call over to Jody. Jody Kuzenko: Thank you, Dan, and good morning, everyone, on the line. Last night, we released our quarter 3 earnings. And in every way, this has truly been a pivotal quarter for Torex. It really is the one we've been working for. Highlights as follows: The ramp-up at Media Luna underground has been advancing ahead of plan. ELG underground continues to exceed expectations. Our processing plant is delivering above nameplate on both throughput and recoveries. We hit a major milestone with our first quarter of significant free cash flow generation since the beginning of the Media Luna build. We have finally arrived here at our free cash flow inflection point. We used that money to substantially reduce our debt. We implemented our inaugural return of capital policy with both the dividend and the buyback program now in place. And during the quarter, we bought back $7 million worth of shares. And overall that, we've taken our first steps on growth beyond Morelos, closing 2 acquisitions, adding 5 new assets to our portfolio. In what's been a transformational year for the company, our third quarter results are the first time we're really able to showcase the new operating and cash flow capability of our Morelos assets. Starting here with our strategic pillars on Slide 4. No changes to discuss in our overall strategy. We just continue to work this plan. I'll get into the detail on the progress under each of these pillars throughout the call, but I do want to start with an update on the pillars centered around being a leader in responsible mining. In our ongoing efforts to reestablish ourselves as one of the safest mining companies in the industry, we've been hard at work designing and executing a comprehensive program that we've called next level safety. This is a combination of work streams aimed at safety leadership, risk mindset, safety systems, including fatal risk standards and critical control refreshers across the operations. And we're doing some real interesting work to either further -- even further enhance our culture of care. I'm proud to say this work is paying off. There were no lost-time injuries during the quarter and the lost-time injury frequency at the end of quarter 3 of 0.42 per million hours worked for both employees and contractors on a rolling 12-month basis, really an industry-leading number. Getting into our operational results here on Slide 5, you can see the significant step-up in production we had quarter-over-quarter. Quarter 3 coming in at 119,000 ounces of gold equivalent was much more representative of how successful the ramp-up at Media Luna has been, which up until now wasn't so obvious given the impact of the capacitor failure we had causing the 10-day shutdown at the mill in quarter 2. All-in sustaining cost was also improved quarter-over-quarter, coming in at $1,658 per ounce, resulting in strong margins of 53%. Additionally, we generated $113 million of free cash flow, an important inflection point for the company as it allows us to execute on our capital allocation priorities, which included repaying $75 million of debt, plus another $20 million post quarter end. And it allows us to implement our inaugural return of capital policy, which Andrew will speak to shortly. Slide 6 sets out how we're tracking to our annual guidance. As you can see here, the gold price continues to put pressure on both production and cost guidance given that we report on a gold equivalent basis. And our guidance for this year was set at a gold price of $2,500 an ounce. Our year-to-date production of 262,000 ounces would have been closer to 270,000 ounces were if not for the higher gold price, and our year-to-date all-in sustaining costs of $1,732 would have been closer to $1,600. With that said, we're still aggressively chasing the low end of production guidance and the upper end of cost guidance for the year. To be clear, this statement is made at our guided metal prices. You will also note on this slide, we made a minor adjustment to sustaining capital guidance during the quarter, increasing it by $15 million. This reflects the increased underground development we've had to undertake to support the Media Luna mine ramp-up to get us to hit our targeted tonnes in spite of the delays in commissioning of the paste plant. That said, I'm very pleased to report that we've been paste backfilling since September. We've got 3 stopes now filled with 6 more in the plan between now and year-end. The last point on this slide is a reminder that non-sustaining capital guidance was revised in quarter 2. There have been no further changes, and we continue to expect to come in within this range. Slide 7 showcases the strong performance of the processing plant, which has been exceeding expectations for the past several months. The chart on the left shows throughput, which you can see has consistently been above 11,000 tonnes per day, well ahead of the nameplate capacity of 10,600 tonnes per day. While it's still too early for us to say that this type of performance can be considered steady state, it certainly points us in a direction that we have upside beyond 10,600 especially during months not impacted by major planned maintenance periods. The chart on the right shows recoveries, which were 94% for gold and 95% for copper in September also ahead of their design levels of 90% and 92%, respectively, reflecting how well the met teams have optimized the flotation circuit since commissioning. Switching to the performance of our underground operations on Slide 8. The chart on the left shows the steady ramp-up of the mining rates at Media Luna. We have set a target to exit quarter 3 at 6,000 tonnes per day, and the team exceeded expectations. They delivered a quarterly average of nearly 6,150 tonnes per day. You'll see that rates in September are about 7,800 tonnes per day, and this largely reflects the third primary ore pass and rock-breaker coming online during that month as well as a greater amount of development ore moved during the month. Just to caution here, do not carry the September number forward. We expect the monthly averages to return to levels more in line with our targeted ramp-up rate, especially as we're adding paste backfill to the cycle and we maintain our guidance that we're looking to exit 2025 at 6,500 tonnes per day out of Media Luna. The chart on the right shows that mining rates at ELG underground are also well ahead of our targeted 2,800 tonnes per day, averaging 3,200 tonnes per day for each of August and September. We expect to continue mining at around 2,800 tonnes per day out of ELG until EPO comes online at the end of next year. On the topic of EPO, you'll see the update set out here on Slide 10. We continue to make good progress on design, development and permitting, all concurrently. As at the end of October, we've completed just over 500 meters of development in the ramp, taking off from the Guajes tunnel and remain very much on pace for first ore production by the end of 2026. Importantly, the modification to our MIA-Integral to permit construction of a waste dump facility was approved by SEMARNAT in July. So this means we now have all necessary permits required to begin operating EPO. It also means that we have operational flexibility to dump waste on the south side or campaign it through the Guajes tunnel on the conveyor. On the feasibility study work, our teams have now finalized the mine design, the waste dump design, mine sequencing and integrating that mine sequence and scheduling with Media Luna. We've also initiated procurement processes for long lead equipment supply in support of construction, leveraging the specifications and engineering that we undertook with the Media Luna project. All in here, both our operations and projects are performing exceptionally well, and we fully expect this strong momentum to carry through to the remainder of the year. I'll now turn the call over to Andrew to talk about our financial results. Andrew Snowden: Okay. Thank you, Jody, and good morning, everyone. So starting first on Slide 11, you can see a step change in our cost profile from our second quarter performance as we started to see the benefit of the Media Luna ramp-up. This cost performance, coupled with the continued strength of the gold price supported strong all-in sustaining cost margins of 53% in the quarter, which is 47% year-to-date. I expect our margins to remain robust as we close out the year here, particularly as gold prices hold and as economies of scale continue through the Media Luna ramp-up. As Jody noted, we also generated $113 million of free cash flow during the quarter, marking the first quarter of significant free cash flow since the early days of Media Luna Construction. Really nice to get to this point, and you can expect to see Torex continue to generate strong free cash flow from this point going forward. With the strength in the gold price, I do want to just remind you of the impact this has on our reported gold equivalent production and cost performance compared to our guidance metal prices, and you can see this summarized on Slide 12. As Jody mentioned, the gold price year-to-date has been about 28% higher than our guided price of $2,500 an ounce. This has had about an 11,000 ounce impact to our reported gold equivalent production amount due to the nature of the gold equivalent calculation, and this was slightly offset by the higher silver price, but it still resulted in gold equivalent production being about 8,000 ounces lighter than where we would have been, all else being equal. This impact was even more pronounced on our all-in sustaining costs as the higher gold prices not only impacted the gold equivalent calculation, but also the amounts we pay in our Mexican legislative profit sharing, our royalties and our temporary occupation agreements. At guided metal prices, our year-to-date all-in sustaining costs would have been around $1,600 an ounce, which puts us in line with the top end of our annual guided range of $1,400 to $1,600. Turning to Slide 13. The robust free cash flow generated during the quarter allowed us to repay $75 million of debt, fund the $26 million acquisition of Reyna Silver in cash and also repurchased $7 million of shares. Also to note, we did repay another $20 million of debt in October post the Q2 close here. While I'm talking free cash flow, just a brief reminder, we do have some seasonality to our free cash flow, as I think everyone is well aware. In Q1 of next year, the Q1 '26, we are expecting and currently forecasting annual payments of about $90 million to cover the company's annual tax true-ups, the 8.5% mining tax and the 1% mining royalty. In addition, there will be the annual PTU or profit sharing payments, which will be paid in Q2, and I expect that will be in the $35 million to $40 million range. Turning next to Slide 14. You can see here our liquidity position and debt profile at the end of the quarter. With net debt of $48 million, excluding leases, we're in a solid position to repay all of our remaining debt over the next couple of quarters. I expect that will be repaid by the end of Q1, while also increasing our cash position. As of the end of Q3, we had $280 million of available liquidity, $107 million of which sat in cash at the end of the quarter. Next, turning to Slide 14. I do want to talk about some big news that we announced yesterday around our return of capital program. You can view this announcement really as the first phase of our return of capital program. One we expect will evolve as our balance sheet further strengthens with the expectation that the next phase will allow us to be more decorative on the overall level of capital to be returned annually. Under this initial phase, we've declared a quarterly dividend of CAD 0.15 per share, the first of which will be paid out to shareholders in early December. We view this dividend level as sustainable and one that can potentially grow over time. In addition to this dividend, we will also be opportunistically buying back shares, which as noted earlier, we've already started to be active on. We plan to renew our current normal course issuer bid in the coming weeks, and we'll look to leverage this program over the next 12 months. With the projected level of free cash flow to be generated by the business, this return of capital program will not impact our ability to fund other capital allocation priorities, which include continuing to invest heavily in the drill bit across our expanded portfolio, funding value-enhancing growth such as EPO and Los Reyes and maintaining a strong balance sheet with significant liquidity to take advantage of accretive external opportunities as and when they come up. Finally, just a very brief update on our hedge book. You can see that summarized on Slide 16. Since the Q2 update, we've just added some initial colors on the Mexican peso looking out to 2026 and '27. These are all summarized here on the slide, and we'll look to layer in further hedges over the coming quarters to grow this protection with the goal of having hedges in place to protect up to 60% of our peso-denominated costs. The gold put options that we have in place for 2025 do all roll off at the end of this year, and we have no additional puts in place on the gold price beyond 2025. With that, I'll turn the call over to Dan. Dan Rollins: Thanks, Andrew, and good morning. Starting on Slide 18. We've made excellent progress on our acquisitions of Reyna Silver and Prime Mining with both transactions now closed and integration efforts well underway. Early exploration work has commenced at Gryphon and Batopilas, 2 of the 4 assets we acquired through Reyna Silver. At both assets, we're completing target definition work to assess and rank targets to be drilled in 2026. This assessment will be based on results from geochemistry, geophysics and remote sensing work with teams already on the ground at both assets. We expect to invest around $10 million across the 4 properties from Reyna Silver in 2026. At Los Reyes, development stage project we acquired through the acquisition of Prime Mining, work on the preliminary economic assessment is underway following closing the transaction in October. With enough drilling done to date to advance the PEA, we are tracking for completion by mid next year. We expect to invest about $10 million in drilling at Los Reyes in 2026, plus additional dollars to complete the PEA and kick off a pre-feasibility study. Lastly, on Slide 19 summarizes the drilling results from the ELG underground press release we put out last month. Drilling was focused on the El Limón Sur and Sub-Sill trends and additionally uncovered 2 second order structures running parallel to both these trends. These new trends appear to have acted as conduits for mineralizing fluids and have extended mineralization both laterally and vertically, supporting our target of expanding resources at this deposit year after year. This discovery only underscores that we're yet to unlock the full potential of ELG underground, a deposit where we firmly believe we can continue to extend mine life and expand resources year after year for many years to come. With that, I'll turn the back -- the call back over to the operator for any questions. Operator: [Operator Instructions] The first question comes from Cosmos Chiu with CIBC. Cosmos Chiu: Maybe my first question is on your return of capital strategy here. Great to see that you've put in an inaugural dividend of CAD 0.15 per share. But maybe if I can ask, how did you come up with that number? How did you come up with that level? To me, it calculates to about a 1% dividend yield. Was that something that you're striving towards? Andrew Snowden: Cosmos, Andrew here. I'll take that question. I mean 1% felt about right. Really, the genesis behind the dividend level that we wanted to start at was thinking about a level that we felt very comfortable that we could continue and was sustainable in any gold price environment and that -- and the overall $40 million that equates to U.S. annually was a level that we felt very comfortable with in the mix of our overall capital allocation priorities and that happens to come out at about 1%, which I think was fairly in line with the general levels of our peer group. I'll also maybe just note that this is really only our first quarter of free cash flow post Media Luna. It's really what I would describe and as we talked about on the call, as our first -- our initial phase, first phase return of capital program. We'll look to evolve that through the course of 2026 as the balance sheet continues to build, but that's the right level that we thought would be the inaugural dividend. Cosmos Chiu: Great. And as we talk about levels here, you also repurchased CAD 10 million in shares in Q3. Is that a good level in terms of the foreseeable future in terms of quarterly buybacks? Andrew Snowden: Again, Cos, I think given this is just our first phase, we've deliberately not come out with any kind of annual targets on volume of shares that we'll look to buy back in any specific period of time. We'll probably evolve to that, I think, through the course of 2026. I'll say the volume of our buybacks in any given month or any given quarter will be dependent on where our share price is trading and how we've been performing against our peer group. That said, obviously where our share price is trading today is a very attractive price. We're obviously blacked out for the next couple of days post our Q3 earnings, but I would expect that we'll be looking to dip into the market and buy back some shares in short order here. Cosmos Chiu: Great. And maybe if I can switch gears a little bit, and this might be another question for you, Andrew. I'm looking at these QP hedges -- and I've read it quite a few times. I'm still kind of not fully grasping it. Is it just related to, I guess, mitigating the risk in terms of provisional pricing, and that's why you're hedging out the silver and copper. I guess my question is, how significant is it? Is it related to provisional pricing? And then it sounds like it cannot qualify as hedge accounting. So is it going to introduce some kind of accounting volatility into your reporting? Andrew Snowden: Yes. Good question, Cos. This is the first time we're actually entering into the QP hedging. And so just to give you some context around why we're doing that. So firstly, it relates to our concentrate sales that we started to produce following the Media Luna construction. So it's the concentrate that now comes from our plant under our contracts with the traders. So to date, most of those concentrate has been sold to the traders. The traders actually have the option right now to select M+1 or M+4 as in the settlement terms. What we're looking to do is actually overall reduce volatility over an annual period where we want to make sure that we achieve M+1 settlement terms on all of our sales. And so although the traders are typically elected M+1 on all of our sales to date, when the market is in backwardation, they'll likely select M+4 from time to time. And when they do that, we'll enter into QP hedging to ensure that M+1 outcome is achieved. And the goal here is really to make sure that through the year, we'll average something close to the market price rather than having some contracts close at M+1 and some contracts close at M+4. So I think at this point, it's very small volumes that we've entered into, but we will look to execute that from time to time where we see that exposure to achieve that consistent outcome. Cosmos Chiu: Great. And then maybe one last question. Gold equivalent ounce reporting has caused a bit of, I would say, not volatility, but kind of a lot of explanation needed to be made in terms of gold equivalent ounces, how that's being calculated, how that compares to your original guidance. Is that something that you would reconsider in terms of the way you guide, in terms of the way you report in the coming years, especially given the fact that as you talked about Media Luna coming in, there's more byproduct now, including copper. Again, how should we look at gold equivalent ounce calculation and reporting on a go-forward basis? Andrew Snowden: Yes. That's a fair comment, Cos. I mean it's -- we've not lived through this period of price volatility that we've had over the past 12 months. And so we weren't expecting, obviously, the explanations that we've had to provide through the course of this year to explain some of the variances. I think as we look forward to 2026 here and the guidance that we'll be releasing in January, at this point, we expect to probably expand that guidance more than it maybe was in 2025 to provide guidance on individual metals rather than just gold equivalent. And so we will continue to report on gold equivalent. I think that's an important metric, but we will provide incremental guidance on individual metals so that helps the market and investors and analysts understand our production profile. Jody Kuzenko: The overall goal line for us here, Cos, is transparency. We want everybody to understand clearly what our production is and how we're tracking against our commitments to market. Operator: The next question comes from Don DeMarco with National Bank Financial. Don DeMarco: First off, I'll start with the plant. I see it's running above the 10,600 tonne per day nameplate. Can you restate the drivers for this? And do you have an upper limit target that you might hope to achieve? And can you sustain grades at this higher level throughput? I mean, obviously, that will be in flux of Media Luna ramps up, but just interested to hear more color on this. Jody Kuzenko: Yes. Thanks, I'll take that question. Yes, I'll take that question. As you know, we did over 11,000 tonnes a day through quarter 3. And one of the key drivers for that was centered around we didn't have a major maintenance period scheduled in the quarter. You'll recall the downtime we took in May of this year as a result of the capacitor failure. So the team just didn't take that time down. They took the opportunity to do every bit of maintenance they could to set us up for a maintenance-free quarter 3, which drove those rates. The other thing driving those rates is that, generally speaking, the ore on the Media Luna South side is softer than the ore on the north side, which allows us to increase tonnes per hour. And when we took the mill down during the transition period from [indiscernible] 10,600 tonnes a day with the Media Luna transition, we didn't downgrade power and power to the SAG mill and the ball mill had been the limiting factor under the open pit flow sheet. So we've got more power than we need. We've got a little bit softer ore, and we are continuing to optimize our maintenance planning, both on a quarterly basis and an annual basis. What that all tools up to is something that we are actively discussing, what kind of commitment we make to the market. At this point, we're holding on 10,600 tonnes a day. I will tell you, as we're running the 2026 budget, we are flexing an upside at 11,000 tonnes a day. Too soon to put it into the models, but that could very well be where we're headed here. In terms of your question around grade, as you know, we are looking to get as many tonnes as we can out of Media Luna and ELG underground at a $4,000 gold price, that has allowed us to selectively soften cutoff grade zone by zone to get more tonnes with maybe a little bit less grade. So there will be impacts around the margin, I would say, on grade driven predominantly by the gold price, but secondarily by this upside we're seeing at the mill. It's all connected. Don DeMarco: Okay. That's -- all that is just very excellent color, and we look forward to further details on your throughput rates going forward. But maybe we can dig into grade a little more. So you got Media Luna underground, I see it's on track for 6,500 tonnes per day at year-end. You got -- you had a record in September. I see that. That's great. But you're still on track for that pace and then 7,500 midyear. But with this looming, how should we think about year-over-year improvements in grade going forward with a more favorable blend with higher weighting to Media Luna? Jody Kuzenko: Yes. It will be very unlikely that we'll have a lot of blending capability moving forward. I mean, at 7,500 tonnes a day, another 3,000 tonnes a day and 2,000 tonnes a day out of EPO, you can see that we're going to be filling a hungry mill, even call it, at 11,000 tonnes a day. And so you can expect to be grade to be fairly flat moving forward. Don DeMarco: