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Operator: Good morning. We would like to welcome everyone to Canadian Natural's 2025 Third Quarter Earnings Conference Call and Webcast. [Operator Instructions] Please note that this call is being recorded today, November 6, 2025, at 9:00 a.m. Mountain Time. I would now like to turn the meeting over to your host for today's call, Lance Casson, Manager of Investor Relations. Please go ahead. Lance Casson: Thank you, operator. Good morning. Thanks for joining Canadian Natural's 2025 Third Quarter Earnings Conference Call. As always, I'd like to remind you of our forward-looking statements, and it should be noted that in our reporting disclosures, everything is in Canadian dollars, unless otherwise stated, and we report our reserves and production before royalties. Also, I would suggest to review the advisory section in our financial statements that includes comments on non-GAAP disclosure. Speaking on today's call will be Scott Stauth, our President; and Victor Darel, our Chief Financial Officer. Additionally in the room with us this morning are Robin Zabek, COO of E&P; and Jay Froc, COO of Oil Sands. Scott will begin by running through our strong operational performance that includes numerous production records in the quarter and our leading operating costs. Victor will then summarize our strong financial results and our significant return to shareholders so far this year. To close, Scott will summarize prior to open the line for questions. With that, over to you, Scott. Scott Stauth: Thank you, Lance, and good morning, everyone. Canadian Natural achieved record quarterly corporate production during the quarter, both in liquids and natural gas production. This is the second time this year where we have achieved quarterly production records on strong performance by our teams as we executed both organic growth and accretive acquisitions. Our production totaled approximately 1.62 million BOEs per day, which, as mentioned, includes records for both liquids and natural gas at approximately 1.18 million barrels per day and approximately 2.7 Bcf per day, respectively. The increase in production from Q3 2024 levels is very significant, totaling approximately 257,000 BOEs per day or up 19%. Our world-class oil sands mining and upgrading assets continue to achieve strong operational performance as Q3 2025 production averaged approximately 581,000 barrels of SCO with strong utilization of 104% and industry-leading operating costs of approximately $21 per barrel. On November 1, we closed the AOSP swap with Shell Canada Limited. Canadian Natural now owns and operates 100% of the Albian oil sands mines and associated reserves and retains a non-operated 80% working interest in the Scotford Upgrader and Quest facilities. This transaction adds approximately 31,000 barrels per day of annual zero-decline bitumen production to our portfolio, providing additional cash flow, driving long-term value creation for our shareholders. This swap also enhances our ability to integrate equipment and services across our mining operations, unlocking additional value through continuous improvement initiatives. Subsequent to the close of the swap transaction, we increased our 2025 corporate production guidance range to 1,560,000 BOEs per day (sic) [ 1,560 million BOEs per day ] to 1,580 million barrels per day, while our operating capital forecast remain unchanged at approximately $5.9 billion despite executing on additional activity on our larger asset base, reflecting acquisitions this year. I will now run through our third quarter area operating results, starting with oil sands mining and upgrading. During the quarter, our world-class oil sands mining and upgrading production was strong, averaging 581,136 barrels per day of SCO, an increase of approximately 83,500 barrels per day or 17% from Q3 2024 levels, reflecting the additional interest in the AOSP acquired in December 2024, combined with our effective and efficient operations, which drove stronger utilization of approximately 104% in the quarter. Additionally, Canadian Natural's oil sands mining and upgrading operating costs continue to be industry-leading, averaging $21.29 per barrel of SCO in Q3 of 2025. In our thermal in situ operations, we achieved strong thermal production in the quarter, averaging 274,752 barrels per day in Q3, up slightly from Q3 2024 levels. Thermal in situ operating costs remained strong, averaging $10.35 per barrel in Q3, a decrease of 2% from the same quarter last year. We continue to progress our pad development plans across our thermal assets. At Primrose, we began drilling a CSS pad in Q3 of '25 with production targeted to come on in the second half of '26. At Jackfish, we brought a SAGD pad on production in July '25 as planned. At Kirby, we brought on a 5 well-pair SAGD on production in late October as planned. And lastly, at Pike, the company tied in the 2 recently drilled SAGD pads into the Jackfish facilities. These 2 SAGD pads targeted to keep the Jackfish facilities at full capacity with the first pad targeted to come on production in January 2026, the second pad in Q2 of '26. At the commercial scale solvent SAGD pad in Kirby North, current SOR reductions and solvent recoveries are meeting expectations following recent workovers and optimization. On the conventional side of the business, Canadian Natural's highly successful multilateral heavy crude oil drilling program continues to unlock opportunities on our approximately 3 million net acres of high-quality land throughout our primary heavy oil crude -- crude oil assets. Primary heavy crude oil production averaged 87,705 barrels during the quarter, an increase of 14% from Q3 2024 levels, reflecting strong drilling results on our multilateral wells. Operating costs in our primary heavy oil crude oil operations averaged $16.46 per barrel in Q3, a decrease of 12% from Q3 of 2024, primarily reflecting higher production volumes and the increasing proportion of lower operating costs for multilateral production. Pelican Lake production averaged approximately 42,100 barrels per day, a decrease of 7% from Q3 of '24, reflecting planned maintenance that took place in Q3 of '25 and the low nature of field declines from this long-life, low-decline asset. While operating costs at Pelican averaged $9 per barrel in the quarter. North American light crude oil and natural gas production averaged 180,100 barrels per day during the quarter, an increase of 69% or approximately 74,000 barrels per day from Q3 of '24, primarily reflecting production volumes from the acquisition of the liquid-rich Duvernay assets in December of '24 and light crude oil from the Palliser Block assets in Q2 of this year as well as liquid-rich Montney assets in the Grande Prairie area during the third quarter. Operating cost of the company's North American light crude oil and NGLs operations averaged $12.91 per barrel. a decrease of 6% from Q3 '24, primarily reflecting higher production volumes. On the natural gas side, North American production averaged approximately 2.66 Bcf for the quarter, an increase of 30% from Q3 2024 levels, primarily reflecting the Duvernay and Montney acquisitions and strong drilling results in our liquids-rich natural gas assets. North American natural gas operating costs averaged $1.14 per Mcf in Q3, a decrease of 7% from Q3 of '24 levels of $1.23 per Mcf, reflecting higher production volumes and cost efficiencies. Our unique and diverse asset base provides us with a competitive advantage. We allocate capital to the highest return projects without being reliant on any one commodity. Our consistent and top-tier results are driven by safe and reliable operations. Our commitment to continuous improvement is supported by a strong team culture in all areas of our company that focus on improving our cost, driving execution of growth opportunities and increasing value to shareholders. Now I will turn it over to Victor for our third quarter financial review. Victor Darel: Thanks, Scott, and good morning, everyone. In the third quarter of 2025, we achieved several production records as a result of strong operational performance and the accretive acquisition over the past year, contributing to the strong results this quarter. Our teams demonstrated excellent execution, evidenced through our strong operating cost performance in the [indiscernible] Our results, including strategic acquisitions completed in the last 12 months supported strong quarterly adjusted funds flow of approximately $3.9 billion and adjusted net earnings of $1.8 billion. Returns to shareholders in the quarter were $1.5 billion, including $1.2 billion of dividends and $300 million of share repurchase. Dividend payments and share repurchases in 2025 up to and including November 5, bring total year-to-date shareholder returns to approximately $6.2 billion and contributing significant production growth per share in 2025, targeted at 16% compared to 2024, demonstrating very significant value creation this year. As a reminder, Canadian Natural has increased its dividend for 25 consecutive years with a CAGR of 21%, a truly impressive track record that is unique amongst our peer group. Subsequent to quarter end, the Board has approved a quarterly dividend of $0.5875 per common share, payable on January 6, 2026, to shareholders of record at the close of business on December 12, 2025. Our balance sheet remains strong with quarter end debt-to-EBITDA of 0.9x and debt to book capital coming in at 29.8%. Quarter end liquidity was also strong at over $4.3 billion, reflecting undrawn revolving bank facilities and cash on hand at period end. Additionally, during Q3, the company repaid USD 600 million of U.S. dollar debt securities and received a new long-term investment-grade credit rating of BBB+ from Fitch Ratings. Our third quarter results reflect the impact of accretive acquisitions, which have immediately contributed to incremental production and additional free cash flow generation. Our robust quarterly funds flow and strong balance sheet demonstrates our industry-leading cost structure, large reserve base of high-quality, long-life, low-decline assets and our commitment to continuous improvement and reliable execution. These factors, along with the company's track record of delivering strong shareholder returns, support significant long-term value creation for Canadian Natural and our shareholders. With that, I'll turn it back to you, Scott. Scott Stauth: Thanks, Victor. In summary, here at Canadian Natural, our culture of continuous improvement and ownership alignment with shareholders drives our teams to create significant value across all of the areas of the company. Once again, we achieved record production levels, strong financial results through our effective and efficient operations, driving strong returns on capital and value creation for our shareholders. Lastly, just a reminder that we will be hosting our Open House tomorrow morning started at 8:30 Eastern Standard Time, where we will go over our strategy, unparalleled dependent, provide details on our assets and value creation opportunities. You're also invited to listen to the management presentation and view the presentation slides via webcast. You can look to our website for further details. With that, I'll turn it over for questions. Operator: [Operator Instructions] Your first question comes from Dennis Fong of CIBC World Markets. Dennis Fong: The first one is related to your recent closing of the asset swap for the Albian mine. Now that you control 2 mining assets in very close proximity to each other, can you talk to some of the potential upside or opportunities that exist? I know you've already addressed consolidating inventory and lowering kind of spare parts required in kind of various store rooms. But can you talk towards maybe operational benefits beyond that, again, given the proximity of the 2 assets? Scott Stauth: Yes. Thanks, Dennis. And in addition to what you had mentioned, there's also the utilization of equipment. So that would include the large haul trucks and the support equipment such as dozers, graders and other assets that -- of that nature. But Dennis, I would suggest that it would be worthwhile for listening for more details tomorrow to run an open house, and we can get into some more detail in terms of the cost savings that we are working on and working to achieve there. So I think that's probably the best way to explain it is to be a part of our open house tomorrow. Dennis Fong: Perfect. I'll have to wait and see, I guess, on that basis. I suspect the second question may have a similar answer. But I mean, given the continued development and the tie-in of the wells at Pike, I was just kind of looking through and it seems like Grouse in close proximity to your Kirby assets has a similar, I guess, opportunity there. Can you maybe outline maybe some of the efficiencies that you could see via developing kind of proximal resource to your 2 other central processing facilities? Scott Stauth: Yes. For sure, Dennis. And I think you were banging on me to suggest that it's probably going to be a similar answer. For sure, we'll walk you through tomorrow the assets that are adjacent to the -- adjacent Jackfish and Kirby assets. So we'll be able to give you a good rundown tomorrow of how we would look at development plans given the opportunities that are presented in those areas. So looking forward to that discussion tomorrow. Operator: Your next question comes from Manav Gupta of UBS. Manav Gupta: Congrats on a very strong quarter again. I wanted to ask you about an announcement yesterday from Energy Transfer that they are looking to FID the South Illinois Connector Pipeline, getting -- looking to get more Canadian crude into Illinois and to Gulf Coast. And I just wanted to understand, would you be open to participating in any such project or any other major projects out there, which give you more incremental egress capacity towards the Mid-Con or the Gulf Coast refiners where your crude is highly valued? Scott Stauth: Yes. Thanks for the question. And certainly, we review those opportunities for egress when tabled. And I can just tell you that there are a number of opportunities, whether it be Enbridge, TMX or others, we're certainly going to look at those and to see if we would participate in volumes commitments on those or otherwise. But the good news is for the basin and the egress opportunities that companies have been talking about bode very well for strong differentials. And ultimately, that's the most important part of the aspect, whether your barrels are locked up or whether they're sold in the Hardisty Edmonton area, it's a positive for Canadian crude. So looking forward to those opportunities as they come about, and we'll see where that goes. Operator: Your next question comes from Doug Leggate of Wolfe Research. Carlos Andres E. Escalante: This is Carlos actually on for Doug, who, by the way, is on his way to your Analyst Day. So he sends his apologies. But just to be real quick with this in respectful of my peers' time. Number one, I wonder what your perception is today of the need to further consolidate West Canada gas in the context of weak AECO pricing and despite the ramp in LNG, perhaps similar to how your U.S. peers have been doing in the recent past. Scott Stauth: Yes, it's a good question. You don't have to apologize for Doug. That's good to see that he'll show up tomorrow. We're looking forward to those discussions. In terms of consolidation, certainly, we're seeing some of that evolve. I think the most important thing to the basin is maybe a certain degree of consolidation. But the most important thing is egress opportunities. So the more gas that we can move out of the basin, the better the LNG projects that are online now, LNG Canada and others that are coming on in the future are very much needed for the basin to fully unlock the potential. So in spite of whatever M&A activity that may be going on in the basin, we look forward to more egress because ultimately, that's what the basin requires. Carlos Andres E. Escalante: Appreciate that. And just a real quick housekeeping item. It looks like your Palliser and Duvernay might have contributed to your sequential oil production growth. Just wonder if you could share if that is the case? And if so, how does it set you up for your growth outlook into first half of '26? Scott Stauth: Yes. Certainly, both of those areas will be part of our budgeting activities for next year. We've got strong production growth in the Duvernay and having taken over the assets earlier this year in the Palliser Block, we continue the capital allocation towards going light oil wells in that area, and it will be a part of our program for next year as well. Operator: Your next question comes from Greg Pardy of RBC Capital Markets. Greg Pardy: And Scott, I'll apologize because I won't be here in person tomorrow, which is probably the first time in 20-something years. But in any event, I'll have a go at you maybe ahead of tomorrow. What's your thinking now? I mean, we've had a new federal government in place for a little bit of time now. There's been a lot more dialogue with the industry. Just curious, any broad strokes on progress on things like pathways, how much easier is it maybe now to work with the federal government? Is this sort of a cautious approach? Just interested in any broad strokes there that you might have. Scott Stauth: Well, we'll miss you tomorrow there, Greg, but I do appreciate your question there today. And certainly, we're seeing more positive signs than we've seen in the past under previous leadership. So we like the discussions that are going on, Greg. But as always, there's lots of details to work through in terms of carbon competitiveness. That's going to be key to understand the impacts that may come out of that level of discussion. The details at this point are not well understood, and we'll certainly be very anxious to work with the government and the government of Alberta to make sure that we've got a collaborative way to move forward to address the needs for pathways and certainly for future growth opportunities to, again, unlock additional value out of the basin, whether it be oil sands or conventional, more egress is needed on both gas and oil. And so the more that we can do collectively working together with the government to help promote that growth, increase the jobs in Canada, increase, of course, taxes and royalties. Certainly, everyone is aware on this call, the importance of the industry for the GDP of Canada. So I think it's really important to continue on these discussions. Good to see what we have seen so far, but we want to get into the detailed discussions, Greg, and make sure we truly understand what carbon competitive actually means. And until we get those details, it's a little bit early to say exactly how things will unfold, but we are encouraged by the engagement. Greg Pardy: Okay. Okay. Terrific. No, I think that's probably as much as you can say right now. And as you say, there's a lot more water that needs to flow into the bridge. Maybe I'll pivot just on a specific question that came in from one investor, which was just around the potential acceleration of the T-Block decommissioning. So if we look at your financing cost in 3Q, significantly lower. I know some of that had to do with PRT and so forth. The abandonment expenditures tend to be a fairly large number. I'm just trying to get, even though you may not want to talk too much about '26 CapEx and so forth, maybe I just want to get a sense maybe from Victor as to what the implications there could be and to the extent you can quantify it, that would -- or even roughly quantify it, that would be super helpful. Victor Darel: Just in terms of the impacts on the '26 capital budget, is that the question effectively, Greg? Greg Pardy: Yes. I mean -- so Victor, like if I look at what, '25, I think it was like, what, $756 million, a good chunk of that, I know, is North Sea and then there's PRT in there and you get cash recoveries. But I'm just trying to understand, should we be directionally thinking about a bigger number than, say, $750 million next year if you decide to accelerate? Or would this all kind of come out in the wash? Victor Darel: Yes. The way I would look at it, Greg, is that 2025 coming into 2026, the expenditure levels do go up modestly in '26 overall. That would be the target. But we're working through that still and we're trying to plan for our 2026 budget. Overall, when you look at the next 5-year period, you do have to remember that the tax recoveries on that expenditure, they're actually weighted to the first 5 years. So the net increase after tax recovery is fairly modest. We'll see about a 75% tax recovery on next 5 years expenditure. Operator: Your next question comes from Menno Hulshof of TD Cowen. Menno Hulshof: I'll just put -- I'm just going to put a very short-term lens on things. And for my first question, now that we're halfway through the fourth quarter, give or take, how would you describe the operational setup into the end of the year? And are there any assets that you would flag as having outperformed or underperformed quarter-to-date? Scott Stauth: Yes, it's a good question. at this point in the quarter, all assets are performing as expected. Optimization utilization looks very strong and continuance from what we've seen over the past couple of quarters here from that perspective of utilization. So nothing really to highlight there. Just the assets are performing as we would expect them to perform. Menno Hulshof: Terrific. And then you may or may not want to answer this one because it might cannibalize tomorrow a little bit. But second question is on maintenance. Maybe you could just remind us of which assets are scheduled for turnaround in 2026. Presumably, Horizon is one of them, but what are the others? And how large are these turnarounds expected to be? Scott Stauth: Yes. Horizon would certainly be the most significant likely in the third quarter of next year. So outside of that, it would be our normal routine ones that we'd see every one facility, once like every 5 years, our thermal facilities go in for a turnaround. So there'll be one next year as well. So nothing too significant and nothing stands out. The only real difference from '25 to '26 would be Horizon. Menno Hulshof: Terrific. I appreciate the confirmation. Operator: Your next question comes from Alexa Petrick of Goldman Sachs. Alexa Petrick: Following the close of several accretive acquisitions, we were curious, what are your updated thoughts on M&A? And then can you provide any broader commentary around your capital allocation strategy, balancing dividend growth with share repurchases and potential for further M&A? Scott Stauth: Yes. Not a lot to comment, Alexa, on the M&A activity. Certainly, you made a reference to some recent acquisitions that were opportunistic for us. As you probably are aware, we do look at a lot of opportunities of M&A. We execute on very few, but we certainly look at the ones that seem to be most accretive to our operations and generally in close proximity to our core areas. So I think that in terms of our allocation, no significant changes there. It's -- the allocation policy is pretty straightforward. We don't have any plans to change that relative to M&A activity or not. Alexa Petrick: Okay. That's helpful. And then maybe just as a follow-up, if we could dig a little more into kind of your macro outlook, how are you thinking about light heavy differentials from here, particularly as we see OPEC add barrels into the market? And then any views on mid-cycle differentials and some of the assumptions embedded in that? Scott Stauth: I think we expect to see, Alexa, the differentials to be -- stay in that range of the $10 to $13 a barrel, and then it will go up and down depending on Turner activities in the refineries in the United States. So I don't really see any of that changes changing in the near term. And as long as we have strong egress out of Western Canada, those differentials will remain in that range. And so there's still some spot capacity on the TMX system, which is very supportive for pricing. We're seeing a strong demand out of Asia for Canadian heavy crude. That's also very supportive. And we like what we've seen. Essentially, TMX has stabilized the entire Western market here. So that's how I would summarize it up for you. Operator: There are no further questions at this time. I would hand over the call to Lance Casson for closing remarks. Please go ahead. Lance Casson: Thank you, operator. Thanks, everyone, for joining our call this morning. We look forward to seeing you all tomorrow at our Investor Open House or on the webcast. If you have any questions, please do call. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome, everyone, to BT Group's results presentation for the half year ended 30th of September 2025. Presenting today is Allison Kirkby, BT Group's Chief Executive; and Simon Lowth, BT Group's CFO. Following the presentation, we'll be having a Q&A session. I would like to make everyone aware that this event is being recorded for replay purposes. Before we start, I'd like to draw your attention to the usual forward-looking statements in our press release and our latest annual report for examples of the factors that could cause actual results to differ from any forward-looking statements we may make. Both the press release and the annual report can be found on our website. With that, I'll now hand over to Allison. Allison Kirkby: Hi. Good morning, everyone, and welcome, and thank you for joining us for our half year results. In terms of the presentation this morning, I'm going to start by setting out the progress we've made against our strategic priorities so far this year. Simon will update on the financials, and then we very much look forward to taking your questions after a quick recap from myself. So in summary, it's been another period of solid delivery despite the competitive markets we operate in, with very clear progress in the U.K., while we've also worked hard to manage headwinds from our accelerated migration away from legacy voice products and in our international markets. Let me begin with some highlights. Our leadership in fiber, 5G and secure networking has strengthened further since the start of the year. Openreach achieved another set of records on full fiber build and again on take-up with even better efficiency. Consumer gained customers in all its key segments, broadband, mobile and TV and grew its number of converged households. Business is showing a stabilizing financial performance for the first time in many years, and we continue to press ahead with our GBP 3 billion transformation program, offsetting some of the cost headwinds we are facing, including the higher labor-related costs incurred since the beginning of this tax year. In addition, we have agreed or completed 4 targeted disposals outside of the U.K. and having carved that out with dedicated leadership, we are accelerating the reshaping of our international business. As a result, we are today reconfirming all of our guidance metrics for the year and beyond, including our target of GBP 2 billion in normalized free cash flow for next year and GBP 3 billion in fiscal year '30, and our interim dividend is rising 2%. As you will recall and as I set out in May, our ambition is to become the U.K.'s most trusted connector of people, business and society, guided by our purpose to connect for good. Our strategy focuses on 3 things: building the best, most trusted digital networks, connecting customers so that they thrive as we grow in a digital world and accelerating our modernization to restore leadership in everything we do. By the end of the decade, this strategy will have delivered for all of us, including meeting our financial commitments of service revenue growth, EBITDA growth ahead of revenue and a doubling of this year's normalized free cash flow. So how are we doing so far this year? Well, I'm pleased that we continue to deliver on the key levers that will realize our short, medium and long-term ambitions, specifically a focus on the U.K., building the U.K.'s only nationwide digital backbone, a growing customer base as a result of a much improved customer and product experience, all enabled by a radically simpler and better BT. On build, our nationwide reach expanded further. The Openreach team hit a new record of 2.2 million homes passed. On mobile, we won best network with RootMetrics for the 12th year in a row, and we lifted our 5G+ coverage by 23 percentage points to reach 66% of the U.K.'s population. And today, we're announcing a new landmark agreement with Starlink so we can offer the best broadband connectivity in the hardest places to reach in our country. On Connect, we connected a record 1.1 million Openreach customers to full fiber, and we've again lifted our market-leading take-up rate, which is now at 38%. Our consumer customer base grew again with customer growth in broadband for a third quarter in a row and further growth in both mobile and TV. Our decision to adopt a multi-brand strategy is clearly paying off, allowing us to reach more market segments without diluting our premium position. Customer satisfaction also rose again with growth in converged homes too, building customer loyalty and over time, lifetime value. And our sales orders in business grew with clear demand coming from British businesses for more secure and more resilient networking solutions. And finally, on Accelerate, our cost transformation is allowing us to offset margin pressures as they arise and still grow our EBITDA, and there is much more to come. We've achieved GBP 1.2 billion in annualized cost savings in the first 18 months of our 5-year program with particularly solid progress in our networks and digital units during this first half of this year. We have exited businesses outside the U.K. that do not fit with International's mission to serve only multinational companies. And in international, now that it is carved out, we have clearer and more accelerated plans to simplify our product portfolio and reshape our office footprint. Finally, we are continuing to carefully migrate customers off the PSTN ahead of closure in January '27, investing to support the elderly and the vulnerable in particular, and we're leading in safety with the launch of our Safer SIMs product for children as we build the best, most trusted networks for families. On the next slide, it's worth stepping back to look at the longer-term achievement of our Openreach and our networks teams. We are the only operator building fiber at scale with nationwide reach. And we are well on track to achieve our target build of 25 million premises passed by December '26, so just over a year from now, with an ambition to reach 30 million by fiscal year '30, assuming a stable and pro-investment environment. And we remain on course, therefore, to earn good returns for our shareholders and to create one of Europe's most attractive fiber infrastructure assets, whether in a competitive market or one regulated under Ofcom's fair bet. Why is that? Well, returns in network businesses depend on building at the right price and quality with the best take-up and a reasonable cost of capital. We compare very well on all 4 of those metrics, and we continue to build within the cost ranges we aimed for at the beginning despite the inflation we saw during the period with excellent quality and resilience. On mobile, we have a growing 5G connected base with now 89% population coverage, 66% 5G+, which is our name for 5G stand-alone coverage, and we're well on track to reach 99% 5G+ coverage by fiscal year '30, almost 4 years ahead of the other networks. We are clearly super proud of the network credentials we've built over the last 12 years and before that. But I can assure you, we are not resting on our laurels and are always working on ways to improve customer experience, including now the deployment of the millimeter wave spectrum we purchased in mid-October for high-density locations and in reapplying what we learned from uniquely running the emergency services network into building the most trusted and resilient network experience for everyone. Moving on to each of our customer-facing units. And in turn, let's start with Openreach. As I've said, we continue to build full fiber at pace and now pass over 20 million premises, of which we had already connected 7.9 million at the end of last week. Broadband line losses were 242,000 in the quarter, similar to Q4 last year and in line with what we expected. Within that, we estimate that the broadband market remains either flat to slightly down as new homebuilding is still running around 100,000 a year below what the government's target was. Meanwhile, competitor losses for Openreach are a little changed half-on-half, but with a tilt towards wholesale operators rather than retail where we're seeing some declines. Quarter-to-quarter, there's always going to be some natural variability based on competitor build and promotions and the orders that we have coming into the quarter. But the guidance we gave in May of last year's second half run rate continuing for the full year remains unchanged. But I do want to point out, and it's worth saying that October has progressed well. After quarter end, we launched new offers to stimulate fiber migration, which our CPs have welcomed, and we made good progress to be ready to launch XGS-PON next year. In our operations, our repair volumes decreased 13% year-on-year due to the shift to full fiber, and we reduced our headcount by 11% year-on-year as we upgrade our network and transform our operations and as we ensure we've got the right resourcing for when the fiber build steps down during next year. Thanks to the strong demand for our fiber and the impressive build and connect progress made by our Openreach team, we're maintaining steady revenues with ARPU growth of 4%, offsetting line losses and good growth still in Ethernet revenues of 5%, and we're delivering continued EBITDA growth. Moving to Consumer. Our strategy is clear. Having invested in and built the U.K.'s only nationwide networks, we intend to get back to sustainable service revenue growth. This starts with having a growing customer base by leveraging convergence, our breadth of household relationships and all 3 brands to ensure we compete carefully on value, not just price. So it's good to report that our consumer business is continuing to win customers in the first half of this year despite the competitive pressures. Convergence, multi-SIM household tariffs and leveraging all 3 of our iconic retail brands has helped us grow the broadband base for a third consecutive quarter, our mobile base for a second consecutive quarter and our TV base for the fifth quarter in a row. We are achieving excellent levels of fiber take-up with almost half of our broadband base now on full fiber. Broadband continues to grow in our mobile base, and so our converged customers have grown to almost 26% of all broadband and mobile customers, which is up almost 3 points in the last year. And we're seeing a steep increase in customers moving on to EE One, our main convergence offer. All of this, plus our renewed focus on customer experience has helped improve customer satisfaction, which was flat or up in all 3 brands in the last 6 months, resulting in stable churn rates at relatively low levels across mobile and broadband. While the customer base grew, service revenue was basically stable, excluding a 1% drag from legacy voice. Admittedly, there has been some ARPU pressure, but this is mainly a result of coming off the high price rises over the last few years into a more competitive market. As inflation stabilizes and we move towards pounds and pence, this sawtooth effect should dissipate. And the equipment sales market has been slower, too, as consumers now keep their handsets for 48 months, hence, why total revenue was also down in the period. But we're now seeing excellent performance by EE on recent new device launches. At EBITDA, we were able to offset almost all the lower revenue and the higher input costs from Openreach with disciplined cost control. Additional headwinds from the rise in national insurance and national living wage, combined with the ongoing transition to digital voice accounted for over 2/3 of our EBITDA decline. But with the progress made in the first half and the run rate we're now seeing, we remain confident that Consumer will, as it did last year, return to year-on-year service revenue and EBITDA growth in the second half as a result of the levers I just mentioned, customer experience, convergence and our multi-brand strategy. Moving to business now on Slide 10. As you well know, since the start of the fiscal year, we've focused business now on the U.K., improving our ability to develop and deliver the best products and services for U.K.-based companies across the private and public sectors. The levers to growth and transformation remain the same, simplifying our product portfolio, migrating customers off legacy systems and products and radically improving customer journeys and satisfaction on the back of digitalization of our processes and our journeys and through secure and resilient by design products. Our delivery in corporate and public sector improved with sales orders up 16% year-on-year, including new business in the industrial sector. In broadband, we increased our fiber connections by over 40% and our 5G connections by over 30%. Net NPS also improved. Our modernization agenda continued with another 10 products retired in the half year, taking us below 200 products, down by 1/3 in just 2 years and units on legacy networks fell by almost 40%, a nearly GBP 0.5 million reduction. Clearly, it's still early days for John and the team in business, but I am pleased that in the half, the financial performance was more stable, especially considering the drag from legacy voice is still sizable. We have a robust pipeline in corporate and public sector and have launched new offers for smaller businesses, reinforcing our most trusted status including last week's Cyber Defense exclusive with CrowdStrike and our announcement just yesterday to place business experts in all of our high-street stores. I'm confident that BT Business is at the start of its long-awaited turnaround. Moving on to transformation on Slide 11. We're making solid progress against our transformation agenda. This includes GBP 247 million of run rate savings delivered in the past 6 months, taking us to GBP 1.2 billion achieved in the first 18 months of our 5-year program. We continue to drive most of the cost savings from four key programs: shutting down legacy networks, simplifying our products, scaling the use of fewer shared platforms and deepening our data and AI capabilities. With respect to what happened in H1, while we migrated over 1 million customers away from legacy networks, we reduced our energy consumption by 54 gigawatt hours or 5% year-on-year. We cut the number of applications we use by nearly 20%. And as a result of all of these initiatives, our total labor resource dropped by 5,000 in the half across all divisions. Now with the arrival of our new Chief Digital Officer, Peter Leukert, on the 1st of September, I know that we will build further on this progress. No pressure, Peter. But part of this will be to ensure we take full advantage of the capabilities of AI, where we see significant potential, particularly in better and more efficient customer care, higher, more personalized marketing velocity and greater efficiency across all areas of our corporate functions, including the Investor Relations function. Now turning to the transformation of international. We have successfully agreed or completed our targeted disposals. This is the end of a loan process that began back in 2019, but which had paused in recent years. From 1st of July, international has been carved out, giving it much greater strategic focus and clarity to become the global leader in secure multi-cloud connectivity anchored by next-generation platforms, Global Fabric and Global Voice. There is naturally a transition period between moving from the existing MPLS-based services, to the new Global Fabric network. But having carved the unit out, we're now accelerating our plans to reshape it, including a reduction in the number of office locations and in radically simplifying the product and service set. This will help deliver EBITDA growth from next year and ensure that in the midterm, international is no longer a drag on group cash flow, allowing for clearer optionality for future partnerships, which we still believe are possible. With that, let me now hand you over to Simon, who will talk you through the financials in some greater detail. Over to you, Simon. Simon Lowth: Allison, thank you very much indeed. So I will take you through our group level results before then explaining the performance of our customer-facing units in more detail. First half U.K. service revenues was GBP 7.7 billion. That's down 1%. Now this was driven principally by a reduction in legacy voice revenues of about GBP 100 million. Price pressure in retail fixed and mobile was largely offset by growth in our retail connectivity bases and Openreach revenue. First half total adjusted revenue fell by 3% to GBP 9.8 billion, in addition to the lower U.K. service revenue, this was driven by lower sales of U.K. equipment, particularly mobile handsets and by lower international revenues. We reduced our operating costs by 3% and due to the strong progress of our cost transformation programs, supported by tight expenditure controls. And as a result, adjusted EBITDA in the period was flat at GBP 4.1 billion. Adjusted EBITDA in our U.K. businesses, excluding the international unit, that increased by 0.5%. Reported CapEx increased by 8% or GBP 171 million to GBP 2.4 billion. That was driven by a higher FTTP build and provision in Openreach as we ramp up our build to 5 million premises this year and then drive take-up of our fast-expanding FTTP footprint. Openreach has continued to drive efficiencies in its unit cost to build and provision through engineering innovation and dynamic management of the supply chain. Our build and provision costs have consistently been within the ranges we've set despite the significant inflation over recent years. Cash CapEx was slightly higher than reported CapEx due to the timing of capital creditor payments and about GBP 60 million worth of grant funding gain share. Normalized free cash flow was in line with our plan at GBP 408 million. This was GBP 300 million lower than last year due in largely equal measure to higher cash CapEx, the prior year tax refund and reduced working capital funding due to lower handset volumes. We remain confident of our outlook for GBP 1.5 billion normalized cash flow in the full year. As Allison just announced, our interim dividend is up 2% year-on-year to 2.45p per share, in line with our policy of paying 30% of the prior year's full year dividend. The IAS 19 pension deficit fell to GBP 3.8 billion from GBP 4.1 billion at the FY '25 year-end. Scheduled contributions of just under GBP 800 million were offset by a decrease in credit spreads. The IAS 19 deficit does not drive our cash contributions. These are determined by the actuarial valuation, which will be determined at the triennial review next year. Moving now to performance of the customer-facing units. Openreach revenue was flat year-on-year at GBP 3.1 billion, inflation-linked price rises and the increasing FTTP mix in broadband were offset by the lower broadband customer base. Openreach EBITDA again grew ahead of revenue, up 4% to GBP 2.1 billion. We continue to reduce our operating costs through a combination of labor efficiencies and lower repair and energy volumes as we transition to FTTP, offset by inflation in pay and noncommodity energy costs. Consumer service revenue was down 1%, and that's the same as last year to GBP 3.9 billion. ARPU declined, reflecting the higher prior year comparator and competitive markets, combined with reduced legacy voice revenues as we migrate off the PSTN were only partially offset by the stabilizing broadband base, growing mobile base and increased FTTP mix within broadband. That's now up to 45% of the base. We will continue to compete to defend and where we see value, grow our customer base, and we will protect and grow our margins through cost transformation. Consumer total revenue declined by 3% to GBP 4.7 billion due to the service revenue and reduced sales volumes in the mobile handset market as customers retain their devices for longer and with many of our own customers already on 3-year Flex Pay contracts. Consumer EBITDA fell by 4% to GBP 1.3 billion. Our transformation programs and our tight cost controls successfully mitigated most of the gross margin pressure from reduced revenues and the higher Openreach input costs. However, as Allison said, we were impacted by the significant increases in national insurance and the national living wage and by some additional costs incurred in the accelerated migrations to digital voice. These headwinds will be progressively offset with cost reduction. And in the case of the digital voice migration, will end with the closure of the PSTN as we move into FY '28. Business service revenue was GBP 2.4 billion. That's down 1% driven principally by lower voice revenues as we migrate off legacy voice to voice over IP. Service revenues in connectivity, secure networking and Managed Services were broadly flat with some growth in SMB and wholesale, offsetting a decline in CPS. Business total revenue fell by 2% to GBP 2.6 billion with lower equipment sales adding to the service revenue decline. Business EBITDA was down 1% to GBP 647 million, with the impact of lower revenues, partially offset by cost transformation and the benefits of cost phasing, which reversed in the second half of this year. International revenues were GBP 1.1 billion. Revenue declines in businesses whose sales either been agreed or completed accounted for about 4 percentage points of the 9% fall and adverse foreign exchange accounted for a further 1 percentage point. The remainder was driven by legacy product declines on the renewal of several managed services contracts. International EBITDA declined 27% to GBP 66 million due to the lower revenues, cost inflation and the increased investment in Global Fabric, all offset partially by transformation programs and tight cost control. As Allison has said, we're accelerating our restructuring and our cost transformation programs in international to ensure that the business moves rapidly to generate positive cash flow. We expect to complete all of the announced divestments within International before the end of this financial year. We don't anticipate these divestments will have a major impact on EBITDA and normalized cash flow in either FY '26 or FY '27. While the divestments will have some impact on total revenues in FY '27 and beyond, which we will share when all disposals are complete, there will clearly be no impact on our U.K. service revenue. And with that, I'll hand back to Allison to conclude. Allison Kirkby: Thank you, Simon. So as I said earlier, we're reconfirming the fiscal year '26 outlook, which we gave in May of revenue around GBP 20 billion, U.K. service revenue of between GBP 15.3 billion to GBP 15.6 billion, adjusted EBITDA between GBP 8.2 billion and GBP 8.3 billion, CapEx at GBP 5 billion and normalized free cash flow of around GBP 1.5 billion. And we expect, as last year, that revenues in the second half of this financial year will be slightly stronger than the first half. Our outlook beyond fiscal year '26 remains unchanged for all metrics and in all years, and we're confidently progressing towards our BBB+ credit rating target. So to conclude, our ambition to create the U.K.'s most trusted connector of people, business and society is on track. The pace in Openreach is exceptional. We are winning customers and consumer across all key segments. Business is showing greater stability in the U.K. as we reshape our international operations, and we are diligently addressing our cost base quarter-on-quarter, year-on-year. Of course, there's still a huge amount to do to accelerate our transformation, keep differentiating our brands and propositions and to improve our delivery for all our customers, but we have the team and we have the plan to succeed and to create a better BT for all. So thanks for listening. We'll now move to Q&A, which will be audio only, and please we only have just over 30 minutes if you can try to keep it to 1 question each, that will leave time for everyone. First question, please. Operator: [Operator Instructions] Our first question comes from the line of David Wright from BofA. David Wright: So my question is just around consumer. Just trying to understand how you are managing to grow that customer base without obvious excessive, let's say, ARPU pressure in what is a very competitive and increasingly competitive environment with, I think it's fair to predict building macro pressures? And underlying that, you have flagged this new drag from voice transition, which is weighing on the EBITDA of consumer, which was definitely a little bit light of our expectation. It looks like that's a trend through calendar '26. Are you able to give us any idea of the voice revenues in absolute terms that we can kick around here, like you used to do with the business, B2B back in the day? That would be super useful. Allison Kirkby: Okay. Thanks, David. I'll kick off and then I'll pass to Simon for some of the final parts of that question. Listen, how are we managing to grow our base and get back to sustainable revenue growth. This is -- our strategy has always been to get back to sustainable service revenue growth. That starts with a growing customer base, which, quite frankly, was in decline for far too long because we weren't properly leveraging all of the tools at hand. So how are we doing it? In a thoughtful, value-focused way is we're leveraging all three of our brands. We weren't doing that before. And that limited our potential, particularly with the Plusnet brand to address the value segment but protect our premium brands of BT and EE. So leveraging all three brands is the first lever that's having an impact. The second lever is convergence. Convergence gives great value for money and locks in customer loyalty and customer lifetime value. And EE is doing a fantastic job at convergence and driving multi-SIM tariffs into the household, which is helping us defend our mobile base against the growing value segment without it being overly all dilutive. And then we are always just improving our customer experience all of the time. So -- but of course, it is a price-competitive market, but we are in markets that customers need. Our markets are flat. We offer great value for money. It's becoming better all of the time because of the migration to fiber, the migration to 5G and us offering better converged services, whether it be a great new flexible TV product or multi-SIM tariffs on the back of the EE proposition, and that's how we're managing all of it. From an ARPU point of view, if you strip out the voice that was bundled into some of our broadband packages, we're actually seeing underlying broadband ARPU going up slightly. And mobile, as I said, some of it is because of coming off of the high price rises of a couple of years ago, but a slight shift into SIM-only and those multi-SIM tariffs in the household puts a little bit of pressure on ARPU, but we're holding up well. But as I said, our strategy has always been to get back to sustainable service revenue growth, and that starts with our customers. In terms of the drag from voice, I called it out as 1%. We've really started ramping up our migrations now. And we're actually investing in that to do it in a thoughtful way, particularly for vulnerable and elderly customers. That's why you see a little bit in the OpEx line in the period. But that goes away as of January '27. So it's a short-term headwind. I don't know whether we've not put any numbers on it, Simon, but do you want to comment? Simon Lowth: No. I mean I think David, what I described was about GBP 100 million total impact of legacy voice to our revenues in the first half of the year, and that comes from consumer sort of Solus voice customers and voice plans on top of broadband. It comes from the traditional voice and business. And also, of course, there is some external Solus voice lines in Openreach. That's the GBP 100 million. And I think as we close down the PSTN, you can see that we're going to face that sort of drag over the next 18 months as we move through to closure of the PSTN. In terms of the consumer share of it, I mean, you can, I think, figure that out for yourself when you look at the number of Solus WLR lines in Openreach, you can derive that, and you'll know that consumer accounts for much of that. Allison Kirkby: And one of the things I just want to call out, David, is consumer are doing a fantastic job of migrating our broadband customer base to fiber. Almost half of our customer base now is on fiber. So kind of record take-up, and that's just making those customers even more loyal. And we're giving them great value for money because it's a great product. Operator: Our next question comes from James Ratzer from New Street Research. James Ratzer: So hard to keep it to one question, but I will try. So Allison, in your remarks talking about kind of Openreach line losses, you were calling out to kind of change in the balance you're seeing between retail alt-net losses may be improving a little bit, but at the same time, now wholesale migration increasing a little bit. And so there's always the chance that could get a little bit worse if the alt-net sector finally can consolidate at some point. So I suppose really where I'm going with this is, do you think FY '26 marks peak line losses for Openreach? Or do you think actually things could get slightly worse in FY '27? Allison Kirkby: So listen, James, we are doing 4 things, and then there's a fixed lever that we fundamentally believe will defend our base and reduce the line loss pressure over time. The first thing is we are the only real builder at scale and pace in the country now. We're the only one building nationwide. And what -- based on the estimates that we see, we reckon alt-net build is down by at least 40% year-on-year. And we are accelerating our build every quarter, every half on the way to 25 million by the end of next year. And when we've got to that 25 million, that basically means we have overbuilt all of our original VDSL network by full fiber. Take-up, just as we are building at pace, we're provisioning at pace. We've now built a provisioning machine that can provision up to 60,000 homes and premises a week. And that is why despite us building at pace, we're also ramping up our take-up rate to market-leading rates every period. The next lever we're pulling is quality. We are building at the highest quality, and we are the most resilient. In storms, we see that we recover faster than others. And the quality of our fiber network is encouraging our CPs to encourage further take-up and there's clearly demand for it, having now converted almost half of BT Retail's consumer business and what we're seeing from our CPs. The fourth lever we then have is how -- since there is demand, the country, the government want take-up. We've put some new migration offers in the market because the demand is there and our CPs want it. And we're encouraging faster migration onto our fiber products. So those 4 levers, we believe, will, in time, reduce the impact that we've had from heightened line losses. And then the fifth lever is the market is going to return to growth at some point. Housebuilding is now as low as it was during COVID. The government has an ambition to grow houses. The country needs it, and that will stimulate growth again. On your comment on the tilt from retail to wholesale, as I mentioned, build is down. The wholesale competition was not unexpected that we've built it into our plans. That's why we're very much sticking to our guidance for the year. That wholesale footprint at the moment doesn't seem to be in growth. It's certainly not growing at the rate we are. A lot of that wholesale footprint is also in very competitive areas where we are competing. And so we also expect that since we are the one building at pace, and we are provisioning at pace, and we've got the highest quality, most resilient product out there that will all benefit us in time. Operator: Our next question comes from the line of Andrew Lee from Goldman Sachs. Andrew Lee: I just had a question on costs and cost efficiencies. I think you called out that you've done a good job in reducing capitalized labor costs. And you've also -- as you laid out, you've done almost half of your 5-year cost plan in 18 months. So I just wanted to ask, is this you picking off low-hanging fruit and a pull forward or phasing thing? Or are you finding new areas of efficiencies versus what you saw when you set out on this cost-cutting program. Just kind of a bit more of an insight in terms of is this just an acceleration and pull forward? Or are you finding greater opportunities to cut costs? And I think you laid out in quite a lot of detail on the call exactly where this is coming from. But if you could maybe pick out some of the incremental areas where you're finding efficiencies, that would be great. Allison Kirkby: Yes. I'll let Simon give you more detail, Andrew. It's not a pull forward. We're just doing an outstanding job, particularly in Openreach and in networks. And there is definitely more upside to come from AI, but maybe you want to take a more fluid answer to that question, Simon? Simon Lowth: No. I mean, I think, Allison, you captured it in that we set out a cost transformation program. We're delivering that cost transformation program to our plan. We're moving, Andrew, possibly a little bit faster. The areas that we're able to drive some acceleration, firstly, I think that in Openreach and in the networks business, we're performing very strongly in terms of driving our build unit productivity. We've done a lot of good work on the supply chain and procurement. And so that's giving us a little bit more upside than we'd anticipated. I'd also say that the structural cost efficiencies, we keep working at that. And each year, we find further opportunities to improve some process efficiencies within our various processes. I think the opportunity that we're still beginning to build into the process and the transformation does come from AI. The sort of tools and capabilities that, that brings is something that we do think over time, brings us further opportunity, and we'll develop that over the coming year or two. Operator: Our next question today comes from Karen Egan from Enders Analysis. Karen Egan: So my question is about the alt-net sector. So given the press reports that a number of alt-nets are for sale and quite a few others appear to be under quite considerable financial distress. Would BT be willing to be the buyer of last resort to prevent assets from being stranded if other buyers can't be found? Allison Kirkby: Okay. Well, our strategy is clearly to build organically our own nationwide networks and make them the most trusted, the most resilient and the highest quality. And that's what our capital allocation is very much focused on, Karen. Of course, when smaller assets become available for sale, we are approached, we take a look. But at this point in time, we're very much focused on delivering on what we promised for our owners when we embarked on this journey so that we give them a good return on investment on the 25 million build that we've already committed to. And -- but as opportunities arise, we'll always take a look if we believe it is an economically good and sensible decision relative to other capital allocation choices. Operator: Our next question comes from Joshua Mills from BNP Paribas. Joshua Mills: I was going to come back to some of the comments you made about the Openreach line losses in the broadband market. And you gave a very clear explanation of the 4 levers you have to pull. I guess the one that's not within your own control is housebuilding, which has been significantly lower than expected. It's below government targets, but governments often missed targets. So my question is, when we look at the overall growth in the U.K. broadband market, which you said was flat to slightly negative, how much lower is that relative to your expectations when you provided midterm guidance last year? And given how much linkage there is between Openreach line losses and overall growth in the U.K. broadband market, is there a point in time when you need to see the U.K. broadband market return to growth in order to hit your financial targets for 2027 and 2030? Or do you believe that those numbers are still achievable even if we see flat to slightly negative growth in U.K. broadband overall? Allison Kirkby: Yes. Great question, Joshua. No, listen, the broadband market is developing in exactly the way we expected it to as we predicted this time last year. We have not banked on a growth in housebuilding into our plans for the next few years. So if there was a sudden surge in housebuilding, that will bring upside to the guidance and the plans that we are investing behind. We're very much -- when we update our plans, we are cautious about assuming for growth, but it will come. The U.K. relative to other European markets still has relatively low fiber take-up penetration based on how we're seeing take-up demand, government support for that, when the housebuilding returns, that will be upside to our current plans. If you go way back in time, we clearly had planned for more housebuilding, but we've offset that with other levers, but it certainly wasn't assumed in the guidance that we gave in May. And Simon, maybe you want to build. Simon Lowth: No, I was going to say that absolutely, when we've set out the financial guidance for the midterm, that was based upon a view of the broadband market that we see before us today. But I think Allison, you're absolutely right, back in sort of the early 2020, '21 when we set out the FTTP investment case, as many of the people on the call recall, we did expect higher growth in the broadband market. However, we have more than offset that through -- in terms of the returns on the business case through lower cost to build and provision, the lower service cost because of the faster take-up and a somewhat higher ARPU mix in terms of speed tiering. The other point I would make is that one of the drivers of the weaker broadband market has obviously been not just we talked a lot about alt-net churn, but also customers who are experiencing today relatively low broadband speeds where we still got copper. And we're taking active steps to address that. You saw the Starlink partnership today. But in addition to that, as we roll out FTTP, we provide faster, more reliable broadband in these communities where we will also, I think, see some abatement in terms of the reduction in the broadband market. So I think that's another positive driver for us. Operator: Our next question comes from Max Findlay from Rothschild & Co. Max Findlay: I just have a couple of questions on consumer. So firstly, and following on from David's earlier question about your net adds performance. I was wondering if you could add more color about front book pricing generally in the market. Have you noticed any change in promotional intensity and front book pricing generally over the past quarter? And do you expect incremental pricing deterioration in broadband given what appears to be the weaker performance of the retail? And secondly, a recent FT article suggested you might reenter the budget mobile market by reintroducing your own budget mobile brand or purchasing an MVNO. Would you be interested in reentering the budget segment so soon after sunsetting Plusnet Mobile? And if so, what has changed for you to consider this strategy switch? Allison Kirkby: Thanks, Max. On your front book pricing question, what you are seeing is competitive pricing on higher speed broadband levels. And we are competing very well with those. So what you're -- as Simon was just talking about, there is real demand for upgrading speeds to households. And so the front book pressure is a little bit more on higher speeds rather than the lower speeds, which is actually positive for market development over time because a higher speed broadband customer, particularly on fiber is going to be less likely to churn over time as well. So that heightened a little bit over the summer, but it's not got any worse in recent periods. And it's that heightened demand for higher speeds and migration to fiber that has meant our CPs, the Openreach CPs are very much welcomed that migration initiative that we put into the market during October. In terms of the alt-nets, some of them that when they originally launched did not put in pricing, inflationary pricing into their contracts. That now exists in a lot of the alt-nets as they try to recover some of the cost pressure that they're under and the revenue pressure that they're under. So I'm not seeing any heightened impact by weaker alt-nets at the moment. And in fact, as I mentioned, what you're seeing in Openreach is this tilt away from retail alt-net line losses to more wholesale. On budget mobile, that was a pure speculative article. EE is doing a fantastic job with convergence and offering the best network in the country for 12 years in a row. And particularly those multi-SIM tariff propositions that are linked to EE One and a solid household relationship is allowing us to compete and defend our base against the value segment because those second, third SIMs in the household were sometimes given to smaller, more value, no-frills types of brands and now EE is picking those up. So our multi-brand strategy and particularly focusing on Plusnet again, was recognizing that the broadband market has a clear value segment that we were not fully exploiting considering the great brand that we have in Plusnet. But we're doing it. We're managing that in a very thoughtful way so that we don't dilute our overall value propositions in the market, but playing to that value segment in broadband. Operator: Our next question comes from Maurice Patrick from Barclays. Maurice Patrick: Yes, a question, please, on taxation and investments, if I can, please. I mean you've been pretty vocal around the sort of taxation and rising costs that BT is facing. You called out around national insurance and minimum wage on the call. You talked about overall taxation impacts on BT in previous conferences. Given the sort of noise around the upcoming budgets and possible tax increases, curious to understand your sort of thinking about how you're thinking about the impact of that could be on your business? And just linked to it, I mean, I think if you've done 2.2 million homes passed in the first half, that's well below the run rate for your 5 million full year. I see the comments from Clive about possibly rolling back on the 30 million target. What's the -- I guess, your excitement level around accelerating fiber rollout whilst you have those uncertainties? Allison Kirkby: Well, I remain excited because our investment into the country's fiber infrastructure and digital backbone is the FTSE's single biggest capital investment over recent years and what I believe is going to be one of the U.K.'s rare infrastructure investment success stories. We have a very constructive and open dialogue with the government on this. They see the value from an economic point of view and a skills point of view of the investment that we're putting into the country. We all recognize the challenges the government are under, but they do and seem to be still very focused on growth, very focused on a pro-investment fiscal and regulatory environment, and our infrastructure investment is a sweet spot for that. I was also delighted to see this morning that they are looking at other international comparisons in other sectors. I think the financial services banking sector was referenced this morning. And that's why with my experience in Scandinavia, I was very keen to call out the scale of government-related costs, whether it be business rates or others that we incur here in the U.K. versus our peers elsewhere to ensure that they have a total view of our position and the risk to their ongoing investment and growth strategy if businesses were again disproportionately impacted by any conclusions coming out of the budget. So -- and that's why we have a great constructive dialogue with the treasury. Simon has a constructive dialogue with the valuation office on business rates, and let's see what happens next. In terms of your other questions, we ramp up the build over the year, and that is still the plan. We are still planning to build up to 5 million homes passed for this fiscal year. There's just phasing by quarter. And we only gave Clive the extra capital towards the end of last fiscal year. And so he's in the process of ramping up. In terms of some of the media coverage this week, as you know, the telecoms access review has not been finalized yet. We have always been clear on what was needed from a competition and an investment and a return point of view to deliver on the first 25 million homes passed, which we'll have reached by the end of next year. In the dialogue and the consultation that we're now having with Ofcom, we are keen that we -- that they retain a pro investment predictable from a regulatory and fiscal policy point of view as they look into the second half of this decade. And until the words are written on the page, clearly, we won't put a commitment to that next 5 million until we understand, will we be able to get a return on that investment similar to what we are getting for this 25 million. So that's why you're seeing that coverage. On that next 5 million, that is really filling out. It's also dependent on further government funding from BDUK because you're getting into some areas of the country that it doesn't make economic sense. Hence, why we got ahead with the Starlink announcement so that we're able to bridge with satellite if we're not able to offer high-speed fiber to some of those homes as well. But it's still our ambition to build to GBP 30 million. We still need to see what Ofcom is going to finalize in the telecoms access review, and we have good constructive dialogue with both Ofcom and with the government on anything that might be coming out in the coming weeks. Operator: Our next question comes from the line of Carl Murdock-Smith from Citi. Carl Murdock-Smith: My question is on intragroup eliminations and consumer. So intragroup eliminations grew by about GBP 30 million in H1, following on from growth last year, too. That's largely due to internal revenue growth in Openreach while external Openreach revenues are shrinking. But looking at consensus, it forecasts revenue eliminations declining next year by about GBP 20 million. Why would that happen? Basically, I'm asking whether consensus is wrong, and therefore, consensus revenue forecasts need to reduce due to larger eliminations. And as a follow-up to that, on the impact of those growing internal revenues in Openreach to downstream financials. I'm asking in the context of consumer EBITDA consensus having decreased every quarter for 6 quarters in a row, and you've missed the consumer EBITDA again today. So my question is, are you consciously prioritizing Openreach financials at the expense of consumer because that's certainly what it looks like. Allison Kirkby: Okay. It is with great pleasure that I will pass the intragroup eliminations questions to Simon, Carl. But let me just before that, just touch on your final question on are we consciously prioritizing. We -- as I said earlier, we have 4 levers for creating value at BT in the coming years. U.K. focus, building the U.K.'s only nationwide network, restoring our retail businesses to growth in a sustainable way with new modern day products and technologies and radically simplifying our business. Consumer has been particularly impacted by the sudden increase in national living wage and national insurance contributions. It's also in the midst of ramping up the migration from PSTN. And those 2 elements we were not able to offset in the first half of this year. But with transformation, which is now ramping up, particularly on the back of AI and other elements, those will dissipate over time. And of course, because I -- we want to get our retail business back to growth, we want to give our customers the best we can in products and services and fiber is one of those, their margin is clearly impacted by the fact that as they migrate to more fiber customers faster than anybody else in the market into a competitive market from a pricing point of view, they have short-term margin pressure from that as well. But it's all a balanced strategy, building the best network and then getting back to growth in our retail businesses. But over time, transformation will offset some of those short-term headwinds and will have EBITDA growing faster than revenue. But now the intra-group eliminations question, Simon. Do you want to build on that as well. Simon Lowth: Well, I think Carl sort of answered your own question, actually, Carl. I mean the -- quite rightly, you identified that the eliminations are predominantly the sales of Openreach access products, broadband and Ethernet into our downstream units, consumer and business. We have seen strong performance on the consumer base, broadband base as we've stabilized. Our business activities have also performed well. So when you've got a strongly performing BT downstream in consumer and business as a percent of Openreach's revenues, the eliminations will typically grow, and that is what you've seen. I don't think I can add more than that at this point. Allison Kirkby: Thanks, Carl. Operator: Our next question comes from the line of Andrew Beale from Arete Research. Andrew Beale: I'm just wondering where you think you can stabilize international post disposals and structural drags from MPLS and voice. I'm guessing it will be a bit below GBP 2 billion in revenue and maybe, I don't know, GBP 100 million annual EBITDA. And if that's in the sort of right ballpark, are you thinking that the next steps of cost rationalization and growing Global Fabric can get you back consistently into double-digit EBITDA margins? And then you can buy your time a bit to do a JV or disposal. Is that the way to think about it? Allison Kirkby: Yes. No, that's a very good way to think about it. We are -- now that we have -- so international is not the same as what was formerly known as global. because there were large aspects of global that were related to U.K. multinationals or the U.K. public sector. And so that's all been carved out. So what you now see for this first time is just the international multinational segment without some of these unique businesses, Italy, Ireland, radiance that we've been selling along the way. Now that we've carved out, we can actually properly see the cost base incurred to support that GBP 2 billion of revenue. And it's out of proportion. And so we now have a very clear plan to restructure that business whilst transitioning it to modern day Global Fabric, global voice products and services. But as we said on the call, we already have a plan to get back to EBITDA growth next year and the drag on cash flow will follow soon afterward. That will be diminished and gone soon afterwards. So GBP 2 billion in revenue, GBP 150 million to GBP 200 million in EBITDA is the minimum EBITDA that, that business should be throwing off once it is a more simplified asset. And as I also said on the call, once we've got it carved out now and we have a clear line of sight of how we modernize it, simplify it and make it less dilutive on cash flow, we still see lots of optionality for future partnerships or even consolidation. Operator: Our final question on today's call is from Nick Lyall from Berenberg. Nicholas Lyall: Just a very quick one on Openreach and the ARPUs, is all of Clive's discounts and promotions filtered through? Is this a sort of steady state now? Or is there a risk that as you try and sort of fight back in the second half of the year versus particularly in the wholesale market? Will we see Openreach ARPU sliding, do you think? I think you're done plus 4%. So what's the risk to Openreach ARPU for the rest of the year, please? Allison Kirkby: Don't really see any risk to Openreach ARPUs as I look forward. The demand for fiber continues. The demand for higher speed fiber continues. CPI is looking to be higher in October this year than it was last year and all our pricing goes through as of April. And those discounts and promotions, they only -- they were only launched in October. They're only just now being taken up, and it's very limited in nature, and it's about migrating existing customers on a copper or VDSL network on to fiber and is encouraging a better quality product that brings with the OpEx benefits as well. So we don't see any risk to ARPUs, Nick. Simon Lowth: Yes, that's it, that we do not. Allison Kirkby: Yes, great. Operator: Thank you. That concludes the Q&A portion of today's call. I'll now hand back over to Allison for some closing comments. Allison Kirkby: Thank you, everybody. As you saw another solid delivery on our strategy. We're making great progress. Really proud of the team that's delivering it and there's much more to come, and I look forward to seeing as many of you as possible in the coming days and weeks. Thank you.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sprout Social Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Alex Kurtz, Vice President of Investor Relations and Corporate Development. Alex, please go ahead. Alex Kurtz: Thank you, and welcome to Sprout Social's Third Quarter 2025 Earnings Call. We will be discussing the results announced in our press release issued after the market close today and have also released an updated investor presentation, which can be found on our website. With me are Sprout Social's CEO, Ryan Barretto; and CFO, Joe Del Preto. Today's call will contain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking. These include, among others, statements concerning our expected future financial performance, including our Q4 and 2025 outlook, and business plans and objectives and can be identified by words such as expect, anticipate, intend, plan, believe, seek, opportunity or will. These statements reflect our views as of today only and should not be relied upon as representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially. For a discussion of the risks and other important factors that could affect our actual results, please refer to our annual report on Form 10-K for the year ended December 31, 2024, as well as our quarterly report on Form 10-Q for the fiscal quarter ended September 30, 2025, to be filed with the SEC. During the call, we will discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. Definitions of these non-GAAP financial measures, along with the reconciliations to the most directly comparable GAAP financial measures are included in our third quarter earnings release, which has been furnished to the SEC and is available on our website at investors.sproutsocial.com. With that, let me turn the call over to Ryan. Ryan? Ryan Barretto: Thank you, Alex, and welcome to our third quarter earnings call for fiscal 2025. Sprout delivered another strong quarter with revenue of $115.6 million, representing 13% year-over-year growth, and non-GAAP operating margin expansion of almost 460 basis points; a record high for Sprout at nearly 12%. Our current remaining performance obligations grew 17% year-over-year to $258.5 million, reflecting consistent demand, strong enterprise execution and the addition of NewsWhip. And we continue to see improvements in gross retention across all customer segments with multiyear contracts now representing nearly half of our contract mix. This is a strong signal of customer commitment to the Sprout platform. Our go-to-market team continued to perform well, delivering 21% growth in our $50,000-plus ARR customer count. This progress was fueled by strong net additions and the inclusion of NewsWhip customers, which has added several of the largest global brands to our customer base. We're incredibly excited about the go-to-market progress we've made with NewsWhip, which has brought our strongest new product pipeline to date. During the quarter, we managed strategic wins with amazing global brands like Xerox, Bentley Motors, Valvoline, NYU, Becton Dickinson, Hallmark and the Royal family. These customers demonstrate our continued success serving the most socially sophisticated enterprise customers. We're pleased with our performance, particularly as demand trends have remained consistent with the first half of the year. Even more encouraging, despite the macro environment remaining unchanged, Q3 was Sprout's strongest non-Q4 quarter for large deals, driven by customer commitments above $200,000 in ARR and excluding any NewsWhip contribution. We also saw sustained pipeline strength with year-over-year growth that underscores continued enterprise demand. Our $50,000-plus ARR cohort continues to be our fastest-growing customer segment and is now approaching 2,000 customers, an increase of nearly 700 over the past 2 years. This cohort now accounts for nearly half of our revenue and revenue grew in the high 20s on a year-over-year trailing 12-month basis. We'll continue with focused investments that enhance our capabilities to serve larger customers and refine our approach to our smaller accounts. Within our enterprise success, two trends stood out. Number one, our platform's breadth, simplicity, scale and ease of use continue to resonate with large enterprise accounts. Our offering is truly differentiated and our strategy is well aligned with sophisticated customer needs. Number two, NewsWhip has energized our sales organization, broadened our conversations with customers and highlighted the differentiated value of social intelligence, a key area of competitive advantage for Sprout. We also saw steady customer expansion driven by seat growth and continued adoption of Influencer Marketing, Premium Analytics, Care, Guardian and now NewsWhip. We're carrying this momentum into what we believe will be a pivotal fourth quarter for Sprout as we begin rolling out the foundation of our long-term AI strategy. We anticipate Q4 will be our most significant quarter yet for AI product expansion and will set the tone for how our products are crafted, designed and positioned moving forward, and how we can unlock an entirely new layer of value for our customers. Before digging into these upcoming releases, I want to provide some context on how Sprout's products and platform were built and what that foundation means in a rapidly evolving landscape. Specifically, I want to share why we believe our advancements in AI strengthen Sprout's moat rather than diminish it and why we believe we're uniquely positioned to thrive in the next era of business software. At Sprout, our founding ethos centers on the extraordinary value of the authentic digital conversations and interactions that shape brands, communities and societies. As AI reshapes software, we're thinking deeply about how our platform and products will evolve and deliver increasing value to customers. When you look ahead, we've returned to our founding belief in social as a cornerstone of business-to-customer relationships. That streamline has guided our strategy to this day, and we believe it will propel our value well into the next era of software. Sprout's advantage in the AI era starts with the data we serve and the trust we've earned. Social data is among the most human, protected and context-rich sources of digital information created by people, governed by a few major networks and largely walled off from broad LLM access. With deep license partnerships and a neutral position across AI ecosystems, we believe Sprout is uniquely positioned to access, interpret and operationalize this data responsibly and at scale. Our platform transforms that data into scalable conversations, actions and intelligence. Customers rely on Sprout as their operating system