Okay. Okay. And just maybe as a final question and I'll shift over to Dan. So Dan, yes, great to see the Prime acquisition close at Los Reyes. You mentioned the PEA is tracking mid-2026. Looking forward to this milestone. But is this subject to a resumption of exploration at site? And what is the level of working conditions right now in... Dan Rollins: Yes. I'll let Jody talk about the working conditions. On the PEA, there's over 200,000 meters of drilling and a significant portion of the resource is already in the indicated category at very tightly spaced drilling. So there's enough critical mass of drilling to continue to move ahead with the work that Prime had started on the PEA. Our team has just taken that over now. We've got our team heading down to Vancouver to meet with some of the consultants over the next couple of weeks. They'll take a look at the design elements that were sort of proposed by the Prime team, look to see if we want to do anything differently. Again, we bring a bit of a better balance sheet. We're an operating company. We're going to be looking to put a PEA out that is going to be a study that we're going to build off and will inform the PFS and then subsequent to a feasibility study. So we're well on track there. No more drilling. The drilling that we want to do in 2026, if not earlier, is really to I'd say, expand the resource, tighten up some areas of that resource model where we want to see some more drilling and really inform the work that will be part of the PFS study that will kick off next year with the aim of getting that PFS out to market sometime in 2027 and likely a year later, followed by a feasibility study. Jody Kuzenko: In terms of the security concerns at site, Don, our team has been there on multiple occasions now. Even just this last week, we have a team of managers from Morelos heading out there across functions, security, logistics, HR and finance. And I would say we are making our way there step by step with a view to resuming drilling just as soon as we can without pushing it too quickly. What does that look like? We've tapped into our relationships with the Federal National Guard to show a presence there. We have had many discussions with the municipal level of government to start to undertake the work to rehab the road from [indiscernible] to the site. There's some 30 kilometers of road there. We will start to let contracts to rehab that road. And then we will start to show a presence there from a security perspective, which we have done. So all of those things coming together step by step, we will make the decision when we feel it is safe to do so to resume that drilling program. Progress is being made. Operator: The next question comes from Allison Carson with Desjardins. Allison Carson: Congratulations on a great quarter. Most of my questions have already been asked, but I do have one more question on the capital return program. You mentioned that this is just the initial program. I was wondering if you could sort of expand on how you expect it to evolve over time or how you'll change your decision-making process with it. Andrew Snowden: Yes. So I can take that one again, Allison. Really, how we expect it to evolve is to -- with the goal of being a bit more declarative on the overall return of capital program. This Phase 1, we've announced an initial dividend with the goal of opportunistically buying back shares. As it evolved through the course of next year, I expect we'll get to a point where we'll be able to come to the market with an overall percentage of free cash flow that will be allocated to the overall return of capital program that would be allocated between the different buckets between dividends and share buybacks. And so that's really how you can expect the program to evolve through 2026. Operator: [Operator Instructions] The next question comes from Lauren McConnell with Paradigm Capital. Lauren McConnell: Congratulations on that nice free cash flow. Just building a little bit on Don's question about the processing plant and operating above nameplate. Just wondering, you talked about the fact that there was no maintenance in Q3. Is there any maintenance planned for this quarter? And could you give any color in terms of how the plant has been operating so far quarter-to-date? Jody Kuzenko: Yes. The plant has been doing really well, both on throughput and metallurgically on recoveries. We look at it in 2 ways, Lauren. And there is maintenance scheduled for this quarter 4. We have to do a liner change at the mill and various other maintenance. And so we're tracking that closely to be able to go down and pull back up to deliver on that targeted low end of production guidance. You can't go maintenance-free for too many quarters in a row. If you don't schedule the maintenance, your equipment will schedule it for you, Lauren. Lauren McConnell: That makes sense. Yes. And then just switching gears a little bit to exploration. You guys commented that you're thinking around $10 million for Los Reyes and $10 million for the Reyna Silver portfolio. Can you provide any color on sort of what you're thinking for 2026 in and around Morelos in terms of budget for exploration? Dan Rollins: Yes. So caveat, we're just going through that budgeting process right now. So we'll come out with final numbers, but $10 million at Los Reyes, $10 million across the Prime assets, probably the majority of that at Gryphon and Batopilas. At Morelos, we're probably looking at something consistent with what we did in 2025. So think about $40 million to $45 million at this point in time, similar focus to what we've been doing in 2025. Again, large focus on ELG underground. That's an asset that starting in 2018, we had around 185,000 ounces of reserves. We've now increased that by almost 500% on what we've mined and having the reserves at the end of 2024. So that will see a big chunk. Media Luna cluster will continue to see a big chunk of spending, Media Luna proper, Media Luna East, Media Luna West, EPO, EPO North. And then we'll continue to refine our regional targeting, where we look to get a little bit more targeted on some of the regional targets, specifically at [indiscernible]. Lauren McConnell: Perfect. And then just in terms of exploration updates between now and year-end, what should we be watching for? Dan Rollins: Yes. So we'll have another release out likely late November, early December on Media Luna West drilling, just the final results from that work. We'll also have an update on EPO, where we've now completed that drill program. And then we'll likely have a couple more updates in January, February, setting us up for our year-end MR&R update, which tends to come out mid- to late March ahead of our publishing our annual information form. Operator: As there appears to be no more questions, this concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning, and welcome to CLEAR's Fiscal Third Quarter 2025 Conference Call. We have with us today, Caryn Seidman-Becker, Co-Founder, Chair and Chief Executive Officer; Michael Barkin, President; and Jen Hsu, Chief Financial Officer. As a reminder, before we begin, today's discussion contains forward-looking statements about the company's future business and financial performance. These are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these statements are included in the documents the company has filed and furnished with the SEC, including today's press release. The company disclaims any obligation to update any forward-looking statements that may be discussed during this call. During this call, unless otherwise stated, all comparisons will be against the comparable period of fiscal year 2024. Additionally, the company will discuss both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in today's press release and the most recently filed quarterly report on Form 10-Q. These items can be found on the Investor Relations section of CLEAR's website. With that, I'll turn the call over to Caryn. Caryn Seidman-Becker: Identity is the foundation of trust, and CLEAR is the secure identity platform. The digital connected world has been driving a paradigm shift in cybersecurity and now layer AI on top of that, and there is an urgent focus on identity. Cyber criminals aren't breaking in, they're logging in. 80% of breaches start with compromised credentials and 84% of security leaders have reported identity-related incidents that have disrupted their business. Identity has never been more important, and secure identity is the foundation to create safer and easier experiences. CLEAR is the future-facing identity infrastructure layer that is transforming how security and customer experience come together. Global events such as the World Cup and the Olympics are on the horizon, and security is paramount. CLEAR is helping America's infrastructure rise to the occasion by combining technology, security and hospitality to make our airports sparkle. More than 35 million total CLEAR members trust and rely on CLEAR across many use cases. Our customer-centric brand, which is known for privacy and security as well as our physical and digital network is accelerating our momentum across both CLEAR members and enterprise customers as we close out the year. The premium, frictionless and predictable end-to-end travel journey we are building for our 7.7 million CLEAR+ Members is the new customer expectation. Our mobile app enhancements are streamlining the enrollment experience and helping members navigate their day of travel with confidence and ease. Our beloved ambassadors enable the merging of hospitality and technology to provide an unparalleled customer-centric and personalized experience that helps members win the day of travel. And our product innovation from EnVe enrollment and verification Pods to eGates is having a meaningful impact on speed and member experience. Our long-awaited eGate rollout has commenced and the feedback from members is unanimous. The experience is magical. CLEAR eGates are vertically integrated, combining our software and hardware across our nationwide network. Members verify in approximately 5 seconds and move directly into physical screening in 30 seconds. We are seeing eGates drive meaningful improvements in throughput, lane experience scores and NPS. Our nationwide rollout will continue over the next few months, and we expect member experience to continue to improve. As we scale automation across our network, our ambassadors can create an even more elevated member experience with CLEAR Concierge. CLEAR Concierge is a premium personalized on-demand service where a dedicated ambassador meets you curbside and guides you all the way to your gate. Now live at 23 airports, CLEAR Concierge is giving members a truly premium and effortless travel journey. The CLEAR Travel experience and value is growing, and we are expanding our CLEAR+ Member base across all channels. Member acquisition in the airport remains strong, supported by a steady increase in total air travelers, coupled with our new improved mobile one-step enrollment. International enrollment is off to a strong start even before we have launched marketing. There is an exciting opportunity to tap this broader pool of potential CLEAR+ Members. Partners continue to be an important channel for us to acquire high-value loyal members. We are pleased that CLEAR+ is a highlighted embedded benefit of the American Express Platinum Card refresh, reflecting the value each of us bring to our partnership. We have long talked about the power of public-private partnerships, and we are grateful that this administration is moving at the speed of business. We are working together on behalf of American travelers, connecting public sector priorities with private sector innovation. Embracing technology and business is improving the everyday security and experience of all Americans. CLEAR1 continues to scale. Modern fraud attacks are occurring with unprecedented speed and sophistication, and this is a critical and growing problem that every organization is facing. CLEAR1 is a comprehensive enterprise identity platform that delivers strength in security with a multilayered approach, the building block of trust. CLEAR1 delivered its strongest quarter yet with a record number of enterprise customers signed. In health care, CLEAR is a partner to the administration and the Center for Medicare and Medicaid Services, Health Tech Ecosystem Initiative as their trusted identity layer. The CMS pledge is a coalition of health care technology companies working to improve patient data interoperability and access, killing the clipboard while safeguarding sensitive health information. Over 60 companies have signed the CMS pledge, and to date, we have entered into CLEAR1 contracts with over 20% of the participating companies. Our work with Epic is further embedding us into the health care ecosystem. Health providers on Epic can enable a CLEAR1 turnkey solution within MyChart. This partnership creates distribution and seamless integration for CLEAR1 into the millions of patients with Epic electronic health records. In workforce, CLEAR1 is protecting the full workforce identity life cycle from prehiring activities such as verifying candidate profiles to post-hiring identity verification use cases such as account recovery and privileged access. We are also beginning to expand our use cases with customers cross-selling and upselling our various CLEAR1 workforce solutions. Identity security has become a mandate for all stakeholders. CLEAR1 trusted brand platform approach and elevated security standards are enabling our enterprise customers to protect their employees, customers and assets with confidence. I am proud of our execution and strong financial performance and want to thank our ambassadors and all of the CLEAR team members for how they serve travelers and customers. With that, I'll turn it over to Jen. Jennifer Hsu: Thank you, Caryn. Third quarter revenue grew 15.5% year-over-year to $229.2 million, and total bookings grew 14.3% year-over-year to $260.1 million, both exceeding the top end of our Q3 guidance range provided last quarter. Active CLEAR+ Members grew to 7.7 million, up 7.5% on a year-over-year basis. Our rapid product innovation and growing suite of services in CLEAR Travel is elevating customer experience and attracting new members. eGates are elevating our home to gate value proposition. We continue to penetrate opportunities such as bundling TSA PreCheck with CLEAR+ and we are growing our total addressable market with international travelers. We are now offering CLEAR+ to over 40 international country passport holders, and we are encouraged by the contribution of international to our CLEAR+ Member base prior to having activated any marketing efforts to this audience. From a pricing perspective, we believe we have multiple levers to drive average revenue per member growth over time. This includes a regular cadence of price increases, closing the pricing gap with discounted members that we have acquired via our partnership channels and services such as CLEAR Concierge, which are add-on transactional opportunities. In aggregate, our member and pricing performance delivered sequential accelerating bookings growth in Q3, and we expect that to continue in Q4 as we close out the year. Q3 gross dollar retention was 86.9%, down 40 basis points sequentially and consistent with our expectations as the impact from the larger general airline and family price increases we took in 2023 continue to normalize. CLEAR1 is scaling and delivered a record quarter of bookings, excluding onetime Health Pass performance in 2022. We ended Q3 with 35.8 million total members, up 35.1% year-over-year and indicative of the momentum that we are seeing in CLEAR1. Our product innovation continues to drive meaningful impact to our value proposition and also our cost structure. Ambassador efficiency and member throughput is significantly improved with our EnVe verification Pods. As we scale eGates across our network in Q4 and into 2026, we have the opportunity to rethink and reposition our ambassadors towards the highest value hospitality driving services for our members. Cost of direct salaries and benefits represented 20.8% of revenue in Q3, an improvement of approximately 180 basis points year-over-year. We continue to drive operating leverage through disciplined resource allocation and corporate cost efficiencies with G&A representing 25.7% of revenue, an improvement of approximately 150 basis points year-over-year. Taken together, we generated $52.6 million of operating income, representing a 23% operating margin and 5.3 percentage points of margin expansion versus Q3 2024, and we generated $70.1 million of adjusted EBITDA, representing a 30.6% adjusted EBITDA margin and 6.1 percentage points of margin expansion year-on-year. We delivered $47.3 million of net cash used in operating activities and negative $53.5 million of free cash flow. Both figures reflect the annual payment to our credit card partner of approximately $229 million. We ended the quarter with $533 million of cash and marketable securities after returning $16.7 million of capital to shareholders through our regular quarterly dividend of $0.125 per share and distributions. Turning to guidance for Q4. We expect revenue of $234 million to $237 million and total bookings of $265 million to $270 million, representing 14.2% and 16.8% growth at the midpoint, respectively. This would reflect another quarter of accelerating growth from a bookings perspective. We continue to expect expanding adjusted EBITDA margins for the full year 2025 versus 2024, and we are increasing our 2025 full year free cash flow guidance from $310 million to at least $320 million. Our free cash flow guidance reflects both the impact of additional CapEx related to our eGates rollout, which was not originally anticipated at the onset of the year as well as certain cash tax benefits related to the One Big Beautiful Bill Act, which went into effect in Q3. With that, we will open the call for Q&A. Operator: [Operator Instructions] Our first question comes from Joshua Reilly with Needham & Co. Joshua Reilly: Very nice job on the quarter here. How should we be thinking about the strong bookings guidance for Q4, which is above my model? How much of that upside is being driven by CLEAR+ versus maybe some CLEAR1 and B2B deals that are a little bit bigger than maybe what you would have historically had? Jennifer Hsu: Thanks, Josh. Nice to hear from you. So I would say we expect the product and member experience improvements that we're driving really across all dimensions of our business. If you think about mobile one-step enrollment to international to eGgates, all of this work is really impacting both member retention as well as member acquisition. And if you couple that with CLEAR1, which continues to gain traction, as we talked about on the call with our enterprise customers, that business is starting to contribute more meaningfully to top line. We obviously are not breaking out CLEAR+ versus CLEAR1 in our guidance specifically, but we did share that CLEAR1 had its largest bookings quarter if you exclude Health Pass back in 2022, and we expect that momentum to continue into Q4. Joshua Reilly: Got it. That's helpful. And then on the -- maybe what are some of the moving parts investors should be considering in terms of the -- it was a small sequential decline in gross dollar retention. But offsetting that is you just implemented a price increase, obviously, at the beginning of the quarter, which should be a tailwind to that metric. How should we kind of be thinking about what happened in the quarter there and maybe the trajectory of that metric going forward? Jennifer Hsu: Sure. So on gross dollar retention, so as a reminder, we took about $60 and $40 of price increase to our general airline and family pricing plans back in 2023. So from a gross dollar perspective, those pricing changes impact that metric over a 24-month period and sort of an accordion fashion. So think about the fourth and fifth quarter having the greatest positive contribution to GDR. So this quarter, our GDR of 86.9% was anticipated. It was in line with the impact of that 2023 pricing decisions, which are moderating in the metric. I think the second piece of this, which you alluded to is kind of the impact of retention and if there's anything that we're seeing from our July 1 pricing increases this year. And I would say we're not having -- we're not seeing a material impact on retention. In fact, while it's early, but we're actually encouraged by the retention patterns we're seeing in recent months, which we believe are a results of the customer experience improvements that we're driving. Operator: Our next question comes from Cory Carpenter with JPMorgan. Cory Carpenter: I have 2, one and a follow-up. So maybe just first, it would be good to hear what you're seeing in recent weeks, just given a lot of the headline noise around TSA staffing issues. How is that impacting you? Or how do you think it could impact CLEAR should the shutdown persist in the coming weeks? Caryn Seidman-Becker: Hi, Cory, it's Caryn. So as someone who just flew Newark to San Francisco, Tuesday, I will say that going through the CLEAR eGates in Newark were magical. And so I think the technology that we are putting out and the new services that we are putting out couldn't be coming at a better time. But I think that there's really 2 parts to the shutdown, traffic and experience. And actually, traffic has been trending upwards despite the government shutdown. It was up almost 4% in October. So even with the FAA announcement yesterday of trimming, we're heading into a very strong holiday travel season. And so I think that traffic continues to be strong on both the leisure and the corporate side. But certainly, you are seeing challenges in some places regarding the experience. And I think regarding experience, CLEAR as a private company is there to help all stakeholders improve the experience. And when I say all stakeholders, travelers are at the center of that, but that's airports, that's airlines, that's TSA and the federal government. And so I think our capabilities really shine through in these moments. And the overall airport experience, you're seeing it on the news, remains highly challenging. So we are seeing a lot of excitement and appreciation for our improved member experience. Cory Carpenter: Great. And for the follow-up, Caryn, just curious to hear how you're thinking about -- you have a big upcoming credit card renewal next year. Not expecting you to comment one way or the other on if you'll do it or not, but just kind of how you're thinking -- CLEAR has changed a lot in the 5 years since you initially signed it. So how are you thinking about the key considerations as you weigh your options there? Michael Barkin: Yes. Thanks. Amex and our partnership there, we've had a great partnership with Amex, and we're definitely pleased to be one of the highlighted benefits of the Platinum Card refresh, where CLEAR+ is one of the key travel benefits that Platinum Card members value. And we also saw with Amex's recent announcement of their refresh and the supporting and the marketing support for it that the Platinum Card refresh really created good awareness around the embedded CLEAR+ benefit. So as we look to our future partnership, we're going to make sure that the value that we bring to the benefits package is reflected in the terms of an ongoing agreement. And we really value our credit card partnership, and we'll share more information as it becomes available. Operator: Our next question comes from Mark Kelley with Stifel. Mark Kelley: I had 2 quick ones. First one is, as you continue to scale and you grow the membership base and you're raising prices and the economics are clearly accruing to you. Does that give you an opportunity to go back to some of the agreements when they come up for renewal with the different airports to maybe get better economics as well? Like are your agreements more tied to an absolute dollar number but expressed as like a rev share percentage? And maybe would that be a positive for your margins over time? And second, just a quick one. I would love to hear how you think about advertising bigger picture. I feel like you continue to add more value to the membership. You have all these great features and products that I think maybe even current members sometimes don't even realize you have. So maybe can you help me think about how to make people more aware of the broader offering versus what may be in people's heads historically? Caryn Seidman-Becker: Sure. And so I agree with you. This is Caryn. I don't think enough people know about all the great things that CLEAR is doing from home to gate, and that's an opportunity. But let me take your first question about airports. We have 60 airport partners today. We have over 160 lanes, and we expect to continue to grow our network. I prize, we prize our airport partnerships and relationships. And I think they just continue to strengthen through the years. We've been at this for 15 years, and we have done what we said we're going to do on an innovation perspective, right? We've gone from smart cards to fingerprint and eyes to face and now with eGates, which is something that we have been working on and talking about for 5 years. And today, we're at 10 airports. We continue to roll them out. And so that innovation is so appreciated by our airport partners. And I think it's a really powerful economic partnership that it's success-based, and it's a win-win for us and for our airports. So when I think about margins, what I think about is our opportunity to continue to drive automation and innovation and scale. I think eGates drive enormous efficiency. I think new services like concierge drive enormous opportunities for high-margin new revenue sources. And to your point now about awareness and home to gate, right, we have an app. We are going to be improving our app. We have concierge now live in 23 airports, more coming. We have eGates and there's so much more we can be doing. And so driving this home to gate journey and experience is really important for us to communicate. I do think the best communication are happy customers and great word of mouth. And so when we talk about improving customer experience scores, improving NPS scores, improving employee satisfaction scores, improving hospitality scores, all of that is the best advertising we can do because members talk. And we think that there's more that we can do to drive awareness, cheap and cheerful, but you'll find me and us more on Instagram. And so we are definitely leaning into new ways to tell our story. And I think in the world of not just SEO, but how you leverage AI and share the story in so many different digital ways, we are definitely thinking a lot more about that. But it starts with happy customers, and that is what we are most excited about right now. And now you're right, we need to tell that story in bigger ways, both for the member experience and our services, but also CLEAR is a secure identity company, right? So I think you're going to see us lean into both sides of that story. Operator: Our next question comes from Dana Telsey with Telsey Advisory Group. Sarang Vora: Great. Sarang Vora for Dana. Congratulations on a great quarter. The question is about eGates. It's an exclusive benefit for CLEAR+ Members. And we feel like it is game-changing to the model because it solidifies your relationship with the CLEAR+ Members. It's great to see launched in the New York area. Just curious to know, can you share some more statistics on like how it has changed the member experience? Any color on operations side, like verification speed or the process of clearance and any capital investment? Any color you can share on eGates would be helpful. Caryn Seidman-Becker: Yes, I'll start and then maybe Jen and Michael want to chime in. As I said on the call, what we're hearing from our members is the word magical. And so today, we're at 10 airports. We expect to be in at least 30 airports by the end of the year, starting in the PreCheck lanes and then adding other lanes. We expect to be nationwide in 2026. And something that I want to -- so you are seeing a significant improvement in member experience scores in NPS. We talked about the speed, less than 1 minute through the lane, less than 5 seconds for verification. And I think what's really important and part of the magic is the predictability, right? So when you have it on either end of your trip, you know exactly what you're getting. And it is the same every time. I think there's a saying when we started, and it's still there today, you've seen one airport -- you've seen one airport, every airport, every lane, every terminal, every security checkpoint is different. And so having this predictable, consistent universal experience is so important for both domestic travelers, but I would also add now for international travelers. So being able to add 42 different Visa waiver countries and having those travelers be able to enroll when they have not been able to have anything in the U.S. and having those experiences look like Doha, Singapore, Tokyo, and London is such a great step forward. But the other thing that I want to add to that is that eGates are magical. We've been working on them for a long time. That's awesome. Our real thing is the journey, the whole journey, the mobile, the concierge, the home to gate, the family, the PreCheck, like being able to meet travelers where they are and craft a customized journey for them from home to gate and back again. And eGates are certainly a great unlock and it unlocks our team members, our ambassadors to drive the hospitality. So we're really excited about the nationwide rollout, excited about the customer feedback, excited about the scale. And I probably just took all of Jen and Michael's talking points, but I'll turn it over to them. Michael Barkin: Yes. I think the only thing I would add is that we have been very, very focused on all those pieces that Caryn just talked about in terms of improving the member experience. And that is what we show up every day doing. That's what our 3,500 ambassadors across our 60 airports wake up and deliver right, every day for travelers in what can be a challenging experience. And I think one of the things that we're most pleased about is seeing the improvements in our lane experience scores, which really measure what's happening in the moment of the experience as well as our NPS scores. And we're seeing that across the network. But then what we're really specifically seeing it on is the change that we're seeing once eGates go in. And we're very encouraged by that because we believe that delivering that member experience is, yes, critical to our success, and we're pleased to be making good progress there. Jennifer Hsu: And Sarang, I'd just add, I think you had a capital question tied in there, but we are not disclosing the specific CapEx associated with eGates, but that is incremental CapEx spend that we were not anticipating at the onset of the year. It is reflected in our revised and increased full year free cash flow guidance, which we increased. So that gives you some perspective of kind of scale of CapEx and not material, I think, from an overall business perspective. The last thing I think is important is from an ROI standpoint, if you think about eGates and the labor savings that we can create with the eGates, we have a pretty unique ability to repurpose our investors towards what we believe are the highest hospitality driving services for our members. Sarang Vora: That's great. No, very helpful. And the other big initiative is the international. I feel expanding the CLEAR+ to 40 countries, travelers from 40 companies, a big, big opportunity. Question is, how do you market to these people? We are already seeing some gains, as you mentioned before, but how are you marketing to these people? Is it like in the future, like would you have like airlines partnership, credit card partnerships like you have it in the U.S. or it's more like targeted like U.K. or France? Or just curious to know how you are targeting and how meaningful it can be for like next 2 years for you guys? Michael Barkin: Yes. Thanks for the question. I think we're -- yes, we're very, very excited about the introduction of our ability to enroll international travelers from 42 countries in the CLEAR+ product. As you know, this is still relatively early innings for us, but we're really pleased with what Jen has shared in terms of the early enrollment with relatively limited marketing -- our plans are to certainly do our own marketing efforts, but then as we've done with our domestic business here in the U.S., find really meaningful strategic partnerships that help us drive both awareness and enrollment from -- across these countries where folks are -- have heavy travel patterns within the U.S. And we're certainly excited about trying to find ways to help folks, in particular, who are coming for the World Cup next summer, be able to use the benefits of the CLEAR+ lane when they're traveling to and from the World Cup and within the country as we know that travel will be busy around that important event that's coming up. Caryn Seidman-Becker: I just want to add to what Michael is saying, and I talked about it on the call, I think we are heading into a travel boom, right? Like look past the government shutdown, the World Cup, the America250, Olympics in 2028, business travel rebounding. We've been saying for some time that today, there's about 3 million people a day coming through airports. I think by 2030, you're going to have 4 million people a day. Travel is growing here in the U.S. and our infrastructure needs to shine. We need to be better than Tokyo and Doha and Singapore and Paris was for the Olympics. And I think the power of public-private partnerships and innovation and putting the customer at the center like you do in so many different industries, really gives our airports, our travelers a unique opportunity and certainly creates a moment for us, which is why you see us launching more products over the past 6 months than I think we have over the past few years. Operator: Our next question comes from Michael Turrin with Wells Fargo Securities. Michael Turrin: Just first, I want to go back to just some of the commentary on eGates and the incremental CapEx relative to what you're expecting at the start of the year. Is it the rollout to 10, is that happening faster than you expected at this point? Or is the rollout generally as expected as eGates has started to come to market in some of the major airports? And then any incremental commentary you can give us? There's been some hints around the ability to shift the ambassadors, but any other ways for us to think about incremental margin of eGate relative to the traditional CLEAR+ business? Caryn Seidman-Becker: Thanks for your question. I think to Jen's point that some of the CapEx was not calculated at the beginning of the year. Certainly, we've been pushing on eGates for quite a while. It has taken us longer to get them out. And then once this administration was ready to move, it is moving faster, and we couldn't be more thrilled that they are moving at the speed of business. So while some were thought of this year, not only have we rolled out, but we're buying forward for the ones that we're rolling out this year and then more for next year. So I would say it is happening faster, and we are thrilled by that. And then, yes, certainly, eGates frees up our ambassadors to be used for their highest and best use, which is hospitality and service. And again, this is about the entire home to gate experience, and that's so important. So I think that's just a really big opportunity for us to rollout new revenue streams with no or low incremental costs. And I think that when you think about the second derivative impacts, gross adds, trial conversion, retention, family ads, things of that nature, it all just connects. And so it's just -- it's a really exciting moment. eGates are a great unlock for us to drive this home to gate journey and for us to launch and build new products around it as well. Jennifer Hsu: Maybe just to add on your incremental margins point, you've seen us continue to deliver pretty significant margin expansion on a consistent basis. This quarter, 30.6% of EBITDA margin was over 600 basis points year-on-year and over 300 points sequentially. This quarter, we delivered operating leverage across every line of our P&L, both, again, sequentially and year-over-year. And I think innovations such as eGates really gives us the opportunity to either reallocate capital and/or flow it through to the bottom line. Michael Turrin: Just a small follow-on. Just on the bookings growth improvement in the second half, are the tailwinds that you previously indicated from pricing or what you're expecting from pricing holding consistent since the July 1 price increase? Jennifer Hsu: Yes. I think the short answer is yes. The pricing increases obviously are improving our ARPU equation and ultimately, our bookings growth in the back half of this year. Operator: Our next question comes from Wyatt Swanson with D.A. Davidson. Wyatt Swanson: First question, I realize it's early, but could you provide some thoughts on how concierge is doing, how usage has maybe looked thus far and how it's tracking relative to your expectations? Michael Barkin: Yes. We're really pleased with the rollout of concierge in terms of the experience that we're providing for those members who are taking advantage of it. As Caryn mentioned, we're in 23 airports. We're hoping to launch more airports by the end of the year and continuing to expand the footprint. And I think that one of the key things for us is continuing to drive awareness on concierge. It has just been launched here in a meaningful way over the last few months. And we do think that what we're seeing is that the members who are using it are really appreciating it. We're seeing a lot of repeat usage for those who have tried it. And so our big effort will be in continuing to expand awareness and getting more folks to try it because we think that it offers an incredible service for families, for folks who may need a little more assistance or folks who are worried about getting to their flight on time. And so in this moment when the airport experience is challenged and traffic is up, we really think concierge is an incredible value proposition for our members. And as Caryn has described, we think it's a really important step in helping people understand that the CLEAR+ membership really expands from home to gate, and that will be something that we continue to emphasize and roll out product and innovation around to enhance our members' experience and the value of the CLEAR+ membership. Caryn Seidman-Becker: And I just want to add to that, the question that came earlier, I think our opportunity set going forward is awareness and communication. We -- if you look at us 2 years ago, we had one product, right? And now we have -- you can really customize your product for your needs, for your journey and driving that awareness as well as the ease of enrollment, and that's where mobile is so important. So yes, we have one-step mobile enrollment. Now you can add concierge to that. There's a lot more that we're doing to drive digital enrollment so that you just can come to the airport, show up and it all happens magically. Wyatt Swanson: Great. And then could you maybe provide an update on your largest channels for adding CLEAR+ Members during the quarter? And how is the TSA PreCheck bundling channel sort of developing as you continue to scale that deployment? Jennifer Hsu: Yes. I mean, by and large, we think about member acquisition really at the highest level between airports and then our digital marketing efforts. So I'd break it out between those 2. And from a bundling perspective, we are still seeing significant success there. We haven't shared a specific kind of cross-sell percentage, but we're happy with the percentage of TSA PreCheck customers that we're able to cross into CLEAR+. Operator: There are no further questions at this time. So I'd now like to turn the floor back over to Caryn Seidman-Becker for closing comments. Caryn Seidman-Becker: Thank you for joining our third quarter earnings call. It is certainly an important time to be a secure identity company, and we are confident and excited as we wrap up the year. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Galapagos Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today, Dr. Glenn Schulman, Head of Investor Relations. Please go ahead. Glenn Schulman: Thank you all for joining us today as we report Galapagos' 9-month 2025 financial results. Last evening, we issued a press release outlining these results. This release, along with today's webcast presentation, can be found on the Galapagos investor website. Before we begin, I would like to remind everyone that we will be making forward-looking statements. These forward-looking statements include remarks concerning future developments of our company and our pipeline and possible changes in the industry and competitive environment. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially from those indicated by these statements and are accurate only as of the date of this recording, November 6, 2025. Galapagos is not under any obligation to update statements regarding the future or to conform to these statements in relation to actual results unless required by law. You are cautioned not to place any undue reliance on these statements. Joining us on today's call from the executive team are Henry Gosebruch, Chief Executive Officer; Aaron Cox, Chief Financial Officer; Sooin Kwon, Chief Business Officer; and Dan Grossman, Chief Strategy Officer of the company, all of whom will be available during the Q&A session. With all of that, let me now turn the call over to Henry Gosebruch, CEO of Galapagos. Henry Gosebruch: Thank you, Glenn, and thank you all for joining us today. It has been a very active time here at Galapagos as we have worked tirelessly toward advancing the transformation of our company. This transformation has been ongoing for several years, and I firmly believe we have a bright future ahead of us. Earlier this year, we announced our decision to separate the company into two entities with Galapagos advancing its cell therapy programs and the planned launch of a SpinCo that would focus on business development and be funded with approximately EUR 2.45 billion in existing cash. However, in May, it became apparent that the spin-off could not be executed as planned, and the Board took swift and decisive action towards a different path to realize value, and I was honored to be named CEO. The Board gave me a clear mandate to analyze strategic alternatives for our existing businesses, including cell therapy. In addition, I was asked to further refine the strategy for deploying our cash resources into transformative business development and rebuilding our pipeline. We moved quickly, brought on advisers and commenced a thorough strategic review and sale process to identify potential buyers or investors with the expertise and resources to take the cell therapy business forward. We were highly motivated to identify a buyer or investor who could not only support the ongoing investment requirements in the business but also honor the efforts of our employees, who have put their blood, sweat and tears into the cell therapy business over the past several years. However, after a 5-month process, there were no viable proposals presented that would reasonably support the business going forward. We offered to divest the business for minimal upfront consideration and, where appropriate, we even offered to provide capital support to potential buyers. But no party was able to provide committed financing to enable a viable acquisition of the business. One key reason is that several hundreds of millions of euros would be required for any such deal given the significant ongoing investment requirements not only in the business but also to stand behind the obligations to our employees. After this comprehensive review of strategic alternatives and given these ongoing investment requirements, coupled with evolving market dynamics and taking into account the interest of all relevant stakeholders, the Board unanimously agreed to form an intention to wind down the cell therapy business. Given the impact on our employees and ongoing operations, this was a difficult decision. But I firmly believe it was the right decision given our circumstances. Now that the strategic review process has concluded, we are actively consulting with the works councils in Belgium and the Netherlands to seek their advice in order to implement this wind down. During this ongoing consultation process regarding the intended wind down, we would consider any viable proposals to acquire all or a part of the cell therapy activities if such a proposal emerges during the wind-down process. In parallel to all this activity, we have assembled what I believe to be a world-class team focused on executing our business development strategy. Our deal funnel has been building steadily, and I'm confident that we can identify and execute on opportunities that can bring exciting new opportunities to Galapagos in our pipeline. I will share more detail on our strategy in today's presentation. As part of our ongoing transformation, we have also welcomed four new Board members over the past 6 months. I am delighted to be working with Jane, Dawn, Neil and Devang on the Board going forward. And I would like to again thank Peter, Simon, Elisabeth, Susanne and Andy for all their valuable contributions during their time on our Board. As I mentioned, our intention to wind down the cell therapy business is subject to the conclusion of consultations with work councils in Belgium and the Netherlands, which is standard practice in Europe. During this period, Galapagos will continue to operate the business. If the wind down is ultimately implemented, we anticipate that up to approximately 365 employees would be impacted across our offices in Europe, the U.S. and China. Also, we would plan to close Galapagos sites in Leiden, Basel, Princeton, Pittsburgh and Shanghai. In this scenario, we would effectively proceed with a full exit of our cell therapy activities and we would expect to incur the costs detailed on the slide, which will be discussed in more detail during Aaron's review of financials later on this call. We are deeply grateful to our dedicated employees, investigators, patients, shareholders and partners for their continued commitment and support. We will stand behind our obligations as an employer to treat our employees fairly throughout all of this. The remaining Galapagos organization will be repositioned for long-term growth through transformational business development and would maintain a dedicated presence at our headquarters in Mechelen, Belgium. We hope to complete the works council process quickly as we aim to provide more clarity to our employees and stakeholders as soon as possible. Although it is difficult to predict the exact duration of this process, we currently expect it to be concluded in the first quarter of 2026. I wanted to spend a few minutes on the last remaining legacy R&D program, our TYK2 program. Our development team has done an excellent job progressing the Phase III enabling studies, and we expect to see data from two studies by early '26, ahead of our original expectations. The studies are now fully enrolled and the remaining spend related to this program is moderating. GLPG3667 is a differentiated oral TYK2 inhibitor currently in two Phase III enabling studies for SLE and dermatomyositis. At the recent ACR conference, we presented new in vitro pharmacological data suggesting additional differentiation of 3667 from two other TYK2 inhibitors. 