for social, connecting people, processes and workflows across the enterprise. As AI accelerates, they're looking to us not just for efficiency, but for orchestration, using intelligence to automate decisions, engagement, insight, content and collaboration. If social data is the world's sensory input, Sprout is the nervous system. And we believe our trusted access, domain expertise and enterprise-ready infrastructure make our moat durable and allow us to move faster with greater precision and impact than ever before. We believe that our leadership position, model flexibility, purpose-built infrastructure in UI and network access mean that AI stands to be a tremendous tailwind for Sprout and our customers rather than a headwind. As our AI learns each brand's unique voice and workflows, it becomes more attuned and impactful over time, deepening adoption, strengthening retention and serving as a long-term driver of growth for Sprout. In the coming weeks, we'll begin to unveil capabilities that set the foundation for Sprout's strategic bets in AI transformation. We believe these releases over time will have -- drive improved expansion and retention motions across our entire customer base. First, our flagship release is a proprietary AI agent for conversational data exploration, automated insights and recommended actions. It's designed to identify emerging trends, detect risks and suggest next steps, empowering brands to manage reputation, unlock strategic capacity and deliver content with optimal timing and precision. It does all this out of the box, which drives incredibly fast time to value. Early feedback from beta customers using our agent has been overwhelmingly positive. One shared, I'm a huge fan of this already. I just used the agent to break down positive and negative sentiment for a listening query and report it to a stakeholder. This feedback came just hours after gaining access, underscoring how intuitive and immediately valuable this experience is. Our agentic approach also extends into the NewsWhip, where our agents are continuously monitoring global news and an online conversation to identify brand-relevant signals early, providing automated vigilance and clear insights with fewer false positives. Second, we're bringing social insights into more tools where teams already work by adopting the model context protocol, MCP, which provides a universal open standard for connecting data to AI systems. We've built our remote MCP server to connect to widely adopted ChatGPT first, which positions Sprout's intelligence as a foundational input layer for AI-driven decision-making across the enterprise. In addition, we've embedded specialized models throughout our platform from advanced spam detection to AI-powered influencer matching, illustrating our broader approach, intelligence seamlessly integrated into every workflow. For a better understanding of all of this, we encourage investors to join us at Breaking Ground on November 18, where we'll unveil these capabilities in full. If you'd like to join, please reach out to Alex for an invite. This is a defining moment for Sprout. While AI will reshape software, the need for trusted systems that connect brands and customers will only grow. We believe Sprout is building the next-generation orchestration layer from a position of unique strength rooted in our data partnerships and platform architecture. Turning to NewsWhip. We're very encouraged by the early results. Since closing the acquisition in late July, we've seen exceptional go-to-market momentum from NewsWhip, generating more pipeline than any new product in our history with initial ACVs at or above traditional enterprise levels, nearly 2x our company-wide average. The integration has gone smoothly, and we're thrilled to have the NewsWhip team fully on board. Key wins in the quarter included a tourism board, a major crypto exchange, a digital security alliance and several strategic renewals. Two trends are emerging. Number one, NewsWhip is creating net new pipeline within larger Sprout accounts; and number two, NewsWhip is increasing deal size when bundled into existing Sprout opportunities. For example, a global online delivery platform that is nearly $400,000 in ARR expanded their annual spend by over 10% after adding NewsWhip to their suite. And earlier this month, we completed a competitive displacement, combining our core platform and NewsWhip that increased the customer's ARR by almost 50%. We're thrilled with the early momentum as we integrate NewsWhip's real-time intelligence with our industry-leading listing capabilities. We're seeing clear validation of our social intelligence strategy and a strong foundation for continued differentiation. Similar to the last few quarters, I want to provide a quick update on our four key growth drivers for Sprout that include winning the enterprise, driving customer health and adoption, expanding our partnership and ecosystem, and driving improved account penetration. To win the enterprise, we intend to expand the pipeline, close more 50,000-plus deals and accelerate adoption with a product road map built for enterprise needs. Let's start with key product releases in the third quarter. We launched AI-powered translation for nearly 180 languages. Now our customers can communicate with a global audience effortlessly. Our AI assist translates and generates content for social posts, incoming messages and replies, empowering our customers to connect with a wider and more diverse audience. We rolled out Listening for TikTok, a highly requested new feature. Our customers can now tap into this massive platform to gain valuable insights, monitor brand health and make more informed marketing decisions. We also launched our new integration with Canva, making it faster and easier for brands to create and share content. As the only social media management platform to offer this comprehensive integration, we're giving brands a decisive advantage in a highly competitive digital landscape. This partnership streamlines the entire workflow from design to publishing, allowing users to push finalized visuals, including images and videos directly from Canva into Sprout as ready to schedule posts. Brands like FedEx noted that the Canva integration has been a huge win for efficiency. Finally, we launched a similar one-click workflow this quarter with a new Adobe Express add-on. Content created in Adobe Express can now be sent directly to Sprout as well. We're also pleased to share several strategic enterprise wins this quarter. We closed an almost $2 million expansion deal in the quarter with a new division of an existing Fortune 500 pharmaceutical customer. This major expansion proves the effectiveness of our land-and-expand model as we successfully transitioned from a pilot to a full-scale enterprise solution. With Sprout, this customer can now unify their global marketing workflows for over 350 users, creating a single source of truth for their social strategy. Our enterprise-grade platform enables them to confidently scale globally, consolidate their tech stack and empower their large distributed teams with a single user-friendly solution. Another exciting deal from this quarter was a $1.2 million new business win with a national convenience store chain. They chose Sprout to consolidate their marketing and customer care, leveraging our Listening, Premium Analytics, Premier Success and Influencer Marketing products. This partnership is a prime example of how Sprout delivers a comprehensive solution. By unifying their social media and influencer marketing efforts on a single platform, we've helped them eliminate fragmented workflows and significantly reduce their high cost of ownership from managing multiple vendors. They can now make data-driven decisions using our advanced analytics and our AI-powered social listening, creating a single reliable source for reporting and strategic insights. We established a trusted long-term partnership with a dedicated success team directly addressing the previous struggles with high vendor turnover and inconsistent support. The last win I'd like to highlight is an expansion deal for over $800,000 with a leading food and beverage company. This company is leveraging our platform to manage the marketing and customer care with a comprehensive suite of products, including Listening, Premium Analytics, Premier Success, Influencer Marketing, Guardian and our Service Cloud integration. This partnership showcases how Sprout helps companies consolidate their technology and streamline workflows. By integrating Sprout with Salesforce, we've created a more efficient system where teams can share data across departments, leading to significant efficiency gains. The client now has real-time visibility into their data, empowering both users and management to make quick decisions. Our second growth driver is driving customer health. We launched our new AI support agent, an AI-powered help center in late August and are already seeing improved efficiency. We've achieved a 19% automated resolution rate and a 65% reduction in time spent in the help center, demonstrating that we are delivering faster and smarter customer support experiences. Our third driver is our investment in partnerships. Sprout continues to expand our ecosystem. In August, we launched a new suite of integrations across TikTok, Bluesky, Instagram, Snapchat, Canva, Adobe Express and LinkedIn, helping brands turn every interaction into actionable intelligence. As customers increasingly rely on platforms like TikTok and Bluesky for discovery and real-time conversation, the ability to capture sentiment early and act fast is now essential. And we're seeing that in the data. Social is now the first stop for many consumers, especially Gen Z. And our job is to help brands show up across social search, SEO and AEO with content that performs, built around shared keywords, captions, hashtags and alt text and proven in analytics. This quarter, we announced new and upcoming capabilities, including Instagram partnership ads and influencer marketing workspaces, expanding our Snapchat integration for influencer marketing, Adobe Express and Canva publishing integrations and LinkedIn personal profile metrics and document publishing. These capabilities are all built to turn every social interaction into insight, action and measurable business impact. On October 23, Sprout was named a Preferred Partner in Reddit's Official Data Partner Program, a recognition of cutting-edge platforms that use Reddit's enterprise API to tap into real conversations and connect brands with key consumers. This partnership highlights Sprout standing among the most trusted forward-thinking platforms in social technology. As a preferred partner, we gain unique access to Reddit and the opportunity to collaborate on product road maps, innovation and strategic growth. Our fourth growth driver focuses on deepening customer engagement. As I mentioned earlier, this quarter marked a new record for Sprout with our largest ever non-Q4 performance for large deals. Our flexible platform continues to win in the marketplace and our integration of NewsWhip alongside new network partnerships demonstrates our commitment to innovation and our ability to deliver for customers today while investing in their future success. To provide greater visibility into these dynamics, we've added new slides to our investor presentation that highlight these growth drivers in more detail. The future of our category will be defined by real-time intelligence, extensible platforms and trusted AI. That's the foundation we're building at Sprout. With differentiated data, a proven platform and deep enterprise relationships, we believe we're positioned to lead in this next era of social intelligence. And with that, I'll turn it over to Joe to walk through the financials. Joe? Joseph Del Preto: Thanks, Ryan. I'll now run through our financial results and guidance. Our third quarter results were highlighted by quarterly non-GAAP operating margin of 11.9%, up nearly 460 basis points from the year ago period. This quarter marks Sprout's most profitable non-GAAP quarter in our history, a result of our consistent focus on strategic targeted investments and our revenue outperformance. I want to thank our employees for their focus and commitment to how we collectively invest in the business in a responsible manner. We generated $10.3 million in non-GAAP free cash flow during the quarter. And on a trailing 12-month basis, free cash flow is up over 80%. As we have commented before, expect our free cash flow margin for the fiscal year to closely track our non-GAAP operating margin. We remain committed to growing operating leverage on a fiscal year basis. On to a summary of the quarter. Total revenue was $115.6 million, representing 13% year-over-year growth. Subscription revenue was $114.7 million, up 13% year-over-year. The number of customers contributing more than $10,000 in ARR grew 7% from a year ago. The number of customers contributing more than $50,000 in ARR grew 21% from a year ago. Q3 ACV was up 15% year-over-year. As Ryan discussed earlier, our strategy to drive ACV growth remains focused on shifting to a higher enterprise mix and strengthening premium module attach rates such as Influencer Marketing, Customer Care, Premium Analytics and now NewsWhip. RPO totaled $357.1 million, up from $347.0 million as in Q2, representing growth of 15% year-over-year. We expect to recognize 72% or $258.5 million of total RPO as revenue over the next 12 months, representing cRPO growth of 17% year-over-year. Non-GAAP operating income totaled $13.7 million, which was ahead of the high end of our outlook. This was up from $7.5 million a year ago and equates to a non-GAAP operating margin of 11.9%, a quarterly record. Looking ahead, we're increasing our full year guidance to reflect our 3Q results. I want to provide some additional context about the fourth quarter outlook. As mentioned earlier, Sprout delivered strong non-GAAP profitability in the quarter. This was driven in part by our continued focus on targeted investments in the business, but also in part by hiring cadence in the quarter. With that, now on to guidance. For the fourth quarter of fiscal 2025, we expect revenue in the range of $118.2 million to $119.0 million. We expect non-GAAP operating income in the range of $9.5 million to $10.5 million. We expect a non-GAAP net income per share of between $0.15 and $0.17. This assumes approximately 59.3 million weighted average basic shares of common stock outstanding. For the full year 2025, we are raising our guidance and now expect revenue in the range of $454.9 million to $455.7 million. We are also raising our non-GAAP operating income guidance and expect it to be in the range of $46.1 million to $47.1 million. We expect non-GAAP net income per share between $0.77 and $0.79, assuming approximately 58.6 million weighted average basic shares of common stock outstanding. We look forward to continuing to innovate and create more opportunities for our customers to grow with us. We appreciate your interest in Sprout Social. And with that, Ryan, Alex and I are happy to take any of your questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Raimo Lenschow with Barclays. Raimo Lenschow: Congrats on another kind of solid quarter. If I look at -- Ryan, if I listen to your large product wins, it really shows the momentum upmarket. I'm just trying to kind of marry that now, like you've been stable on the revenue growth side, which is kind of really good to see. Like how do you think about inflections or the next step from here? Because on the one hand, it does look like in the overall market, you're doing a lot better and you're moving nicely upmarket, but we haven't really fully seen it in the numbers yet. Like how do I marry these two? Ryan Barretto: Raimo, thanks for the question. I appreciate it. And yes, to your point, we're really excited about the progress that we've been making upmarket. And you could see that in the $50,000 growth, and just the execution, whether it's the big deals and logos we had a chance to talk about or just the acceleration within the number of customers within that segment. We certainly got a lot of conviction in the size of the market and the value that we're adding to customers as we continue to see social becoming the primary place for things like product discovery and brand awareness and customer care and commerce. And at the same time, we do have two distinct businesses with different dynamics. As we talked about this enterprise large business where we've seen a lot of success and higher ACV and great net dollar retention continues to grow. And then we have another side of the business where on the smaller side, continued pressure that we've seen with SMB and agency, again, mostly on the new business side. But as we know that, that part of the business tends to have less GRR than the other pieces. And that's been a drag on our overall growth rate. Having said that, as we look at that opportunity, we know that the market size is large, and we do see opportunities with pricing and packaging and now with AI to be able to evolve the way that we're serving that part of the market. So feeling good about the upmarket and the growth. And to your point, see opportunities here to continue pressing on that other side of the business to push on the growth rate. Raimo Lenschow: Okay. Perfect. And then Joe, for you, like profitability was the main highlight this quarter. Can you talk a little bit about the path here in terms of like was that timing? Was that like good underlying levels? Can you speak to that? Thank you and congrats from me. Joseph Del Preto: Yes. Thank you, Raimo. Yes, we're pretty happy about the performance there, 460 basis points year-over-year. I think there's a couple of things that drove that. One, the overperformance on revenue definitely helped and contributed that to the bottom line. We're definitely getting more efficient in parts of the business. We're using AI internally as well, and that's helping drive margin in the business. And also, we just had a little bit of push on the margin -- on the hiring side into Q4. And so we got a little bit of benefit in Q3, which is probably going to pick itself up in Q4. But overall, I feel really good about the momentum that we're seeing in the business on the margin side. Operator: That concludes our question-and-answer session. I will now turn the call back over to Ryan Barretto for closing remarks. Ryan Barretto: Thank you, Tiffany. I appreciate it. I know tonight is a very busy night in software. So thanks for those joining us, and I know we're catching up with a bunch of others later tonight. I want to also just ask folks to join us on November 18 for Breaking Ground where we will be doing our customer webinar, and we'll have a chance to show off our new agent. So really excited to see a bunch of you there. And then I want to end by thanking our team for their continued dedication and effort. I am incredibly grateful for all the work that you're doing for our customers and our business, and we look forward to spending time with all of you later. Have a great night. Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Altimmune Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I'll now introduce your host for today's conference call, Lee Roth, President of Burns McClellan Investor Relations Adviser to Altimmune. Thank you, and over to you. Unknown Executive: Thank you, operator, and good morning, everyone. Thank you for joining us for Altimmune's Third Quarter 2025 Financial Results and Business Update Conference Call. On today's call, you'll hear from Dr. Vipin Garg, our Chief Executive Officer; Dr. Christophe Arbet-Engels, our Chief Medical Officer; Linda Richardson, our Chief Commercial Officer; and Greg Weaver, our Chief Financial Officer. Following management's prepared remarks, we'll open the line for the Q&A session. Our third quarter 2025 financial results and corporate update press release was issued this morning and can be found on the Investor Relations section of the Altimmune website. Before we begin, I would like to remind everyone that remarks made about future expectations, plans and prospects constitute forward-looking statements for purposes of safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Altimmune cautions that these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those indicated. For a review of the risk factors that could affect the company's future results and operations, we refer you to the company's filings with the SEC. I also direct you to read the forward-looking statements disclaimer in our press release issued this morning, which is now available on our website. Any statements made on this call speak only as of today's date, November 6, 2025, and the company does not undertake any obligation to update any of these forward-looking statements to reflect events or circumstances that occur on or after today's date. As a reminder, this call is being recorded and will be available for audio replay on the Altimmune website. With that, it's now my pleasure to turn the call over to Dr. Vipin Garg, President and Chief Executive Officer of Altimmune. Vipin? Vipin Garg: Good morning, everyone, and thank you for joining us today for our third quarter financial results and corporate update. This is a very exciting time for Altimmune. We are on the brink of a major inflection point with our clinical programs. Pemvidutide, the foundation of our pipeline is ripe with opportunity to redefine treatment for those with serious liver diseases like MASH, alcohol use disorder, or AUD, and alcohol-associated liver disease or ALD. On today's call, we will emphasize a few key points: the upcoming Q4 milestone of the 48-week IMPACT data readout, the in-person end of Phase II meeting with the FDA in Q4 that was recently granted, the continued strengthening of company's balance sheet and the recent talent additions to the executive team. The 24-week data from our IMPACT trial shared earlier this year established rapid efficacy of pemvidutide for those with MASH, providing potential best-in-class MASH resolution shortly after initiating treatment and compelling antifibrotic activity and weight loss. The convincing nature of these data has allowed us to move into preparations for Phase III and to receive confirmation of an in-person end of Phase II meeting scheduled with the FDA before year-end to gain agreement on the design for our Phase III program. We also look forward to the 48-week data from the IMPACT trial, which we expect to share before the end of the year. Beyond MASH, we announced that we have successfully completed enrollment in the RECLAIM Phase II trial of pemvidutide in AUD. The rapid enrollment of RECLAIM which was completed ahead of schedule, is a testament to our team's continued ability to execute and the significant interest from patients and physicians in pemvidutide as a potential new therapy. In addition, we began enrolling the ALD Phase II trial in the third quarter. As our clinical programs progress, we are ensuring we have the necessary financial resources and executive talent in place to support the next phase of our growth. This includes the recent expansion of our leadership team with the appointment of Dr. Christophe Arbet-Engels, as Chief Medical Officer; Linda Richardson as Chief Commercial Officer; and Robin Abrahams as Chief Legal Officer. With that, I'll turn the call over to Christophe to speak further to our promising pemvidutide programs. Christophe? Unknown Executive: Thank you, Vipin. I am very pleased to be here today and to be joining the Altimmune team at such an exciting juncture. From my perspective, I recognize the significant potential of pemvidutide for the treatment of patients with MASH, AUD and ALD. Given its 1:1 glucagon GLP-1 ratio, pemvidutide is uniquely designed to maximize the contribution of each mechanism. In effect, pemvidutide is a combination therapy in a single molecule. Early data from the IMPACT trial demonstrated the potential of this dual mechanism of action with rapid and robust MASH resolution achieving statistical significance at just 24 weeks. I want to reinforce how meaningful the observed efficacy is at this early time point as most other MASH program achieved this level of response only after treating for 48 weeks or more. The 24-week results demonstrated significant and very encouraging anti-inflammatory activity based on biopsies and a range of noninvasive tests, which are becoming increasingly important in clinical practice and in the ongoing regulatory conversation. The statistical significance achieved across a panel of NIT we are assessing in the IMPACT trial provides strong support for pemvidutide antifibrotic effects, which we will look to continue to assess in the upcoming 48-week readout. Speaking of the 48-week readout, we look forward to assessing the data and the potential of a longer treatment duration on NIT measurement, as well as further weight loss. Recall, we had early and significant MASH resolution in our 24-week biopsy data and strong evidence of antifibrotic activity supported by the NIT analysis, along with the continuing weight loss and excellent tolerability. The emerging recognition that improvements in certain NITs are likely to translate to clinical improvement has led regulatory agencies to consider allowing the use of NIT data as a measure of efficacy in MASH clinical trial. In clinical practice, MASH patients are often diagnosed and courses of treatment determined based on these noninvasive tests and the possibility of the regulatory agencies more closely aligning with clinical practice bodes particularly well for pemvidutide given the strength of our NIT data. Dr. Mazen Noureddin, lead investigator on the IMPACT trial will deliver a late-breaking oral presentation on the 24-week IMPACT results at the upcoming annual AASLD Liver Meeting. The acceptance of this abstract reinforces the significance of the data from the IMPACT trial and pemvidutide's opportunity in the broader MASH landscape. Our confidence in pemvidutide is underscored by the collective data surrounding the molecule from the 7 trials completed to date. We are now preparing for a scheduled face-to-face end of Phase II meeting with the FDA before year-end to review our proposed Phase III MASH program. The Phase III trial will include the flexibility of using NITs and AI reads as an approvable endpoint in our registrational program if regulatory process moves in that direction. Beyond MASH, we believe that the balanced glucagon and GLP-1 agonism that is the hallmark of pemvidutide makes it a promising therapeutic candidate in both alcohol use disorder and alcohol-associated liver disease. In AUD, we have completed recruitment and randomization in the RECLAIM trial that we were able to fully enroll this trial ahead of schedule is a strong indicator of the significant interest and major unmet need in this indication. We look forward to reporting results next year. Our ALD trial, RESTORE, was initiated in the third quarter and enrollment is ongoing. Importantly, patients with ALD currently lack any approved therapies, and we believe pemvidutide's dual mechanism of action may make a difference for these patients. We look forward to these results of these trials and further understanding the potential of pemvidutide in the additional large patient population of unmet need. I am excited to be at Altimmune and to lead these programs forward. And with that, I will turn the call to our Chief Commercial Officer, Linda Richardson, to discuss how we are preparing for Phase III success in MASH. Linda? Linda Richardson: Thanks, Christophe, and good morning, everyone. It's great to be here at Altimmune at this exciting time, and I echo Christophe's enthusiasm for joining this team and helping to shape the future of this significant therapeutic candidate. A quick background on me. I've been involved in all facets of commercialization for over 30 years at organizations of all sizes. I have experience in MASH, rare hepatic diseases, cardiometabolic diseases, including diabetes and dyslipidemia and addiction medicine. We have a great opportunity in front of us with pemvidutide in MASH as well as AUD and ALD, and I look forward to helping prepare for potential commercialization in each of these areas of high unmet need. My decision to join Altimmune was driven by the opportunity to bring real therapeutic advances to patients and the providers that care for them. Pemvidutide has this potential. Why do I believe this? With pemvidutide, we have one therapy that provides 2 important mechanisms of action, delivering improvements on 3 critical elements of MASH management. The single therapy is clear. The 2 mechanisms of action, glucagon and GLP-1 agonism in a balanced 1:1 ratio provide both direct liver effects and metabolic improvements, resulting in 3 important benefits for patients: one, rapid MASH resolution in as soon as 24 weeks; two, anti-inflammatory and antifibrotic effects in the liver as demonstrated in multiple NIT assessments; and three, quality weight loss, including lean muscle sparing effects. Additionally, pemvidutide has demonstrated a potential best-in-class tolerability profile with low discontinuation rates in the IMPACT trial. This could be another differentiating feature compared with other MASH therapies. My enthusiasm aside, I would like to highlight some feedback from recent market research we did in Europe. Health care professionals in a small group of payers were provided with a projected blinded product profile of pemvi along with other blinded profiles of current and future potential MASH therapies. First, 70% to 80% of the physicians surveyed indicated a high or very high likelihood to prescribe pemvidutide based on the blinded product profile in both F2 and F3 patients. Here are some representative qualitative comments from hepatologists on pemvi's differentiating features. It's quite impressive, the fibrosis and the weight loss seems to be a class leader and the side effect profile is good. And another quote, "For overweight and obese patients, it would be my go-to substance, my first-line approach, more powerful than other dual agonists with strong fibrosis data. Lean mass preservation would be a meaningful differentiator, very important in MASH and chronic liver disease. This is very encouraging early feedback. In particular, the significance of demonstrating lean muscle mass preservation is potentially very differentiating. There is growing interest in the prevalence and effects of sarcopenia in patients with MASLD. A 2024 meta-analysis found that sarcopenia was associated not only with progression, but also correlated with MASLD-associated mortality. Other publications project that the prevalence of sarcopenia may be as high as 1 in 4 patients. Initial payer feedback was also encouraging. Payers provided us with a positive reimbursement outlook across the EU with broad coverage expected given payers' positive perception of the pemvi value proposition. We will continue to identify aspects of pemvidutide therapy that may be important to payers, particularly as more therapies enter the MASH field. Patients and prescriber receptivity is critical, but reimbursement and access are equally important elements of a successful product launch. I've had the opportunity to work closely with our clinical team to incorporate specific endpoints that we believe will be important drivers of market uptake and support a successful launch following potential regulatory approval. It's an optimal time to ensure that commercial considerations are designed into the Phase III MASH program to accentuate the differentiators of pemvidutide from current approved therapies and those to come. Alongside MASH, the AUD and ALD programs are very exciting and could expand substantially the addressable market for pemvidutide. The rapid recruitment of our AUD trial that we discussed earlier is evidence of interest in this space and the patient need for new therapeutic options as well. In closing, I'm very excited to be here at Altimmune at such a crucial time. I look forward to continuing to update all of you on our commercial vision, plans and expectations for pemvidutide. I'll now turn it over to Greg to review our financial results for the third quarter. Gregory Weaver: Thank you, Linda, and hello. Beginning with our balance sheet at September 30, total cash was $211 million, representing an increase of 60% over our cash position at the start of the year. We've made measurable strides as we source capital through a combination of available options, having raised $127 million through the first 9 months of the year, building the cash position required to support our key development milestones. Another step we've taken to add to our financial flexibility was to amend our Hercules debt agreement, where we increased the overall facility size to $125 million and funded $20 million on executing that amendment today. The amendment improved several of the key terms extending the interest-only period, for example. You'll see that we're filing a $400 million shelf registration today, along with a new $200 million ATM facility. Consider these filings as part of our ongoing effort to assure the financial tools are in place to meet our needs going forward. Our cash position continued to strengthen through Q3 and into Q4. I'm happy with the trajectory and confident in the ability to build the balance sheet required to meet our development needs and position pemvi for success. Now to comment on the Q3 and year-to-date financial results. R&D expenses were $15 million for the 3 months ended September 30, '25, compared to $19.8 million in the same period of 2024. The 3-month variance in R&D spend was related to the timing of CRO development cost year-over-year. The Q3 2025 spend included $9.2 million of direct costs related to pemvidutide development, including roughly $3.7 million for the IMPACT Phase IIb trial, $3.4 million for AUD and ALD start-up costs and $1.3 million for CMC. G&A expenses were $5.9 million and $5 million for the quarter ended September 30, 2025 and 2024, respectively. This increase was driven by professional fees and noncash stock-based compensation. To note, the total noncash stock-based comp was $3.6 million in Q3 and $11.1 million year-to-date. No surprises there. Net loss for the third quarter of 2025 was $19 million or $0.21 of share compared to $22.8 million or $0.32 per share in the third quarter of last year. So, in summary, we are well positioned in terms of our financial footing. And with that, I'll turn the call back to Vipin for some closing remarks. Vipin Garg: Thank you, Greg. As highlighted today, we look forward to sharing the 48-week IMPACT data in Q4 and to discussing our progression into Phase III clinical development at our end of Phase II meeting with the FDA. As always, we thank you for your continued support and look forward to sharing further details of our progress. This concludes our formal remarks, and we would now like to take questions. Operator? Operator: [Operator Instructions] We have the first question from the line of Roger Song from Jefferies. Jiale Song: Congrats for all the progress. Maybe a couple of question. First is on the upcoming 48-week data from the Phase II IMPACT MASH. So how much of the data will inform your conversation with the FDA and then also the Phase III design? And then what's the current thinking about the Phase III in terms of the 24 versus the 48-week time point and then the NIT and AI biopsy-driven AI-based biopsy endpoints? Vipin Garg: Yes. Roger, thank you for the question. So as far as the end of Phase II meeting with the FDA is concerned, as you know, the end of Phase II meeting was requested on the basis of the 24-week data. So really, there would not be any 48-week data that would be part of that discussion at this point. Obviously, we will submit 48-week data when that's available. But we believe and apparently, the FDA agrees with us that we have sufficient data at 24-week to request and now FDA has granted a meeting to us on the basis of that data. So, I think we're in a good shape. Christophe, did you want to add anything to that? Unknown Executive: No, I think that's correct. The 24-week data were strong enough to grant the submissions and grant the meeting, and we are in good shape with those discussions by the end of the year. Vipin Garg: And about the 48-week data, I think, Roger, did you want to repeat your question, please? Jiale Song: Yes, sure. So just the 48-week data, how -- what's the current thinking about the Phase III design based on the 48-week data? Unknown Executive: So the 48-week data, we expect to continue confirming what we've seen in the 24-week data and the strength of this with the added weight loss and hopefully as well on the needs. We are in discussions. We will be discussing with the FDA this current regulatory environment with the potential change from those biopsy readings to the needs, and we will have more clarity when we meet at the end of Phase II meeting. Vipin Garg: Yes. And our goal, Roger, is to design a very flexible trial, Phase III program, so we can take advantage of any of the changes that take place whenever they take place. So, we'll go in with a very comprehensive, flexible design in terms of the Phase III program and should changes take place over the course of next months and year, we can certainly incorporate them and pivot to those and appropriately change our endpoints when that happens. Operator: We have the next question from the line of Yasmeen Rahimi from Piper Sandler. Yasmeen Rahimi: And congrats on the RECLAIM enrollment completion. I guess the first question is based on sort of discussion with the key opinion leaders in the space, do you have any idea in like, I guess, the probability of the different scenarios of potentially using NITs or AI-based histological reading. If you could just maybe help us understand based on the 3 scenarios, which one they think has a high probability of being able to get a sign-off. That's question one. And then question two is, help us understand, I guess, the advantages of using AI-based biopsy reading versus traditional histology reading and especially when it comes to Phase III studies and if any other sponsors have implemented that? And then the third question is on RECLAIM, maybe help us conceptualize what would be considered a clinically meaningful endpoint in the primary endpoint there. And I'll jump back in the queue. Unknown Executive: All right. So, I will start with the NITs. The NITs, there are a lot of different discussions ongoing at this point in time. We're going to -- we are aware that some of these discussions will occur with the AASLD meeting coming up at the end of this week, and we will learn more around that. We know the FDA is looking through the -- at this very closely. And there is -- from our understanding, there is an increasing interest to look at those NITs. So as Vipin shared, we are designing our Phase III in order to really have the flexibility to adapt to any changes on the regulatory landscape. On the AI, there are differences. The histopathologist in general, look at a narrow part of the slides and estimate the level of fibrosis based on a number of criteria, but that introduces quite a large amount of variability and the AI on the other aspect look at the total area of fibrosis and doesn't quantify the stages only, but allows just a gradual and more comprehensive evaluations of the slides. So, this is something that allows for rapid evaluations with less variability. And we know that this has been already approved by the EMA as an approach to look at the biopsies. And the last -- the third point was, I'm not sure I fully heard the questions on the primary endpoint if you, that was… Vipin Garg: The RECLAIM trial. Yasmeen Rahimi: That's right. Unknown Executive: Yes. The RECLAIM trial. So, the primary endpoint of the RECLAIM trial is the number of heavy drinking days that we are going to be looking at and those change from baseline. Vipin Garg: Yes. It's the number of heavy drinking days per week that's... Unknown Executive: Per week, correct Vipin Garg: That's the endpoint that we'll be looking at. And Yasmeen, we're really excited about the fact that this trial enrolled almost 5 months earlier than we were expecting. So, it really shows the critical unmet need out there and the fact that physicians and patients really like the drug. And so, we're really excited about that. Operator: Do you have any follow-up questions? Yasmeen Rahimi: Thank you. I'm good. Operator: We have the next question from the line of Patrick Trucchio from H.C. Wainwright & Company. Patrick Trucchio: At 24 weeks, you reported statistically significant antifibrotic activity across multiple NITs. And I'm wondering what magnitude of change of 48 weeks would reinforce this confidence in fibrosis improvement as a key Phase III endpoint? And then separately, I think you've referenced expectation of continued weight loss through 48 weeks. What level of incremental loss or lean mass preservation would confirm pemvidutide's quality weight loss advantage and support differentiation? Unknown Executive: So at -- yes, at 24 weeks, we saw very strong data on our fibrosis and we continued to see the weight loss that was not plateauing. As you know, some of the NITs can evolve at different time of the improvement for each of those patient. So, we continue to believe based on this, that we will see added improvements at the patients on the study at 48 weeks after our 24 weeks. And we will see which one. We expect, for example, maybe lever stiffness to be something that should be improved, and we will have those data very soon. So, we're really excited about this. And again, with what we've seen on the 24-week, that bodes well for what hopefully we should see on the 48-week. Vipin Garg: Yes. And the weight loss, we -- as you said, Patrick, we expect to continue to have additional weight loss, just like we saw with our MOMENTUM trial. And just to remind everybody, this wasn't even our best dose in terms of weight loss. It was 1.2 and 1.8. So, the 2.4 milligram, we get even higher weight loss. So clearly, there's plenty of runway there in terms of achieving additional weight loss as well. And just to clarify, as far as the NITs are concerned, they don't all move in tandem. Some of them move early, some move later. So, what we need to show at 48 week is continued maintenance of many of these NITs because we've already achieved such high levels and then additional improvement in some of them. M. Roberts: Just to bring the weight -- this is Scott Roberts. Just to bring the weight loss back home, recall that of the direct-acting MASH agents that work directly in the liver, for example, the FGF21s, the thyroid beta agonist, there is no weight loss associated with that. So, we're already ahead of the game with respect to direct-acting agents. And so any additional weight loss and the shape of the curve with a not plateauing certainly bodes well for realizing more weight loss is really just icing on the cake. Linda Richardson: Yes, I think I'll touch on -- this is Linda. Thanks for the question. I touched on a little bit this concept of lean muscle mass sparing. When you look at various agents and you look at the studies, most of this has been seen in weight loss studies. So, we look at pemvidutide and the MOMENTUM trial, and we had the -- really a study duration of 48 weeks where our lean loss ratio was about 22% compared to other agents that were in the 39%, 26%, 37% range across the board. This matches more closely what natural weight loss would look like if you were doing traditional diet and exercise. You're always going to see some impact on lean muscle, but this matches what you would see kind of in the routine weight loss field. When we look at that and we see our weight loss, building this promise into studying in Phase III further, what happens in a longer trial when we have our 52-week study data from a Phase III, if we see continuing loss of weight but muscle mass preservation, this would be extremely interesting to the field. And when we're looking at a forward testing product profile, this is one of the advantages that we very well may have. So, when I talked about working closely with the team, putting in these markers and preparing to evaluate them fully in a Phase III trial is exactly the kind of thing that I need to have that can resonate with payers and physicians and patients down the line. So that's kind of bringing all of what we know about our product together and ensuring we have the best shot on goal in Phase III. Operator: We have the next question from the line of Jon Wolleben from Citizens. Jonathan Wolleben: I was hoping you could talk a little bit about alcoholic use disorder and alcoholic liver disease as distinct opportunities. It just seems like there's going to be significant overlap in the advantages or disadvantages of running one program versus both. Vipin Garg: Yes, that's a great question, Jonathan. So, I mean, that's the reason we decided to expand the program into AUD and ALD because we believe there is significant opportunity in both of those, and we could be sort of the frontrunner in terms of driving value proposition, additional value proposition for pemvidutide. So, it's not just MASH, AUD and ALD. These are very similar product profile that we are looking for in terms of having this dual mechanism of action working directly in the liver, as well as in case of AUD having reduction of cravings. So, bringing these multiple features together is really important. AUD typically leads to ALD. So, AUD and ALD go hand-in-hand. So, the idea here is that if we can get -- if we can show success in AUD chances that will also be successful in ALD. We've actually already shown the endpoint that we used in MASH one of the NITs is what would be the endpoint for ALD. So, we already have some idea that the drug is working on these endpoints. So, we're very excited about these additional that can be developed independent of MASH beyond MASH. Operator: We have the next question from the line of Annabel Samimy from Stifel. Annabel Samimy: Just going back to the product profile and pricing and payer discussions, maybe for Linda. I mean, how -- I understand the potential differentiation, how exciting that could be for MASH. I guess the landscape is shifting a little bit now with obviously, with semaglutide possibly having MASH some combinations that are in development or seeking development with FGF21. So, I guess maybe you can talk about how you think about MASH pricing when we have some of these other alternatives that could potentially help on the liver side, but indirectly and longer term. I just want to think about that because some physicians are really starting to think about payer pushback and cost. So how should we think about that? Linda Richardson: Absolutely. Perfect question related to the payer landscape. Reimbursement is largely -- you're looking at what is the value proposition of the drug for, I would say, physicians, patients and the payers. You want to have something that's actually doing what it says it's going to do. And the value proposition is based on the data. So, when you test a product that has the activity that we do, we have in 1 drug, 2 mechanisms of action that provide a host of benefits and excellent tolerability to date. Then you look at some of the carving off, what kind of quality weight loss, what are the lipid impacts? What are other things downstream that you're seeing? The total package of the value proposition leads into assessing what it's worth. Instead of someone having to take 2 drugs, and have 2 sets of side effects, 2 co-pays or wait for a development program to bring that together or face tolerability issues that don't allow them to stay on. We see that with some of the GLP-1s currently. We see other products downstream coming together with their combinations, but let's see what their tolerability profiles look like. Let's see not having this 1:1 ratio, what they look like. So, the package of what you can get in a product and the early onset of action, I believe as this is going to become a very crowded marketplace, payers are not going to want to necessarily pay for something that takes 72 weeks to see if it's working, how long do they have to be on this? Is the tolerability there? When you show the MASH resolution that we saw at 24 weeks, which was outstanding. And then you look at the evidence that we provided in antifibrotic activity with via NITs at 24 weeks, we are pretty much pushing up on what everyone else can do in one molecule with all these benefits. So, my plan will be to focus on what we bring to the table, communicating the value of early activity that you can monitor. You don't have to wait 72 weeks to see some sort of improvement. Look at that, look at the total benefits and then see where you fit in the spectrum of what the pricing brackets will be. You're bringing more than a generic, even paying for a generic and another product that you might want to use together is still a different activity than having it all in one. And that's where the value proposition will come as we build additional data as we have other data coming out in the Phase III program that we currently don't even have access to in our 24-week data. So, my plan is to be positioned for the future and drive the very best deliverable assets that we can from this molecule. Annabel Samimy: Great. That's great context. Just a couple more for me. Just going into AASLD, I know that raising awareness of pemvi is very important. So, can you just give us some color around how you're going to be doing that at the upcoming meeting and how you're going to raise awareness among KOLs? And just on one other quick question, RECLAIM, obviously, enrolled very quickly. How is the ALD enrollment going? Unknown Executive: All right. So, on the -- on our presence at AASLD, we have a number of activities that we have planned, a lot of engagements with KOL, one-on-one discussions with all of them, with patients advocacy group as well, and we're going to be continuing. I want to remind you that we have also 2 presentations, one oral and one posters that were accepted as late breaker and that will be there at this time. And we also have a receptions where we have a lot of our clinical investigators, principal investigators from our studies and a lot of interest there where we're going to meet as well. So, we're going to have a large presence at AASLD with some very exciting data that will be presented through those late-breaking presentation. Linda Richardson: And I would just add that having been in the MASH space previously, I do know a lot of the folks who are working with us at Intercept and in hepatology and gastroenterology. And I look forward to rekindling through some of the meetings that we've had set up, relationships with them as well as seeing old friends in the patient advocacy group. So, we are well -- there's -- the company may not have had as many contacts before and Christophe and I being new to the organization, but we will leverage the one from the investigators that we've been working with. And I think really having the podium presentation close at late-breaker is a great way to end that meeting for us. Vipin Garg: Yes, we'll have a very large presence. So, we are really looking forward to it. It will be very exciting to bring pemvi out in the open. Unknown Executive: And regarding the ALD enrollment, we are moving forward as planned. We're happy where we are right now with this enrollment. Obviously, the AUD was even more exciting by getting this study enrolled much earlier, which doesn't happen too often, but it's a testament to what the team can do and the interest in this area from patients and physicians. So, we're excited, and we continue to move forward as we anticipated. Operator: We have the next question from the line of Mayank Mamtani from B. Riley Securities. Unknown Analyst: This is William on for Mayank. Congratulations on a very nice quarter. Looking forward to seeing the upcoming AASLD presentation. Two for us. In terms of your Phase II 24-week biopsy results, I was curious if you could talk to any new or incremental analysis that you may have performed that we may get. And specifically, do you know if there's, by any chance, any F2 or F3 analysis that you did on the study? And in regards to F4 patients, by chance upon sort of reevaluation of the biopsies were any included in the study and how the data from your F3 patients might inform how pemvi may perform in the F4 population? And then I have a follow-up. Unknown Executive: Yes. No, we continue to analyze our data. We're -- there's a large amount of informations we can gather that will help us drive some of the Phase III. With regard to those different stages, I want to remind you the design included only Phase II and -- sorry, only F2 and F3 patients. There was no F4 patients. We did some post-hoc exploratory analysis. The sample size are small because the study was designed with a small number of patients. So I'm cautious there. But we are very encouraged by what we're seeing. So, in particular, with these Phase II -- F2, F3 patients. So, we continue to have supportive data to move into the Phase III in this population and look forward to the design of this and discussing this with the FDA. Unknown Analyst: Got it. And then in terms of RECLAIM, as it's been said, it's obviously enrolled pretty far ahead of plan. I was curious if there's been any type of baseline analysis that's been compiled. And if so, could you touch on how those baseline characteristics may compare to the original plan? And then also how that informs to your interest in your RESTORE ALD trial, where you're also looking at these liver-specific endpoints such as VCT and ELF? And maybe what's the broader data package that you're looking for to collect that would help qualify as Phase III enabling? Unknown Executive: So with regard to the RECLAIM data, we haven't -- we just finished the enrollment. We haven't done a baseline analysis at this point in time of all this information. Obviously, AUD and ALD are kind of a continuum with the patients in AVD being less severe than the patients in ALD. But there's a clear unmet need in this population, and we are looking at the evolution in those both the most severe and the more -- the less severe populations. This is -- we're going to be looking at different parameters. Clearly, we just mentioned the days of heavy drinking, but as well liver parameters. We know that those population have fatty livers and increase liver stiffness, and we're going to be looking at this as our primary endpoint for ALD. And that's where we are at this point in time. But again, there's -- we hear a lot of enthusiasm around this area. Linda Richardson: Well, and I think the timing of this, just with the interest in no alcohol drinks, mocktails, dry January. Every week, there's something coming out on alcohol use. And here, again, we have a product that is designed to help on 2 fronts. You can look at the glucagon direct-acting liver effects. I'm thinking if somebody is drinking that much that they want to cut back, they've probably have done a little damage, just may not know it, but they're thinking about their drinking. And then you look at what you would get with the GLP-1 side, which may be helping with cravings. And again, it is one product bringing together 2 activities that do more benefit for patients with a tolerability profile. So, this is really the way we're looking at how can this drug best infiltrate indications that make the most sense, whether it's MASH, whether it's AUD, ALD, you look for where are your strengths and play to your strengths. Operator: We have the next question from the line of Michael DiFiore from Evercore ISI. Michael DiFiore: I have 3. The first one, since you said that Europe has approved AI biopsy reads and that you intend to propose the PathAI platform to the FDA later this quarter, what are the practical steps -- next steps once the clearance comes? Like for example, are your imaging and workflow systems already validated for PathAI? Or would there be a ramp-up period before you could implement the AI read in Phase III? And then I have 2 follow-ups. Vipin Garg: Yes. The way that the AI works is they digitize the slides. And so as long as they have good slides, and we've learned how to do that, that was part of our Phase IIb study. We have excellent specimens and how to handle those. As long as they have good specimens to work with, they have their own proprietary digitalization technique. So, it will be a seamless introduction of that technology into the readout. Michael DiFiore: Okay. And relatedly, how will NIT tracking actually be implemented operationally in Phase III in terms of frequency, imaging cadence, data interpretation? Any color you could offer on that? Unknown Executive: So we're going to -- I mean, there's different visits over the 52 weeks with clearly imaging happening at on quarters and 6 months, week 24 and week 48, and then they will be continuing examinations towards clinical outcome for this -- for the patients. And the NITs, we can -- it's much more -- it's much easier to do this more frequently. So, we have different visit schedule that can be even on a monthly basis, especially early on, where we can look at some of the blood-based need and get this information very early. So, we'll get some very nice reads on how those NITs are moving rapidly in the treatment algorithm here. Michael DiFiore: Got it. And my final question is regards to Lilly's Retatrutide. I know it's very early and a lot needs to happen between now and then. But any thoughts on pemvi's competitive positioning? Should pemvi and Retatrutide compete against each other in the MASH space? Vipin Garg: Yes. So as you know, Mike, Retatrutide is a triple agonist. And it's really the benefit here is the same as with dual agonist, we believe the 1:1 ratio is more important here because we are balancing both GLP-1 and glucagon activity in the same molecule. So, we are getting full benefit. Glucagon is working directly in the liver, whereas GLP-1 is working indirectly through metabolic effects through weight loss. So really adding GIP on top of that is not relevant for the MASH space. It may be more relevant for the obesity field. So, we think we are very well positioned versus the Retatrutide in the MASH as well as AUD and ALD space. Unknown Executive: We know and we'll have some new data at AASLD around the anti-inflammatory aspects on the liver level, which is also really important, and we're excited to have really that 1:1 ratio is really important for the direct activity on the liver. Operator: We have the next question from the line of Andy Hsieh from William Blair. Unknown Analyst: This is [ Kelsey Lucerne ] on for Andy. We had a question around the preclinical development program for the oral formulation of pemvidutide. Just curious if you could share next steps and time lines for advancing this candidate and any sort of thoughts around positioning relative to the injectable? Will it also be progressing in MASH as an alternative to the injectable form and who you might see as your competitors for this program? M. Roberts: Sure. Happy to take that question. So, recall that our last earnings call, I expressed a lot of excitement and enthusiasm for what was characterized as appropriately as a breakthrough in our oral formulation program. So, we're continuing to push that forward. Obviously, next steps have to do with an IND in the clinical trial, the timing of that will be more clear on as time progresses here. But as far as how does it fit into the landscape, I think there's 2 important features here that should be appreciated. The first is unlike an oral pill, a small molecule, this is still pemvidutide. It's unaltered. Once it enters the bloodstream following the oral administration, it acts just like pemvi. So we get the long half-life. We get the excellent tolerability profile that we've seen so far. So, we have the best of both worlds, will. We have the specificity and potency of the peptide that is pemvidutide as opposed to a small molecule. And yet, we have the oral formulation. So we're really excited about that potential. And we think that as it stacks up against the others, which the vast majority, as you know, are small molecules, we have a real advantage there. So we're excited about the program. We've made, as I mentioned last time, real headway. We're continuing to progress that, and we'll share more data as appropriate. Operator: Ladies and gentlemen, this concludes our question-and-answer session. I will now hand over the conference to Dr. Garg for closing comments. Vipin Garg: Well, thank you, everyone, again for joining us. The coming weeks will be incredibly exciting. We look forward to sharing updates on the 48-week data and the end of Phase II meeting with the FDA and hope to see some of you at AASLD. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 Aquestive Therapeutics, Inc. Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Brian Korb. Please go ahead, sir. Brian Korb: Thank you, operator. Good morning, and welcome to today's call. On today's call, I'm joined by Dan Barber, Chief Executive Officer; and Ernie Toth, Chief Financial Officer, who are going to provide an overview of the company's recent business developments and performance for the third quarter of 2025, followed by a Q&A session. During the Q&A session, the team will be joined by Dr. Gary Slatko, Interim Chief Medical Officer; Sherry Korczynski, Chief Commercial Officer; Lori Braender, Chief Legal Officer; and Peter Boyd, Chief People Officer. As a reminder, the company's remarks today corresponded with the earnings release that was issued after market close yesterday. In addition, a recording of today's call will be made available on Aquestive's website within the Investors section shortly following the conclusion of this call. To remind you, the Aquestive team will be discussing some non-GAAP financial measures this morning as part of its review of third quarter 2021 results. A description of these measures, along with a reconciliation to GAAP, can be found in the earnings release issued yesterday, which is posted on the Investors section of Aquestive website. During the call, the company will be making forward-looking statements. We remind you of the company's safe harbor language as outlined in yesterday's earnings release as well as the risks and uncertainties affecting the company as described in the Risk Factors section and other sections included in the company's annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the U.S. Securities and Exchange Commission. As with any pharmaceutical company with product candidates under development and products being commercialized, there are significant risks and uncertainties with respect to the company's business and the development, regulatory approval and commercialization of its products and other matters related to its operations. Given these uncertainties, you should not place undue reliance on these forward-looking statements, which speak only as of the date made. Actual results may differ materially from these statements. All forward-looking statements attributable to Aquestive or any person acting on its behalf are expressly qualified in their entirety by this cautionary statement and the cautionary statements contained in the earnings release issued yesterday. The company assumes no obligation to update its forward-looking statements after the date of this conference call, whether as a result of new information, future events or otherwise, except as required under applicable law. Now I would like to turn the call over to Dan. Daniel Barber: Thanks, Brian. Good morning, everyone, and thank you for joining us today. This morning, we are holding our earnings call from the American College of Asthma, Allergy and Immunology Annual Conference here in Orlando, Florida. This is one of the largest allergy-focused conferences in the U.S., and we are proud to be here supporting the college at their annual gathering. We have almost 20 colleagues on site this week and a host of events, including multiple poster presentations, a fully staffed medical affairs booth on the exhibition floor and multiple engagements with investigators. This truly is an exciting week for the Aquestive team. This is also emblematic of the increased awareness of our Anaphylm dibutepinephrine Sublingual Film program within the allergy community. In fact, our latest data suggests most allergists are now aware of our sublingual film program and over 25% have even completed our continuous medical education, or CME presentation offered through Medscape, the leading provider of CME materials for physicians. As we approach our FDA scheduled action date of January 31 for Anaphylm, we are well positioned from an allergist awareness perspective. In case anyone hasn't been paying attention, Anaphylm, if approved by the FDA, will be the first and only oral medication for the treatment of severe allergic reactions including anaphylaxis. Today, health care providers, caregivers and patients must choose between two types of medical devices: auto-injectors and nasal sprays. We believe our portability, low barrier to use and fast absorption profile creates a transformational offering for the allergy community. Following our equity raise and strategic financing agreement that we announced this past August, our prelaunch activities have accelerated and remain on track for a first quarter 2026 launch if Anaphylm receives FDA approval. Our marketing materials are ready to go and are only awaiting a final label. We are in the process of hiring our district managers and will hire sales reps upon FDA approval. Our market access team is in full swing and interacting with payers under acceptable preapproval guidelines. Our supply chain is prepared to rapidly produce material once final labeling has been provided by the FDA. And importantly, our medical affairs team is fully deployed, as you heard from my opening statements, regarding this week conference. Simply put, we are ready to go. Now let's turn to the FDA. Given the government shutdown, we requested the FDA to provide us with a status update on the review timing of our filings. I am pleased to say that as of this last update, the FDA confirmed they are aiming for an on-time review of our application. As we reported to you in September, the FDA has informed us that we will not have an Advisory Committee meeting. However, we remain ready to provide further information if necessary to the FDA reviewers. We will keep everyone appropriately updated as we learn more and as we get closer to our action date. As we begin looking towards 2026, there are 2 very important priorities in our business: one, putting together the best possible launch of Anaphylm; and two, exploiting the science behind our Adrenaverse platform. If you recall, we made the strategic choice to slow down our Adrenaverse pipeline initiatives in the first half of 2025, while we work on fully funding our launch. Now it is time to get going. To better accomplish these goals, I announced several leadership changes earlier this week. First, to better support Anaphylm, I've asked Dr. Gary Slatko to become our interim Chief Medical Officer. Gary has the perfect blend of medical affairs expertise and deep understanding of our Anaphylm development program. Some of you may recall, Gary was previously our Chief Medical Officer from 2018 to 2023. I have also promoted Peter Boyd to Chief People Officer. This is a critical role as we expand our organization to include a full commercial team. On the Adrenaverse side, I am very excited to announce the addition of Dr. Matthew Davis as our Chief Development Officer. Matthew and his team will be very focused in 2026 on kick-starting our R&D efforts and driving clinical proof points that show the value our Adrenaverse platform can create. While Anaphylm is transformational to the allergy community and to Aquestive, it is just the beginning of our story. Through the efforts of Matthew and his team, I am confident there are multiple significant programs yet to come. The first of these programs is our AQST-108 development program for the treatment of alopecia areata. We have completed the pre-IND meeting process with the FDA and we'll be submitting our IND shortly. We expect to be in the clinic with our next study, a safety study in men starting in January, and expect this study to complete rapidly. With the funding just received by the company, we will look to advance our progress on this front. Our international efforts for Anaphylm as well continue to gather steam. We had a positive interaction with Health Canada in the third quarter and are excited to share that no further studies are required for filing our application. We anticipate filing in Canada in the first half of 2026. We have also continued our interactions with the European Medicines Agency, or EMA, and expect to have full feedback regarding the application process by early in the first quarter of 2026. We will continue to advance our regulatory interactions as we work towards the appropriate partnerships in these territories. Our base business continues to be an important provider of cash flow and capabilities and we expect this to continue in 2026. We continue to see stable demand from Indivior, our largest base customer. We have also seen significant growth in our South American partnership focused on the Brazilian market. Our manufacturing team is prepared to take a leading role in supply of Anaphylm to our commercial team and eventually around the world. Finally, from a financing perspective, we are now well positioned to fully fund our business through the commercial launch of Anaphylm, if approved by the FDA. As Ernie will discuss with you in a moment, one of the last pieces to the puzzle in locking in our finances is refinancing our existing debt. We are well on our way with this effort. And as of today, I expect this to close before the end of the year. So to summarize, as we look forward, you should expect the following. We will be ready to launch in the first quarter if Anaphylm is approved on time by the FDA. We will begin to make rapid progress on our broader Adrenaverse platform and advance our pipeline. We will continue to actively progress our regulatory applications for Anaphylm outside the U.S. And our base business along with our financing from August have us financially well positioned for 2026 and beyond. Now I will turn the call over to Ernie. Ernie Toth: Thank you, Dan, and good morning, everyone. By now, you have seen our financial results in our earnings release that was issued last evening. As we typically do, we will address most of the discussion related to the third quarter 2025 results into Q&A. During the third quarter, we continued to execute on our strategy to support the continued development of Anaphylm, our lead epinephrine product candidate that has no needle, is not a device, is orally administered and is easy to carry. This includes the completion of the pediatric trial and supporting pre-approval launch activities for Anaphylm to increase awareness among physicians, payers and the advocacy community as we approach the PDUFA action date scheduled for January 31, 2026. To support the Anaphylm launch, we completed 2 financings during the third quarter. First, we completed an equity raise for $85 million, led by RTW Investments and included participation from Samsara BioCapital, EcoR1 Capital, Perceptive Advisors, Sio Capital Management, Capital Management and Nantahala Capital. Secondly, we completed a commercial launch financing of $75 million with RTW Investments that is subject to FDA approval of Anaphylm and satisfaction of certain refinancing and other customary conditions related to the company's existing debt. Under the terms of the agreement, RTW will receive a tiered single-digit percentage of annual net sales of Anaphylm in the U.S. for the treatment of type 1 allergic reactions including anaphylaxis, subject to a stated cap. These two financings provide critical capital that will support the company through 2027, enabling us to successfully bring Anaphylm to market if approved by the FDA and delivering new treatment option for patients in need. As required by the commercial launch financing, we are pursuing a refinancing of our existing debt. We have found the debt capital markets to be robust for our financing and hope to be in a position to announce a new debt partner in the near future. Aquestive's manufacturing business remains steady with a gradual decline of our licensee products, Suboxone, which accounts for the substantial part of our current operating revenue, being offset by growth across newer collaborations, including for the licensed products Ondif and Sympazan. In addition, the company being a U.S.-based manufacturer with intellectual property domiciled in the U.S. has a supply chain, which currently remains largely unaffected by both implemented and proposed tariffs, providing continued reliability and stability in production and global distribution for the near term. Now let's turn to the third quarter results. Excluding the impact of onetime recognition of deferred revenue in the third quarter of 2024, total revenues increased by $0.5 million or 4% year-over-year to $12.8 million in the third quarter of 2025. As a reminder, the onetime recognition of deferred revenue in the prior year was due to the termination of a licensing and supply agreement. Including the deferred revenue recognized in the prior year, total revenues decreased to $12.8 million in the third quarter 2025 from $13.5 million in the third quarter of 2024. Manufacturer and supply revenue increased to $11.5 million in the third quarter of 2025 from $10.7 million in the third quarter 2024, primarily due to increases in Sympazan and Suboxone revenues. Total revenues decreased to $31.5 million for the 9 months ended September 30, 2025, from $45.7 million for the 9 months ended September 30, 2024, due to onetime recognition of deferred revenue in the prior year. Excluding this onetime recognition of deferred revenue, total revenues decreased by $2.6 million or 8% year-over-year. Manufacturer and supply revenue decreased to $28.2 million for the 9 months ended September 30, 2025, from $29.3 million for the 9 months ended September 30, 2024, primarily due to decreases in Suboxone revenues, partially offset by increases in Ondif revenues. Research and development expenses decreased to $4.5 million in the third quarter of 2025 from $5.3 million in the third quarter of 2024. The decrease in research and development expenses was primarily due to lower clinical trial costs associated with the Anaphylm program, partially offset by increases in share-based compensation. Research and development expenses decreased to $14 million for the 9 months ended September 30, 2025, from $15.4 million for the 9 months ended September 30, 2024. The decrease in research and development expenses was primarily due to a decrease in clinical trial costs associated with the Anaphylm program, partially offset by increases in share-based compensation, increases in product research expenses and increases in personnel costs. Selling, general and administrative expenses increased to $15.3 million in the third quarter of 2025 from $12.1 million in the third quarter of 2024. The increase primarily represents higher pre-commercial spending of approximately $1.8 million, higher legal fees of approximately $1 million, higher regulatory expenses related to Anaphylm of approximately $0.6 million, higher personnel costs of approximately $0.2 million, higher share-based compensation expenses of approximately $0.2 million, partially offset by lower regulatory and licensing fees of $0.5 million and lower consulting fees of approximately $0.2 million. Selling, general and administrative expenses increased to $47 million for the 9 months ended September 30, 2025, from $34.2 million for the 9 months ended September 30, 2024. The increase primarily represents higher commercial spending on prelaunch activities for Anaphylm of approximately $6 million, higher regulatory fees related to the Anaphylm PDUFA fee of approximately $4.3 million, higher personnel costs of approximately $1.1 million, higher regulatory expenses related to Anaphylm of approximately $1 million, higher share-based compensation expenses of approximately $0.7 million, higher legal fees of approximately $0.6 million and higher regulatory and licensing fees of approximately $0.6 million, partially offset by decreases in severance costs of approximately $1.1 million and lower insurance expenses of approximately $0.6 million. Aquestive's net loss for the third quarter of 2025 was $15.4 million or $0.14 for both basic and diluted loss per share compared to the net loss in the third quarter of 2024, of $11.5 million or $0.13 for both basic and diluted loss per share. Excluding the impact of onetime recognition of deferred revenue, the net loss in the third quarter 2024 was $12.7 million. Aquestive net loss for the 9 months ended September 30, 2025, was $51.9 million or $0.51 for both basic and diluted loss per share compared to the net loss for the 9 months ended September 30, 2024 of $27.1 million or $0.32 for both basic and diluted loss per share. Excluding the impact of onetime recognition of deferred revenue, the net loss for the 9 months ended September 30, 2024 was $38.6 million. Non-GAAP adjusted EBITDA loss was $8.6 million in the third quarter of 2025 compared to non-GAAP adjusted EBITDA loss of $6.6 million in the third quarter of 2024. Excluding the impact of onetime recognition of deferred revenue, non-GAAP adjusted EBITDA in the third quarter 2024 was a loss of $7.8 million. Non-GAAP adjusted EBITDA loss was $35.5 million for the 9 months ended September 30, 2025, compared to non-GAAP adjusted EBITDA loss of $11.9 million for the 9 months ended September 30, 2024. Excluding the impact of onetime recognition of deferred revenue, non-GAAP adjusted EBITDA for the 9 months ended September 30, 2024 was a loss of $23.4 million. Cash and cash equivalents were $129.1 million as of September 30, 2025. Aquestive's full year 2025 financial guidance remains unchanged. The company expects total revenue of $44 million to $50 million and non-GAAP adjusted EBITDA loss of $47 million to $51 million. As a reminder, our revenue guidance for 2025 no longer includes revenue for Libervant for ARS patients aged between 2 and 5 years, and our 2024 revenue included onetime nonrecurring recognition of deferred revenue related to termination of certain licensing and supply agreements. Our non-GAAP adjusted EBITDA loss guidance for 2025 include significant preapproval launch spending for Anaphylm, costs associated with the submission of the Anaphylm NDA and related filing fee, completion of the Anaphylm pediatric clinical trial and costs associated with the preparation for the potential Advisory Committee meeting that is no longer required by the FDA for approval of Anaphylm. With that, I will now turn the line back to the operator to open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of David Amsellem with Piper Sandler. David Amsellem: Just a couple for me. First, any new comments on your competitors' citizens petition and how that may or may not impact the timing of the FDA decision? And also, have you responded to the citizens petition? Just kind of latest thoughts there. And then secondly, I wanted to ask you about pricing and access just given whatever learnings you might have had from the experience of your competitor in its launch. How are you thinking about pricing relative to the nasal spray and the generic EpiPen? And also how does that play into your strategy on access? Yes. Daniel Barber: David, so let me start in more general place and then I will come to your specific question. We're sitting here today with the team here in Orlando, Florida, the college, the ACAAI conference. What's exciting is everything is coming together. So if you look at the pieces and the parts of what we're trying to accomplish, what you're seeing today is how they're starting to intertwine. So the FDA review is in good shape. We'll talk about that in a minute with your comment. Our financing is in place. The market grew by almost 9% last quarter. We've expanded our patent coverage. We're bringing in the right team. And our prelaunch activities, as I'm sure you'll hear from Sherry throughout the Q&A, are in great shape. So we're incredibly excited with where we are right now. Now so let's turn then -- let's take that excitement and let's turn it to the CP that our competitor put into the FDA, which you asked about. So think about -- and David, I don't know if you read all 16 pages of that document. But think about what it took to create that document. A very expensive DC-based law firm was hired. That law firm had to write the document, put it together, review it with the organization and then finalize it and send it to the FDA. And I will tell you that was a significant -- my belief is that was a significant amount of resources by our competitor, by the law firm and probably a big bill. So companies only do that if there's a reason to do it. I don't think they did it because they felt a civic duty to do it. I think they did it in my personal opinion because they're worried. Because they're worried about what we're bringing to the market and what it does to them. Now why should they worry? What can I focus on to say they should be worried? If you look in the supplemental materials that we put out, you'll see that our latest survey work, and I'm sure they're doing their own survey work, shows that when you send a mockup, a nonpromotional version of the nasal spray and the film to a person who's familiar with this space and ask them what product they would prefer, in our survey, which was 35 individuals, 33 of them said they would prefer the film. One of them said they would prefer the nasal spray and one said that they were indifferent to whether it was the nasal spray or the film. So when I look at that and I look at why that CP was put in, that makes sense to me. Now in terms of the content of the CP, we have taken the time -- it was definitely a kitchen sink approach so we have taken the time to unwind all of it and look at it. And in terms of our review of what they have put forward, it is factually incorrect in a variety of places and misinformed. We think that hurts the credibility with the FDA. And from our perspective, we've seen zero impact to our review and expect zero impact. So now let me turn to your second question, which was on pricing and access, and I'll hand that over to Sherry. Sherry Korczynski: David, thank you for the question. While we have not disclosed our WAC price, we do believe there is significant value in our innovation. As you know, the branded epinephrine market has been set by the currently available product. So with that being said, we understand the challenges, and we plan to price responsibly with a patient-first approach to our pricing. We have and we're continuing to explore a lot of options to ensure that there is broad access, which includes cash pay, co-pay savings program. And we're actively working with the payers for coverage. So we do plan to have a range of options for patients to be able to access Anaphylm. But as you know, the path to a patient having an Anaphylm or any product in hand takes a lot of work. And so access and patient support is critical. We have been spending our time and our resources with payers engaging in preapproval information exchange with our clinical team and the clinical teams of payers. We have what we believe is a very strong value prop and our strategy is beneficial to patients. So we will continue to -- we'll come back to you at the right time with what will set pricing. But I think that you can certainly look around us to get an idea. Operator: Our next question comes from the line of Kristen Kluska with Cantor Fitzgerald. Rick Miller: This is Rick Miller on for Kristen. We'll have one here and then a follow-up on potential partnerships ex U.S., you're moving forward with these regulatory interactions. So how do you think about the optimal timing from a value perspective as to when to partner out ex U.S.? And maybe give a sense of what those potential partner conversations have been like at this stage? And then we'll have another follow-up. Daniel Barber: Sure. So obviously, we see Anaphylm as being a global product. We think it can be broadly distributed across a variety of markets. And so we've started that work now to go into the major markets outside the U.S. Clearly, EMA, Canada, the U.K., Japan, those are the key places from a value perspective, but obviously, even broader across the world, the need is real. In terms of -- and we have also publicly stated, just to remind everyone, that we're not interested in having an international footprint of our own so we will license outside of the U.S. In terms of when the right time is to partner, those conversations are always ongoing. Clearly, the closer you are to an approval, the more valuable the product and the partnership can be. So from my perspective, we need to get farther along with our regulatory interactions. In Canada, we'll have a filing, we believe, in the first half. In Europe, we'll know shortly if there's any work to do in addition to what we've done to be prepared for our filing and then we'll move on to a filing. So I think as we move towards those steps, that's a good inflection point for the conversations that are already active to get to something that is meaningful and real for the organization. Rick Miller: And maybe then you mentioned being at the conference right now. What are some of the takeaways you're hearing around the conference, especially around your medical affairs booth as it relates to excitement for new potential additional needless epinephrine options? Daniel Barber: Sure, sure. Well, I have to say that the main part of the conference is ahead of us. So the medical booth and the exhibition hall and all of those things starts tomorrow. So we're all here getting ready and excited about it tonight. We'll actually have a bunch of our investigators together to talk about our program and what they're excited about. I will tell you that as I walk the halls with people who are getting ready for the conference here, one, the amount of comments that are around the excitement of our product coming is palpable. And two, the desire to know and learn more is real. So to me, those are two really good signs that we've hit a need that is meaningful, and we'll obviously be continuing those conversations throughout the weekend. Operator: Our next question comes from the line of Raghuram Selvaraju with H.C. Wainwright & Co. Raghuram Selvaraju: Firstly, with respect to the Anaphylm outlook, I was wondering if you could, a, perhaps give us a sense of how you are thinking about the parameters you anticipate sharing with the investment community as and when Anaphylm gets to the market and what specific takeaways you are planning to get from the neffy commercial introduction, in particular with respect to factors that might educate how you position Anaphylm in the market upon launch. And also if you could comment on the MSN pricing situation and how this affects your approach to thinking about pricing in ex U.S. markets. Daniel Barber: Yes, yes. Ram, so I'll take a few of those pieces. And in terms of the positioning in particular, I'll hand it over to Sherry in a minute. So in terms of when we plan to come to market. So our PDUFA date is January 31. Our guidance remains the same that we believe we'll be able to launch in the first quarter, so by launch, we mean have sales reps trained and in place and have our supply chain providing product to distributors for fulfillment of prescriptions. In terms of -- let me actually go to the last piece first, the most favored nation pricing, we are following that closely. Right now, we don't see any impact on our ex U.S. potential partnerships and how that would affect pricing here in the U.S. But obviously, we'll be keeping an eye on that. And as legislation or executive orders evolve, we'll make sure that our -- we're at the right stage where we can make sure we protect the U.S. market from any of those issues that pop up. So in terms of positioning, before I hand it over to Sherry, just a couple of global comments from me. One, we are clearly different from the medical devices that are in the market. And I'm sure Sherry will say way better than I will why we believe that so firmly. Two, when I look at the market and what happened in Q3, and it follows Q2 and Q1, this market is growing. And it's actually growing in the auto-injector space. 