3667 demonstrated inhibition of the interferon-alpha and IL-23 pathways with no measurable impact on TYK2 independent pathways. Additionally, 3667 showed no inhibition of IL-10. These findings support our belief in the program's potential, and we are looking forward to reporting data from the two fully enrolled trials in early 2026, which will guide us towards the next steps to maximize value for this program. Now let's review the other assets we have at Galapagos. Our significant scientific successes over our 25-plus year history have enabled Galapagos to attract significant capital. And today, we have the benefit of a significant cash balance as well as a portfolio of other attractive assets that can drive additional shareholder value. Our cash balance of approximately EUR 3 billion represents approximately EUR 46 per share. This cash balance generates significant interest income. Through the first 9 months of this year alone, we received approximately EUR 77 million. In addition, we are receiving an attractive stream of royalties and earn-outs from Gilead and Alfasigma on their sales of Jyseleca, the JAK program developed here at Galapagos. The income related to Jyseleca has been approximately EUR 15 million to EUR 20 million annually and is expected to continue into the mid-2030s with potential upside. In addition, we expect to receive tax receivables of approximately EUR 20 million to EUR 35 million per year over the next 3 years with additional opportunities for credits beyond that. We also have stakes in multiple private biotech companies such as Third Arc, Frontier and Onco3R, plus other private companies that haven't been disclosed. Last but certainly not least, we own our building in Leiden. It's a fabulous building, easily the nicest lab and office building I've ever worked in, a state-of-the-art building in which we invested over EUR 70 million for construction and build-out. It opened in 2022 and it's a great asset. As you look at this portfolio in total, I believe we could see the potential for several hundreds of millions of additional value on top of our cash balance from this portfolio. Let's go back to the ongoing transformation of the company. I am incredibly pleased that we have been able to attract new leadership talent to the company that, in my opinion, represents the team with the best business development expertise in our industry. This team has been through hundreds of M&A and business development transactions as principals and advisers. I won't go into their individual and very impressive bios, but they are summarized on the slide. Aside from their bios, having worked closely with each of them, they are not only uniquely talented, but they are wonderful leaders with strong values and all are excited to be part of our transformation and drive significant value for patients and shareholders going forward. I am very proud to work with this talented group every day as we execute our mission and vision. In addition to our executive talent, we have also assembled a fantastic group of outside advisers that have joined our Strategic Advisory Board. These four individuals have brought numerous drugs to patients, and we are collaborating closely with them as we prioritize the many potential BD transactions in front of us and diligence individual opportunities. Let's jump into our business development strategy. Let me start with what Galapagos brings to the table as we pursue business development. We see several key strengths that provide us a unique advantage. First, we have built the team to execute creative BD deals. Second, we have significant capital to invest in promising programs and science. Third, we can be incredibly flexible in our approach as we are not constrained by an existing pipeline. For example, we can enable external teams or companies to pursue their programs with our capital. Finally, we have a unique partnership with Gilead that I believe also represents a unique asset for us that I will discuss some more in a minute. We will be financially disciplined and focused on value creation while pursuing programs we believe can make a clear difference for patients. We've identified some key focus areas for our activities. First off, we will focus on what we believe have been meaningfully clinically derisked and differentiated opportunities. We are looking for opportunities that can substantially enhance the standard of care in a disease and have clear patient impact. We will initially prioritize areas where there is a strategic synergy with Gilead. Next slide, please. Now let me turn to our existing partnership with Gilead. We've been getting a lot of questions on why we believe it's in our best interest to work with Gilead on business development opportunities. So we wanted to address that here. Let's start with the obvious. Gilead owns 25% of Galapagos and has an existing collaboration agreement, the OLCA as we call it, that allows Gilead to opt into U.S. rights of proof-of-concept assets at Galapagos at relatively favorable terms. These terms were originally envisioned for programs that came out of our original discovery platform, but they also apply to business development opportunities we would bring into the company at this stage. For most assets we might consider bringing in, Gilead's option to acquire U.S. rights for $150 million upfront would likely represent too much value leakage to make a deal attractive for us. However, Gilead has expressed a willingness to renegotiate these terms, and we share a joint perspective that by working together, we can create win-win deal opportunities that create more value than each of us could drive individually. What does that look like? Gilead has expressed a willingness to contribute capital to our BD activities and they are also bringing their capabilities to the table, such as their technical due diligence team. By working with them, we might be able to find unique value creation opportunities where, on a combined basis, we might be able to unlock more value in a portfolio than a single party would be able to. And finally, Gilead's commercial expertise will bring additional credibility to our efforts. Our partnership also allows for creative deals that could drive structural and financial benefits that Gilead may not be able to achieve on their own. I've known some of the key leaders at Gilead for many years, and I'm quite pleased with the close collaborative working relationship we have strengthened over the past several months. In conclusion, I am confident we can find win-win opportunities that will create value for Galapagos shareholders and Gilead. Let's explore how working with Gilead may open opportunities that would otherwise not be available to us. There are many deal structures possible. However, we thought it would be helpful to share just three illustrative examples. Starting on the left side, we can partner with Gilead to jointly acquire or license an opportunity. For example, these deals could potentially involve us acquiring public stock. In the middle, there could be opportunities where we at Galapagos may see value in one asset and Gilead may see value in another asset at the same company, thus enhancing our ability to structure a value-creating deal for a multi-asset company. And finally, on the right, our cash balance makes us a very attractive merger partner, recognizing we would, of course, require receiving fair value for our portfolio of assets in any business combination. So how do we operationalize our strategy? We will be flexible on ideas but financial discipline will be key, and we will balance intrinsic risk of each opportunity with overall portfolio risk. Said in another way, if we dedicate a large portion of our capital to one opportunity, we must have very high confidence in that opportunity to create value. For any significant transaction, we believe we can renegotiate our existing agreement with Gilead to enable win-win deals for both. Of course, nothing prevents us from doing transactions on our own to the extent that they could drive value over the long term. However, I hope I've been clear why we believe working with Gilead can broaden our set of opportunities and create shareholder value. As we execute on our strategy, we believe we can work to eliminate our current trading discount and open our deal aperture even more. Now let me address a few other important topics. As I mentioned earlier during this call, the transformation of Galapagos is well underway. Looking ahead and if the intention to wind down is ultimately implemented, Galapagos would be a much leaner and strategically focused organization. We will maintain our headquarters in Belgium, leveraging the experience and talented teams in place there across a number of functions. Many investors have asked us whether we will return capital to shareholders. While our goal is ultimately to drive value for our shareholders, it's important to recognize that any return of capital would require alignment with Gilead given their 25% ownership and the terms of our existing partnership agreement with them. In addition, even as permitted, Belgium law imposes certain limitations on capital returns to shareholders. Given we do not have any distributable profits available at the current time, the ability to distribute would require a resolution at an EGM with at least 50% of shares present at the meeting and at least 75% approval. So again, while this could be an interesting alternative down the road, for now, we are focused on using our capital for business development opportunities. With that overview, I would now like to turn the call over to Aaron Cox, our CFO, to review our 9 months financial results. Aaron? Aaron Cox: Thanks, Henry, and hello, everyone. In the press release issued last night, we detailed our 9-month financial results through the quarter ended September 30. Total operating loss from continuing operations for the first 9 months of 2025 amounted to EUR 462.2 million compared to an operating loss of EUR 125.6 million for the first 9 months of 2024. This operating loss was negatively impacted by an impairment on the cell therapy business of EUR 204.8 million as a result of the strategic alternatives process for the cell therapy business. Additionally, there was also a EUR 135.5 million impact related to the strategic reorganization announced in January 2025. This EUR 135.5 million is comprised of severance costs of EUR 47.5 million, costs for early termination of collaborations of EUR 45.5 million, impairment on fixed assets related to small molecules activities of EUR 9.5 million, deal costs of EUR 21.4 million, accelerated noncash cost recognition of subscription rights plans related to good levers of EUR 9.8 million and other operating expenses of EUR 1.8 million. Net other financial income for the first 9 months of 2025 amounted to EUR 30.4 million compared to net other financial income of EUR 71.7 million for the first 9 months of 2024. Interest income amounted to EUR 31.4 million for the first 9 months of 2025 compared to EUR 70.6 million of interest income for the first 9 months of 2024 due to a decrease in the interest rates and a shift from investments in term deposits generating financial income to investments in money market funds generating fair value adjustments. Notably, fair value gains and interest income derived from cash, cash equivalents and current financial investments excluding any currency exchange rate impact amounted to EUR 77.2 million for the first 9 months of 2025. Financial investments, cash and cash equivalents totaled EUR 3.05 billion on September 30, 2025 as compared to EUR 3.32 billion on December 31, 2024. Our cash and cash equivalents and current financial investments included $2.16 billion held in U.S. dollars versus $726.9 million on December 31, 2024. These U.S. dollars were translated to euros at an exchange rate of 1.174. As we announced with our first half 2025 results, we continue to hold approximately 60% of our cash in U.S. dollars and 40% in euros. As I mentioned, cash and investments as of 9/30/2025 was EUR 3.05 billion, representing EUR 46 per share. Looking forward, we anticipate ending 2025 with approximately EUR 2.975 billion to EUR 3.05 billion in cash, cash equivalents and financial investments excluding any business development activities and currency fluctuations. As the intention to wind down is confirmed and implemented, following the Works Council processes, we would expect to incur the following cash impacts related to our cell therapy business: EUR 100 million to EUR 125 million of operating cash impact from Q4 2025 through 2026 with EUR 50 million to EUR 75 million of this being in 2026 and EUR 150 million to EUR 200 million of onetime restructuring cash costs in 2026. Lastly, as the intention of wind down is implemented and completed, we would expect to be cash flow neutral to positive by the end of 2026 excluding any business development activities and currency fluctuations. Now let me turn it back to Henry to wrap up. Henry Gosebruch: Thanks, Aaron. In summary, it has been a transformative time at Galapagos. We are committed to building a novel therapeutic pipeline that can have meaningful impact for patients. We will provide updates related to discussions with the Belgium and Dutch works councils as appropriate. As I mentioned, our deal funnel has been building steadily and we will remain disciplined and will only execute on any opportunity in front of us if we believe we can create value. We are confident we have the team in place to execute and look forward to the future with optimism and purpose. So with that, thank you all for your attention, and we will now open it up for your questions. Operator? Operator: [Operator Instructions] We will now take the first question from the line of Faisal Khurshid from Leerink Partners. Faisal Khurshid: Really phenomenal presentation today. I just wanted to ask, maybe for Aaron or for Henry, when you say that you expect to achieve cash flow neutral to positive status by year-end '26, can you talk a little bit about what the assumptions are that go into that? Aaron Cox: Sure. Sure, this is Aaron. We will -- the assumptions that go into it are primarily related to interest income, one. So we made some assumptions on interest rates based on the forward curve and our cash balance. It doesn't assume any BD activity. Obviously, if we use cash for BD activity or take on additional burn with any BD activity, that could impact that forecast. We also have income, as we outlined on Slide 7, related to Jyseleca. We have tax credits coming in related to tax refunds from Belgium and other countries in the region. And we also assume that we are through the works council process and we've implemented and completed the wind down. Faisal Khurshid: Got it. That's helpful. And then for Henry or for Dan, you guys mentioned that you have -- that the deal funnel is currently building. To the extent that you're able to speak to it, could you talk to us a little bit about what kinds of opportunities are in the deal funnel, what those look like and your kind of level of optimism around that? Henry Gosebruch: Yes. No, thanks. It's Henry. I'll start and I'll turn it over to Dan. I mean, as we outlined in the prepared remarks we're focused on opportunities that are clinically derisked. So we're looking at mid- to late-stage opportunities. Again, that can be M&A, partnerships. We're looking at many different structures. But it's clear that there is a lot of capital required in biotech still. And while perhaps the access to capital has improved slightly, there are still many companies that would benefit from capital from us, partnerships, et cetera. So with that, maybe I'll ask Dan to put a little bit more color on it. Dan Grossman: Thanks for the question. This is Dan. I would just add the therapeutic area overlay, which I think is an important one. We're in the fortunate position really not having too many legacy attachments of being able to consider opportunities across a wide range of therapeutic areas. But as Henry indicated, for the early deals, we think it's a high priority to the extent we can to collaborate with Gilead, to go in with Gilead on deals. And that brings us to look for assets or at least deals that have some anchor asset that is mutually value-creating for both of us but also strategically aligned with Gilead's direction. That brings us to the therapeutic areas of oncology and immunology or inflammatory disease. Faisal Khurshid: Got it. Okay. And then just one last one for me, if I can. Just kind of maybe combining like the two questions in a way. Henry, can you speak to us about the kind of like relative balance between kind of being conservative and you not going for a deal and kind of getting to the status of being cash flow positive versus doing BD? Like how do you kind of balance those two priorities in a way? Henry Gosebruch: I think they're both really key focus areas. I mean, we have to get through the works council process that we outlined as quickly as we can and then leverage again the broad set of assets we have today and outlined, so the cash balance that generates interest, the good growing and attractive royalty stream, we're getting the tax benefit. So that sets the base. But look, the intent is to ultimately use our cash balance to find opportunities that create a positive return and incremental return on that cash balance. And as we've outlined, we have EUR 46 per share in cash and we're trading obviously at a much, much lower number. So to the extent we can put that cash to work and create a return on that cash, I think there's tremendous upside in our story here. And so that's what we're focused on. Operator: We will now take the next question from the line of Brian Abrahams from RBC Capital Markets. Brian Abrahams: I'm curious if you could talk about what your expectations would be for Gilead to contribute to the deal process really in terms of their expertise. Would this be kind of expertise in identifying a transaction? Or might you expect commitment to providing resources or expertise on development prior to a formal opt-in? And then just secondarily, really quickly. In the past, I think you've talked about virology as another area that might be of interest. You didn't mention it today. Just wondering if we should assume that, that's not as high a priority as oncology and immunology and inflam? Henry Gosebruch: Yes. Brian, it's Henry. Thanks for the question. So on the first part, I'd say, again, I'm incredibly pleased with the relationship that we've strengthened with Gilead. And on several of the opportunities that we've looked at, they have contributed really along the lines of what you've talked about both their diligence expertise in looking at those opportunities. They've offered capital both upfront and, in some cases, if there's a portfolio of assets, to take some of these assets and develop them at Gilead, leveraging their infrastructure. So it can really take many forms. I think the bigger point is that I think they're coming to the table, as are we, with a very constructive sort of win-win attitude. And that can take many different forms. So we don't have to limit ourselves to that current partnership agreement where we would do the deal and then they would opt into certain opportunities. It can be really a much broader situation. And again, we're quite pleased with their commitment in our working relationship. And I'll ask Dan maybe to talk about the therapeutic area and the question on virology. Dan Grossman: Yes, that's fair. Thanks, Henry, and thanks also for the question. Before that, I'll reiterate Henry's point. I mean, we will make our own decisions about deals that we do. We will do our own careful diligence on key aspects of any asset we consider bringing in. In terms of the question about virology, I would say you're correct that it is of lower priority. I wouldn't say we would necessarily rule it out, but this is an area of enormous strength for Gilead. And frankly, our funnel is very, very nicely filling with oncology and I&I already. Operator: We will now take the next question from the line of Phil Nadeau from TD Cowen. Philip Nadeau: Just one question on the Gilead relationship. We understand the strengths of working with Gilead due to their expertise and the commitments you have through the OLCA agreement. But it seems like one potential drawback would be speed in collaborating and getting to a decision point. In the past, we've seen big organizations take a long time to sometimes make decisions. So how is that contemplated in your strategy? Are there ways that you can assure that Gilead is ready when you need them and the two of you even collaborating can be competitively fast? Henry Gosebruch: Yes. Phil, it's Henry. Look, good observation. And we have to be fair, yes, that does create some complexity. So that is a fair comment. But I think it goes back to having a very collaborative relationship. Gilead is represented on our Board so they see some of the activity we're doing. And again, as I said, I'm very pleased with the ongoing dialogue we have. And so the more we can do in terms of working together and doing joint work ahead of making a formal approach to a company, as an example, or tabling an offer term sheet, if we can in a way sort of prewire some of what it would look like in terms of us and Gilead, then it really shouldn't impact the process ultimately with a potential partner or target. But yes, we do have to acknowledge there's some additional complexity. I guess the last thing I'd say is, look, we've built the team here that has been through many, many very, very complex BD transactions. So it's nothing that anybody here hasn't done in prior context. And I think on a combined basis, I feel we have just a phenomenal team to work through that complexity. Operator: We will now take the next question from the line of Jason Gerberry from Bank of America Securities. Chi Meng Fong: This is Chi on for Jason. There's obviously a lot of focus on bolstering the pipeline from external means. But my question is actually on the internal existing pipeline. Can you talk about the potential plans for 3667 upon completion of the two Phase III enabling studies in lupus and dermatomyositis? Are you leaning towards divesting the asset in favor of BD activities? And how might the different data scenarios help inform that decision? And I'm also wondering, do you have any refined thoughts on the strategy for dermatomyositis given the brepocitinib top line results from the VALOR study in the DM? Henry Gosebruch: Yes. It's Henry. Thanks for the question, Chi. So the company prior to us arriving had started a process talking to potential partners about 3667. Just recognizing that if that asset has the type of data in Phase II that would enable a comprehensive Phase III program, that would take expertise and resources that we currently don't have. And so in that context, a partnering process was started earlier in the year. Given we're so close to data now with data expected early next year, that process is currently not active, but I think it's something we would come back to. So to answer your question, I think we would look at the data very carefully and then we would think through what are the capabilities required if there's a path forward and who is best positioned to maximize the value. And that may well not be us. That may well be one of the players with established infrastructure, and that's sort of how we would how we look at that. As to your specific question on dermatomyositis, I mean, of course, we're paying close attention to the TYK2 landscape and the other landscape in I&I that impacts these diseases. And we'll look at what the target product profile is and what the bars we need to meet in these Phase II studies. So the team is all over that. But all of that will go into a decision sometime early next year in terms of the next steps for 3667. Operator: We will now take the next question from the line of Sean McCutcheon from Raymond James. Unknown Analyst: This is [ Yang ] for Sean. We have a question on the cell therapy wind down process. Could you please walk us through the timeline for the wind down and the continued efforts in this process? And also, do you think you may get some additional interest getting the update on the incoming ASH? Henry Gosebruch: Yes. No, thank you for the question. So again, I recognize that for many American investors or analysts, you may not be as familiar with the way the process works in Europe. But in Europe, the Board can really only form an intention to wind down and that intention is subject to consultation with works council. So you're essentially explaining to works council what the rationale is, why it's the best decision for the company. And that process usually takes several months. As we said in our prepared remarks, it's hard to predict exactly how long that takes, but we expect that to be concluded in Q1. So that's what we can say about that. During the process, we are open to receiving viable proposals. But as we said in the prepared remarks, at this point, nobody has come to the table with committed financing. As I said, it would take several hundreds of millions of euros of committed financing to not only take the business forward but stand behind with a pretty sizable employee obligations. And we, of course, are going to treat our employees very fairly in all of this. So again, if an offer does emerge during this process, we're quite open to considering it. But again, we hope to have resolution here in Q1. And we'll, of course, keep the market posted as we make progress in these consultations with works council. So I hope that answers your question. Operator: We will now take the next question