95% of the scripts are auto-injectors. So that is the focus. That is the spot where the market is for us to go grab, and that's where our energy will be. But I'll let Sherry talk about how we're positioned. Sherry Korczynski: Yes. Thanks so much, Ram, and thanks for the question. As we think about our launch, we are taking a differentiated, focused, patient-centric approach along with a very disciplined commercial strategy. And then that puts us on track for a highly successful launch. What we know is that patients want choice. They have not had choice for decades. And so when we speak to -- when we're doing our market research, and Dan alluded to it earlier in the call, we find that the allergy community, whether it is patients, caregivers, advocacy organizations and the HCPs, they all continue to be very positive. And why is that? Well, patients went choice, as I said. And mothers, who are the Chief Medical Officers of the home, as you know, are telling us that because Anaphylm is the easiest to carry, it's the easiest to use and it's fast acting, that Anaphylm is a great choice. And so for the millions of people that are at risk for anaphylaxis who may have avoided epinephrine, did the device and bulk and needle anxiety, the fact that Anaphylm is not a device, that form factor is so critically important, and it really removes the final barrier to people caring and having epinephrine on hand at all times. The guidelines recommend always have 2 forms of epinephrine. So always carry 2 auto-injectors or carry 2 nasal devices. And so what Anaphylm does is it removes that barrier because, as you know and you've seen, it fits right in the back of your phone or in a small wallet. I think the other thing really to keep in mind that is critically important, and we continue to hear this in our market research and engagement with physicians is Anaphylm's exceptional stability profile means that Anaphylm can perform across diverse real-world conditions. So I think there's a lot of differentiation between, we believe, and patients, caregivers and HCPs are out telling us between Anaphylm versus the devices. And we continue to -- we'll be driving that message as we launch in Q1. Raghuram Selvaraju: Very helpful. And just very quickly on the Adrenaverse platform. I was wondering if you could comment on what the alternative routes of administration and formulations are starting to look like beyond AQST-108, if there are other topical gels or if you're looking at deploying the Adrenaverse platform via alternative routes of administration beyond the topical arena? And then lastly, just very quickly for Ernie. I was wondering, if you look at the debt refinancing initiatives, what you are prioritizing most, is it the longest possible maturity date? Or is it the lowest possible coupon? Just give us a sense of what you're looking to accomplish there. Daniel Barber: Why don't I have Ernie take the second part and then I'll address AdrenaVerse. Ernie Toth: Ram, so what we're looking for most of all, besides the things that you talked about, we're always looking for a coupon and the lowest interest rate and the flexibility, is really finding a partner that we can grow with as the company grows and someone that we feel we can work with as we move forward to grow the company. And we've been very fortunate as we've gone through this process. The number of lenders, potential lenders that we've spoken to that have wanted to partner with us and to meet those qualifications. So we feel we're in a good place. And as I said in my script, we hope to be able to announce that new debt partner in the very near future. Daniel Barber: And to take the other question, Ram, which thank you. I appreciate you pointing that out. So the sky is the limit right now in terms of the types of delivery systems we use with our Adrenaverse platform. Now that we have -- and we've created the Chief Development Officer role, and we have someone focused on our pipeline who has the depth of experience that Matthew Davis has, we'll, of course, continue the cream gel foam work that we're doing. But there are indications that could be envisioned in a variety of different routes of administration including film, capsules, potentially even if it was something that required it, injectables are available. So we're not limiting ourselves to the route of delivery. We're much more focused on as we have been with Anaphylm, what is right for the patient for the solution we're trying to bring. Operator: Our next question comes from the line of Andreas Argyrides with Oppenheimer & Co. Andreas Argyrides: We'll go with a couple from us, not just the one that you guys suggested. So how are the current launch dynamics with neffy informing your initial commercialization strategy? Particularly, what are some of the tools you can use to create awareness? Are you considering DTC? And then in your dialogue with the FDA, can you remind us what components of the data they are focused on and key considerations for approval? And then lastly, given the product profile, how should we think of scripts per patient per year? Is it multipack? I'll stop there. Daniel Barber: Sure, Andreas. And I'll have to find out the question that we recommended to you. I'm kind of curious to know what that was. But having said that... Andreas Argyrides: It was limiting -- Dan, it was limiting you to one question per analyst. Daniel Barber: Got you. I thought we were giving you questions. How about that. That was news to me. I think that was more trying to manage the time. But Andreas, of course, happy to answer your questions and spend time with you. So let me take a couple of those. In terms of awareness, I will hand that over to Sherry in a minute here. In terms of where the FDA has been focused, it has -- and just to remind everyone, we have 6 FDA approvals in our past. So when you go through the FDA approval process, there's a cadence, there's a pace, there's a feel. And you look for the questions to come from a variety of areas. And that's what we're seeing here that the different functions in the FDA are doing their jobs, completing their checklists and asking us the questions you would expect. So that feels really good. In terms of DTC, when I hear DTC, I will admit I default to big television ads like the World Series or the Super Bowl and splashy campaigns. Sherry and I are very aligned. We're not doing that in 2026. Now in 2027, 2028, who knows? But before I hand it over to Sherry, that stuff, you won't see. And that's where we'll be very efficient. But let me have Sherry tell you more about her thoughts on awareness. Sherry Korczynski: And thanks for the question. One of the benefits of being second is that you get to see what those ahead of you went through. And so our teams continue to systematically assess and gather insights from the most recent launch to inform our commercialization plans. But I'm going to go back to -- and I'm going to keep coming back to our plan is very differentiated in that we are going to be very focused, very disciplined and have a patient-centric launch. And so while our competitors may have gone out with be very broad in all of their sales and marketing tactics, we're applying this very disciplined approach to focus on and drive adoption among the most productive prescribers at launch. And as I said a lot of times, the epinephrine market is an inch deep and about 10,000 miles wide. Prescribers range from primary care physicians who write 1 to 2 prescriptions annually to allergists who prescribe 200-plus prescriptions of epinephrine per year. And so the allergists are the most productive segment, and so we are taking a very disciplined approach with the allergists to launch. And so what you'll find is we will -- as we drive our results, as we -- our market access and payer coverage comes on board, we will have the ability to scale. And so that is a different approach that we're employing. As it relates to DTC, Dan and I always -- we do laugh about this, what is DTC? At the end of the day, we're applying that same disciplined approach to DTC. Our prelaunch plans and activities have been focused on HCP. Dan mentioned the CME activities. We've also been driving non-CME programs, publications, congresses, being with the community KOLs and state level allergy associations and congresses. Our plan post launch is to drive awareness, number one, and most importantly, with those allergists and to get them ready to prescribe as they see the patients that come in who are patients who will benefit from Anaphylm. That's very important. Over time, we will layer in then that strong consumer and caregiver awareness. But there is a disciplined, timed approach to it. So you will see DTC from us, not necessarily TV in year 1, but there will be a number of activities, digital, print, et cetera, that are aimed at the consumer. Daniel Barber: And Andreas, I'll take a question one part D. So in terms of the number of scripts, rather than -- so the way we look at it, there is a desire among this patient population to have multiple scripts because they want to have product put in different places, at grandma's house, in their child bag, at the nurse's office, in their bag or on the back of their phone. And so there's a reality around pricing and market access that all of us, not just Aquestive, but all of us have to work through. But our goal is to enable people to have as many scripts as possible. Operator: Our next question comes from the line of François Brisebois with LifeSci Capital. François Brisebois: So just a couple. Can you -- Sherry, you kind of talked about a more targeted approach. Can you break down a little bit more on the allergist front? And just how many are there? And are they tiered in terms of like certain allergists are definitely the ones to target at first? And then can you touch on how many reps could help you get to that point? Sherry Korczynski: Yes. It's a good question. Thanks so much for answering that. As I mentioned, the allergists are the most productive segment. They prescribe on average 200 prescriptions annually. That's a lot of prescriptions. So our reps will be focused in the allergy space to call on all of the allergists. Now obviously, within that allergist pool, there are some prescribers that are more productive than others. But overall, we know that by -- and based on my experience, as you probably know, I ran the EpiPen brand team for a number of years where we grew the market from about 1.5 million scripts to 3 million scripts. And so what we know is and what I know is that allergists space is key. When you think about the prescriber base, that prescriber base of about 5,000, we would expect to launch with the sales force, as we've said publicly before, between that 50 to 60 reps and managers. François Brisebois: Okay. Great. And then maybe, Dan, you touched on the growth of the market. I think that's coming up a lot. A lot of people are interested in whether or not this market, just you're taking share of it or you're growing the whole thing. Can you help us understand where the 9% you mentioned come from? Daniel Barber: Yes. Yes, Frank. So to give a little bit more precise when we just look at the script data that's in the systems we can access, 8.8% growth in Q3, 7.5% growth year-to-date in the space. When you break that down into where the growth is coming from, by far, the larger number of script growth is in auto-injectors. So I think what you're seeing is as awareness is pulled into the space, that just grows -- it's the rising tide raises all boats is our interpretation of what we're seeing. The second biggest category, of course, is the nasal spray scripts. So we do think that you're seeing the 2 elements play out. One is the switch over from one product to another, and two is just the expansion of the overall market. So we think that's a very healthy place to be. 95% of scripts remain auto-injectors, and that's what we'll target. Operator: Our next question will come from the line of Jason Butler with Citizens. Jason Butler: First one, when you speak to physicians, when you do your market research, aside from the advantages of the administration route and convenience of administration, what are the aspects the physicians -- product profile the physicians are really focusing on? To what extent is it PK profile versus safety tolerability versus anything else? And then just another question on your comments about the Adrenaverse platform. Does part of this effort involves applying the prodrug technology to any other molecules beyond epinephrine? Daniel Barber: Yes. Jason, so I'll give my initial thought, but I'll ask Dr. Gary Slatko, to give his view on what will be most important from physicians from an efficacy or safety profile perspective. So what I've seen is that you have a product with EpiPen that's been in the market for 45 years, right? So the HCPs want to make sure that the product we're bringing to market has the same ability to help patients that the product that's been out there for 45 years has done. And I think we have a really compelling package that does that. And I'll let Gary add his thoughts. Gary Slatko: Yes. I think many of the products in the epinephrine class are intended to stabilize the cardiovascular system in the event of anaphylaxis and reverse the mast cell degranulation that's occurring that's underlying the allergic reaction. And the characteristics we've seen in terms of blood levels and pharmacodynamic effects are very similar across the board to the comparator products. Anaphylm has a couple of interesting characteristics that might translate into clinical benefit, but would need further studies such as its speed of increase in its blood level and early time to maximum concentration and its sustained effect as well are both could bode well for having a treatment benefit in patients who need an early robust intervention. I think the other thing that -- the question that clinicians might have it has to do with can it be administered -- can it be administered and is it safe? And administration, we have a very robust human factors program, which has looked at everything which way about different conditions of administration, self-administration and the like. And all of them have shown that this product can be administered in the field by patients successfully. And the safety profile, as with all epinephrines, is consistent with what we see with all the existing product. So I think we've got a very comparable profile overall and some interesting potential advantages. Daniel Barber: Yes. And let me move on to the second question, Jason, you had, which was around Adrenaverse. So look, just prodrugs is not that unique in our space. So I don't know -- our intellectual property estate really is around epinephrine in a prodrug form because that's the white space we found and created. So I think in the near term, you'll see us focus on solely epinephrine. But with the significant resources and expertise we're bringing into our development area, we, of course, are always looking at what other technologies or expansion in technologies can we meaningfully use to bring better products to the patients. Operator: [Operator Instructions] Our next question comes from the line of Gary Nachman with Raymond James. Denis Reznik: This is Denis Reznik on for Gary Nachman. So you recently announced two new patents for Anaphylm. Can you just talk more about them and how important these two specifically are for the overall patent portfolio? And then on supply chain, assuming an on-time approval, how quickly could you get drug into channel? And then how quickly can you get the first prescription filled? And then if I could just squeeze in one more. Regarding the uncertainty at the FDA that we've been hearing about recently, can you just mention if there's been any high-level individuals that are involved in your review that have been either replaced or have moved on? Daniel Barber: Sure. Thanks, Dennis. So in terms of the patents, yes, we had two new patents issued just over a month ago. And both of those patents are focused on the ability to gain absorption and then rapid release of epinephrine cleavage of -- enzymatic cleavage of epinephrine back into its native form. So we believe those are significant Orange Book listable patents. When we're approved, that will be very expansive and blocking for the product. So definitely fundamental to our position. From a supply chain perspective, look, there's a little bit of work that has to happen, right, when you get approval. So you have to work on the final label, get all the pieces and parts together. We have a great supply chain component of our business. It does go to the core of where we've come from as an organization. I think you know we manufacture in-house. So that will be something we're very ready for and will allow us to have supply in the channel in Q1. And then the third question, the uncertainty at the FDA, I'm actually -- thank you, Dennis, for bringing it up. I'm actually, I guess, pleasantly surprised that we got this far into the Q&A before that question came up. Clearly, the FDA is going through some pains. From our perspective, our review group has remained the same. We did -- as you heard in my prepared comments at the beginning, we've heard from our project manager that our application is not affected. Obviously, we saw the Head of CDER left over the weekend. But from our perspective, the leadership at CDER is more of just a sign-off on our application than an active reviewer. So we continue to believe we're in good shape on that front. Operator: [Operator Instructions] Our next question comes from the line of James Molloy with Alliance Global Partners. James Molloy: Let me follow up a little more on the manufacturing capacity. What do you guys -- at the capacity on approval, can you guys supply the whole market on approval? And where do you guys -- where is Anaphylm manufactured? And then I don't know if you guys have given any -- on the Anaphylm, what's the pushback that you've gotten from docs on Anaphylm? Because seems like the feedback is very positive to date. Daniel Barber: Sure. So I think I heard your first question, right, Jim. Good to hear you voice. Manufactured capacity and where is it manufactured? Capacity-wise, so we, this year, will make 150 million doses of film for all of our other partnerships and arrangements. So when you look at the entire epinephrine market being less than 10 million doses, that means we have plenty of space to make this product. In terms of where it's manufactured, our manufacturing is in Indiana. We do have some component manufacturers that go into our products that are all U.S.-based. So we are a completely U.S.-based manufacturer. And from Anaphylm, I think your question was what are we hearing from physicians that may be a little bit of pushback or need to be convinced. And I would go back to what Gary said before. With any new product, the first thing you need physicians to feel comfortable with is the safety and efficacy of the product. So that's foundational. We understand that. You heard the depth that Gary brought to how he thinks about it. That's what our medical affairs team is doing every day. And we're prepared to make sure we do a really good job with that piece. James Molloy: Great. And then maybe just a quick follow-up on 108. Can you talk a little bit on Phase II time you said first half '26 and then sort of the size and the duration of that trial should it get started? Daniel Barber: Yes, yes. And thank you. I love when I get questions on AQST-108, which is our alopecia areata program. And I look forward in future calls having Matthew Davis here to talk in depth about it. But I felt on day 4, it was probably unfair for me to have him here. So we -- the first study we'll do is a small safety study, which is in just a handful of men who are bald just to make sure we have the safety data we need to fulfill the FDA's requirements. We will then quickly go into our Phase IIa. Right now, our design is to have it be a 24-week study. We will have data along the way. And that study will look at hair follicle growth over different periods of time. In terms of the size, we're still scoping that out. But I would think of it as somewhere between 40 and 60 individuals. Operator: Thank you. And I would now like to hand the conference back over to Dan Barber for closing remarks. Daniel Barber: Thanks, Michelle. And thank you again to everyone for joining us this morning. We really enjoyed the robust interaction from all the Q&A. And as I said earlier in the call, this is a really exciting time where we really feel everything coming together for the company. We have the right financing, the right people and the positive FDA interactions as of today to remain excited about not just our near-term prospects but our long-term prospects. We look forward to interacting with you again in the near future. And with that, we hope you have a wonderful day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. I'm Constantino, your Chorus Call operator. Welcome, and thank you for joining the Turkcell's conference call and live webcast to present and discuss the Turkcell's Third Quarter 202 Financial Results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Ozlem Yardim, Investor Relations and Corporate Finance Director. Ms. Yardim, you may now proceed. Ozlem Yardim: Thank you, Constantino. Hello, everyone, and welcome to Turkcell's 2025 Third Quarter Earnings Call. On the call today, we have our CEO, Ali Taha Koc; and CFO, Kamil Kalyon. They will provide an overview of our financial and operational results for the quarter, followed by a Q&A session. Before we begin, I would like to kindly remind you to review our safe harbor statement, which is available at the end of our presentation. With that, I will now turn the call over to Mr. Ali Taha. Ali Koç: Thank you, Ozlem. Good afternoon, everyone, and thank you all for joining us today. This quarter once again demonstrated Turkcell's strong momentum powered by disciplined operations, sharp execution and the strength of our growth engines. We delivered 11% revenue growth, reaching TRY 60 billion, driven primarily by our core telecommunication business. Strong ARPU performance, a growing subscriber base and rising data center revenues all contributed to this outstanding performance. Group EBITDA increased 11% to TRY 26 billion, achieving a solid 43.9% margin, a clear reflection of our continued cost discipline. In addition to our operational success, prudent financial management strengthened our bottom line. Lifting net income from continuing operations up by 31.8% to TRY 5.4 billion. Competition remained intense this quarter. Even so, we added 569,000 net postpaid subscribers. Through targeted pricing and upselling, mobile ARPU rose 12%, once again proving our ability to deliver double-digit growth in a highly competitive environment. Residential fiber ARPU also grew by 17.3% year-on-year in the third quarter. Our strategic growth areas also continued to perform strongly. Data center and cloud revenues grew 51%, and our renewable energy capacity from solar fields across 4 cities in Turkiye has reached 37.5 megawatt. Next page, please. We are proud to reinforce our leadership with the successful outcome of the 5G spectrum tender, a defining milestone for Turkiye's digital future. The results were exactly in line with our expectations and reaffirm our leadership position. We secured 160 megahertz of spectrum, the maximum capacity available to a single operator in this tender. This allocation enabled us to deliver speeds exceeding 1,000 megabit per second while paving the lowest cost per megahertz per subscriber among all operators. 5G will be commercially launched in April 2026, marking the beginning of a new chapter in Turkiye's digital transformation. It will empower industries such as manufacturing, transport, health care and education with high-speed connectivity to regions that currently lack fiber access. Once 5G officially launches, these customers will be among the first to experience 5G speeds. And just as we have done over the past 30 years, we will continue to lead in this new era of connectivity. We are fully ready to shape Turkiye's 5G future and drive the next wave of digital transformation. Next page, please. Let's take a closer look at the key operational highlights from the third quarter. Competition in the mobile market was strong as we expected, maintaining our dynamic and customer-centric approach, we continue to expand our customer base. We recorded 569,000 net postpaid additions, bringing our total net gains to 2 million over the past 12 months. As a result, our mobile subscriber base exceeded 39 million. Leveraging our AI-driven dynamic micro segmentation approach, we executed our upsell strategies with precision. We offered customers precisely targeted offers, moving the vast majority of our base to higher tier plan. In addition, the share of postpaid subscribers, a key driver of revenue growth, rose by 4.6 percentage points year-on-year to 79%. These efforts, together with higher seasonality, delivered double-digit mobile ARPU growth of 12%, reflecting our continued focus on value-driven growth. Our mobile churn rate was 2.6%, primarily reflecting the ongoing competition and high activity in the number portability market. Next page, please. Now let's move on to our fixed broadband operations. With a focus on fiber customers, we had a net add of 33,000 this quarter, bringing our Turkcell fiber base to over 2.5 million. Including sales over other operators' infrastructure, we introduced 55,000 new customers to high-quality fiber services. Our fiber strategy is best described by a simple principle, high quality and high speed. With this approach, since last year, we remain committed to offering 1,000 megabit per second speeds and delivering greater value to our customers. Year-on-year, the number of subscribers on these plans more than tripled. With effective pricing adjustments, a higher proportion of customers on 100 megabit per second plus plans and 88% commitment rate to 12-month contracts, our residential fiber ARPU grew 17.3% year-on-year in the third quarter. As we continue to strengthen our fiber network, we expanded our footprint with 107,000 new home passes, reaching 6.2 million households. Our 42.6% take-up rate is a clear indication that our fiber investments are effectively planned. Next page, please. Let me now turn on to our strategic areas, beginning with Digital Business Services. Digital Business Services delivered robust 97% revenue growth, reaching TRY 4.9 billion, supported by recurring service income and stronger hardware sales. The backlog from system integration projects reached a remarkable TRY 5 billion. Data center and cloud revenues continued their strong momentum, increasing 51% year-on-year in real terms. We had targeted an 8.4 megawatt capacity expansion at the beginning of 2025, guided by our vision of keeping Turkiye's data within Turkiye, and we successfully activated that capacity in this quarter. Thanks to our early-stage investment, we have established a strong market position, becoming the leading player in the enterprise colocation market. We are preparing for our next strategic move in data centers and cloud businesses, which will further strengthen our leadership. Next page, please. Now moving on to another of our strategic pillars, techfin. Our techfin ecosystem, representing 6% of consolidated revenues achieved 20% year-on-year growth in the third quarter, outpacing the group's overall performance. This growth was mainly driven by our digital payment company, Paycell, which achieved a 42% increase in revenues. Within Paycell, POS and Pay Later services were the key contributors supported by favorable regulatory revisions in mobile payment limits and broader adoption of POS solutions. Our Financell brand, providing customers with fast and flexible financing solutions continued to expand its loan portfolio, reaching TRY 7.5 billion despite the high interest rate environment. The net interest margin improved to 5%, driven by more favorable funding costs. Financell continued to support the sales of Samsung A26, locally manufactured 5G smartphone exclusive for Turkcell with a total of 54,000 contracted sales since its launch in April. Next page, please. Despite global geopolitical and macroeconomic headwinds, we delivered performance that exceed our expectations over the first 9 months of the year. In line with these strong results and the revised CPI outlook, we are upgrading our 2025 guidance. Reflecting our solid momentum and confidence in the sustainability of our results, we are revising our revenue growth expectations upwards to around 10% and raising our EBITDA margin target to 42% to 43% range. Even as we continue our intensive investment cycle, we are revising our operational CapEx to sales target to around 23%, mainly driven by the acceleration in revenue recognition. As for our data center and cloud revenues, we are also revising our growth guidance upwards to around 43%. With that, I will now hand over to our CFO, Mr. Kamil Kalyon, to walk us through the financial highlights. Kamil Kalyon: Thank you very much, Ali Taha. We had a solid quarter driven by continued momentum in our core business and techfin expansion. We achieved 11.2% year-on-year revenue growth, fueled by strong execution across our key business lines. Turkcell Turkiye remained the main top line driver, contributing TRY 5.5 billion of additional revenue. This was supported by double-digit real ARPU growth, a larger postpaid base and solid performance from digital business services. Techfin added TRY 569 million in revenue, driven by solid growth at Paycell, particularly across POS and mobile payment verticals. On profitability, margins reflected our ongoing investments to enable 5G rollout and to capture the strong growth momentum in Paycell transaction volumes. At the same time, personnel and energy costs contributed positively to our overall performance. Overall, we maintained a solid profitability level, demonstrating the strength of our operating leverage and disciplined cost management. Next slide, please. Profit from continuing operations increased 31.8% year-on-year to TRY 5.4 billion, reflecting focused execution and effective cash management. EBITDA contribution totaled TRY 2.5 billion for the quarter, remaining the key driver of profit growth. Despite persistent competition, Turkcell sustained its leadership through a clear strategic focus and efficient execution. We prudently managed our net finance income and expenses this quarter, resulting in a year-on-year contribution of TRY 1.5 billion. With FX depreciation decreased to nearly half of last year's level, we recorded a positive FX impact of TRY 912 million. Despite a higher nominal debt level versus Q3 2024, our strong financial discipline and proactive funding strategy led to a decline in interest expenses to TRY 677 million. Meanwhile, although interest income remained limited, returns were supported by a well-diversified and efficiently managed investment portfolio. Our strong cash position, together with the slower inflation growth year-on-year resulted in a monetary loss this quarter. Next slide, please. Turning to our investment strategy with a clear focus on 5G readiness. CapEx intensity was 17.4% this quarter, reflecting our continued commitment to strengthening network infrastructure and preparing for next-generation technologies. With the largest spectrum allocation secured from the 5G tender, we are maintaining our investment momentum at full speed. This quarter, approximately 80% of CapEx was directed towards our core businesses, mobile and fixed broadband. Our base station fiberization rate surpassed 45% this quarter, laying the groundwork for a seamless and efficient 5G transition. In our data centers, we activated an additional 8.4 megawatts of IT capacity, bringing the total to 50 megawatts. On the renewables side, solar capacity reached 37.5 megawatts with further expansion expected in Q4. We have started to see savings from renewable energy investments this year with a more visible impact expected in 2026. Given the expected ramp-up in 5G investments and seasonal factors in Q4, we continue to manage our CapEx with a disciplined and value-focused approach. Our revised guidance reflects both the progress of our investment programs and our commitment to efficient capital allocation. Next slide, please. Moving now to our balance sheet. Our cash position reached TRY 122 billion in Q3. The second dividend installment will be paid in Q4, while under the 5G tender, the first 2 installments are scheduled for 2026. We consider our current liquidity as strong, sufficient to cover upcoming 5G payments and debt service over the next 2.5 years. We are well prepared, having issued a Eurobond earlier this year and secured Murabaha fundings on favorable terms in the first half. Our net leverage ratio increased slightly to 0.2x, but remains comfortably within healthy levels, reflecting our continued financial discipline. Given the 5G payment schedule, we expect leverage to remain below 1x in the upcoming periods. Debt repayments of around USD 1 billion are expected to be completed by year-end, of which USD 800 million is denominated in foreign currency. Next slide, please. Finally, a brief update on our FX risk management, 81%. As of Q3, we held USD 3.9 billion FX debt and USD 3 billion FX-denominated financial assets and USD 800 million derivatives portfolio. We maintain a dynamic FX risk management strategy. We actively manage a short-term derivatives portfolio to mitigate potential FX volatility while accounting for higher hedging costs. We closed the quarter in a neutral FX position. Following the acquisition of the 5G license, our net foreign exchange position is expected to increase. We will closely monitor market conditions and proactively manage this position over the next 1.5 years until the full 5G license payments are completed. Therefore, during this period, we will not apply our neutral position definition. That concludes our presentation. We look forward to addressing your questions. Thank you very much. Operator: [Operator Instructions] The first question comes from the line of Singh Maddy with HSBC. Madhvendra Singh: My first question is on your CapEx and dividend outlook, especially given the recent 5G auction win. I wonder -- for this year, you have given the guidance for CapEx, so that's fine. But I was wondering whether next year, we should expect a significant jump in the CapEx to sales intensity and whether this spectrum payment is going to affect the dividend payments at all? So that's the first question. And then the second question is on your pricing action during the quarter? Did you increase any prices? And how was the competitive response to that? Are you comfortable around the pricing environment? So that's the second one. And then the final one, actually on your final comment about the net short FX position, you said the definition will not be applicable going forward. So can you please explain what do you mean by that? And how should we think about the FX losses going forward, yes? Kamil Kalyon: Thank you very much, Maddy, for the questions. First question and third question will be responded by me. First of all, -- for the next year, CapEx intensity, we are not expecting higher jumps. As you know, starting of this year, we declared 24% CapEx sales ratio for this year. Now we revised it to 23%. For the next year period, we do not -- we will not be in a position exceeding the 24% around the CapEx intensity levels will be around this 24%. We will see the budget figures that will come from the business lines. The other one, as you know, our dividend policy is distributing our 50% net income of the year. We are proposing to the general assembly and general assembly decided. As you know, we have -- as [indiscernible] said, we are a very dividend-friendly company. And if you chase our company, we will be -- we have been distributing dividends for many years period. Therefore, for the 2026, our AGM has not been decided about this issue, but our dividend policy is still distributing the 50% of the net income. For the third question, as you know, we are declaring our FX position as minus -- plus USD 200 million. And when we look at the 5G tender, the results and officially, the tender results will be ratified by the governmental bodies approximately in January 2026. Therefore, the FX position -- net FX position or this liability will be in our balance sheet starting from 2026. Therefore, we will look at the position at that time. But as Ali mentioned, the 5G tender price will be paid within 3 installments. In the first installment will be in January 2026. Therefore, it means that 1/3 of the tender price plus 20% VAT amount, which corresponds 44% or 45% of the total amount will be paid in January 2026. Therefore, we will look at the -- our FX position in January 2026, and we will decide how we will manage this FX position starting from 2026. As you know, the decision will be taken under the scope of the macroeconomical conditions, hedging costs and Turkish internal macroeconomic conditions. Therefore, we will see it in January 2026. I will hand over the mic for the second question to Mr. Ali. Ali Koç: Regarding the price adjust, I will divide this question into two different parts, mobile side and the fixed side. For the -- as the leading mobile operator and the leader and the biggest operator, mobile operator in Turkiye, we have adjusted our prices in almost every quarter between 2021 and 2024 to reflect the inflationary environment. Considering the slowing pace of inflation and competition conditions in the market, we updated our prices in January and July into 2024. Following 14% price increases implemented in January 2025, we carried out further