from the line of Jacob Mekhael from KBC Securities. Jacob Mekhael: I have one on the topic of BD. You mentioned that you will after derisked programs with proof-of-concept. So I'm just curious, how will you ensure that you obtain such programs in a cost-effective way? And perhaps, are you prepared to pay a bit more in order to get access to the best programs and targets? Henry Gosebruch: Yes. It's Henry. Let me start on that question. We're going to be quite financially disciplined. So at the end of the day, it's really about do we see an opportunity that we think allows us to create value from here. Again, that may well involve partnering with Gilead on the basis we outlined where, on a combined basis, maybe we can see that incremental value that would be hard to realize for other parties. So at the end of the day, yes, when you are ultimately the party that does the transaction, generally speaking, you're going to pay more than everybody else. Otherwise, you won't be able to do the deal. But again, I'm quite confident given the environment and given how our deal funnel is building, we'll find those opportunities. But we're going to be quite disciplined. So if it takes another quarter or 2 or 3 to find the right deal, it will take another quarter or 2 or 3. We're not going to rush into anything, I think. Well, of course, I recognize shareholders and analysts want some clarity of what the deal is and what the pipeline looks going forward. We're not going to compromise on the financial criteria that we'll use to analyze the deal. Does that answer your question? Jacob Mekhael: Yes, very clear. Maybe just a follow-up on that. Given that any deal that you would take over, you'd need to continue developing it until approval either by yourself or in collaboration with Gilead, can you share anything on how much capacity for deal making does that leave you with? Henry Gosebruch: Yes. No, it's a good comment. So look, our roughly EUR 3.1 billion is really a phenomenal starting point plus, again, these other assets that are helping us get to positive cash flow on top of that. But yes, of course, we need to reserve some capacity for what might be a Phase IIb or Phase III spend for any asset we bring in. So that is absolutely part of the deal modeling we're doing. And that's the comments we made earlier. Again, if we dedicate a large portion of that capital into one opportunity, we really have to be quite confident that, that opportunity will create value. If we spread the risk over several opportunities, maybe we could have a slightly different perspective. But the ongoing development requirements are absolutely something that we're quite focused on. And there, again, this is where the partnership with Gilead could come in, where we might be able to split some of those ongoing requirements and on a joint basis come up with a mutually value-creating structure. Operator: We will now take the next question from the line of Sebastiaan van der Schoot from Van Lanschot Kempen. Sebastiaan van der Schoot: Really clear on the strategy. I just had one question for our side. Can you provide some clarity on whether potential transactions, whether they would also bring in R&D capabilities? Or is that something that you don't want to take on with newer transactions? Henry Gosebruch: Yes. Sebastiaan, it's Henry. That's a very good question. Again, one of the, I think, very attractive features we have here at Galapagos is that we can be flexible on what that looks like. So it could be that, yes, with an acquisition, there might come a very capable team. In fact, it might be very attractive for certain teams just to join us at Galapagos and essentially stay intact and continue to work on their asset. But it might also be that our capital just enables an external party to continue to do the work and we won't have that capability at the company, but we essentially fund that existing capability at a third party. So honestly, we're not focused on one over the other. I think it's whatever is right for any opportunity, whatever is the best way to create value. Now I will say we do have the TYK2 development team still in place. So that does give us a starting point if we wanted to build it further from there. But again, it really depends on the opportunity, and we want to be open to whatever creates the most value going forward. Sebastiaan van der Schoot: Got it. And then I'm just wondering whether -- if you compare it to the past, whether Gilead's involvement in the setting process for potential transactions has increased compared to before. Maybe you can comment on that. Henry Gosebruch: Well, look, I don't want to really talk about the past. I'm really more focused on how we're moving forward and how we create value from here. And I think to this question and also the question that I think Phil asked a little bit earlier, I do think it's important that we coordinate with Gilead on these joint opportunities. And yes, that involves talking to them, meeting them, understand mutually how we can create value on certain transactions. So again, I can't talk about the past. I can only talk about the future. And as I think we've been clear on, we don't have to go through Gilead. We don't have to work on everything with Gilead. But we think for opportunities that are jointly aligned, that can create more value for our shareholders than doing it on our own. And I think our approach will be to continue to work with them very collaboratively. Again, I'm quite pleased with how that's going. They're coming really with a kind of a can-do attitude and we plan on continuing that approach. Operator: [Operator Instructions] We will now take the next question from the line of Delphine Le Louet from Bernstein. Delphine Le Louet: Hello, can you hear me well? Henry Gosebruch: Yes, we can hear you fine. Delphine Le Louet: Perfect. I was wondering, and a bit of a follow-up regarding the Gilead partnership, regarding their investment which was so far mostly philanthropic. I was wondering how long the collaboration would last for or will take place for now? Is it something like a 5-year agreement that you have in mind? Or is it shorter, 3-year time? And I was also wondering, what is the underlying KPI? Is it an ROI number? Is it a number of assets? Is it a progress in the pipeline? Can you be more specific on that, please? Henry Gosebruch: Okay. We heard a little bit of background noise. So I think you asked what's the length of the Gilead agreement. Is that the question? Delphine Le Louet: In a way, because Gilead is obviously a preferred partner so far and will help you in the selection. But obviously, I'm asking, will that long for 3, 5 years? Or what is the underlying KPI? Is it an ROI number? Is it a number of asset? Is it progress in the pipeline? What is the underlying you should have in mind? Henry Gosebruch: Okay. Yes. I'm sorry, there was a lot of background noise, but let me attempt to answer your question. So what we're talking about is what we call the OLCA agreement. So that is that broad collaboration agreement that was signed roughly 6, 6.5 years ago. That was a 10-year agreement. So that has another, call it, 3.5 years running. And it is that agreement that provides Gilead's -- yes, sorry, we're getting a lot of background noise. But again, to stick with the answer, that agreement has another about 3.5 years running. And so it is really that period that we are focused on that goes back to the original deal 6.5 years ago. And in terms of KPIs, again, that agreement was entered with a view towards Gilead having the ability of opting into programs that came out of the Galapagos research platform. Now of course, with time moving on, this is no longer the current situation today. So now it's really more about business development that we would be doing and working with Gilead in this period, as we've outlined, to jointly complete transactions that will create value for them but very importantly, of course, for our company as well. Does that answer your question? Delphine Le Louet: All right. Yes, yes, definitely. Operator: Thank you. There are no further questions at this time. I would like to turn back over to Glenn Schulman for closing remarks. Glenn Schulman: Thanks, Sandra, and thanks, everyone, for your time today and your attention. As the team discussed, there's indeed a bright future as we continue to undergo these transformations at Galapagos. For your awareness, I wanted to mention that our corporate events calendar is provided here in the deck and also posted on our investor website. With respect to upcoming investor conferences, the team will be hosting a fireside chat in 2 weeks at the Jefferies London Conference on Wednesday, November 19. And looking ahead to 2026 already, the team will be attending the Annual JPMorgan Conference in San Francisco and the TD Cowen Conference in next March up in Boston. Please feel free to reach out to your respective bank reps to request a meeting with the team, or you can reach out to me directly to find the time to catch up. Thanks, everyone, and have a great day.
Operator: Good morning, and welcome to the Service Properties Trust Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Kevin Barry, Senior Director of Investor Relations. Please go ahead. Kevin Barry: Thank you for joining us today. With me on the call are Chris Bilotto, President and Chief Executive Officer; Jesse Abair, Vice President; and Brian Donley, Treasurer and Chief Financial Officer. In just a moment, they will provide details about our business and our performance for the third quarter of 2025, followed by a question-and-answer session with sell-side analysts. I would like to note that the recording and retransmission of today's conference call is prohibited without the prior written consent of the company. Also note that today's conference call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other securities laws. These forward-looking statements are based on SEC's beliefs and expectations as of today, November 6, 2025, and actual results may differ materially from those that we project. The company undertakes no obligation to revise or publicly release the results of any revision to the forward-looking statements made in today's conference call. Additional information concerning factors that could cause those differences is contained in our filings with the Securities and Exchange Commission, which can be accessed from our website at svcreit.com or the SEC's website. Investors are cautioned not to place undue reliance upon any forward-looking statements. In addition, this call may contain non-GAAP financial measures, including normalized funds from operations or normalized FFO and adjusted EBITDAre. A reconciliation of these non-GAAP figures to net income is available in SVC's earnings release presentation that we issued last night, which can be found on our website. And finally, we are providing guidance on this call, including adjusted hotel EBITDA. We are not providing a reconciliation of this non-GAAP measure as part of our guidance because certain information required for such reconciliation is not available without unreasonable efforts or at all. With that, I will turn the call over to Chris. Christopher Bilotto: Thank you, Kevin. Good morning, everyone, and thank you for joining the call today. Last night, we announced our third quarter earnings results, which reflect continued momentum on our strategic objectives. I will begin today's call with a brief update on our key initiatives and share operating highlights from both our hotel and net lease businesses. Jesse will provide further details on our net lease platform and recent acquisitions. Brian will then discuss our financial performance, balance sheet and quarterly guidance. Starting with our strategic priorities. We had another productive quarter, completing previously announced hotel sales, advancing our capital recycling initiatives and taking decisive steps to strengthen SVC's balance sheet. Since our last earnings call, we have been active in the capital markets, raising over $850 million in proceeds, including $295 million from asset sales during the quarter, $67 million in asset sales in the months of October and November, and approximately $490 million from the issuance of our new zero-coupon bonds. The proceeds were used to fully repay our revolving credit facility and retire all of our 2026 senior notes. Each of these steps further improved SVC's debt maturity profile, enhanced our financial flexibility and strengthened our covenant position. Turning to current dispositions. Earlier this year, we committed to exiting 121 hotels totaling nearly 16,000 keys for gross proceeds of $959 million. We remain on track to complete the balance of these sales, including 6 hotels that sold in October for $66.5 million and 69 hotel sales expected to close in November and December for $567.5 million. Proceeds from these remaining sales will primarily be used to initiate the repayment of our February 2027 senior unsecured notes. With respect to acquisitions, we continue to advance modest growth supporting our net lease portfolio, which Jesse will expand upon. This is intended to improve our net lease portfolio fundamentals, provide optionality with financing sources and support our business model transitioning toward a net lease company. Turning to our hotel performance. At the macro level, the U.S. travel market continues to face headwinds with demand trends remaining uneven amid persistent economic uncertainty. Domestic leisure travel has declined to its lowest point in several years, reflecting heightened price sensitivity and a shift towards shorter booking windows. These behaviors suggest a more cautious consumer mindset in the current environment. SVC's portfolio continues to deliver steady top line growth with RevPAR increasing 20 basis points year-over-year, outpacing the broader industry by 160 basis points and representing the fourth consecutive quarter of outperformance. This growth was primarily driven by occupancy gains, while ADR declined modestly. Excluding the hotels we are exiting, our remaining 84 hotels delivered stronger third quarter performance with RevPAR increasing 60 basis points year-over-year, driven by occupancy gains of 140 basis points. Across the broader portfolio, contract business, particularly airline-related demand, remained a key growth driver and was partially offset by softer group demand and a decline in government bookings. Transient revenues were flat year-over-year, reflecting stable but subdued discretionary travel activity. Hotel EBITDA declined compared to last year, primarily reflecting elevated labor costs, insurance deductibles and broader expense pressures. The scale and timing of hotel dispositions during the quarter introduced operational disruption that weighed on performance, which we view as largely transitional. As the disposition pipeline normalizes, we expect this shift will support stability and margin improvement as we move into 2026. In recent years, we have also made significant capital investments to elevate the quality and performance of our hotels, having undergone major renovations at close to 45% of our retained hotel portfolio. We see positive indications of increasing performance, and we expect these renovated hotels to deliver incremental growth over the next year as they capture additional market share. Within the retained hotel portfolio, approximately 15 hotels generated a combined EBITDA loss of over $20 million over the trailing 12 months. While several of these assets are in the midst of the performance ramp-ups following the noted renovations or undergoing operational turnarounds, others are identified candidates for disposition. The reduction in cash drags combined with proceeds with these 2026 hotel sales serves as a meaningful catalyst for further deleveraging. These actions enhance our financial flexibility and support our long-term strategic objectives. We expect to provide additional detail on these disposition plans and future updates as execution progresses. Turning to our triple net lease segment. Our portfolio continues to deliver steady performance, highlighted by rent growth over 2%, stable rent coverage and occupancy over 97%. The triple net lease market continues to demonstrate resilience and growth driven by supportive consumer behavior. Operators are capitalizing on consumer preferences for convenience, affordability and accessibility, driving continued demand for QSRs, express car washes and discount stores, industries in which SVC currently maintains or is increasing its exposure. Following the balance sheet initiatives executed during the quarter, we believe SVC is well positioned to advance both its hotel and net lease strategies. These efforts are expected to support sustained cash flow growth and enhance long-term value creation for shareholders. I will now turn it over to Jesse to discuss the net lease portfolio. Jesse Abair: Thanks, Chris. In support of SVC's strategic shift toward the net lease space, during the quarter we continued to focus on portfolio growth and curation, driven largely by our acquisition platform. Although they will remain relatively modest in the near term, our acquisitions are intended to scale our net lease business, optimize portfolio composition and unlock value through accretive financing opportunities. Our investment thesis continues to revolve around necessity-based e-commerce-resistant retail assets that offer strong rent coverage and require minimal capital investment. During the third quarter, we acquired 13 net lease properties for a total of $24.8 million. Accounting for closings subsequent to quarter end, year-to-date investments totaled $70.6 million. These deals have been funded with a combination of cash on hand and proceeds from net lease dispositions. Our 2025 transactions to date have a weighted average lease term of 14.2 years, average rent coverage of 2.6x and an average going-in cash cap rate of 7.4%. Consistent with our investment criteria, the acquisitions include a balanced mix of quick service and casual dining restaurants, automotive services, fitness and value retailers. At quarter end, SVC's net lease portfolio consisted of 752 properties with annual minimum rents of $389 million. The portfolio was more than 97% leased with a weighted average lease term of 7.5 years. We have 178 tenants operating under 139 brands across 21 distinct industries. Aggregate rent coverage was just over 2x for the trailing 12 months, unchanged compared to the prior quarter. From a credit quality perspective, 2/3 of our annual minimum rents come from TA Travel centers backed by investment-grade rated BP. Rent coverage at these assets was also stable compared to the prior quarter. Annualized base rent increased 2.3% and NOI increased 50 basis points year-over-year, largely a function of our recent acquisition activity. Our asset management team executed 10 leases this quarter, totaling 187,000 square feet and averaging over 10 years of term. Looking ahead, we have a robust pipeline of investment opportunities aimed at further enhancing portfolio metrics with respect to tenant and geographic diversity, weighted average lease term and coverage ratios. To that end, we are currently under agreement to acquire 5 additional properties totaling $25 million, which we expect to close in the fourth quarter. Incremental disciplined growth will continue to be the focus for the net lease side of the business, generating reliable cash flows designed to endure throughout economic cycles. And with that, I'll turn it over to Brian to discuss our financial results. Brian Donley: Thank you, Jesse, and good morning. Starting with our consolidated financial results for the third quarter of 2025, normalized FFO was $33.9 million or $0.20 per share versus $0.32 per share in the prior year quarter. Adjusted EBITDAre decreased $10 million year-over-year to $145 million. Overall financial results this quarter as compared to the prior year quarter were primarily impacted by a $13.1 million decline in adjusted hotel EBITDA and an $8.7 million increase in interest expense. For our 160 comparable hotels this quarter, RevPAR increased by 20 basis points, gross operating profit margin percentage declined by 330 basis points to 24.4%. Below the GOP line, costs at our comparable hotels increased 7.6% from the prior year, driven by insurance claims at certain hotels. Our hotel portfolio generated adjusted hotel EBITDA of $44.3 million, a decline of 18.9% from the prior year as a result of softer demand and expense pressures. These results came in below the low end of our hotel EBITDA guidance range by $9.7 million, primarily due to a $6.6 million impact from hotels sold prior to September 30 and a $2.9 million impact from fire-related disruption at 2 full-service hotels. The 76 Sonesta exit hotels not yet sold as of quarter end generated RevPAR of $72, a decline of 1%, and adjusted hotel EBITDA of $8.3 million, a decline of $3.2 million year-over-year. The 84 hotels in our retained portfolio generated RevPAR of $114, an increase of 60 basis points year-over-year, and adjusted hotel EBITDA of $36 million during the quarter, a decrease of $7 million year-over-year. Most of the decline year-over-year in the retained portfolio is related to elevated labor costs, repairs and insurance expenses. Turning to our expectations for Q4. We are currently projecting fourth quarter RevPAR of $86 to $89 and adjusted hotel EBITDA in the $20 million to $25 million range. This guidance considers a sequential decline due to seasonality in the fourth quarter as well as recent headwinds in the travel and lodging industries. This guidance does not include the impact of completing any of the remaining 76 Sonesta hotel dispositions expected to close in Q4. Turning to the balance sheet. We currently have $5.5 billion of debt outstanding with a weighted average interest rate of 5.9%. As discussed last quarter, we fully drew down on our $650 million revolving credit facility in July to protect liquidity as our 1.5x debt service coverage covenant was projected to be below the minimum requirement when we filed our second quarter earnings. Since then, we have taken several actions to strengthen SVC's balance sheet and improve our credit metrics. Using the proceeds from asset sales and our new $580 million of zero-coupon senior secured notes, we have repaid all $700 million of senior notes that were scheduled to mature in 2026. I'm pleased to report we have also repaid all amounts outstanding on our $650 million revolving credit facility and are currently in compliance with all of our debt covenants. We currently project interest expense for the fourth quarter will be approximately $102 million and includes approximately $84 million of cash interest expense and $18 million of noncash amortization of discounts and financing fees. Our next debt maturity is $400 million of 4.95% unsecured senior notes due February of 2027, which we currently expect to redeem from the proceeds of the remaining hotel asset sales we expect to close this quarter. Turning to our capital expenditure activity. During the third quarter, we invested $47 million in capital improvements. Notable activity this quarter includes projects at our Sonesta Atlanta Airport hotel, preliminary project expenses for the Nautilus in South Beach and our Sonesta ES Suites in Anaheim. As it relates to our capital spending, we are updating our full year 2025 guidance to reflect a shift in the pace of deployment and the timing of our planned renovation and brand transition at the Nautilus hotel. We originally planned to begin this project in the fourth quarter of this year, but we have deferred the project to commence during the first quarter of 2026 with completion expected next fall. For the full year 2025, we are lowering our full year CapEx projection from $250 million to approximately $200 million. Last quarter, we provided initial 2026 CapEx guidance at $150 million for the year and expect the deferral of the Nautilus project will result in $20 million to $30 million of CapEx shifting to 2026. In closing, our third quarter results reflect continued progress in transforming SVC and strengthening its financial position, highlighted by successful capital markets activity and strategic asset sales. Looking ahead, our focus remains on driving EBITDA growth and optimizing our portfolio to enhance long-term shareholder value. That concludes our prepared remarks. We're ready to open the line for questions. Operator: [Operator Instructions] Our first question comes from Jack Armstrong of Wells Fargo. Jackson Armstrong: We're coming up on the halfway point in Q4 and there's still 69 hotels left to get done by year-end. How realistic is it that all these are going to close in time? Based on our prior conversations, the operators that are picking them up can only handle so much at a time from an operational perspective there. So curious your thoughts on the actual execution there. Christopher Bilotto: Yes. Thanks for the question. This is Chris. I think as we've talked about historically, with respect to these sales, there was a phased negotiation or a rolling close with an outside date in December, meaning kind of the last close would occur across all the assets in December. And so I think the best way to look at it is right now, based on information we have, we're tracking to close 40% to 50% of the remaining balance in November. And then the rest will be in December, no later than the outside closing date. So everything planned for 2025. Jackson Armstrong: Okay. And if they don't close by the closing date, kind of what's the procedure there? What should we expect? Christopher Bilotto: Well, contractually, they're obligated to close. And so if for some reason, they don't close, then there's deposits and other remedies at risk. So again, I think that's -- at this stage, just given where we are and the work we've done, I think that I would view that as highly unlikely. Jackson Armstrong: Okay. And then you took a $27 million impairment in the quarter. Can you talk about what that was in relation to and the likelihood of further impairments as we get through the rest of these sales? Brian Donley: Jack, this is Brian. That was more shifting of the purchase price allocations amongst the portfolios. I wouldn't read too much into it. Overall, we're still on track to produce a significant book gain on these sales. Most of it -- all of the rest of it will be a gain in the fourth quarter. Again, a lot of these contracts and the way the sales were phased in with the individual purchase prices and how those are allocated amongst the portfolio ended up resulting in that impairment. But it's -- again, I think it's more noise than anything. Jackson Armstrong: Okay. And then last one for me. Rent coverage continues to decline in the travel center portfolio. Do you have an expectation of when or if that might improve? And at what level of coverage would you say it's concerning to you, acknowledging that it's guaranteed by BT? Jesse Abair: Yes. Jack, this is Jesse. I'll take that. I mean, certainly we're seeing a couple of sequential quarters of degradation in the TA coverage. I think some of that is just kind of we're rolling off that kind of post-COVID high with respect to the freight demand driving a lot of their business. It does seem to be moderating that decline and kind of flattening out, particularly within the last couple of quarters. So given the BT credit backing of those leases, I don't think we're particularly concerned at this point. We're in regular contact with TA. We continue to see them invest in the sites and continue to make them more competitive. So I think it's something we're watching, but I don't think anything above one, it doesn't drive us towards any particular degree of concern at this point. Operator: [Operator Instructions] The next question comes from Tyler Batory of Oppenheimer. Tyler Batory: A couple on the hotel portfolio first. And I'm just trying to evaluate the performance during Q3. I know lots of moving pieces with asset sales and whatnot. So just talk about how the EBITDA specifically came in versus your expectations internally. I know it was a little bit below the guidance, but I'm not sure perhaps how much of that was driven by asset sales and some of the other moving pieces you have going on right now. Brian Donley: Tyler, it's Brian. Thank you for the question. I think from the disposition standpoint, the timing of those sales and when they close was the biggest driver. When we provide the guidance and the guidance I provided today for the fourth quarter, doesn't assume asset sales because we can't always predict the exact timing and how much earnings will come off the plate. So about, just call it, $7 million, I think, is the number for sales from what we had guided for Q3. There were some other onetime impacts in the quarter. We had a couple of insuranceable events, fires at a couple of properties in New Orleans. There was an electrical fire that caused significant disruption. We also had a fire on Silicon Valley, same story. It took -- the hotel was closed for days. And then there's just been general disruption from reopening and some other renovation disruption. Some softness in Cambridge, for example, was a big driver this quarter at our Royal Sonesta. So there's different stories within the story. But I think to Chris' point in his remarks, there is definitely a softness in the industry and the travel industry in general. We continue to see cost pressures. So put all of that together is where we landed. Tyler Batory: Okay. And then just to follow up that in terms of the guide for Q4, helpful to hear that that doesn't assume any asset sales. But when I just look at the sequential progression Q4 versus Q3, the seasonality is a little bit worse than normal. If I'm doing my math right, it implies about a high single-digit EBITDA margin there. Just talk a little bit about kind of what's going on in Q4 and just what you're seeing in terms of travel trends, costs, et cetera, moving into the fourth quarter that's informing that guide. Christopher Bilotto: Yes. I mean I think at a very high level, from the travel trends, things have generally moderated quite a bit. Where we are seeing kind of some pockets are with respect to kind of the group pace. I think overall, we expect that to be up 3% for the year, give or take $5 million. And then we're also starting to kind of see some opportunities with contract business, more specifically at a lot of the renovated hotels. And so that's providing additional lift. But I think we -- a lot of our business comes from the OTA market. That market too is getting a little bit more competitive, which is putting pressure on rates just given as travel demand has lessened more broadly, there's just a lot more brands exercising that market. So there's disruption on that front, let alone just kind of with the broader industry. And again, with the bright spots being progress we're seeing from the renovated hotels and then more specifically on group and contract business. And then on the EBITDA side, Brian, I don't know if you want to add any more color there. Brian Donley: No. I mean I think it's really the combination of what we've been seeing in the last few quarters with continued cost pressures lower demands, the seasonality in Q4, we're also taking out our focused service hotels, which had much more of a smoother trend, if you will, across all 4 quarters. It's a little more steeper bell curve for our full-service hotels coming into Q4, and that's a typical pattern for our portfolio as we sell these hotels. And then the impact of the rest of the dispositions, as we talked about, as Chris mentioned, that most of these properties are going to close in November and December. So how much EBITDA we retain versus leaving the system still remains to be determined based on timing. But there will be a similar impact to Q4's EBITDA removing hotels and raising those proceeds for us. Tyler Batory: Okay. Great. And then moving on, could you talk a little bit more about some of the recent movements on the debt side, just the rationale behind doing the zero-coupon bonds. And I know it's a little while until you have upcoming maturities, but it's always something that people are focused on. So just kind of talk about how you're thinking about strategically handling those in the future. Brian Donley: Sure, Tyler. The zero-coupon bond, the primary goal there was to give us some headroom with our covenants, specifically the 1.5x interest coverage, the minimum coverage. So we get the benefit of having zero-coupon interest to that covenant. So we got an immediate lift. And we drew down the revolver in July to protect liquidity because if we're below that 1.5x, we can't use the revolver. It's an incurrence test, incurrence of debt, including borrowing from the line of credit. So we had drawn down the line defensively in July. We started working through the strategies as we saw hotel EBITDA slipping further as the quarter moved on, executed on the zero-coupon transaction. We've repaid our '26 notes and we brought ourselves back in check. So those are the primary drivers. The zero-coupon bond basically gives us 2 years of runway on our debt maturities, our next debt maturity. Once we complete the rest of these asset sales, we're paying off the early '27 notes that are coming due in February '27. So our next debt maturity will be those zero-coupons in September of 2027. Operator: The next question comes from John Massocca of B. Riley Securities. John Massocca: Maybe just a quick clarifying question on the guidance. Does that include the impact of host health sales closed quarter-to-date? Brian Donley: No. We just -- the projection is based on the portfolio as of September 30. So the few hotels shouldn't make a big difference, the ones we've closed so far, but it just assumes all 76 that haven't sold are still in those numbers. John Massocca: Okay. And then as you think of kind of the pro rata impact of sales in 4Q and maybe even the final impact coming into 2026, is the overall amount of hotel EBITDA you expect to kind of lose in these sales still at the $53 million or so mark you laid out in August? Brian Donley: Roughly. I mean, yes, I mean, it's hard to predict what those would have done without the sales process impacting those properties. But generally speaking, around $50 million is the right number for the whole portfolio. John Massocca: And then in terms of hotel sales, it sounds like everything is expected to be wrapped up by the end of this year. What's the outlook for potential further dispositions in 2026, particularly given you're not going to have debt repayment needs until '27? Could we expect another strategic process maybe as you look at the zero-coupon bonds? I know they're secured by net lease assets, but just kind of curious as to the opportunity set for more hotel dispositions. Could it be structural like it was this year? Or is it going to be more opportunistic going forward? Christopher Bilotto: Yes. So the short answer is we are planning to continue with dispositions in 2026. As I mentioned kind of in my prepared remarks, we have a quantum of hotels that are negative EBITDA drags and these are on the full service side. And our initial plan is just to focus on a portion of those for launch of a sale earlier in the year. And we're going to kind of take a more incremental approach to kind of how we think about layering in the sales. I think it's important just to note, I mean, selling negative EBITDA hotels in itself takes time. And given kind of the overall backdrop of where the hotel kind of performance is going more kind of sector related, we just want to strike the right balance of timing to be focused on transactions. So it will be very much incremental in next year, but with the caveat that we will be selling hotels. And our plan is to really provide more definitive information as we round out the year, likely with our NAREIT presentation update on kind of the hotels themselves, how much in proceeds we expect, how much negative EBITDA in the cases for the initial round, we expect to see come off the books when these transact and other details supporting that initiative. John Massocca: Okay. I appreciate that detail. And then one last kind of one on the hotel front, purely the hotel front. The margin decline kind of quarter-over-quarter obviously, but even year-over-year, was that just driven by some of the fire disruption and insurance issues you talked about earlier on the call? Or were there other kind of factors going into that? Brian Donley: Yes, that's part of it. I think labor continues to be a big headline number for us and for every hotel company, frankly, continued growth in wages and benefit costs, market impacts, the availability of labor has a bigger outsized recurring impact to the portfolio and some of these other things. These insurance items were definitely an impact this quarter, but eventually, we'll get some business interruption proceeds, but that process takes a long time to offset. So there are other costs within the portfolio that continue to weigh on margins as revenues have been relatively flat. John Massocca: Okay. And then on the CapEx guidance, I appreciate all the detail. It still feels like the 2025 CapEx guidance is calling for a pretty significant ramp in 4Q versus what you've done in the last 3 quarters. Is there something driving that, particularly now that the Nautilus renovations are going to move to 2026 purely? Brian Donley: Yes. There's a significant amount of stuff that we have in the pipeline at various hotels that will have an outsized impact, including one of our large Royal Sonestas in Cambridge. We're starting a renovation project there that will carry through into next year. Same thing down in New Orleans. The Nautilus, the biggest part and the actual swinging of hammers and doing the rooms and the public space will happen next year, but there's still a significant amount of dollars going out the door in fourth quarter by FF&E releases and that sort of thing as well as other maintenance type capital that we're working through across the portfolio. So yes, it is outsized compared to the trend and -- but that's part of the rationale why we brought the guidance way down. John Massocca: And diversely kind of on a 2-year stack, I think the way guidance kind of changed is calling for overall CapEx to decline. Is that just a product of hotel sales? Or is there something else going on there where you're thinking you need less CapEx spend? Christopher Bilotto: Certainly, having less hotels, there will be less overall capital. But I think generally speaking, we have less kind of renovations planned during the year and just bringing down kind of the overall capital spend. So I think net-net, it's focused on just trying to kind of be more strategic about the deployment of capital going into the year. So this is -- Brian kind of alluded to the numbers going into 2026, and we'll continue to evaluate that with the goal that we can kind of see further reductions in out years as well. John Massocca: Okay. And just to be clear, the CapEx spend guidance does take into account the asset sales, correct? Brian Donley: Correct. We're not projecting anything related to those sale of hotels. John Massocca: No, no, I meant -- so I guess the number for 2026 includes assets that are planned to be sold. Or is that -- are you factoring in the fact you're going to sell these assets before you need to spend CapEx on them? Christopher Bilotto: Yes, correct. Yes. So it's -- I guess we'll answer it in 2 parts. For the '25 dispositions and the capital guidance, that's all factored in. There's no capital with -- specifically tied to what we're selling at this stage, just given where we are in the process. The capital guide for 2026, it's going to have some capital for the hotels we're selling. I mean, by the time we transact on those hotels, we're going to have to continue to make sure we're taking care of any mission-critical work. So there's going to be some numbers in there. But as we dial into the timing of the sales, then we would kind of rightsize that number. But I wouldn't view that as kind of an outsized amount that would fall off given some of those initial sales. John Massocca: Okay. And then maybe as we think about '26, bigger picture, is there a leverage target you kind of have in mind post some of these continued hotel dispositions? Brian Donley: Yes. I think with the completion of the 113 Sonesta sales, we've been quoting one full turn off of leverage when the dust settles, and that's still where we expect things to shake out. On the flip side, as you've seen in these numbers, EBITDA has eroded a little bit and really depends on where we come in next year, short of any other sales. So from a leverage target standpoint, we're going to -- when we get more specific as far as what we might sell in '26 in some of the full-service hotels and what the EBITDA impact is to the portfolio, we'll have more clarity on that. But at this time, the full turn of leverage from what we've done this year is sort of the benchmark in the short term. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Chris Bilotto, President and Chief Executive Officer, for any closing remarks. Christopher Bilotto: Thank you, everybody, for joining the call today. We look forward to seeing many of you at NAREIT in December. Please reach out to our Investor Relations team if you're interested in scheduling a meeting with SVC. That concludes our call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to today's Ingevity Third Quarter 2025 Earnings Call and Webcast. My name is Bailey, and I will be your moderator for today. [Operator Instructions] I'd now like to pass the conference over to John Nypaver. So please go ahead when you're ready. John Nypaver: Thank you, Bailey. Good morning, and welcome to Ingevity's Third Quarter 2025 Earnings Call. Earlier this morning, we posted a presentation on our investor site that you can use to follow today's discussion. It can be found on ir.ingevity.com under Events and Presentations. Also throughout this call, we may refer to non-GAAP financial measures, which are intended to supplement, not substitute for comparable GAAP measures. For example, we are presenting the pending divestiture of our Industrial Specialties business for the first time within discontinued operations. In the appendix to our slides, we provide details that reconcile the total operations. Definitions of these non-GAAP financial measures and reconciliations to comparable GAAP measures are included in our earnings release and are also in our most recent Form 10-K. We may also make forward-looking statements regarding future events and future financial performance of the company during this call, and we caution you that these statements are just projections and actual results or events may differ materially from those projections as further described in our earnings release. Our agenda is on Slide 3. Our speakers today are: David Li, our CEO; and Mary Dean Hall, our CFO. Dave will provide introductory comments. Mary will follow with a review of our consolidated financial performance and the business segment results for the quarter. Dave will then provide closing comments and discuss 2025 guidance. With that, over to you, Dave. David Li: Thanks, John, and good morning, everyone. It was a highly productive quarter of strong execution for Ingevity. First, we achieved an important milestone in our strategic portfolio review with the announcement of the sale of our Industrial Specialties business for $110 million. We expect this transaction to close in early 2026 and will likely use the majority of the proceeds towards further debt reduction. Second, we were pleased with our business segment results. Performance Materials delivered another strong quarter within a dynamic global auto environment. Going forward, we are encouraged by the adoption of hybrids and fuel-efficient ICE platforms, which should drive demand for advanced Ingevity solutions and content. Road Technologies also had a great quarter, highlighted by record sales for our pavement business in North America. Finally, APT delivered strong margins as the team prioritized operational improvements against the backdrop of continued weak end market demand. Overall, these contributions reflect our team's disciplined execution as well as strategic repositioning actions, which drove best-in-class EBITDA margins of 33% reflecting our sixth consecutive quarter of year-over-year margin expansion. Strong cash flow generation and disciplined capital allocation enabled us to reduce debt, achieve our leverage target ahead of plan and return capital to shareholders through share repurchases. And third, I'm very excited to announce we hired Ruth Castillo to lead our Performance Materials business. Ruth is a strategic and experienced leader with a deep understanding of how to navigate complex businesses and unlock new growth opportunities. I look forward to her leadership in guiding Performance Materials into its next phase of profitable growth. Before I turn it over to Mary for more details on the financials, I'm pleased to share that we will host an Investor Update on December 8. This will be a virtual event where we'll share the results of the strategic portfolio review and provide an assessment on what we believe the company will look like over the next 2 years. More details on how to register for the event will be forthcoming. And now I'll turn it over to Mary. Mary Hall: Thanks, Dave, and good morning all. It's nice to have some good news to share in this unsettled economic environment. Our Q3 results reflected continued growth in adjusted EBITDA, margins and free cash flow despite pressure on the top line, affirming the resilience of our businesses and the successful execution of our repositioning actions in Performance Chemicals. As previously noted, with the announced sale of Industrial Specialties, we're now reporting the results of that business as discontinued operations, with the sale expected to close by early 2026. Given our close proximity to year-end and the full year guidance is based on total company performance, I'll focus my comments on total company results so that comparisons to prior periods are apples-to-apples. I'll provide more color on continuing and discontinued operations when we discuss the Performance Chemicals results. Please refer to Slide 5. Total company sales of $362 million in Q3 were down about 4% as increased sales in Performance Materials and Road Technologies were more than offset by decreases in Industrial Specialties and APT. Gross margin improved over 600 basis points, reflecting significantly lower raw material costs, primarily in Industrial Specialties and the successful execution of our repositioning actions. SG&A increased due primarily to higher variable compensation expense on improved business results. Adjusted earnings improved significantly, up almost 500 basis points to $56.3 million, driving adjusted EBITDA margin to 33.5%. Please turn to Slide 6. As a result of strong earnings and disciplined capital management, our free cash flow of $118 million enabled us to repurchase $25 million of shares in the quarter and accelerate deleveraging. We ended the quarter with net leverage of 2.7x, already beating our previous year-end target of 2.8x. We now expect net leverage to be approximately 2.6x by year-end. This does not include the benefit of any proceeds from the sale of Industrial Specialties, which is expected to close by early 2026, as I mentioned earlier. Turning to Slide 7. Performance Materials sales increased 3%, primarily due to volume growth, reflecting improved global auto production. Segment EBITDA and EBITDA margin were down a bit as the benefit from increased volumes and price was more than offset by increased variable compensation expense and a negative impact from foreign exchange. Q4 is looking solid, but we do expect Q4 to be a bit softer coming off of a strong Q2 and Q3. So on a full year basis, we expect PM revenue to be flat to slightly down year-over-year with EBITDA margins over 50%. Our results demonstrate the resilience of this business in the face of unprecedented uncertainty caused by the dynamic tariff environment. Please turn to Slide 8 for APT results. Sales in APT declined year-over-year for many of the same reasons we discussed last quarter. The indirect impact of tariffs continues to weigh on already weak end market demand, especially in footwear and apparel, delaying the upturn we otherwise expected to see. In addition, competitive dynamics in China are continuing to impact sales in the paint protective film markets. The team did a great job holding on to price where possible and managing costs and posted an EBITDA margin of 26% for the quarter, which also reflected a tailwind from foreign exchange. Near term, we see no indications that the current market conditions or competitive dynamics will improve. We now expect full year revenue for APT to be down by mid-teens on a percentage basis with full