price adjustments on our micro segmented packages such as youth and regional offers in June and August. On top of price adjustments, thanks to our successful upsell performance, we registered above inflation mobile ARPU growth of 12%. With respect to fixed broadband market, following the competition, we increased prices in December 2023, August 2024, March and October 2025. We are driving ARPU growth by increasing the share of customers within a 12-month commitment, boosting transition to high-speed packages and also widening the price gap between our TV+ bundled offers and data-only packages. This successful efforts and initiatives enables us to outperform inflation and achieve at the fixed market -- fixed broadband market, 17% real growth performance in our residential fiber ARPU. As Turkcell, we continue to focus on value as the main differentiation point from the competition. Hence, rather than competing on price, we focus on creating additional value for our customers. And we will continue to closely monitor market conditions and the competition in the upcoming quarters as well. Madhvendra Singh: If I may ask a follow-up on the spectrum part. So the payment is in hard currency. I was wondering whether the asset itself will be recognized in hard currency as well. Kamil Kalyon: Normally, as you mentioned, the payments will be done in U.S. dollar terms. Therefore, we will -- our liquidity position is fair enough to make all the payments in both in TL side and the U.S. dollar side. Therefore, starting from the January 2026, we will look at the macroeconomical conditions, FX rates, TL rates and the most important one, the hedging rates, for example, hedging costs are very important in order to decide. But as I said, we have enough TL and the U.S. dollar money in our hands. Therefore, we will decide it in January 2026 by taking into consideration the macroeconomical conditions on that date. It's a little bit early to give a guarantee or to give a color how we will make the payments. We can prefer to make dollar payments or maybe we can prefer to make TL payments. But at TL, we will be keeping our U.S. dollar money in our hands, and it will not create additional problem from our perspective. Madhvendra Singh: My question was more on the balance sheet entry on the asset side. So you will recognize the spectrum as an asset, right? But the value, I'm not sure whether that will be put in a lira number or a dollar number. Kamil Kalyon: Normally, it will be included into our balance sheet in 2026, and we will make this capitalization in the TL terms. And as you mentioned -- as you imagine, that starting from 2026, this asset will generate an inflation profit starting from the depreciation in the income side starting from 2026. Operator: The next question comes from the line of [indiscernible] with Barclays. Unknown Analyst: Congrats on the results. I have just a couple of questions. So my first one is on your 2026 outlook. Do you think that the revenue growth that you've delivered in 2025 or planning to deliver is sustainable going forward given the 5G regime coming? And also -- and also on your profitability, do you think like current margin -- EBITDA margin levels are sustainable for next years? And second question is also on your -- do you have any long-term target for your net leverage? Or maybe where do you see the net leverage ratio next year and going forward after the 5G payments are done? Ali Koç: I can start with the first one. Let me talk a little bit about the current year, the great year and a great quarter. So we had another solid operational and financial results this quarter and which was actually beyond our initial plans. We continue to expand our subscriber base in both mobile and fixed segments, while delivering a real ARPU growth in each quarter of 2025 through our dynamic tariff and pricing management, higher postpaid share, also successful upselling actions and rising demand for high-speed connection also supported our ARPU performance. So consequently, in the first 9 months, our consolidated revenue grew by 12% year-over-year. And also techfin, if you talk about the techfin in the first 9 months, delivered a 25% year-over-year growth, making a very meaningful contribution to our top line. Also, our strategic investments, data center and cloud services also achieved robust revenue growth of 51% compared to the same period last year and significantly exceeding our previous full year 2025 guidance. EBITDA grew by 15%, leading to a 43.7% EBITDA margins. Building on our strong 9-month performance, we have revised our full year both revenue growth and as well as the EBITDA margin expectation and guidance. So to remain prudent while revising our guidance, we also considered the reduced magnitude of price adjustments compared to last year. And we are expecting a very competitive environment in the following years on 2026 expectation as we are in the planning process. It is too early to comment. However, our goal is to maintain our micro segment management strategy, along with our AI-driven technologies, along with our revenue growth initiatives and continue growing above the inflation rate. Kamil Kalyon: For the second question, as I mentioned in my presentation, at the end of this year, we will be paying the second installment of our dividend payment, and we have some additional repayment of debt for 2025. And in January, as I mentioned, we will be paying the 44% of the total tender price for the 5G side. Therefore, our expectation is this leverage ratio would be around 0.7 or 8x. And as I mentioned in my presentation, again, our aim is to keep this level lower than the 1x. Operator: [Operator Instructions] The next question comes from the line of [indiscernible] with [indiscernible]. Unknown Analyst: Good results. Actually, all of my questions have been answered. Operator: The next question comes from the line of Demirtas Cemal with Ata Invest. Cemal Demirtas: Congratulations for the good results. My question is rather some technical issues in the income statement. We see monetary loss in third quarter versus like the monetary gain in the previous quarters. Could you just tell us more about the changes that lead to monetary losses in this quarter because it offsets a portion of the higher-than-expected operating profit when we go to the bottom line? And the other question is again about the TOGG participation side, we see lower losses unlike the previous 2 quarters. Do you think it's going to be the permanent? Should we expect lower the losses contribution from the TOGG, your subsidiary side? That's my second question. And again, could you just give any direction about 2026 from your side? And again, I would like to ask what kind of value-added -- the things that could come into surface in 2026 as now the 5G is done, please, in terms of licensing. What are the opportunities rather than the organic growth of the company? What could be changing in 2026 from your perspective? Kamil Kalyon: Cemal, thank you very much for your technical questions. First question regarding the first question, yes, you're right. Our monetary gain declined by TRY 2.4 billion compared to Q3 of 2024. There are certain reasons. One of them is the slowdown in inflation rates. As you know, last year, inflation was in the same period around 8.9%. Now currently, it's declined to 7.5%. Therefore, this is the first reason for the lower monetary gain. The second one and the most important one, as you know, we sold our Ukraine business in 2024. It means that you are taking a significant portion from your balance sheet, especially generating inflationary income in your balance sheet. Therefore, due to this effect, Ukraine subsidiary sale led to a negative composition against nonmonetary assets. And furthermore, the capital reduction executed in our Netherlands company subsidiary in Q4 in 2024 indirectly led to a monetary loss due to indexation in Q3 2025. Therefore, this is the reasons of this one starting... Cemal Demirtas: Sorry for interrupting, but before passing to the next question, when I look at the -- my question is rather compared to second quarter, what -- I know that there might be changes from quarter-to-quarter, but even what changed from second quarter to third quarter? The inflation is higher, the quarter-over-quarter change. I don't know if you have any justification for the Q-over-Q comparison, the year-over comparison fair. Just if you have any comments before answering the next question. Kamil Kalyon: Normally, from Q3 -- Q2 to Q3, you're asking in 2025. Am I right? Cemal Demirtas: Yes, yes, yes. Kamil Kalyon: As far as I remember, we do not have a significant change regarding the year-over-year side. Yes, the Ukraine business is very important for this one. But Q2, Q3, we do not have a significant change in the inflationary side. But as you know, this -- some of the -- how can I say, in the CapEx side, there are some CapEx amounts are eliminated, as you know, for the 5G side and the 4G side. Therefore, this might affect the inflationary accounting side. But in Q2 and Q3, I do not remember the significant result. But starting from Q2 or Q3, we have started to generate inflationary loss for this year. But for -- starting from 2026, our 5G license amounts and the additional CapEx amounts will be included in our balance sheet, and we will be starting to see significant amount of monetary gain in our balance sheet starting from 2026. But for this year, as I mentioned, the main loss item is coming from the Ukraine sale asset and the inflation rates. The second question is regarding the TOGG. As we mentioned in our previous calls, there are some problems, especially in the market -- electric vehicle market in 2025. And starting from the Q2, TOGG started to take the necessary actions for the cost optimization. And as you might remember, there are certain changes in the special consumption tax base in third quarter. And this change led to an increase in vehicle prices, which was also supported by the launch of the new model. Therefore, TOGG recorded a moderate improvement in its performance during this quarter. Most probably this improvement will continue in Q4. Therefore, starting from -- we hope that Q3 2025 would be a significant milestone for the TOGG side. In the coming periods, we are expecting more performance from the TOGG side. But as you know, this is a production investment and there are heavy EBITDA -- amortization expenses of the company. But we are -- we can observe the positive impacts of the precautions that are taken by the TOGG company for this quarter. We hope that this performance will continue in Q4 because you know the new model is also in the markets right now. And there are some extra models are presented to the market, especially 4x for electric vehicles. There are important demand for these cars. Therefore, we will see the positive impact of these actions in the Q4 also. Ali Koç: Regarding the 5G, Cemal, thank you very much for the great question. Yes, 5G era is starting. So starting from April 1, 2026, we are going to launch 5G all over the Turkiye, and it's going to create new value-added services and opportunities. Especially with 5G, a new era of flexible and personalized tariff is the beginning. The age of one-size-fits-all plans is coming to an end. And today, for example, Turkcell serves more than 39 million mobile subscribers, which means 39 million unique tariff possibilities. In this environment, our goal is to maintain the highest level of customer satisfaction by offering plans tailored to each individual's need. We also aim to accelerate 5G adoption because 5G is going to bring high speeds, lower latency, but we need to -- our customers to have 5G phones. So we also aim to accelerate 5G adoption by supporting device financing and establishing new partnerships with smartphone manufacturers. Following our recent collaboration with Samsung, for example, we have already bought 100,000 5G-enabled devices. We plan to -- which are built in Turkiye, domestically produced A26 phones, Samsung phones. We plan to form similar partnership to further increase the number of 5G-ready phones in the market. Through these initiatives, we will make the next-generation devices more accessible as well as drive broader 5G usage across our customer base. So in order to give you a brief information about what is the difference between 4G and 5G, 4G technology was designed primarily for people, but 5G opens the door to a world where machines communicate with each other, enabling smart cities, connected factories, smart factories, industrial automation. And as a new value-added services over the next 5 years, we anticipated that the autonomous driving and connected car sectors will gain momentum in Turkiye. During this period, data consumptions and speed requirements are expected to rise significantly. And additionally, similar increases in data demand, speed requirements will emerge across government services as well as logistics, supply chain, smart manufacturing, the energy sector and smart city ecosystem, driven by the adoption of hybrid and private 5G networks. So stay true that 5G will unlock new revenue opportunities across not only the automotive industry, but also the government services and logistics and energy and smart cities. So as new technologies mature, Turkcell is positioned to be a leading operator, enabling Turkiye digital transformation through 5G and delivering the best and the greatest 5G technology to our customers. So how we are going to do it is the tender is a solid proof for it. So by securing large-scale 5G frequency resources, we gain a significant competitive advantage in both capacity and the quality because we got the highest frequency spectrum. The wider the spectrum will allow us to deliver superior customer experience in densely populated areas, ensuring high speed, low latency connectivity even under heavy network loads. It also enables us to serve a much larger number of people. So we are going to bring this fixed wireless access customers. We call it Superbox 5G, fiber-like performance. Even if you don't have a fiber, we are going to provide you 1,000 megabit per second speeds with our Superbox 5G-enabled boxes. So even if you don't have your fiber in your house in anywhere you go, we are going to provide the best speeds within a wireless domain, and it's going to give you a huge flexibility and then it's going to come up with a huge efficiency. Operator: [Operator Instructions] Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to Turkcell management for any closing comments. Thank you. Ali Koç: Thank you very much for joining us, and I hope to see you in the next quarterly meetings. Thank you very much for attending. Ozlem Yardim: Thank you for joining us. Hope to see you for the year-end results. Thank you. Kamil Kalyon: Thank you. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.
Operator: Thank you for standing by. My name is Rochelle, and I'll be your operator today. At this time, I would like to welcome everyone to the Q3 2025 Albany International Corp. Earnings Conference Call. [Operator Instructions] I will now turn the conference call over to Joseph Gaug. Please go ahead. Joseph Gaug: Thank you, Rochelle, and good morning, everyone. Welcome to Albany International's Third Quarter 2025 Earnings Conference Call. As a reminder to those listening on the call, please refer to our press release issued last night detailing our quarterly financial results. Contained in the text of that release is a notice regarding our forward-looking statements and the use of certain non-GAAP financial measures and their reconciliation to GAAP. For the purposes of this conference call, those same statements apply to our verbal remarks this morning. Today, we will make statements that are forward-looking and contain a number of risks and uncertainties, which could cause actual results to differ from those expressed or implied. For a full disclosure of these risks and uncertainties, please refer to both our earnings release of November 5, 2025, as well as our SEC filings, including our 10-K. Now I will turn the call over to Gunnar Kleveland, our President and CEO, who will provide opening remarks. Gunnar? Gunnar Kleveland: Thank you, Joe. Good morning, and welcome, everyone. Thank you for joining our third quarter earnings call. On today's call, I'd like to begin with a recap of some important developments that we have announced, followed by a high-level review of our go-forward strategy and conclude with an update by segment on our end markets and business developments. I will then turn the call over to Will to take you through the numbers. On October 28, we announced a strategic review of our structures assembly business at our Amelia Earhart Drive facility in Salt Lake City, which could include the sale of the site. Together with our Board, we have determined this is in the best interest of stakeholders for 2 primary reasons. First, structures assemblies do not align with our long-term strategic priority to focus on 3D woven technology and engineered components, where we have a distinct competitive advantage through proprietary technology. Second, typically, this type of work is characterized by large long-term contracts with complex supply chains, higher risk, and lower margins. As a result of these 2 factors, because they do not align with our strategic goals, we have decided to explore options for our structure assembly work. Alongside these decisions, we've also taken a loss reserve and the program adjustment to recognize a full expected loss on the CH-53K program of $147 million over the next 8 years. This follows a period of significant effort by our team taking decisive action over the past year to address program challenges, including upgrading the leadership, bringing in people with experience in planning, procuring, and executing structural assemblies and addressing material availability. Despite these efforts, we now recognize that without changes to the contract, there is no path to profitability on the program as originally bid. In addition to these charges and our strategic review, we're also engaging with our customer to discuss potential solutions through the duration of the program. Similarly, we also announced today we have reached definitive agreement with Gulfstream to complete our current contract at the end of 2025. We're working to deliver the remaining components to Gulfstream by year-end and look forward to a successful closeout of the program. Importantly, these 2 programs have primarily been responsible for the continued cost estimate adjustments over the past 16 months. Exiting these programs would mean our remaining portfolio is substantially derisked from future charges. All of our remaining programs are performing well and carry attractive margin profiles. Following the conclusion of these activities, we expect to be a more focused and integrated company with 2 segments built around our core competency of industrial weaving technology. Our machine clothing business continues to be the backbone of Albany International. We're the global leader in paper machine clothing and process belts, serving every major grade of paper production. We also hold a leading position in engineered fabrics, supporting a range of other industrial applications like nonwoven, fiber cement and corrugated packaging. This is a business built on decades of technology leadership and deep customer partnership supported by more than 700 worldwide patents. Our products are essential to how efficiently our customers' machines run, improving fiber use, reducing energy and chemical consumption, and helping them hit their quality and sustainability goals. The segment delivered strong EBITDA margins in excess of 30% with exceptional cash generation, which gives us the flexibility to reinvest in innovation and support growth across the company. Our competitive edge comes from the high consistency and quality of our products, our global service network and continual investment in innovation. Our Engineered Composite business complements our expertise in weaving technology and is a long-term growth engine. Over the past decade, it's delivered an impressive 12% organic revenue CAGR, and we see meaningful runway ahead as adoption of our proprietary technology continues to accelerate. The Engineered Composite business grew organically from our deep roots in weaving and process engineering, evolving into a leading global supplier of aerospace engine and structural composite components. Through our joint venture with Safran, we have industrialized proprietary 3D weaving technology used in LEAP and GE9X engines, making us the sole global aerospace supplier of 3D woven resin-infused parts. As of today, we have delivered in excess of 220,000 fan blades and 11,000 cases to our customers. Outside the joint venture, we're expanding our dry fiber, 3D weaving and resin transfer molding capabilities, enabling the replacement of titanium components with lighter, stronger composite alternatives. We're also advancing high-temperature ceramic matrix and carbon-carbon solutions, which open doors in hypersonics, missiles and next-generation defense platforms, areas that are in high demand and rich with bidding activity. Our 3D woven parts offer superior strength to weight performance, faster lead times with full domestic sourcing, which helps customers reduce supply chain risk while improving performance. We're also leveraging our braiding and winding technologies and industry-leading resin transfer capabilities to support programs in missiles, engines, advanced air mobility and defense programs. As our differentiated programs scale and improve our overall mix, we expect continued margin expansion and sustained profitable growth. Taken together, these complementary businesses deliver strong consistent cash flow driven by the market-leading position of machine clothing and the growth of engineered composites. This is supported by our balanced capital allocation strategy as we invest for growth while returning cash to shareholders. Over the past 12 months, we have deployed about $68 million in CapEx and $47 million in R&D, while returning more than $200 million to shareholders, including repurchasing roughly 8% of shares outstanding and $32 million of dividends. Together, these strengths give us the flexibility to invest in for the future, return capital to shareholders and continue building long-term value through disciplined execution. Turning to the conditions in each of our segments and end markets. I'll begin with Machine Clothing, where third quarter dynamics were mixed across regions. In North America, shipments improved sequentially though order intake remained soft, reflecting the impact of ongoing packaging and corrugator mill closures tied to industry consolidation. The weakness was partially offset by continued stability in the tissue market, which remains a solid and resilient end use. In Europe, the market recovery continued but showed signs of moderating. Meanwhile, Asia remained challenged with overall demand at low levels, largely due to overcapacity. Our strategic focus on the tissue market remains a key source of strength, supported by several new investments to build on our market-leading position. Turning to Engineered Composites. As I noted, we announced a strategic review of our structures assembly business, including the related production side as well as the planned closeout of Gulfstream program. These actions substantially reduce future program risk and allow us to sharpen our focus on higher return opportunities. All of our remaining programs are performing well with solid execution across both defense and commercial aerospace platforms. On the commercial side, the LEAP program continues to strengthen, supported by higher OEM production levels heading into 2026. In defense, we remain well positioned on the F-35 platform as well as the JASSM and LRASM missile programs, and we're continuing to invest in next-generation hypersonic capabilities and other missile programs. We're also proud to support Beta Technologies as they advances aircraft certification and ramps production in the advanced air mobility market. Looking ahead, our pipeline of new business opportunities remain strong, spanning commercial engines, defense, space, and advanced air mobility. Across all of these areas, we're focused on leveraging Albany's differentiated materials, processes and engineering expertise to drive high-value long-term growth. Overall, we made a lot of progress in this year of transition to simplify the business and to strengthen our focus. We're positioned around 2 great material science businesses linked by expertise in weaving. Machine Clothing, our foundation and cash generator and Engineered Composites, our engine for long-term growth. Together, they give a solid platform for continued improvement and value creation. With that, I'll hand it over to Will to walk through the financials. Willard Station: Thank you, Gunnar, and good morning, everyone. Before reviewing our third quarter results, I'd like to offer a few brief observations since arriving at Albany. It's clear to me that this is a company built on a strong foundation, one defined by technical excellence, customer trust and a disciplined approach to execution. In my early discussions across the organization, I've seen firsthand the depth of our expertise and the consistency of our performance-driven culture. Our technology portfolio is differentiated and deeply embedded with customers in markets where reliability and precision matters most. That creates a durable competitive advantage and position us well for sustainable growth. Equally important, our teams bring a high level of professionalism and accountability. There is a shared understanding of what it means to deliver for our customers and our shareholders. As I step into my role, my focus is on reinforcing that foundation and partnering with Gunnar as we sharpen our portfolio, drive operational discipline, and allocate capital in ways to strengthen long-term value creation. While I'm still early in my tenure, I have strong confidence in the capability of our people, the quality of our assets and the opportunities ahead of us. Turning to our financials for the quarter. We have taken important steps to refine our business to create an even stronger foundation for profitable growth going forward. The strategic decision to restructure our exit business lines that are not contributing to our bottom line will enable our team to focus on profitable growth that is in line with our core strength. This led to some significant charges in the quarter. So let me provide some color on the third quarter financial results. Third quarter revenue was $261.4 million compared to $298.4 million in the prior year period. The decline reflects a $46 million revenue charge associated with the CH-53K program loss reserve and program adjustments. Excluding this impact, revenue was modestly lower year-over-year, primarily due to softer demand in select machine clothing market in Asia and partially offset by stronger engineering composite volumes on the LEAP program. We reported a GAAP net loss of $97.8 million or $3.37 per diluted share versus net income of $18 million or $0.57 per share in the prior year. The prior year quarter net income included a tax benefit of $7 million or $0.24 per diluted share. On an adjusted basis, net income was $20.6 million or $0.71 per diluted share compared to $35.2 million or $1.12 per diluted share in Q3 of 2024. In both periods, the impact of CH-53K program adjustments are excluded. Adjusted EBITDA was $56.2 million, representing an 18.3% margin versus a 21.5% in the third quarter of 2024 after excluding the effects of the CH-53K program charges in the prior year. Despite lower revenue, underlying performance remains resilient, supported by disciplined cost management and solid operational execution. Moving to our segments and starting with Machine Clothing. Revenue was $175 million, a 4% decline from the prior year, reflecting softer demand in Asia and strategic business exits in Europe, while other regions remained stable. Adjusted EBITDA was 31% compared to 33.2% last year as lower volumes in Asia were partially offset by ongoing benefits from footprint optimization. Turning to Engineering Composites. Revenue was $86.5 million compared to $115.4 million last year. The decline was driven entirely by the CH-53K charge. Excluding this impact, the revenue was $132.5 million, up from $128.7 million in the prior year, supported by higher LEAP program volumes. Adjusted EBITDA margin was 9.6% compared to 10.3% a year ago. Switching to the consolidated results and moving down the income statement. Gross profit for the quarter was a loss of $49.9 million compared with profit of $90.4 million last year. Excluding CH-53K impact, gross margins was 31.7%, down modestly from 33.3% due to lower machine clothing volumes. Interest expense increased $5.9 million, reflecting higher borrowing costs. We reported a pretax loss of $122.1 million. The effective tax rate for the quarter was 20%, while in the prior year, it was closer to 7%, primarily due to a tax benefit of $7 million related to the release of a valuation reserve. Turning to cash flow and the balance sheet. Free cash was $25.7 million compared to $31.2 million last year. The change primarily reflects higher capital expenditures and working capital investments supporting key program ramp-ups. We remain focused on disciplined capital deployment. During the quarter, we repurchased $50.5 million of common stock and declared our regular quarterly dividend of $0.27 per share. At quarter end, approximately $93 million remained under our current authorization. Capital expenditures were $18.3 million, up from $15.4 million last year, primarily related to facility optimization and key customer programs. R&D expense was $11.5 million for the quarter, underscoring our ongoing commitment to innovation and to advancing proprietary technologies across both Machine Clothing and Engineering Composites. We ended the quarter with $108 million in cash and $481 million in total debt, resulting in a net debt of approximately $372 million. With more than $400 million in available liquidity, we remain well positioned to fund growth initiatives and return capital to our shareholders. Given the ongoing strategic review of our structured business, we are withdrawing our full year 2025 guidance. The potential range and timing of outcomes from this process makes it difficult to provide a full year outlook that will meaningfully represent the range of expected outcomes. We intend to reinforce full year guidance when we report our fourth quarter results, which will include a comprehensive 2026 outlook and an update to our strategic review. In the meantime, I'll share a few qualitative assumptions to frame how we see the balance of the year. At the total company level, we expect underlying trends from the third quarter to persist into the fourth quarter. In Machine Clothing, we continue to see a generally stable operating environment in the Americas and a moderate pace of recovery in Europe and continued weakness in China. Importantly, we saw further deceleration in China as the third quarter progressed, and we expect that to create a more meaningful headwind to our 4Q results. In Engineering Composites, we expect a performance similar to the third quarter, supported by higher LEAP production volumes. However, lower margin structural work will continue to weigh on profitability as we explore options for the business. Taken together, these dynamics suggest a quarter broadly consistent with recent trends as we remain focused on execution, operational improvement and positioning the business for stronger long-term growth following this transition year. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] Your first question comes from the line of Peter Arment with Baird. Peter Arment: Gunnar, maybe just to start, if you could just take us through kind of how you evaluated the ability to kind of move on from the CH-53K. I remember you upgrading the leadership there and thought that might be enough to kind of reset things and turn things around. Maybe if you could just take us -- give us a little more color on the program. Gunnar Kleveland: Yes, Peter. Thanks. What we saw last fall was a need to upgrade the leadership, but also to upgrade our ability to plan, procure and execute on a program like the CH-53K, which is really a departure for what we do at all of our other facilities. The effort to do that was significant, and that's what we've talked about for several quarters. And we have been able to deliver to our customer. It's been a recovery all along. And by this summer, what we saw was that we had alignment of material. We had people that were trained well, and we had a good planning for how we were going to go and execute. And as we did that and with Will coming in, we took a hard look at what this program would be and look like for the next 8 years. And remember, we're only 6% into this program. But as we looked at it and the learning curve with all the material available with the people in station and us working each of the monuments that we have there, we saw that there was no way for us to make it a profitable program the way it was bid. And so we decided to take the charge. I think the -- and I've talked about this program now, for every quarter, the last 4 quarters and how different it is from what we're doing. So the decision then became, is this too much of a distraction for us to really grow the business the way we want to grow the business, and we made a decision to take a strategic look up and to include selling the site. Peter Arment: Got it. Okay. That's helpful. Maybe just to switch to something more positive on that. Can you talk about some of the opportunities, I guess, on the 3D side, what you consider core technology, where you're seeing opportunities to win? I know you've talked about hypersonics in the past and defense. Are you seeing more opportunities because of Golden Dome or other things? Maybe you could just give us some more color there. Gunnar Kleveland: Yes. I think there's a lot -- or there is a lot of activity due to the Golden Dome. We have inbounds from all of the OEMs, and we have a capability that they are interested in. We are able to make a near net shape carbon-carbon part for our customers at a very attractive price point. And we have made the investments over the last 3 years to industrialize it. We also have shown that we can industrialize 3D woven by making 220,000 blades for the LEAP program, which right now, I think the whole industry is looking for how can we accelerate missile production. And we stand very, very ready to be able to do that. So yes, lots of inbounds, a lot of activity, probably one of the areas over the next 3 to 5 years that will have the highest growth for us. We're also seeing more interest in our 3D woven titanium replacement. We'll be announcing more about that as we go through next year, but we have opportunity both at the -- with AAM as well as defense programs and longer-term commercial programs. Operator: Your next question comes from the line of Jordan Lyonnais with Bank of America. Jordan Lyonnais: I guess for the prior 2026 targets that were put out there, does anything there change after doing this strategic review outside of the CH-53K? Are you taking the review process there looking at the other programs that we should think about? Gunnar Kleveland: As we look at 2026, we are a more focused company focused around our technology. The programs that we have today are solid, good return programs that we will continue to have. We are addressing, as we have shown, the programs that are not meeting our expectations on profitability. And as we look at new programs, we've set up the guardrails, and I've talked about this before, the guardrails around how we set up a contract and what the expectation is from a contract, and that's the business we're going after. So that's what you should expect, Jordan. Operator: [Operator Instructions] Your final question comes from the line of Sam Struhsaker with Truist Securities. Samuel Struhsaker: So I guess looking at Machine Clothing, it seems to me that, if I'm looking at this correctly, margins have kind of actually trended down a little bit in that business over the last couple of years. But I know you guys mentioned sort of some footprint rationalization acting as a bit of a margin tailwind in this quarter. And then I guess I was just kind of hoping you could give some more detail on kind of how to think about the trajectory for that business margin-wise going forward, kind of looking at the weakening aspects in Asia combined with what you guys are doing in terms of margin expansion initiatives internally. Gunnar Kleveland: Yes. Thank you. We -- on Machine Clothing, the impact that you're seeing is primarily from Asia. But remember also that we did select to exit parts of the business, Heimbach that we bought that were not profitable. So that was around $15 million worth of top line. And then we had one business in Asia that exaggerated the impact that we've had in Asia around $8 million that went bankrupt. That was also Heimbach. And so those 2 together with all the headwind that we've seen accelerating through the third quarter due to overproduction in China is the impact on the top line, and that has affected our bottom line because it is a -- it has a good return, obviously, the programs that we have in Asia as well. So going forward, we are continuing to rationalize our footprint to get the cost where we want it and be as efficient as we can in the Americas, in Europe and in Asia. And that activity has -- there's been significant activity. I've talked about it in the other calls. That is going to improve our cost position and our margins as the market comes back in Asia because I believe it is a correction due to overproduction and then they'll build up. When that happens, I can't predict right now. And clearly, the global trade has an impact here. So we'll watch and see what happens there as well. Samuel Struhsaker: Great. And then, Gunnar, if I could squeeze in another one. Just curious, as the LEAP program kind of continues to ramp, I don't know if you guys could give any details on kind of how you're seeing pull rates for that program. And also if there's going to be any sort of kind of improved absorption and margins as that program continues to increase in scale. Gunnar Kleveland: Yes. It is a significant ramp-up over 2026 and 2027 based on the input that we're getting from Safran and GE. We will be -- in the last call, I said we have -- we're at the inventory level that we need to be at, and we're managing that as Safran is pulling parts from our inventory. That's how the contract is constructed. Remember, though, that this is also a cost-plus contract. So our margins are going to be steady as we go through this. And we will follow the ramp-up of our customers. But it is significant going into 2026 and their projections for '27 is another significant ramp-up. So this program will be solid and provide nice returns for us. Operator: That ends our Q&A session. I will now turn the call back over to Gunnar Kleveland for closing remarks. Please go ahead. Gunnar Kleveland: Thank you, everyone, for joining us on the call today. We appreciate your continued interest in Albany International. Thank you all and have a good day. Operator: Gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Greetings, and welcome to the Gladstone Land Corporation Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Gladstone, Chief Executive Officer. Thank you, sir. You may begin. David Gladstone: Thank you, Latanya. It's a nice introduction. This is David Gladstone, and welcome to the quarterly conference call for Gladstone Land. I want to thank you all for calling in today. We appreciate you taking the time to listen to our presentation. Before we begin, we always ask Catherine Gerkis to -- she's the Director of Investor Relations and ESG. Catherine, why don't you go with your part now? Catherine Gerkis: Thanks, David, and good morning. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstoneland.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release, both issued yesterday for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. We are also on X at GladstoneComps as well as Facebook and LinkedIn. Keyword for both is the Gladstone Companies. Today, we'll discuss FFO, which is funds from operations, a non-GAAP accounting term defined as net income excluding gains or losses from the sale of real estate and any impairment losses on property plus depreciation and amortization of real estate assets. We may also discuss core FFO, which we generally define as FFO adjusted for certain nonrecurring revenues and expenses and adjusted FFO, which further adjusts core FFO for certain noncash items, such as converting GAAP rents to normalized cash rents. We believe these metrics can be a better indication of our operating results and allow better comparability of our period-over-period performance. Now I'll turn it back to David Gladstone. David Gladstone: Well, thank you, Catherine. I'll start with a brief overview of our farmland holdings as we do every time. Currently, we own about 100,000 acres. It's on about 148 farms and nearly 56,000 acre feet of water assets, which is more than 18 billion gallons. Our farms are in 15 different states and the water assets -- well, all of them in California, that's where it's driest. Our farms are leased to over 80 different tenant farmers who grow over 60 different types of crops on our farms. Most of these are the type of food that you will find in the produce section of the local grocery store, such as fruits and vegetables and nuts. So we're continuing to take a very disciplined approach to new investments, in fact, not doing any except in our existing farms. But no new farms simply because the interest rates are so high that we can't finance them. So we continue to be disciplined as we call it, in investments given interest rates and their cost of capital remains elevated. We're hopeful that the banks will drop their rates in the future. At the same time, cap rates in most row crop farmlands are still too low to make the economies work. During the quarter, we completed the sale of 1 property consisting of 2 farms within that property. Those are in Florida, the sale price was $21.5 million. This is a transaction representing a 36% premium over our original purchase price and generating a gain of about $6 million. We may consider additional selected farms for sales over the next few quarters as part of our ongoing portfolio review. But we are still evaluating the opportunities and being very conservative every time we look at a new deal. And now I'll provide an update on modifications that we've made to certain lease structures and some of our permanent crops farms, those are all in the West. As we discussed in prior calls, due to the market conditions affecting certain permanent crops, particularly nuts and grapes, we adjust adjusted the lease structures on 6 properties to help us grow and with our partner, the grower, reduce their fixed costs while also allowing us to participate in the upside since we're putting up some of the money. In essence, we're accepting a percentage of gross crop sales instead of a fixed rent payment. We also decided to operate 2 properties ourselves with the help of third-party operators. One of the reasons we felt confident going this route in particular farms is that their strong history of higher production. Because crop insurance coverage is largely based on the historical yields, that means we were able to secure a high level of insurance coverage on these farms that we're going to hit our numbers. And we more than did that this year in a number of farms. We're still progressing through the harvest that we did for last year, post-harvest activities on our almonds, pistachios and grape properties in this group, but we're wrapping up the pistachio harvest on 3 farms earlier this month, and we're now receiving proceeds statements confirming the volume delivered to the seller or persons that are working for us to sell the different things such as almonds and pistachios, along with the first cash installment. Based on those statements, we expect to recognize about $17 million in revenue in the fourth quarter from these 3 orchards alone. We also received the first cash payment, a little over $5 million. In addition, subsequent to the quarter end, we transitioned one lease on a large vineyard in Napa, California from structured that included a sizable lease incentive payment back to traditional crop share arrangements. Our goal is to eventually transition all of our leases back to more traditional structure. That is we like receiving fixed-based rents that come in every month rather than waiting to the end of the year to get part of the crop, even though the latter of those alternatives is usually much more profitable than taking monthly payments from someone leasing our property. In other leasing activity, we executed 2 renewals subsequent to the quarter end, expect to result in an aggregate increase in annual NOI of about $65,000 or about 7% on those farms. Looking ahead, I have 11 leases -- we have 11 leases scheduled to expire throughout the rest of 2025 due to some of these leases containing no fixed base rent and others including cash lease incentives, both in exchange for increasing the participation rent component. These leases actually account for negative $651,000 of lease revenue, but not -- doesn't accrue any of the payments we're going to get from selling the crops in our percentage. And that's largely because of the participation rents resulting from these leases, they won't be recognized until after the fourth quarter. That is when we get the numbers in, we'll know what we made. And I think things are looking good on our nut crops. So, we're all happy about that. We're in discussions with both existing and prospective new tenants about leasing these farms, including reverting some of these leases back to the standard lease that we started out with, that is fixed monthly rents or quarterly rents, but in essence, not participating greatly in the sale of it. So, the farmer is doing the farming, and we are just leasing to them. But we've got these farms that we've converted over to where we are putting up some of the money and we get a lot of the money coming in from the sales. So, we'll see how that works out. The first one that we talked about looks good. And I think the rest of these that we have in that with the exception of grapes look good. And now I'll give a quick update of some of the ongoing tenant matters that we're working through. We currently have 6 farms that are vacant and 2 properties encompassing 4 farms are directly operated under management agreements with an unrelated third party. In addition, we recognize the revenue on a cash basis for leases with 4 tenants who collectively lease 7 of our farms. We're actively working towards solutions for each of these situations and are hopeful that a number of them will be resolved over the next -- well, I say several months, but it usually is not working until about 6 months after the year-end. So I'm going to stop here. We've got Bill Reiman online, and Bill is going to give us positive news. Hey Bill, take away. Bill Reiman: Thank you, David. Yes, just to expand a little bit on the 8 properties that are under modified lease agreements or being direct operated with third-party operators. Harvest for the 2025 pistachio, almond and grape crops is nearly complete. Pistachios are all in the barn, as we say. And like David mentioned, we did receive our first payment for that crop. Grapes have just a few tons left to pick and some of the almond crop remains in stockpiles as a whole, but it has all been removed from the field. We expect that to wrap up in the next few weeks. Last quarter, we reported that growing conditions have been nearly ideal and those favorable conditions pretty much continued throughout the fall. We had some higher-than-normal rainfall in the Central Valley of California, but harvest was very smooth and uneventful, which we really like. Our Pistachio orchards performed well above state averages and also exceeded our own internal projections, both crop quality and volume. We had a few almond blocks that underperformed, but the majority surpassed our internal expectations as well. We expect to receive crop insurance payouts for a few blocks that fell short that should make us whole with respect to the growing costs. Fine grapes also delivered strong yields across the board with excellent quality. Excellent growing and harvest conditions we experienced in 2025 have positioned the trees and binds very well for the upcoming 2026 season. While we still need sufficient chilling hours, winter precipitation and favorable weather next year, and it's early, but we're off to a strong start for the 2026 crop. Irrigation, fertilization practice is already underway, and we'll get started on some curing activities as well here into the winter. A few words about crop markets. We have tariffs, trade tensions, geopolitical rhetoric continue to create some uncertainty across many export markets. Nut crop markets are showing notable resilience and strength, particularly for pistachios. Seeing stronger-than-expected demand from -- really from 2 specific markets right now with pistachios, the EU and the Middle East. That's significant because it reduces our reliance on the Chinese market. The Chinese market is still extremely important, but spreading the crop around certainly helps reduce that risk. The result for -- in pistachio, our base guaranteed price of current crop remains consistent with 2024, and we believe there's a strong likelihood that the final price, even though it's going to -- won't be announced for a year from now, and we have a lot of marketing to do, we believe that final price for the 2025 crop will be comparable to 2024 levels. Almond prices rebounded from their mid-summer dip, returned to the levels we saw early in the spring. Since then, prices continue to trend upward, gaining a few cents per pound each week. Sellers that I talked to, marketers are all enjoying this with pricing and demand just continuing to rise each week, and everybody expects this to continue for the next several months. Wine grape markets are the opposite, continue to underperform. Strong yields in the past couple of years combined with declining global consumption created one of the most severe oversupply situations the industry has ever experienced. As a result, a lot of vineyards are being removed around the world. At the pace that this is happening, we expect -- hopefully, within the next year, 18 months, we expect markets to start to turn around. And overall, macroeconomically, the weakening U.S. dollar really works in our favor on all these products that we export, particularly when that’s -- makes our products much more attractive to international buyers. Lastly, I'll touch on water. Nearly identical report as last quarter. We've been in this normal to wet cycle the past few years, including the most recent winter. We remain focused on enhancing our water delivery storage infrastructure across the portfolio. With these wet years, the availability of inexpensive water is strong. So, we've been very strategic about making those acquisitions. So, we continue to build on our nearly 56,000 acre feet of water assets, positioned several of our farms with enough water supply to meet immediate irrigation needs regardless of weather conditions. So, we feel pretty good about that regardless of how this winter ends up. Storage situation in both the federal systems, we're expecting a minimum of 35% and as high as a 50% allocation if we get a dry winter. So, if we get a normal to wet winter, we expect that to be even stronger. So very positive news on the waterfront. And now I'll turn that over to Lewis Parrish, our CFO. Lewis Parrish: Thanks, Bill, and good morning, everyone. I'll start with a brief update on our recent financing activity. During the quarter, we repaid a $10 million bond that was maturing, and this bond was secured by a property that we also sold during the period. On the equity side, since the beginning of the third quarter, we've raised about $10 million through our ATM program. These issuances were made in anticipation of redeeming our Series B term preferred stock, which matures at the end of January 2026. This will allow us to avoid the scheduled increase in the coupon rate from 5% to 8% and also reduce our reliance on our variable rate line of credit to fund that redemption. Turning to our operating results. For the third quarter, we recorded net income of about $2.1 million and a net loss to common shareholders of $3.9 million or $0.11 per share. Adjusted FFO was $1.4 million or $0.04 per share compared to $4.5 million or $0.13 per share in the same quarter last year. The year-over-year decline in AFFO was driven by recent changes to lease structures on certain farms, loss of revenue from farm sales over the past years and ongoing tenancy issues that led to vacancies, resulting in both lower revenues and higher costs. Fixed base cash rents were about $5.4 million lower than in the prior year quarter due to the reasons just mentioned, but mainly the lease modifications on certain properties where we reduced or eliminated fixed base rents or in some cases, provided cash lease incentives in exchange for significantly higher crop share participation. And the results from these crop share components won't be known until the harvest is complete and the crops are sold, which is currently underway. Participation rents increased by about $1.9 million, largely due to the accelerated recognition payments related to the 2024 harvest on certain farms as additional information became available to us earlier this year. This increase was further driven by much stronger pistachio pricing compared to last year. We continue to expect higher participation rents in the fourth quarter of 2025 as a result of the lease modifications we made on certain permanent crop farms. As we discussed on prior calls, these changes have led to lower fixed base rents in fiscal year 2025 compared to '24 and the majority of the resulting crop share proceeds are expected to be recognized as participation rent in the fourth quarter of 2025, with most of the remaining smaller portion being recognized in the second half of '26. So, in essence, we are shifting revenues from fixed base rents to participation rents over the next couple of years. And as a result, most of our 2025 earnings will be realized in the fourth quarter with wider earnings during the first 9 months of the year. On the expense side, excluding reimbursable items and certain nonrecurring or noncash charges, our core operating expenses decreased by about $140,000 this year -- this quarter. Total related party fees fell by about $110,000, driven by a lower base management fee due to recent sales. And our remaining recurring cash operating expenses remained relatively flat as higher property operating costs were offset by lower G&A expenses. Finally, other expenses decreased mainly due to lower interest expense driven by loan repayments made over the past year. Turning to liquidity. We currently have over $170 million of immediately available capital. We also have nearly $150 million of unpledged properties we could use as additional collateral if needed. Over 99% of our borrowings are at fixed rates with a weighted average interest rate of 3.39% locked in for minimum 3 years. This has helped shed us from the volatility in interest rates over the past few years. Looking ahead, we have about $17 million of scheduled principal amortization payments due over the next 12 months. We also have about $25 million in loans with fixed rate terms expiring in the next year, so the loans themselves are not maturing. And finally, regarding our common distributions, in October, we declared a monthly dividend of $0.0467 per share for the fourth quarter of 2025. At our current stock price of $9.24, this represents a 6.1% annualized yield, which is well above the REIT sector average. And with that, I'll turn it back over to David. David Gladstone: Thank you, Lewis. We continue to stay active in the marketplace should a good acquisition come along. But quite frankly, I'm not sure we're going to do any acquisitions this year, but we'll keep looking, maybe one day one will pop up that we like. But as mentioned on prior calls, we're still being much more cautious on the acquisition front because the cost of capital remains very high. Market outlook. Overall demand for prime farmland growing berries and vegetables remains stable in almost all of the areas where our farms are located. So, a lot of underlying value there in those farms. As mentioned earlier, prices for certain permanent crops have been depressed recently, which along with other factors, has impacted the value of the underlying farmland. However, we are seeing signs of improvement as both crop prices and broader economics of some of these crops. So, we are still in a good position for long term. So hopefully, that the worst may be behind us. When all of the crops were having problems, we clearly were covered by the price of the land that we own. In closing, we expect inflation, particularly in the food sector to continue to increase over the time, and we expect the values of the underlying farmland to increase as time result. We expect this especially true of the healthy foods such as fresh nuts, fruits and other vegetables, which is the trend in America and all over the world for that matter. Trend is more for people in the U.S.A. eating healthy foods and that continues to grow. Now we'll stop and have some questions from those who follow us. Operator, would you please come on and help them how they can ask the questions? Operator: [Operator Instructions] The first question comes from Rob Stevenson with Janney Montgomery Scott. Robert Stevenson: David or Bill, I might have missed it, but can you talk about how that $16.9 million of revenue from the Pistachio harvest was versus what you were expecting? And how does this compare with what that crop would have generated a few years ago? David Gladstone: Well, if you're talking about a few years ago, they were leased. And so, all you would have gotten in is whatever we were charging on the lease. Now we've moved and increased the probability of getting higher rates, who knows. But at the point now, we are probably 2 or 3x the amount that we would have received. So it was a very positive thing that we're getting now from feedback of where the leases have gone, that is from fixed rate to variable rate. And the variable has been very nice. Now we've gotten some nice numbers in. And we believe when you hear us in the fourth quarter, we will have a lot of this ironed out and you'll know what we made on what we invested. That's close as I can get to just giving you a straight number. Robert Stevenson: Okay. And then, Lewis, the -- you talked about redeeming the Series B. What's the cost associated with that and the timing? Lewis Parrish: So, the Series D, that's coming due January 31, 2026. Right now, it's at a 5% coupon. At that date, if not redeemed, it goes up to 8%. So, we plan -- at this time, we've looked at all options, leaving it out there, absorbing 8%, which is obviously not what we want to do. Refinancing it is still expensive and also a lot of upfront costs. So, the plan right now is to take it out, redeem it to avoid that coupon with a mixture of common stock and line of credit. We've been issuing common stock at about 6.1%. The line of credit is just south of 6%. So right now, the cost would look to be about 6%, higher than the 5% that the security is currently yielding, but of course, much lower than the 8% that it would otherwise go up to. Robert Stevenson: Okay. And there's roughly $60 million of debt out there? Lewis Parrish: Correct. Yes, $60.4 million. Operator: The next question comes from Craig Kucera with Lucid Capital. Craig Kucera: I think you mentioned that you might sell some of the permanent crop farms out West if you can't restructure the lease, and you're obviously looking at a number of different options there. But I'd be curious to get your thoughts on the depth of the transaction market out on the West Coast right now. David Gladstone: Well, the banks aren't lending as lower rate as they used to when we first bought these, but they're circling in that direction, and we're hopeful they'll come up with a lower rate. But nice thing about this note that we're paying off is it doesn't come due, it just changes its rate. So, liquidity is not a problem. We know the money is there, and we don't have to give it back. On the other end of it, if we give it back, we cut the rate to 0, obviously. So, I think we're in very good shape. Last year this time, there were some dim moments here in the office as we contemplated what was going on in the marketplace. But today, we have a breath -- I think there's maybe one farmer that's having some real problems, and we may lose that farmer. But otherwise, there seems to be a breath of fresh air in the marketplace out there. And I'm talking mostly about California, other stuff we have in Florida and in the Midwest, they're paying as agreed, and we're in good shape. Craig Kucera: Got it. And -- yes. Yes, it does. It does. Just thinking about your commentary on wine grapes, I guess when we think about when you restructured the leases last fall, should we take away from this that any sort of weakness in wine grapes has more or less been offset by strength in tree nuts as far as sort of what you had budgeted at the time you renegotiated those leases? David Gladstone: That's exactly right. How’d you get so smart? Operator: [Operator Instructions] The next question comes from John Massocca with B. Riley. John Massocca: Maybe kind of thinking about both the repayment of the Series D and just generally kind of the market out there to pay down debt or even potentially even buy back common stock, how are you looking at the disposition market right now? Are there disposition opportunities, particularly maybe outside of California that are interesting? I know you closed the deal in Florida recently. So just kind of curious what potential for generating capital via selling farms there is today? David Gladstone: I think on the East Coast, it's very good. The West Coast is still pretty poor in terms of generating new farmers with lots of equity credit to pay their debts. So, we're still waiting for that to come back. And it has moved in the right direction. But it's still going to take a while for it to catch up where last year was and maybe the year before. John, more I look at that, the more I say, gee, this is going to work out just fine. And I hope you are on the call for the fourth quarter because I think the fourth quarter will tell you whether we made a great decision to go variable rates or fixed rate. That is fixed, meaning we have an amount that we get every month or every quarter, whereas variable, we have to wait until the products are sold. And while they're all growing, this has been a great growing season. There's really nothing going on other than these plants will continue to grow no matter whether -- as long as they're fed water and any kind of stimulant such as some of the things we put on those crops. I think, John, this is a real turning point in this. And we're seeing some really good numbers. And the lady who does all the projections for these crops is sitting here at the table and smiling, and she wasn't smiling a couple of years ago. She was pretty frustrated. We've gotten a new guy out on the West Coast who's going to go to the farms more than we have in the past, although the last person that was there was going to the farms on a -- recently a very frequent basis. And now we're going to have somebody that knows growing and can go out and spot the crops and help us adjust things that needs to be adjusted. This is a great time to be in the business. There are going to be some people that buy crops and we talked to some people. We've had people who want to buy -- want to buy crops, but they want to pay us with promises, and we'd rather have cash than promises. So, we're working hard to get cash in as we have -- how much do we have, Lewis? Cash? Lewis Parrish: Right now, we have $25 million in the bank and a fully undrawn $75 million line of credit and other undrawn notes as well. David Gladstone: So, we're not in problems’ territory now because liquidity is pretty much assured. We expect the fourth quarter to be a great quarter. We only got $5 million last time we got a payment coming in. I think we'll do much better in the fourth quarter. In fact, we're making sure of that by cutting deals as soon as we can. We have one large farm that a group who's trying to start over again is saying they will buy it from us. I don't know. John, you have to play your cards when you get them. But this time, I think if they come up with the amount of money that we're talking about, it would certainly send us in a direction of maybe buying some good farms. Sure miss the ability to go out and buy farms. It's a different world out there for the nut guys. Not that they're nuts, but they're growing nuts. John Massocca: I just think on the disposition front, I mean, the Florida transaction seemed like it was kind of opportunistic. Is there more potential for those type of deals as we look into the remainder of the year and '26 to maybe sell more assets either to capital recycle if you do have attractive buying opportunities or to kind of pay down pieces of the capital stack? David Gladstone: Well, certainly, we will pay down the loans in the capital stack. If they're close to maturity, we're definitely going to get them out of the way. So, I don't have any worry about that happening. As Lewis mentioned, the rate might go to 8% unless we do something to get rid of the loan altogether, but the loan itself is not due. It's just the rate is going to change if we don't pay it off. So, we're working on that. And I think we're going to be in good -- once the money starts rolling in from our variable rate charge to some of the farmers, I think we're going to be in extremely good shape. Nothing is taken for granted though. So, we're still praying a lot that things will continue the way they're going in the direction now. And quite frankly, after the downturn that we had in which people weren't eating nuts nearly as much as they had in the past, it was a real shocker when those people didn't step in and order again. They're back ordering now. They're not ordering as much, but we can live where they are now. So, I feel comfortable today. And I just hope our projections are correct. If they are, we will have made a lot of money on the switch from fixed payments to variable payments from the farmers. Other questions? John Massocca: And then Lewis, maybe thinking about the Series B a little more, where do you think you are today in terms of having the liquidity you'd like to fully pay that down? It seems like you could, given the availability on the line, the cash today. But I mean, is there any need for kind of fresh capital in your mind to finish that repayment? And I guess, could you also maybe if you wanted to partially redeem it? Or does it have to be fully redeemed or fully kind of left out there to kind of pay that higher rate or that higher dividend yield? Lewis Parrish: So, a few things there. We definitely could do a partial redemption but having any kind of -- any product in our capital stack at 8% is not ideal for us right now. We -- and yes, we do have the current liquidity to take it out today if we wanted to, but it's at 5% and which is lower than the current cost of capital we would use to take it out it, so it makes sense to let it go at that 5% as long as we can. But the idea between the -- mixing the common stock and line of credit is while the line of credit is a little bit cheaper, based on yesterday's closing price for our common stock, it's variable. So just having to draw less on our line of credit just reduces our exposure to future interest rate volatility there. And as David mentioned, there are some farm sales that are potentially in the works down the line, so that could be some additional capital. But to answer your question, we could take it out today if needed, but it's just a matter of managing interest rate risk and getting the lowest cost of capital and [indiscernible] that we can. David Gladstone: Okay. Any more questions? Operator: Mr. Gladstone, there are no further questions in queue. I would like to turn it back to you for closing comments, please. David Gladstone: We don't like that. We'd like you to ask more questions. It's more fun when you do that. We'll live with it, and we'll see you next quarter and don't miss the opportunity to listen in next quarter and see how well we did in projections. That's the end of this. Thank you very much. Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
Operator: Good morning, and welcome to the Matrix Service Company conference call to discuss results for the first quarter of fiscal 2026. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to turn the conference over to today's host, Ms. Kellie Smythe, Senior Director of Investor Relations for Matrix Service Company. Kellie Smythe: Thank you, Marvin. Good morning, and welcome to Matrix Service Company's First Quarter Fiscal 2026 Earnings Call. Participants on today's call include John Hewitt, President and Chief Executive Officer; and Kevin Cavanah, Vice President and Chief Financial Officer. Following our prepared remarks, we will open the call up for questions. The presentation materials referred to during the webcast today can be found under Events and Presentations on the Investor Relations section of matrixservicecompany.com. As a reminder, on today's call, we may make various remarks about future expectations, plans and prospects for Matrix Service Company that constitute forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements because of various factors, including those discussed in our most recent annual report on Form 10-K and in subsequent filings made by the company with the SEC. The forward-looking statements made today are effective only as of today. To the extent we utilize non-GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings and on our website. Finally, all comparisons today are for the same period of the prior year, unless specifically stated. Related to investor conferences and corporate access opportunities, we will be participating in the Sidoti & Company Year-end Virtual Investor Conference on December 10 and 11, 2025. We will also be participating in the Northland Capital Markets Growth Conference on December 16th. This conference is also virtual. If you would like additional information on this event or would like to have a conversation with management, I invite you to contact me through Matrix Service Company Investor Relations website. As we shift our focus to safety, I want to underscore its vital importance to our business. At Matrix, safety stands as our foremost core value. And as Mr. Hewitt frequently emphasizes, nothing outweighs the physical and mental well-being of our employees, subcontractors, clients and others who may be present at our job sites or in our offices. This is simply -- this is not simply about compliance. It's about continuously cultivating an environment where safety is ingrained in our culture. Every one of us deserves to feel safe at work and return to home to our families and loved ones at the end of the day. And while safety is always the right thing to do, it's also a business imperative. It strengthens our competitive edge, enabling us to bid on and secure vital projects, foster lasting client relationships and attract and retain top talent. Our clients trust us to execute their projects safely and with unrivaled quality. This trust is something we value and we hold ourselves accountable to the highest standards. By maintaining our unwavering commitment to safety, we position Matrix not just as a leader in engineering and construction, but as a dependable partner dedicated to excellence and care. I will now turn the call over to John. John Hewitt: Thank you, Kellie, and good morning, everyone. We began fiscal 2026 with strong execution, resulting in double-digit revenue growth and our highest quarterly gross margin in over 2 years. This performance reflects the continued maturation of our backlog and the disciplined approach we've taken to project bidding and delivery. Bidding activity remains healthy across our segments, and we saw a solid level of new awards. Our opportunity pipeline also remains robust for not only near-term projects, but several large multiyear projects with anticipated award dates beginning in late fiscal 2026 and into fiscal 2027. Based on our first quarter performance, our strong backlog and the visibility we have today, we are reiterating our full year revenue guidance of $875 million to $925 million. Typically, the first quarter reflects a seasonal slowdown in demand for maintenance and repair services. This year, that was largely offset by increased activity on larger projects. Our mix of project work drove gross margin improvement. Representing our best quarterly gross margin in more than 2 years. We expect continued margin improvement as we move through fiscal 2026, supported by conversion of backlog to revenue. Award activity in the quarter was stable, resulting in a book-to-bill of 0.9, and we ended the quarter with a total backlog of $1.2 billion. During the first quarter, we removed approximately $197 million from backlog related to 2 projects. While Kevin will provide more detail in his remarks, these removals do not reflect the reduction in demand, changes in the market or business performance issues. In both cases, the clients changed their commercial strategy and neither project had mobilized. Importantly, the removal of these projects from our backlog does not impact our Q1 results or full year guidance. We continue to be disciplined in our bidding and contracting efforts to ensure our project risk and financial return profile meets our standards. Now let's talk about our markets and what we see in the organic opportunities that will drive the business. First, our total opportunity pipeline currently sits at $6.7 billion, with the majority of those opportunities in storage and related facilities for LNG, NGLs and ammonia, which feed our Storage Solutions and Utility and Power Infrastructure segments. We continue to see a steady level of incremental bidding opportunities supported by strong investment in domestic infrastructure and a favorable regulatory environment. Growing demand for sustainable and reliable power is creating significant project opportunities upstream from the massive investment in data centers and advanced manufacturing, among other expanding electrical consumers. So whether it's LNG for backup fuel or peak shaving, upgrades to existing LNG facilities, new baseload or backup power generation or substation upgrades and new construction, our business will benefit from these investments in this critical infrastructure. And while the timing of awards can be fluid over the coming quarters, we expect that the level of awards will be similar to what we saw during the fourth quarter. This award portfolio will be made up of midsized projects on top of our normal cadence of small projects and maintenance. These projects will reinforce our strong backlog, continue to provide more predictable revenue flow and build our resource base as the business grows. One recent example is the award of a balance of plant construction at the Delaware River Partners multiuse port facility in Gibbstown, New Jersey that will support growing export demand for NGLs, including propane and butane. This award, which was taken into backlog in the first quarter of fiscal 2026, follows a fiscal 2025 award associated with the construction of our large full containment dual service storage tank at the same facility. These 2 projects represent our ability to provide integrated delivery for complex storage facilities, which is a key differentiator for the business. As we move into late fiscal 2026 and into fiscal 2027, we anticipate a reacceleration in award activity for larger multiyear projects, which we are currently in the process of pursuing. In our Process and Industrial Facilities segment, our strategic focus is to expand our markets, client base and footprint to build backlog and revenue while executing safely with high quality and financial outcomes. Actions include strengthening our position in core geographic markets, realigning our business development resources with our growth priorities and leveraging our strong customer relationships to expand organically. Focus areas include repair, maintenance, turnarounds and small cap projects in various process industries, including refining, chemicals and renewable fuels. Mining and minerals in support of the demand for nonferrous metals and rare earth minerals, thermal vacuum chambers where we hold a dominant position as well as various natural gas value chain opportunities. We are positioned to capture opportunities in this segment and deliver improved results over the long term. With project activity continuing to build due to the steady conversion and replacement of our backlog, we are highly focused on ensuring that we deliver consistent performance for our customers and the highest level of quality and safety. The recent changes to our organization structure, which we have talked about in our previous calls, has enhanced our agility, competitiveness and performance. These changes, along with strategic actions we have taken over the last few years, our already strong service offering position us to deliver on current commitments and complete effectively for the substantial opportunities within our robust pipeline. We remain committed to disciplined capital allocation. Our strong balance sheet supports the working capital needs of active projects as these jobs progress through key execution phases. As we return to sustained profitability in the coming quarters, we'll deploy capital thoughtfully, targeting growth opportunities that expand our market share and drive long-term shareholder value. In summary, I'm proud of the team's continued execution as we proceed through this critical chapter of growth for Matrix. We have plenty of opportunities ahead of us, which will not only support this fiscal year, but will continue to create growth in fiscal 2027 and beyond. I am confident that our focus on our core pillars of win, execute and deliver will serve to drive compounding profitable growth and long-term value for our shareholders and customers alike. So with that, I'll turn the call over to Kevin. Kevin Cavanah: Thank you, John. The first quarter of the year went about as we anticipated from an operating results, balance sheet, cash flow and project award perspective. Revenue of $211.9 million represented a 28% increase compared to $165.6 million in the first quarter of fiscal 2025. This is mainly due to growth driven by larger new construction projects in the Storage and Terminal Solutions and Utility and Power Infrastructure segments. We expect this revenue growth to continue as we move through the rest of the fiscal year. Consolidated gross profit increased 82% to $14.2 million in the first quarter compared to $7.8 million in the prior year. With strong project execution in both periods, the gross profit increase was the result of revenue growth as well as improved construction overhead recovery. Consolidated gross margin improved to 6.7% versus 4.7% in the first quarter of fiscal 2025. SG&A expenses were 7.7% of revenue or $16.3 million compared to 11.3% or $18.6 million in the same quarter last year. The $2.2 million decrease is primarily the result of the efficiency improvement changes implemented by the company over the last 2 quarters. The company will continue to work to leverage SG&A to its 6.5% target as revenue grows while also investing in resources when needed to support strong market demand and growth in our business. As expected, the company incurred $3.3 million of restructuring costs in the first quarter related to the efficiency efforts mentioned. The company has completed the bulk of restructuring activities and expects minimal restructuring costs during the remainder of fiscal 2026. For the first quarter of fiscal 2026, the company had a net loss of $3.7 million which includes a $3.3 million of restructuring costs as compared to a $9.2 million net loss in the first quarter last year. GAAP EPS was a loss of $0.13 compared to a $0.33 loss in the prior year. Excluding the restructuring costs, adjusted EPS was nearly breakeven at a loss of $0.01 in the first quarter. This performance reflects the operating leverage inherent in our business model and is consistent with the expectations that we have previously communicated, which is that we expect to achieve breakeven on a GAAP net income basis at a quarterly revenue level of $210 million to $215 million. Adjusted EBITDA in the first quarter was a positive $2.5 million compared to a loss of $5.9 million in the first quarter of last year. Moving to the operating segments. Let's start with Storage and Terminal Solutions, which represented 52% of consolidated revenue. First quarter revenue in this segment was $109.5 million compared to $78.2 million last year. The $31.2 million or 40% increase continues a trend, which began in fiscal 2025 and was driven by LNG storage and specialty vessel projects. We expect this growth trend for Storage and Terminal Solutions segment to continue as we move through fiscal 2026. Segment gross profit increased by $1.8 million or 38% in the 3 months ended September 30, 2025, compared to the same period last year due to higher revenue volume. The segment gross margin of 5.9% for the quarter was consistent with the segment gross margin of 6% in the same period last year. Gross margins for the segment continued to be primarily impacted by under-recovery of construction overhead costs, which we expect to improve as activity on projects currently in backlog increases through the remainder of fiscal 2026. Moving on to the Utility and Power Infrastructure segment, which accounted for 35% of consolidated revenue. First quarter segment revenue increased 33% to $74.5 million compared to $55.9 million in the first quarter of fiscal 2025, benefiting from higher volume of work associated with LNG peak shaving and power delivery projects. Segment gross profit increased by $5.5 million or 419% in the first quarter compared to $1.3 million in the same period last year. The growth resulted from the revenue increase and an improved gross margin, which increased to 9.1% compared to 2.3% in the same period last year. The margin improved due to strong project execution and construction overhead cost recovery as a result of higher revenues. Finally, the Process and Industrial Facilities segment accounted for 13% of consolidated revenue or $27.9 million in the first quarter of fiscal 2026 compared to $31.4 million in the first quarter last year. As John discussed, the market presents good opportunities in this segment to improve the revenue level. Segment gross profit decreased to $0.6 million or 28% in the 3 months ended September 30, 2025 compared to the same period last year. The segment gross margin was 5.1% for the quarter compared to 6.4% in the same period last year. The decrease is primarily attributable to an unfavorable change in the mix of work. Segment gross margin in both periods were impacted by under-recovery of construction overhead costs due to low revenue volumes. Moving to the balance sheet and cash flow. As expected, cash decreased in the first quarter, ending at $217 million, down $32 million from the start of the quarter as the company continues to make progress on the large projects in backlog that were in a prepaid position. Exiting the quarter, the balance sheet and liquidity remain in a strong position with liquidity of $249 million and no outstanding debt. We will continue to proactively manage the balance sheet and have the financial strength and liquidity needed to support the positive earnings