year EBITDA margin of 15% to 20%, down from their more typical 20% area margins due to the extended plant outage in Q2. On Slide 9, Performance Chemicals. The left side presents a combined view of Performance Chemicals results, including continuing operations and discontinued operations. As I mentioned earlier, with the announced sale of Industrial Specialties, accounting rules require that we separate results of the product lines being divested into discontinued operations. However, because the sale is not yet completed and our guidance is for full company results, we're showing the Q3 results on a combined basis. As you can see, combined sales were down almost 5% due to Industrial Specialties and our repositioning actions in that business. Road Technologies posted sales up 5% as the pavement business delivered a record Q3 in North America, which is our largest and most profitable region. Road Technologies as part of continuing operations includes the lignin-based dispersants business previously included in Industrial Specialties. Combined segment EBITDA and EBITDA margins improved significantly year-over-year due to lower raw material costs in Industrial Specialties and the successful execution of repositioning actions. On a continuing operations basis, Performance Chemicals EBITDA margins were down slightly, primarily as a result of pricing decisions made in the road markings business to maintain volumes. Please refer to Slide 27 in the appendix of the slide deck for a reconciliation of Performance Chemicals segment EBITDA on a continuing operations basis to the combined segment EBITDA, inclusive of discontinued operations. On the right-hand side of Slide 9, we've added some detail regarding the impact of the divestiture on the combined results. There is noise in the Q3 numbers, so we believe it's most useful to look at the estimated impact on a full year basis. As you can see, we expect the divestiture to contribute approximately $130 million in sales for the full year with an EBITDA margin of approximately 6%, inclusive of indirect costs. Please note that these indirect costs related to the divestiture, often referred to as stranded costs are included in continuing operations for reporting purposes. On a full year basis, we estimate these indirect costs will be approximately $15 million, which we expect to eliminate by the end of 2026. In addition, the divestiture is expected to contribute approximately $40 million to free cash flow on a full year basis, primarily due to lower working capital. In summary, we continue to focus on delivering results in a very challenging environment and are proud to report our sixth consecutive quarter of year-over-year adjusted EBITDA margin expansion. In addition, with our strong free cash flow, we have strengthened the balance sheet and resumed share repurchases. I'll now turn the call back over to you, Dave, for update on guidance. David Li: Thanks, Mary. Please turn to Slide 10. We are very pleased with our third quarter results and are on track for a strong finish to the year. Our results reflect sustained execution, the durability of our business model and our leadership in the industries we serve. We are raising full year free cash flow guidance and now expect net leverage to be around 2.6x by year-end. We will continue to be disciplined in how we allocate capital and look forward to closing the sale of our Industrial Specialties business soon. Lastly, given the ongoing tariff uncertainty and slower industrial demand primarily impacting APT, we're adjusting our full year outlook to narrow the top end of our sales and EBITDA range. In closing, we look forward to hosting everyone virtually on December 8 for our investor update when we will provide the results of our strategic portfolio review and our expectations for the future. 0With that, I'll turn it over for questions. Operator: [Operator Instructions] Our first question today comes from the line of Jon Tanwanteng from CJS Securities. Jonathan Tanwanteng: Nice job in the quarter. My first question is just regarding the full year outlook. I noticed that you're taking down the top line for APT, which makes sense. I was wondering if you could actually speak to the Performance Materials segment and to the publicized aluminum plant fires in North America, the chip shortages that are going on in China and just how that's impacting your outlook there and what's implied in the guidance and if you've accounted for that? David Li: Yes. Thanks, Jon. Yes, with respect to those challenges you mentioned, obviously, if you zoom out, it's been a pretty dynamic year for the industry. I think it actually speaks to the resilience of the auto industry in general. I mean, we've been through tariffs, some macro uncertainty. And as you mentioned, some more recent supply chain challenges. And our results and outlook would reflect any impact from those. But I think overall, if you look at the results we've delivered for Performance Materials, it demonstrates the -- also the durability of our business, the continued leadership we have in that space. And I think quarter-over-quarter, we've continued to deliver strong results. But to answer your question, on those 2 supply chain challenges, our results and outlook do reflect any impact to those going forward. Jonathan Tanwanteng: Got it. That's helpful. And then just on the discontinued ops, you mentioned -- or I guess you gave metrics for what you expect from the year in the [ Inspect ] business. Could you kind of tell us what's implied in the Q4 just because we don't have the first half results in there and then you broke out the Q3 in terms of EBITDA contribution? John Nypaver: [Indiscernible] this is John. We do show full year for that discontinued ops. It should be easy for you to get to that, I would think. But we can talk offline if you need help on that. David Li: Yes. And Jon, I kind of just in terms of sizing the business, on an annualized basis, think of it as about a kind of mid-single-digit EBITDA business. And so we've reported 3 quarters of it. So kind of extrapolating that out to the fourth quarter, I think, would make sense. Operator: Our next question today comes from the line of Daniel Rizzo from Jefferies. Daniel Rizzo: You mentioned working capital and free cash flow. I was just thinking -- wondering how we should think about working capital post the divestiture as maybe as a percent of sales or just how you plan to kind of manage that? Mary Hall: So you're really thinking looking forward into 2026, Dan? Daniel Rizzo: Right. Well, just -- I mean, not for just 2026, but just how it changes at all once the business is divested. Phillip Platt: Yes. Dan, this is Phil. I think if you look at our balance sheet, which is included in the press release schedules, we broke out the impact of the discontinued ops on the balance sheet and pulled them out as separate line items. So it will give you a really good clear indication for what we're thinking working capital looks like for the business going forward. Daniel Rizzo: Okay. And then you mentioned that I think net debt-to-EBITDA is going to be about 2.7x at the end of the year. And then you get $110 million roughly from the sale. I mean, that's going to be used towards debt. So I guess my question is, what is the net debt-to-EBITDA target? Because that seems like you would be relatively low. Mary Hall: So Dan, just for clarity, we finished the quarter at 2.7x. And as a result of beating our year-end target already, we're reducing our target for year-end to 2.6. (sic) [ 2.6x ] David Li: Right. And then in terms of use of proceeds, Dan, we mentioned or I mentioned in my comments, we'd likely use the majority of the proceeds when received to further pay down debt. I want to hold off a little bit because we'll also talk more about capital allocation as one of the major topics on December 8. But obviously, if you look at primary use of the proceeds as debt reduction, you can do that trajectory down. But we're really pleased with our achievements so far ahead of plan. We had targeted 2.8x or below by end of year. So we finished the quarter, as Mary mentioned, at 2.7x, and we think we've got a glide path to 2.6x without any proceeds -- use of proceeds to pay down further debt. Operator: [Operator Instructions] We have no additional questions waiting at this time. So I'd like to pass the call back over to John Nypaver for any closing remarks. John Nypaver: Actually, Bailey, I believe someone is in the queue, if you wouldn't mind, double checking. Operator: Perfect. Yes, we will take our next question, apologies, from John McNulty from BMO Capital Markets. John McNulty: Yes. Sorry about the last second question there. So I guess I just wanted to understand Performance Materials a little bit better for the full year sales to be kind of flat to slightly down. I mean when we look at kind of the overall auto forecast out there, they're roughly in line with that. But I assume normally, you're getting some reasonable amount of price. So I guess, is it -- is there some negative mix that we should be thinking about on the auto builds that may be contributing to this type of a result? Or is pricing maybe more modest than it's been where maybe it's taken a little bit of a pause after the last few years? I guess, can you help us to think about that? David Li: Yes, John. So as we mentioned earlier in the year, we've taken pricing as we typically do. I think there's -- when you look at the auto forecast as we do as well, they're calling for sort of flattish to slightly down. That's similar to our PM business. But in terms of the overall mix of those vehicles -- obviously, we've had a lot of volatility, for example, for EVs throughout the year. So when you look at the overall trend for automobiles may not reflect just ICE and hybrids. We think we have a very strong position in that market. Market continues to be healthy. Actually, still inventory levels are pretty low and the fleet remains pretty aged. So we're thinking that we're even not back to a healthy level of production. But given that, I think that's how sort of the math would shake out for us. It's just not taking into account the portion that's EVs. But Mary, what else would you add? Mary Hall: Yes. Maybe just another little point of clarity. focusing on North American production, which, as you know, John, is where we're most profitable, while the forecast has improved again, actually for the full year for North America, in particular, it's still down. So it's the latest forecast information we have is that even North America is still down a couple of percent year-over-year, albeit an improvement over the prior forecast. So I think that, in combination with some of the noise that we're also, as we mentioned, factoring in the fire at Ford, chip issues, et cetera, that are making noise in the supply chain system of automotive, we feel comfortable with our current guide. John McNulty: Got it. Okay. Fair enough. So it sounds like it's really a mix thing more than anything else. And then I guess the other question is just any update on the Nexeon platform and that venture and how things may be going there? David Li: Yes. So as we mentioned, with Nexeon, that's kind of a far out R&D type of initiative. We do expect their plant to be up and running in the next few months. As a reminder, that's not using our activated carbon for this first generation, but continues to be a strong partnership and an exciting space that we look forward to participating in with them. Operator: Thank you. [Operator Instructions] As we have no additional questions waiting at this time, I would now like to pass it back over to John Nypaver for any closing remarks. John Nypaver: Thanks, Bailey. That concludes our call. Registration for the strategic portfolio update is now open on our investor website under Events. We will also issue a press release with more details later today. If there are any questions, please feel free to reach out to me directly. My contact information can be found in the earnings release and slide deck. Thank you for your interest in Ingevity. Operator: This concludes today's call. Thank you all for your participation. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the Teleflex Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded and will be available on the company's website for replay shortly. And now I will turn the call over to Mr. Lawrence Keusch, Vice President of Investor Relations and Strategy Development. Lawrence Keusch: Good morning, everyone, and welcome to the Teleflex Inc. Third Quarter 2025 Earnings Conference Call. The press release and slides to accompany this call are available on our website at teleflex.com. As a reminder, a replay will be available on our website. Those wishing to access the replay can refer to our press release from this morning for details. Participating on today's call are Liam Kelly, Chairman, President and Chief Executive Officer; and John Deren, Executive Vice President and Chief Financial Officer. Liam and John will provide prepared remarks, and then we will open the call to Q&A. Before we begin, I'd like to remind you that some of the matters discussed in the conference call will contain forward-looking statements regarding future events as outlined in the slides posted to the Investor Relations section of the Teleflex website. We wish to caution you that such statements are, in fact, forward-looking in nature and are subject to risks and uncertainties, and actual events or results may differ materially. The factors that could cause actual results or events to differ materially include, but are not limited to, factors referenced in our press release today as well as our filings with the SEC, including our Form 10-K, which can be accessed on our website. Now I'll turn the call over to Liam for his remarks. Liam Kelly: Thank you, Larry, and good morning, everyone. I would like to begin today with comments on our corporate strategy. In order to best position the company for enhanced value creation, we have continued to take decisive action to unlock value within our business. This includes the previously announced separation of Teleflex into 2 independent companies, RemainCo and NewCo. In line with our commitment to maximizing value for our shareholders, our Board and management have been continuing to actively advance the process for a potential sale of NewCo, which is now our priority. There continues to be healthy interest in NewCo, and we are pleased with the momentum and stage in the process. Once the separation process is complete, each business will be best positioned for the future with more focused strategic direction, simplified operating models, streamlined manufacturing footprint and individually tailored capital allocation strategies aligned with their respective growth philosophy and objectives. As a reminder, the creation of RemainCo will create an optimized portfolio focused on highly complementary business units, Vascular Access, Interventional and Surgical. NewCo will be able to identify, invest in and capitalize on opportunities that are unique to urology, acute care, including intra-aortic balloon pumps and catheters and OEM end markets. Importantly, our guiding principles continue to focus on maximizing shareholder value through this process. Should a sale be consummated, we intend to utilize proceeds to balance paydown of debt and return capital to our shareholders. Before I turn to our third quarter results, I would like to provide an update regarding changes in the Italian payback measure. As a reminder, the major states that if Italian public hospitals spend more than the national budget allows on medical devices, manufacturers that generate revenue in the country must pay back part of the excess cost to the government. In June 2025, the Italian government proposed a significant discount under this measure, which became effective in August. The amended law reduced the amount owed by affected companies, including Teleflex, for the years 2015 through 2018. These legislative changes and the resulting adjustment to our reserve calculation beyond 2018 resulted in a $23.7 million decrease in our reserve and a corresponding increase to EMEA revenue for the 3 and 9 months ended September 28, 2025, of which $20.1 million pertained to prior periods. Since the amount related to prior years does not represent normal adjustments to revenue and is nonrecurring in nature, we have excluded a $20.1 million increase in revenue related to the prior years from adjusted third quarter 2025 revenue to facilitate an evaluation of our current operating performance and a comparison to our past operating performance. Now moving to the agenda for the remainder of this morning's call. We will discuss the third quarter results, review commercial highlights and conclude with our updated financial guidance for 2025. Overall, we are pleased with our execution in the quarter, with third quarter revenues of $913 million, an increase of 19.4% year-over-year on a GAAP basis. When excluding the prior year impact of the Italian payback measure, adjusted revenues for the third quarter were $892.9 million, up 16.8% year-over-year on a reported basis and up 15.3% on an adjusted constant currency basis. Constant currency revenue growth improved sequentially in the third quarter, excluding the impact of the acquired Vascular Interventions business as we work to drive operational excellence across our business. Excluding the impact of acquired Vascular Intervention revenues, constant currency growth was 2.3% year-over-year. Third quarter adjusted earnings per share were $3.67, a 5.2% increase year-over-year. Now let's turn to a deeper dive into our third quarter revenue performance. I will begin with a review of our geographic segment revenues for the third quarter. All growth rates that I refer to are on a year-over-year adjusted constant currency basis, unless otherwise noted, and include the impact of the acquired Vascular Intervention business. Americas revenues were $555.9 million, a 7.5% increase year-over-year, with the acquired Vascular Intervention business representing the largest contributor to growth. Excluding the Vascular Intervention business, growth in the quarter was driven by strength in our Surgical, Interventional and Vascular businesses, partially offset by OEM declines and continued challenges in UroLift. EMEA revenues were $214.1 million, a 34.4% increase year-over-year. During the quarter, growth was driven by the Vascular Intervention acquisition business. Excluding those acquisition revenues, we saw strength in our Surgical, Vascular and Interventional businesses, which was partially offset by our anesthesia business, including the decreased volume of military orders in comparison to the prior year. Now turning to Asia. Revenues were $122.9 million, a 25.3% increase year-over-year, driven primarily by the Vascular Intervention acquisition. In the quarter, we recognized an approximately $9 million stocking order as part of our intra-aortic balloon pump and catheter growth strategy in China. And as expected, this was partially offset by volume-based procurement. We anticipate inventory exceeding this $9 million stocking order will be sold through by the end of 2025 as dynamics associated with tariffs stabilize, including timing of orders and tender activity. Now let's move to a discussion of our third quarter revenues by global product category. Commentary on global product category growth for the third quarter will also be on a year-over-year adjusted constant currency basis, unless otherwise noted. Starting with Vascular Access. Revenue increased 4.3% year-over-year to $191 million, driven by our broad Vascular Access portfolio, including peripheral access, EZ-IO and central access products. Moving to Interventional. Revenue was $266.4 million, an increase of 76.4%. Excluding the impact of the Vascular Intervention acquisition, Interventional revenues increased 9% year-over-year. The strong performance for the quarter was led by growth drivers such as intra-aortic balloon pump catheters, OnControl and complex catheters. The acquired Vascular Intervention business revenue was modestly ahead of our $99 million expectation for the third quarter, and increased 6.9% year-over-year on a reported basis. We continue to feel confident in our Vascular Intervention guidance of $204 million in revenue for the second half of 2025. Intra-aortic balloon pump revenue growth declined year-over-year in the third quarter due to lower-than-expected order rates, predominantly in the United States. Specifically, we are seeing a slowing in conversions for pumps in the annual replacement cycle as well as less activity from hospital systems in replacing entire fleets of pumps. Although we had anticipated this dynamic in 2026, it has occurred sooner than expected. As a result, we have lowered our 2025 global balloon pump revenue expectations by $30 million at the midpoint of our constant currency guidance, with the vast majority of the reduction in the United States. Despite the revised outlook for pump demand in the second half of 2025, we have taken considerable market share and advanced our overall market position beginning in the fourth quarter of 2024. Turning to Anesthesia. Revenue decreased 1.4% to $101.4 million. Decreased military orders and softness in tracheostomy tubes were partially offset by growth in ET tubes and LMA single-use masks, along with a double-digit increase in hemostatic products in the United States. In our Surgical business, revenue was $122.9 million, an increase of 8.8%. Underlying trends in our core surgical franchise continued to be solid, with growth led by chest drainage and instrumentation in the quarter, partially offset by the expected impact of volume-based procurement in China. Our North America and EMEA surgical businesses, which are not impacted by volume-based procurement, each grew double digits in the quarter. For Interventional Urology, revenue was $71.8 million, representing a decrease of 14.1%. While we saw strong double-digit growth for Barrigel, we continue to experience meaningful pressure on UroLift. OEM revenue decreased 3.9% to $80.4 million year-over-year, driven by customer inventory management. However, and as expected, we saw a sequential revenue increase compared to the previous quarter. Third quarter other revenue increased 3.1% to $59 million. Growth in the quarter was broad-based across the portfolio. That completes my comments on the third quarter revenue performance. Turning now to clinical and commercial updates. BIOMAG-II, which is our European randomized controlled trial for the Freesolve resorbable magnesium scaffold, has reached the midpoint ahead of schedule with over 1,000 patients now enrolled. BIOMAG-II is a prospective multicenter randomized controlled trial designed to evaluate the safety and clinical performance of Freesolve compared to a contemporary drug-eluting stent. The primary endpoint is target lesion failure rate at 12 months. We continue to expect the data readout for the BIOMAG-II study in 2027. The integration activities for the acquired Vascular Intervention business are well underway and remain on track. A planned restructuring, as disclosed in today's press release, is aimed at reducing costs and increasing operational efficiency, and will include workforce reductions and the relocation of certain manufacturing operations to existing lower-cost locations. We expect the restructuring activities to be substantially completed by the end of 2028. In our Interventional Urology business, we launched Barrigel in Japan during the third quarter following regulatory approval, insurance coverage and appropriate use criteria issuance. The commercialization in Japan marks a significant milestone in the global expansion of Barrigel. In 2022, prostate cancer was the most common cancer among men, with over 104,000 new cases. The launch of Barrigel in Japan aims to provide men with a safe, more precise treatment option, enhancing the quality of life for prostate cancer patients undergoing radiation therapy. Barrigel offers enhanced precision and sculptability, allowing for real-time ultrasound guided placement tailored to individual patients. U.S. clinical data supports its efficacy, showing that 98% of patients achieved a significant reduction in rectal radiation exposure. The Spacer has also been shown to significantly reduce both acute and long-term Grade 1 plus GI toxicity at 3 and 6 months compared to control. First cases in Japan were performed in early August, and we are actively engaging Japanese clinicians through training programs to ensure effective adoption of the technology. That completes my prepared remarks. Now I would like to turn the call over to John for a more detailed review of our third quarter financial results. John? John Deren: Thanks, Liam, and good morning. Given Liam's discussion of the company's revenue performance, I'll begin with margins. For the quarter, adjusted gross margin was 57.3%. The 350 basis point decrease year-over-year was primarily due to the negative impact of tariffs and the negative impact of foreign exchange rates and to a lesser extent, product mix and increased logistics and distribution costs. Adjusted operating margin was 23.3% in the third quarter. The 400 basis point decrease reflects year-over-year gross margin pressure, higher operating expenses associated with the acquisition of the Vascular Intervention business, partially offset by cost controls across the remainder of our business, and negative impact of foreign exchange rates. Adjusted net interest expense totaled $29.7 million in the third quarter as compared to $18.8 million in the prior year period. The year-over-year increase is primarily due to the borrowings used to finance the Vascular Intervention acquisition. Our adjusted tax rate for the third quarter of 2025 was 9.1% compared to 13.6% in the prior year period. The year-over-year decrease is primarily due to the beneficial tax provisions included in the recently passed One Big Beautiful Bill Act, including the ability to deduct U.S.-based R&D expenses and other nonrecurring discrete impacts in the quarter. At the bottom line, third quarter adjusted earnings per share was $3.67. The 5.2% increase year-over-year is primarily due to higher revenue and adjusted operating income, including the impact of the Vascular Intervention acquisition, a lower tax rate and share count, partially offset by the negative impact of interest expense and foreign exchange. Now turning to select balance sheet and cash flow highlights. Cash flow from operations for the 9 months was $189 million compared to $435.6 million in the comparable prior year period. The $246.6 million decrease was primarily due to unfavorable changes in working capital as well as the prior period inflow from proceeds related to the pension plan termination. The unfavorable changes in working capital were primarily related to the Vascular Intervention acquisition, payments for tariffs, payments related to the proposed separation, cash tax payments for the final transition payment from the TJC Act of 2017 and foreign tax payments related to restructurings from prior periods. Moving to the balance sheet. At the end of the third quarter, our cash and cash equivalents and restricted cash equivalents balance was $381.3 million as compared to $327.7 million as of year-end 2024. Net leverage at the quarter end was approximately 2.4x. Turning to our updated financial guidance for 2025. We now expect total adjusted constant currency growth for 2025 to be in the range of 6.9% to 7.4%, which reflects the performance in the first 3 quarters of the year and our updated view for the fourth quarter of 2025. The reduction in the constant currency revenue outlook is primarily driven by a reduction in intra-aortic balloon pump revenue assumptions, primarily in the U.S., in the second half of 2025 due to our expectation for lower-than-anticipated order rates continuing through the fourth quarter. We now expect a positive impact from foreign exchange of $32 million, representing an approximately 100 basis point tailwind to GAAP revenue growth in 2025. This compares to our prior guidance of approximately $26 million or an 85 basis point tailwind for 2025. The updated foreign exchange rate guidance assumes approximately a $1.16 average euro exchange rate for the fourth quarter of 2025. For 2025, we now expect adjusted revenue growth to be in the range of 8% to 8.5% versus our prior guidance of 8.5% to 9.5%. This implies a revenue dollar range of $3.305 billion to $3.320 billion. This adjusted revenue range anchors our 2025 guidance and includes the acquired Vascular Intervention business, the third quarter performance, updated expectations for the fourth quarter and foreign exchange rates, and excludes the positive $20.1 million revenue adjustment related to the Italian payback measure for prior years. On a GAAP basis, revenue growth is expected to be 9.1% to 9.6% when including the $20.1 million revenue benefit of the Italian payback measure for prior years. Additionally, for modeling purposes, you should consider the following: we expect 2025 adjusted gross margin to be approximately 59%. Regarding the impact of tariffs, I'm pleased to report that we've made good progress in our tariff mitigation strategies during the third quarter. Due to rate assumption changes and mitigation activities, we now estimate an impact of $25 million to $26 million in 2025 or approximately $0.50 per share, which is an improvement relative to our previous estimate of $29 million in 2025 or $0.55 per share. We expect adjusted operating margin to be approximately 24.5%. Moving to items below the line. Net interest expense is now expected to be $93 million for 2025. We have refined our tax assumption for 2025 and now expect our tax rate to be approximately 12.5% versus our previous expectation for a 13.25% rate. Turning to adjusted earnings per share. We are narrowing the range for 2025 to $14 to $14.20 from a range of $13.90 to $14.30. For the fourth quarter, adjusted constant currency growth is expected to be in the range of 14% to 15.8%, excluding a foreign exchange benefit of approximately $21 million. That concludes my prepared remarks, and I would now like to turn the call back over to Liam for closing commentary. Liam Kelly: Thanks, John. In closing, I will highlight our 3 key takeaways from the third quarter of 2025. First, we continued to make significant progress in executing our strategy. Third quarter revenue was in the range of guidance, while operating margin and earnings per share exceeded our expectations. For RemainCo, we are pleased with the performance for the first 9 months of 2025, and it is encouraging for our longer-term growth outlook. Second, the Vascular Intervention business performed well in the quarter, achieving year-over-year reported revenue growth of 6.9%, which modestly exceeded our guidance. We are excited to provide a more detailed overview of the Vascular Intervention business in a virtual investor meeting, which is scheduled for November 14 at 8:00 a.m. Eastern Time. Registration details can be found in our press release issued on October 16. Last, we remain heavily focused on controlling what we can across our business as we continue to advance our strategic objectives. Our focus is on enhancing operational execution, accelerating growth and strengthening our diverse product portfolio to better serve our customers. We are pleased with the progress on the separation of Teleflex, including prioritization of a potential sale of NewCo as interest remains healthy. Our guiding principles remain focused on maximizing shareholder value through this process. That concludes my prepared remarks. Now I would like to turn the call back to the operator for Q&A. Operator: [Operator Instructions] And your first question comes from the line of Mike Matson with Needham. Michael Matson: Yes. I guess I'll start with the China -- the comments on the balloon pumps in China. I didn't completely understand that. Can you kind of elaborate on that a little bit more? Liam Kelly: Yes, absolutely, Mike. So what we saw in the quarter, we saw a stocking order of about $9 million that came from some of our distributor customers. There are really 2 reasons for this. The first is, as we're executing on our intra-aortic balloon growth strategy to address more of the geographic market. Today, Mike, we cover about 30% of the market. And this expansion has been partly driven by the government changes, which recommends the use of intra-aortic balloon pumps and catheters for complex PCI procedures. The second reason, Mike, there's been a little bit of noise in the market with tariffs, and this has driven customers' behavior changes that they're purchasing product ahead of tariffs as tenders are delayed later in the year. We expect this situation to normalize in Q4 as we sell through this inventory and even some additional out through the channel as we get these tenders in. So it's a timing thing in Q3, we just wanted to call it out for clarity. Michael Matson: Okay. Got it. And then just we saw some data at TCT on drug-coated balloons. And I know that you've got the BIOMAG trial underway with your resorbable stent, but that data won't be out until '27. I don't know when it would potentially be approved in the U.S. But is there any risk here that you lose some share in the kind of legacy stent and balloon business to these newer drug-coated balloons in the U.S. and Europe, either from Boston Scientific or Cordis? And maybe can you tell us how much of the -- your -- the business you acquired, the Vascular Intervention business is PCI focused as opposed to peripheral? Liam Kelly: Yes. Thanks for the question, Mike. We'll cover that probably more detail next week at our investor meeting. And I will say that in relation to the performance of our drug-coated stents in the quarter, it was in line with expectations. We're not seeing any impact. And I would also ask you to bear in mind that drug-coated balloons have been on the market in Europe for a lot longer than they've been in the U.S. with the technologies you're speaking about. And you see -- still see, in conjunction with those technologies, you still see drug-coated stents being used alongside them. And obviously, with BIOTRONIK growing at the rate of almost 7%, that's very encouraging for the business that we just acquired, Mike. Operator: And your next question comes from the line of Matt Taylor with Jefferies. Matthew Taylor: Sorry about that. I guess I was hoping you could comment a little bit further. The press release seemed to suggest that now the sale is the primary focus for NewCo. Is the spin off the table? And I guess, can you talk about why you're so geared towards a sale? And do you think that you might be able to sell this at an accretive valuation? Liam Kelly: Yes. Thanks, Matt. Well, Matt, I think as I said in my prepared remarks, in line with our commitment to maximize value for our shareholders, our Board and management have been taking decisive action and have been actively advancing the process for a potential sale of NewCo. As I sit here today, Matt, I am pleased with the progress that we have made and the stage that we are at in the separation. We continue to be impressed by the quality and quantity of buyer interest. And to your question on valuation, in our view, it speaks to the quality of the assets within NewCo. As we discussed in our second quarter earnings call, we had preliminary meetings with many potential buyers that had expressed interest in acquiring NewCo. Since then, we have been actively advancing the process for a potential sale of NewCo. Momentum has continued and we have advanced the process into late stages of diligence and are confident in our ability to maximize shareholder value as we prioritize the sale of NewCo. In the second part of your question, is the spin off the table? I think, again, I'll reiterate, we're pleased with the progress we have made and the stage we're at. We still view a spin as a shareholder value creation strategy opportunity, but the level of interest and momentum we have for the sale of NewCo is now our priority and we're executing against that. And just on RemainCo, Matt, if I can just elaborate a little bit on it and its performance for the first 9 months. The constant currency revenue growth year-to-date through the first 9 months was approximately 5% year-over-year, excluding the acquired Vascular Interventions business and the negative impact of volume-based procurement, which we know is transitory. This is encouraging and is squarely in our mid-single-digit growth profile. Operator: And your next question comes from the line of Jayson Bedford with Raymond James. Jayson Bedford: Maybe for John, John, there was a lot of growth rates thrown out there, and I'm not as -- I'm a lot slower than I used to be. What is the dollar amount of the fourth quarter revenue guidance? And I'll ask my second question, while maybe, John, you're looking that up. Just on the spin/sale, the business has changed a bit since you last provided details on RemainCo and NewCo in terms of margins. Is there any way you can kind of update us maybe on the margin range and tariff exposure of the 2 businesses? Liam Kelly: Well, the growth -- so the biggest impact in quarter 3. I mean, first of all, let me say, I was pleased with our performance in Q3. We executed well within the quarter and we delivered on our commitments despite the weakness in intra-aortic balloon pumps, which was offset by strength in Surgical. And obviously, the newly acquired BIOTRONIK VI business performed very, very well within the quarter. With regard to the margins on RemainCo and NewCo, there hasn't been significant change to the margins within RemainCo or NewCo outside of the impact of tariffs. And as we look at the tariff impact, I think data has been disclosed to the potential buyers of NewCo. So they are fully aware of that. The pump impact has also been disclosed to the buyers that are fully aware of that. And we gave a good bit of detail in our prepared remarks on the tariffs with the reduction in what we expect for this year. So it's a somewhat improving environment and more stable for tariffs, at least, I would say. And I will ask John to answer your first question. John Deren: Yes, so for the implied Q4 is [ $930 million to $945.6 million ] in dollars. So that's a 14% to 15.8% constant currency, and we have about a $21 million FX tailwind there. Operator: And your next question comes from the line of Richard Newitter from Truist Securities. Ravi Misra: This is Ravi here for Rich. Liam, just kind of maybe one for me upfront and then a follow-up. Just kind of on the vascular business, your restructuring, you have kind of a pretty significant new product trial underway. I'm just curious, and I don't know if I'm stealing any thunder from the Analyst Day, but just curious, do you need any other kind of maybe flagship products in this division to really kind of accelerate growth behind that $1 billion dollar revenue base that you have? Just any thoughts there would be appreciated. And one follow-up. Liam Kelly: Yes. Thanks, Ravi. Just for clarity, that's our interventional business that you're talking about. I'll start by saying it's only 1 quarter, but it's a very encouraging start for BIOTRONIK growing almost 7% right out of the gate. That was ahead of what we had anticipated. So we feel good about that. We have -- and if you look at the underlying growth in the quarter of the interventional business, again, as we said in our prepared remarks, ex the BIOTRONIK VI acquisition, it grew at around 9%. So again, it's performing very, very well. We have a suite of new products coming into the portfolio in that business to continue to accelerate the growth. And as part of RemainCo, the interventional business will be a strong driver, and we anticipate it being in the upper end of those mid-single digits that we spoke about. So I don't think we need any additional flagship product in order to achieve our goals. We have a number of products that we will be releasing into the portfolio. And we will be driving investment into the business to expand and to grow that, and we'll be investing in R&D. And M&A will be something that will be a future opportunity for this business. I think it's important for Teleflex that we execute as we go through 2026 and prove out our hypothesis through 2026, deliver that mid-single digits and bring confidence back into the stock. Ravi Misra: Great. And then just one on the tightening write-down. Commentary in the last couple of quarters was acknowledging challenges in bariatrics, but that was a product that was doing pretty well. It seemed to us, at least the stapling system. So how do we think about maybe the growth rate in that business on a go-forward basis for the segment? Liam Kelly: Yes, Ravi, I'll give you the growth rate for the quarter. It was in the upper single digits. So the product is still growing, and we anticipate it to grow into the future. I'll let John comment on the restructuring. But at the end of the day, the base is lower even though it is growing, and that has put a little bit of pressure and has caused the write-down. But John, do you want to add anything? John Deren: Yes. I mean I won't get into the GAAP technical because this is around intangible assets, which is a little different than a goodwill impairment. But it's that near-term view obviously affects the longer-term projections. And while GLP-1s still put a lot of pressure on this product, as Liam noted, it continues to grow. It's just not growing at the rate that was in our original plan and when we did the acquisition. So unfortunately, it did require a write-down in these intangibles. Operator: And your next question comes from the line of Matthew O'Brien with Piper Sandler. Samantha Munoz: This is Samantha on for Matt this morning. I guess if you could provide any more details on the potential sale of NewCo. It kind of makes it sound like maybe things are advanced with one potential buyer, maybe a few and also whether this is still being considered sold as NewCo entirely or kind of in parts? Liam Kelly: So I'm not going to get into the details of the number of buyers or anything like that. I will tell you that we are focused on selling the entirety of NewCo. We have made significant progress. We have -- trust me, we have not been sitting on our hands. We've been working tirelessly towards this end goal. We have -- and we are in the later stages of due diligence. I will tell you, with a number of buyers we're in the later stages of due diligence as we start -- as we progress this through. I did outline on the second quarter earnings call that we had done preliminary meetings. Since then, we have done a number of meetings, a lot of due diligence, dug deep into the business and had ongoing conversations with multiple buyers. We feel that -- and we've done an incredible amount of analysis on this, both externally and internally that our guiding principle of maximizing shareholder value will be best realized at this stage through an exit through a sale. We think that would be the best outcome for our shareholders, and that's why we prioritized the sale over the spin at this time. Samantha Munoz: Great. And if I could have one more just on the intra-aortic balloon pumps. I know you talked about how this was expected next year, but was kind of like brought forward. Can you talk a little bit more about the longer-term outlook for these products? And then specifically, how long the catheters that go with them could see that -- could continue to be a growth driver? Liam Kelly: Yes, Samantha, that's an excellent question. I mean I think if we just take a step back and we refresh everyone's memory, this is a $250 million annual market split between pumps and catheters. We began with approximately 1/3 of the market share, less than 1/3 in the United States and more than 1/3 overseas in Asia. We had the -- we were taking significant share before the competitor issue, with the business growing organically strong double digits. Customers began replacing their pumps due to the FDA notice. And we also saw pull forward in conversions, which expanded the market during this time. We executed that strategy well. Even with the bolus that we picked up in Q4 of 2024, we delivered $70 million in Q4, which was significantly up from '23. And then we -- this year, it should be in the United States, these numbers are, it should be around $80 million this year in the United States. And we drove really strong growth in the first half of 2025, and we expected that growth rate to continue into the back half, but conversions have slowed earlier. We thought it would happen in 2026. We were expecting this to be a little bit of an overhang in 2026. And our change in assumption is just as a result of the conversions happening earlier than we had anticipated. Your question on catheter, we would anticipate catheter growth to be with us for the last -- for a number of years. And in Q3, I mean, the catheters grew strong double digits in Q3. And obviously, we've increased our market share in the United States fairly significantly during that time. Operator: And next question comes from the line of Patrick Wood with Morgan Stanley. Patrick Wood: Slightly random one at the start. The BIOTRONIK Vascular business, obviously, nice to see that coming in solidly. How has like employee retention been there? How have they been integrating? Like have you managed to keep them on board? Like basically, the kind of more squishy qualitative stuff of how that's going? Liam Kelly: Yes. Thanks, Patrick. Look, the integration is going very well. I think that the BIOTRONIK VI employees, being part of Teleflex, they see it as a much bigger interventional portfolio now. I mean, we're heading for $1 billion of an interventional business for RemainCo with an excellent growth outlook. So retention has been rock solid. We haven't lost any of the senior leadership as we've gone through this, and I'm very encouraged by that. The team is robust, especially from a technical and R&D capability. I've been with them a number of times. And every time I meet with them, I'm always impressed by their capabilities in R&D and the innovation that this team can drive. Patrick Wood: Super helpful. And then just quickly, obviously, we're still seeing very strong procedure volumes, and we're also seeing a whole bunch of incremental procedures moving into the cath lab that maybe weren't being done there before. You guys have a very broad-based view of the system as a whole. So how are you feeling about volumes, both in and out of the cath lab and the health of the market from a procedural standpoint as well? Liam Kelly: Yes, it's a great question. I mean, if I look at what I saw with BIOTRONIK growing 7%. If I look at our interventional business outside of the BIOTRONIK VI growing at 9%, it's clear that the cath lab is a very healthy place to be right now, driving good solid upper single-digit growth in our current portfolio. Procedures are stable to improving in that area. There's lots of technology coming into that area. And we ourselves like the optionality of the technology we're going to bring with Freesolve into the future and to partake in that leave nothing behind. And we're very excited to explain how the BIOMAG study is going to the investment community in a couple of weeks. So yes, we see this as very stable, Patrick, would be, however -- and good solid growth coming out of the cath lab area. Operator: [Operator Instructions] And your next question comes from the line of Travis Steed with Bank of America Securities. Unknown Analyst: This is [indiscernible] on for Travis. On BIOTRONIK, you've spoken about expanding your reach in EMEA with them contain their exposure. Maybe the first part of the question, are you seeing early wins there with the expanded bag? And then on the realignment and head count reductions in the sales force, is that going to be more geographically focused in the U.S. or kind of broadly across the world? Liam Kelly: Yes. So it's too early, [ Hayden ], to give you a clear view on whether we're seeing synergies yet within the sales force. We've seen some anecdotes, but I don't want to call it a trend yet, where some of our complex catheters and some of their stents and balloons have been brought in and combined with some users. We had a lot of excitement in TCT with regard to the overall portfolio. With regards to the integration and the restructuring, a lot of that is in the, I would call it, in the back office areas where the synergies are coming from. And the integration, obviously, some of it will be in the commercial organization for sure. But I don't want to get into any more details on that on the call. Operator: And I would now like to turn the call back over to Mr. Lawrence Keusch. Lawrence Keusch: Thank you, Kayla, and thank you to everyone that joined us on the call today. This concludes the Teleflex Inc. Third Quarter 2025 Earnings Conference Call. Operator: You may now disconnect your lines.