inflection we anticipate as we progress through fiscal 2026. Now let's discuss project awards and backlog. Project awards in the first quarter were consistent with what we anticipated. They totaled $187.8 million for a 0.9 book-to-bill with the Storage and Terminal Solutions segment accounting for $136.1 million of the awards. As John mentioned, during the first quarter, we made the decision to remove 2 projects totaling $197 million from backlog, neither of them impacting our fiscal 2026 revenue guidance. Each project reflected a different situation. The first and largest was within our Process and Industrial Facilities segment and was formally awarded to us in late fiscal 2023. Our scope of work on this project was construction only and the start of field work had been -- had already been delayed by over a year due to slow progress on scoping, design development and engineering, which is outside our responsibility. Just recently, the owner decided to adjust its execution and contracting structure, which resulted in their decision to rebid the construction portion of the project. The project will be rebid in packages later this year, and we intend to submit bids on certain aspects of our original scope. That said, due to this change, we removed the original awarded project from our backlog, consistent with our backlog recognition policy. The second project was in our Utility and Power Infrastructure segment. In this case, the project was formally awarded in the fourth quarter of fiscal 2025. Subsequently, the client sought to modify the terms and conditions of this agreement in a way that significantly increased our risk on the project. This change was inconsistent with both the as-bid basis of our proposal and our commercial policies. As a result, the award was rescinded, and we removed it from backlog. After removal of these 2 projects, backlog remains strong at $1.2 billion and is supportive of our revenue guidance of $875 million to $925 million. When we started the year, we mentioned that we were going into the year with 85% of our revenue booked at the midpoint of our guidance range. As a result of awards during the first quarter, this percentage has decreased to more than 90% -- I'm sorry, the percentage has increased to more than 90%, and we continue to be confident in our ability to achieve our revenue guidance. The improvement in our consolidated revenue, combined with continued focus on execution excellence and leverage of our construction overhead and SG&A cost structures will allow us to return to profitability as the fiscal year and make us -- and make significant progress towards the achievement of our long-term financial targets. This concludes our prepared remarks. We'll now open for questions. Operator: [Operator Instructions] And our first question comes from the line of John Franzreb of Sidoti & Co. John Franzreb: I just want to start with where you finished about those 2 projects. It doesn't seem like there's much in common with them, and it seems like the start dates are probably due in 2027, if not later. But I'm curious if that suggests that the competitive landscape as one was rebid and when the terms were changed a bit, the competitive landscape we're getting a little bit tougher for larger projects out there? John Hewitt: I don't think so. I don't think both those situations were really not associated with as you pointed, the competitive landscape. I think it's just the way the larger project, as Kevin had said, we've been in our backlog for almost 2 years, and there was a lot of scope and design changes that were going on between the owner of the project and our client. And I think the ultimate client, the owner decided that they were going to just change their execution strategy and try and do it in a different way. . And so -- and then the other project, really, I frankly, applaud our teams for not being sucked into taking a job that had a much higher risk component, certainly one that we were not given additional remuneration for to take on that risk. And I think we're able to make that decision to do that because there's a significant amount of opportunities in the marketplace for that kind of work, where we've got a very strong brand position. We've got a very strong position in those markets. And so I think at the end of the day, it was a positive thing, particularly when neither one of those projects really impact our fiscal 2026. John Franzreb: Got it. And John, I might be reading too much into this. But I think in the prepared remarks, you mentioned that midsized projects are growing. But later in your prepared remarks, you said that you look for a reacceleration of large project work. Did I hear that properly? And if so, what's the timing of when you expect large jobs to be let out again? John Hewitt: Yes. I mean we put some pretty large projects into our backlog 18 months ago. And so it's just the timing of the development of the bigger energy facilities, certainly around LNG and NGLs, ammonia jobs. It takes -- just takes longer to get those things through a proposal process and development process. And so there's a number of those projects out there that we are tracking. We may be providing upfront feed work for, so maybe some engineering development, scheduling, budgeting, helping some of our core clients in those markets that are continuing to add more infrastructure or planning to add more infrastructure. And so it's just a timing thing. And so we're really comfortable about our positioning there, the number of opportunities that are out there that we're going to be able to play a role in. And so -- but in my comment there is the -- over through this fiscal year, there continues to be a lot of what we call mid-scale projects available to us. I think the -- we announced the DRP project this morning, which is -- went into backlog in our first quarter, typical kind of projects that we see out there in our pipeline that we're currently bidding on or have bid and that we're working through details with the clients on that. So each of those projects individually, they're not short-term projects. They may not be a 3-year project, but they could be 12 to 18 months. They allow us to continue to maintain a strong backlog to really build our teams as the bigger projects come down through the opportunity pipeline. And so I feel really good about, a, our ability to continue to maintain a solid backlog and to continue to strengthen the company's operations through a lot of these, what you'd call smaller projects. Now these projects are certainly aren't tiny, but they're not the kind of the mega stuff for us, the mega stuff that we put in the backlog 18 months ago. John Franzreb: Understood. Just a question on the restructuring. I'm wondering how that changes the breakeven dynamics? And if there's any other things that you're thinking about as far as the year ahead or any of the other kind of actions? Kevin Cavanah: Yes. So it does have a good impact on our cost structure, decreases that, which does lower our breakeven point. And at this time last year, we were talking about it took us $225 million quarterly revenue to get to breakeven. That's decreased to somewhere between $210 million and $215 million to get to breakeven. It's those changes also decreased the level of revenue required for us to reach full construction overhead cost recovery. That's now around $250 million, and it decreased the amount of revenue we need to get our SG&A down to our 6.5% target. That's also down to $250 million. So that definitely had a positive impact on the earnings power of the company. As we mentioned, we're substantially complete with the restructuring items that would have a cost impact. So there may be some minimal costs that flow through the rest of the year, but not much is expected there. With that said, we're continuing to focus on improving the business and have actions and plans in place to address all the issues within the -- throughout the business to continue to focus on returning to profitability and producing a strong bottom line on a quarter-over-quarter basis. Operator: Our next question comes from the line of Augie Smith of D.A. Davidson. Augie Smith: To begin, can you guys touch a bit more on kind of what projects you're targeting within the gas power project space? In previous conversations, you had mentioned you're looking at some gas power plant work, but kind of more specifically, what are your capabilities there? And how do you see that playing out moving forward? And then is this something we should be considering for fiscal '26? John Hewitt: Yes. So if you've been around us for a while, when there was a lot more activity in the late '90s, early 2000s, we, as a company and part of our legacy members of our company were involved in a number of the larger combined cycle gas-fired power plant build out across the country. California, Ohio, into Pennsylvania. So a variety of different areas. So not only as acting as a general contractor on those projects, but in some cases, we would provide the centerline erection, boiler erection, the mechanical piping systems. And so we have those skill sets reside in the organization. We have those capabilities. . Over the last -- certainly the last few years as that market flattened out pre-COVID, those resources were applied into other industries and other markets that were maybe gaining strength. So we can see in the current market for power generation and a combination of increased demand for generation, looking for more sustainability, more reliability and maybe a little cleaner generation moving from coal to natural gas. So it plays very well for us. So we have those -- all those construction skill sets to not only have a role in the construction of new power generation, but also to do all the backup fueling, natural gas and LNG as well as peak shaving terminals. So we have a very strong brand position there. And so if you think about upstream from the new major demand for generation back up into existing power suppliers, they need to expand their generation resources. They need to make sure they had reliable generation, backup fuel for that generation. And so all those things are creating project opportunities for us. And frankly, in our opportunity pipeline, I would expect that to grow here over the next year as more power generating related projects come into -- move from our prospects phase into our opportunity pipeline. Augie Smith: Okay. Awesome. And then kind of shifting gears again back to the backlog. So obviously, backlog was impacted this quarter by the removal of those 2 awards. But kind of moving forward, should we continue to view backlog in the $1 billion-plus range? And then kind of more specifically, you guys mentioned that the Process and Industrial Facilities project that was removed was because the client wanted to split it up into multiple bids. Do you guys envision this kind of becoming a pattern with other clients as well? Or do you guys think of this as more of a one-off? John Hewitt: Yes. I think that's a one-off situation for -- at least for the projects that we're involved in. I would say what we're seeing more of a turn is clients that are trying to lock up resources and construction -- engineering and construction capabilities. And so in some cases, they are looking at alliances, looking at partnering agreements, looking at more better risk sharing through reimbursable kind of contracts. So I think we're in that place in the market right now where it's becoming -- I hate to use the term, it's becoming a seller's market. But certainly, I think that pendulum is moving a little bit in some areas and some regions of the country where you're going to see more contractors getting locked up with owners to get their infrastructure put in place. So I think right now, it's a pretty good place to be in, a, to have the kind of brand strength that we have and capabilities in the markets we can perform in. And -- but not just for us, certainly for some of our peers as well. Operator: I'm showing no further questions at this time. I'd now like to turn it back to Kellie Smythe for closing remarks. Kellie Smythe: Thank you. As a reminder, the Sidoti & Company Year-end Virtual Investor Conference is scheduled for December 10 and 11. We will also be participating for the first time in the Northland Capital Markets Virtual Growth Conference on December 16, 2025. If you're participating, we look forward to speaking with you. Additionally, if you'd like to have a conversation with management, please contact me through the Matrix Service Company Investor Relations website. You may also sign up to receive MTRX news by scanning the QR code on your screen. Thank you for your time. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Operator: Good morning. My name is Marissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primo Brand Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Logan Grosenbacher. Logan Grosenbacher: Welcome to Primo Brands Corporation's Third Quarter 2025 Earnings Conference Call. The call is being webcast live on Primo brands website at ir.primobrands.com and will be available there for playback. This conference call contains forward-looking statements regarding the company's future financial results and operational trends, estimated synergies, impacts from economic factors and other matters. These statements should be considered in connection with cautionary statements and disclaimers contained in the safe harbor statements in this morning's earnings press release and the company's quarterly report on Form 10-Q and other filings with the SEC. The company's actual performance could differ materially from these statements, and the company undertakes no duty to update these forward-looking statements, except as expressly required by applicable law. A reconciliation of any non-GAAP financial measures discussed during the call with the most comparable measures in accordance with GAAP, when the data is capable of being estimated is included in the company's third quarter earnings announcement released earlier this morning or in the Investor Relations section of the company's website at ir.primobrands.com. In addition to slides accompanying today's webcast to assist you through our discussion, we have included a copy of the presentation and a supplemental earnings deck on our website. Certain information discussed on this call concerning our industry and market position is based on information from third-party sources that we have not independently verified and is subject to uncertainty. I'm joined today by Dean Metropoulos, a member of the Board of Directors and former Nonexecutive Chairman; Eric Foss, Primo Brands Chairman and Chief Executive Officer; and David Hass, our Chief Financial Officer. Our prepared remarks will begin with Dean discussing the leadership transition we announced this morning. Following that, David will discuss the third quarter performance of Primo Brands and the outlook for the full year 2025. And then Eric will share his thoughts on the business as he steps into the role as Chairman and CEO. Following that, Eric and David will take your questions. With that, I will now turn the call over to Dean. Dean Metropoulos: Good morning, and thank you, everyone, for joining us. As you have probably seen this morning, we announced that the Primo Brands Board of Directors appointed Eric Foss as Chairman and Chief Executive Officer. Eric is an experienced executive, having served as Chairman and CEO of Global Consumer businesses. He has served as Director of the company's Board and its predecessor, Primo Water. I welcome Eric's energy and abilities as a transformative leader. He is known for his people-first leadership philosophy, brand-building experience, operational and executional expertise and the ability to drive long-term growth through customer focus, innovation and creating a winning culture. He's highly qualified to lead Primo Brands future growth and value creation. I want to also express our deep confidence in the future of Primo Brands with its unique historic brands and unmatched and now highly integrated and efficient national network that will reach consumers in every aspect of their lives. In addition, Primo Brands is a major beneficiary of strong tailwinds that are driven by an unprecedented consumer focus on healthy hydration. We're all very confident that Eric will lead Primo brands in this exciting new future, and we thank all of you investors for the continued support and interest in our Primo brands. Thank you. In conversations with the Board, as we move into the next phase, following our breakthrough merger and integration, now is the right time for me to step away as Non-Executive Chairman. I will remain on the Board as a director and will support Eric during the transition. Robbert will lead the company and the Board to pursue other interests. We want to thank him for his hard work and contribution to the consolidation and integration of Primo Water and BlueTriton Brands during the past year, and we wish him continued success. I want to express my deep confidence in Eric as he assumes his new role and thank all of you again for your continued interest in Primo Brands. With that, let us turn the call over to David. Thank you. David? David Hass: Thank you, and good morning, everyone. As you know, we announced a lot of news this morning. In parallel with today's management transition, our team has been hard at work decisively executing against our strategy to drive organic brand growth, synergy capture and operational excellence across our platform as our integration progresses. We are working with a clear sense of urgency to realize our potential as the leading branded bottled water player in North America an important category that consumers continue to rely on for everyday healthy hydration. We are pleased that improvements in operational and financial performance in our Q3 2025 results demonstrate the resilience in our business, strength of our brands and success across channels and offerings, reinforcing our confidence that Primo brands will return to delivering against our long-term financial algorithm. Overall, for the third quarter, we generated net sales of $1.766 billion, a 1.6% comparable year-over-year decline, but a 90 basis point improvement from the 2.5% comparable year-over-year decline in the second quarter. Our top line results reflect ongoing unit case volume growth, which increased 0.7% versus the prior year period with investment in price and promotion in our home and office delivery network as we prioritized customer retention during the quarter. We delivered profitability ahead of expectations with comparable adjusted EBITDA growth of 6.8% year-over-year to $404.5 million for a margin of 22.9%. I will discuss these results in more detail shortly. First, let me turn to an update on our integration and synergy capture. This summer, we worked with a sense of urgency to remediate challenges that emerged in our delivery business. And I am pleased to report that service levels are now back to pre-integration levels. Importantly, demand for our 5-gallon product remains strong as evidenced by the year-over-year net sales growth for our exchange and refill offerings where we continue to grow distribution. Large format unit volumes also grew sequentially within the quarter, and we anticipate direct delivery customer base improvements as we exit 2025, an important indicator that our integration efforts are back on track. Our delivery service rate, or DSR, is currently back to approximately 95%, consistent with historical levels. And our relationship Net Promoter Score is continuing to trend in a positive direction from July lows. At the same time, our announced synergy plan remains on track and we are confident we will achieve the $200 million and $300 million run rate targets by 2025 and 2026 year-end, respectively. To date, we have now closed 49 facilities or 16% of our premerger footprint, while optimizing head count to enhance productivity and efficiency. This fall, we seamlessly completed our latest round of integration, which gives me confidence in our final two rounds of integration as they are far less complex and will proceed smoothly. We are particularly excited about the future growth and margin prospects as we optimize routes and lean into cross-selling our brands, products and services. From our viewpoint, we believe that we are in the early innings of consolidating our position as a durable branded category leader. Primo Brands has a strong arsenal to drive long-term value creation through several foundational elements. First, we are anchored by our iconic brands with deep heritage, such as Poland Spring and Pure Life, coupled with our emerging growth leaders Saratoga and the Mountain Valley as well as the Primo brand. Together, these give us great customer awareness and resilience that will help carry our momentum. Second, we enjoy the benefit of being fully integrated from spring sources direct to our consumer. As well as one of the few branded beverage companies that owns our own Spring assets, which helps us sustain our water stewardship initiatives. Third, Primo Brands is the #1 player in the U.S. retail branded bottled water category by volume share. In Q3, we increased both volume and dollar market share by 15 basis points and by 25 basis points, respectively, according to Circana. Primo Brands was the only scaled bottled water company to grow volumes in Q3. Fourth, we expect that our extensive market reach, as demonstrated by our access to customers through more than 200,000 retail outlets will help propel us into the second position in liquid refreshment beverages and provide a competitive edge for our business. We are making steady progress towards returning to our growth algorithm and have a clear line of sight to accelerating net sales, profitability gains and increased free cash flows as the calendar advances towards 2026. Now turning to results. As a reminder, the GAAP financial comparisons in this morning's press release reflect the Q3 2025 results of the new Primo Brand versus the 2024 results of the legacy BlueTriton business. This is standard GAAP reporting following a merger transaction, which can lead to growth metrics that are not comparable. To assist with the comparisons that include both entities in the prior year period, we will be primarily discussing comparable results while adjusting for the exited Eastern Canadian operations for both years 2024 and 2025. Year-to-date, comparable net sales were down slightly by 0.5%, when compared to the prior year at the 9-month mark. When factoring in the leap day impact, normalized comparable net sales decreased by 0.2%. As a reminder, our year-to-date net sales results reflect the impact of the Hawkins tornado of approximately $27 million. The cumulative impact of these activities is approximately $45 million, which would have put the business slightly ahead versus the prior year. While off our algorithm for 2025, we believe these results demonstrate the resilience of our business even with our short-term disruption in the direct delivery business. At the comparable adjusted EBITDA line, we were able to capture a year-to-date increase of 6.4%, well ahead of our comparable net sales growth, while expanding comparable adjusted EBITDA margin by 140 basis points. With that as the backdrop, let me share the financial details of Q3. Comparable net sales in the quarter were $1.766 billion, which declined approximately $29 million or 1.6% year-over-year. Contributing to our Q3 results was flat volume and pricing mix that was down 1.6%, largely due to mix within our noncore revenue streams like office coffee services and other investments in the retail channel. Within those results, dispensers and office coffee services contributed approximately $14 million to the quarter's $29 million year-over-year reduction, which was as anticipated. Sequentially, net sales increased $36 million from the prior quarter and our year-over-year decline relative to the year-over-year decline in the second quarter improved by 90 basis points. Turning to specifics on the performance. Our branded retail business delivered 2% net sales growth in the quarter, ahead of category growth driven by exceptional brand strength and remarkable distribution expansion of 12% in total points of distribution. This strong distribution growth positions us well for future quarters as we expect these new placements will mature into velocity gains. The combination of expanded household reach and enhanced retail presence, demonstrates the strength of our brand portfolio and our ability to execute. In Q3, we continued to see strong results from our premium water portfolio products with Mountain Valley and Saratoga. Combined, premium net sales increased more than 44% year-over-year. Moving into the direct delivery business. As a reminder, in our slides, we list our main net sales disclosure channels for Primo Brand. Our direct delivery channel includes the home and office delivery business, water filtration, water exchange deliveries to our retail partners and our office coffee service that we are in the process of winding down by year-end. The dispenser and refill businesses are separate and listed across the various retail channels within each of the account relationships. For the quarter, the comparable net sales of direct delivery included a decline of 6.5% or approximately $47 million. The Office Coffee Services or OCS business, that reports within this disclosure channel, accounts for approximately $8.2 million or 113 basis points of decline, which came in as anticipated. Separately, credits provided to customers in the direct delivery business increased by $3.7 million year-over-year in the quarter. We believe this increase is temporary as we prioritized retention during the integration disruptions and will return to normalized levels as we exit 2025. The cumulative impact of these items was approximately $12 million, which would have resulted in the channel being down 4.9% versus the prior year. As we previously shared, our direct delivery integration challenges in Q2 occurred over a shorter period as the disruption began in late May through June with Q3 exposed to a longer window of disruption. This disruption was balanced with improving service that continues to this day. It was clear that customers experienced peak disruption in July and the direct delivery business has recovered into quarter end and further to today's earnings call. Our goal remains to improve customer volumes to both existing and new household and commercial customers, as well as resume our cross-sell and upsell activities. As a reminder, our home and office delivery business has a known base between residential and commercial customers. Our exchange and refill businesses have an implied user base of customers transacting directly with our retail partners, but we can estimate this from buying patterns. These customers continue to grow uninterrupted through this period. Going forward, new user creation continues through the sale and rent of our dispensers, the razor, as well as new customer sign-ups through our digital and club channel opportunities and additional households adopting self-service exchange or refill services. This led to volume growth in Refill and Exchange in Q3. Comparable adjusted EBITDA increased 6.8% to $404.5 million, with comparable adjusted EBITDA margins of 22.9%, an increase of 180 basis points versus the prior year. Within these results, our synergy capture continued, although some of the stabilization efforts remain in the business as we improve our product supply and deliveries to meet the demand of our direct delivery customers. Turning to the balance sheet and cash flows. At the end of the third quarter, our debt gross of deferred financing costs and discounts totaled approximately $5.2 billion. Our $750 million revolving credit facility remains undrawn at the end of the third quarter, providing us with approximately $612 million of available liquidity after accounting for standby letters of credit totaling approximately $138 million. Our liquidity remains strong with approximately $423 million of unrestricted cash on the balance sheet. When combined with the $612 million of availability under our revolving credit facility, our total liquidity is approximately $1 billion. At the end of the third quarter, our net leverage ratio was 3.37x. Moving to cash generated from the business. In the third quarter, Primo Brands generated $283.4 million of cash flow from operations. When accounting for significant items, including, but not limited to our integration and merger activities, our cash flow from operations would have totaled $362.4 million. Additionally, we invested $51.3 million in capital expenditures, excluding integration-related and natural disaster Hawkins related capital expenditures which resulted in adjusted free cash flow of $311.1 million. When compared to the prior year, on a combined basis, this resulted in adjusted free cash flow growth of $15.9 million. We also closely track our conversion of adjusted free cash flow to adjusted EBITDA. On a trailing 12-month basis, our adjusted free cash flow totaled $733.9 million yielding a conversion ratio of 51.9%. Looking ahead, we remain focused on disciplined capital allocation while maintaining a strong balance sheet to support our ongoing integration and organic growth initiatives. We plan to continue to prioritize reducing our debt to our medium-term net leverage target of 2 to 2.5x and plan to take advantage of opportunities to repurchase shares with our newly authorized share repurchase program. Since our recent authorization, we've repurchased $73.2 million of our stock and approximately 3 million shares. There remains approximately $177 million on our share repurchase authorization. Yesterday, our Board of Directors authorized another quarterly dividend of $0.10 per Class A common share, which represents an 11% increase over last year's quarterly dividend rate at Primo Water. Before turning to our financial outlook, I want to provide an update on our last international divestiture transaction that closed after our quarter ended. On October 23, 2025, we completed the sale of our Israel business for approximately $42 million in net proceeds. The sale proceeds will be reflected in our cash balance when we report year-end results in February next year. I want to thank the local Israel management team and all associates of Mey Eden for their tireless efforts in running the business with flawless execution during the last 2 years. As we know, this has not been a normal operating environment since the events of October 7, 2023, but the team remained focused on serving their customers while also protecting the safety of their fellow associates. Moving to our financial outlook. We remain confident in the progression of the business, notably our retail performance. Our Q3 retail performance exceeded our estimates, and we remain confident that the business has stabilized from the combination of the impact post-Hawkins tornado and weather events that challenged first half performance. In fact, we continue to gain share in retail scan data and see this momentum building into 2026. Similarly, our Exchange and Refill businesses experienced strong performance in Q3 and we expect this to continue into year-end into 2026. Lastly, our OCS business continues on track with our exit plan and our dispenser business also remains on track with the decline previously stated into year-end. Based on recent trade relations, we are likely to enter 2026 with a more favorable tariff environment, alleviating some of the headwinds faced in 2025. Narrowing in on our direct delivery business, we continue to see signs of recovery. The remaining gap between our operational and financial recovery and our original guidance expectation continues to be unit volumes at the customer level. Our product supply was originally disrupted, but we have now stabilized and increased our days on hand of inventory. We continue making progress expanding our customer reach as a result of specific programs. First, we are expanding our Club booth program at Costco, Sam's Club and BJ's and we are seeing an exciting level of club additions since the end of the quarter. These partnerships help build awareness, demonstrate our quality and promote our robust customer service. Second, we have specific strategic digital acquisition campaigns in place to help expand our customer footprint. Our digital marketing team is focusing on increasing our top of funnel and bringing in new customers through various online platforms, including web, social media and applications. We are seeing strong results from these efforts as our digital customer acquisitions grew 8.2% versus Q3 of last year. Last, we believe this momentum combined with the reduced customer churn from improved execution and improved public sentiment is positioning us well to mitigate the volume impact as we turn the page towards 2026. The outliers are onetime activities like Hawkins, dispensers and OCS are all coming in according to our original estimated impact as is our retail business. With the ongoing recovery in our direct delivery business, this is requiring a shift in our net sales guidance range. We still remain confident in the recovery of the business, but the recovery path is not at the right magnitude to deliver the midpoint of our previous guidance. We now expect a net sales decline in the low single digits versus the prior year. This shift in guidance is solely related to the recovery path of the home and office delivery business, within the direct delivery disclosure channel. On the adjusted EBITDA side, our path of stabilizing our service to customers has offset some of the gains of the synergy capture. However, this will help transition us into 2026 with optimal customer and volume recovery. With that, we are moving our adjusted EBITDA guidance to approximately $1.45 billion or 21.8% margin, up 180 basis points from prior year. The majority of this shift is resulting flow-through of the shift in the net sales guidance with some additional expenses related to supporting the business into year-end. We are reiterating our adjusted free cash flow guidance with a range between $740 million to $760 million. Looking ahead to 2026, we see several key growth opportunities that we believe will support the return to our algorithm. First, we are fueling the growth of our premium brands, Mountain Valley and Saratoga by investing in new capacity including more than $66 million in our new Hot Springs facility for Mountain Valley as well as a new bottling factory in Texas for Saratoga. Both brands have been growing consistently robust double-digit while being capacity constrained, and these investments will support new highly accretive growth. Second, we are focused on sustained total distribution point growth starting with Mass and Club. In September, we were awarded distribution and water exchange at Sam's Club, adding to the over 1,000 incremental exchange racks installed earlier this year to support our customer demand. This distribution is expected to drive accretive and profitable growth in our large format network, particularly as we introduce higher value regional spring water brands and implement harmonized pricing actions across our exchange and refill offerings. Simultaneously, we continue to see strong performance from our case back distribution in alternative channels like convenience, foodservice and omnichannel. Finally, we are preparing to implement pricing actions across our retail exchange and refill offerings. While we continue to prioritize retention in our home and office network for direct delivery, we are charting this offerings pricing strategy, which we will prioritize in 2026. In the meantime, we have taken price, pricing and harmonized terms for dispenser purchases in our Club channel effective last week. At retail, we are sharpening our capabilities to better blend price and mix growth with volume growth by improving trade spend efficiency, taking price and optimizing revenue growth management and price pack architecture. These activities will contribute to our 2026 top line growth. Looking ahead, I am confident in our ability to deliver value for all stakeholders. We are a category leader in North America, with a comprehensive portfolio to serve all usage occasions. We have a differentiated coast-to-coast network, powerful reach in retail and a robust delivery footprint. And we continue to act with urgency, agility and focus on operational excellence and the best-in-class service that our customers have come to expect from Primo Brands reinforcing our performance in 2026 and beyond. With that, I'd like to turn the call over to Eric. Eric Foss: Thank you, David. It's great to be here, and thanks to everyone for joining us today. Let me start by saying what a privilege it is to be Primo Brands new Chairman and CEO. For those of you who don't know me, I've spent my entire career running global consumer-centric asset and people-intensive business models in the food and beverage industries. As CEO, I believe the purpose of the company is really the centerpiece of any enterprise. Our purpose as the premier healthy hydration company in North America is to hydrate a healthy America each and every day. I'd like to thank all of my Primo brands teammates for their passion and tireless efforts in focusing on our consumers and customers every day. Over the last couple of years as a member of the Board of Directors of legacy Primo and now Primo Brands, I've had a front row seat and a hand in helping to create Primo brands to be a bigger, stronger and faster company with not just a purpose, but with promise in a bright, bright future. Since coming together about a year ago, our team has made a lot of progress. There's still more work to do to achieve our full potential, consistently meet our customers' expectations and deliver results that are consistent with our commitment to our shareholders. I feel blessed to step into the CEO role of a company that has strong leading brands across all consumer consumption and channel purchase options. I'm also fortunate to have an exceptional and flexible go-to-market system that helps us drive speed, reach and frequency. That aims to meet or exceed the expectations of our customers. We have a passionate, capable and committed team. And I'm a big believer in the phrase, the team with the best players wins. Let me spend a minute sharing some of my thoughts on where we are just about 1 year into our journey as Primo Brands. First, the investment thesis communicated at our Investor Day in early 2025 is fully intact. We compete in an incredibly attractive category. Bottled water isn't just the largest beverage category in the United States, it's continuing to grow. The long-term outlook is powered by an aging population and an increased focus on health and wellness. What's just as important, our products are sourced right here at home. We're locally manufactured and more than 98% of our sales come from the United States. Primo Brands is the #1 player in the U.S. retail branded bottled water category by volume share. Our portfolio of leading brands have deep heritage and consumer loyalty. We have a diversified portfolio with the potential to serve people when they want, where they want and how they want to hydrate. From iconic regional spring brands to pure and premium offerings, we give consumers a choice. And when it comes to premium, we have an unmatched portfolio with tremendous potential with our Saratoga Springs and Mountain Valley brands. We're going to keep investing in our capabilities in building these brands and expanding distribution so that they can reach their full potential. Just last week, we broke ground on a new greenfield production facility for Mountain Valley in Hot Springs, Arkansas, set to open in spring of 2026. This merger has given us an opportunity to unlock the true power of Primo through synergy capture, ongoing cost and productivity that can be either reinvested in growth for expanding our margins. Over the coming days and weeks, my focus is simple: to listen and learn from our consumers, our customers, our employees and our shareholders. That will help shape our agenda for the future. In the near term, my focus really centers on four areas. First is to get the business growing. We'll do that by building deeper connections with our consumers, focusing on brand building and innovation and making sure we sell, serve and execute with excellence. We'll tap into the full potential of our two leading premium brands, Saratoga Springs and Mountain Valley. Second, we're going to raise our game in customer service. We'll sharpen our service and execution making sure we fully address and improve customer service levels. My third focus is on creating a winning culture, one that's anchored in performance and recognition. By ensuring we recognize the hard work and achievement of our people every day. And finally, I'll work with this dedicated team to make sure we deliver on our financial commitments by growing the top line, driving earnings, generating free cash flow and creating lasting value for our shareholders. In closing, thank you for your continued interest in Primo Brands. Logan Grosenbacher: Thanks, Eric. To ensure we address as many of your questions as possible, please limit yourself to one question only. And if we have time remaining, we will repoll for additional questions. Operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from Derek Lessard with TD Cowen. Derek Lessard: I just had one for me. Is there anything that fundamentally changed from the time you closed last year to now, I mean, you had a hiccup in Q2 that seems to be fixed. Anything that we should be thinking about that justified the leadership change? David Hass: Thanks, Derek. This is David. I think, again, the Board felt this was the appropriate time for a change. They've made that change with Eric stepping into the role. Fundamentally, no. I mean, from the macro perspective, our consumer remains very healthy. The category remains very healthy. In the retail part of our business, the share gains continue to express the brand strength that we possess, and how our consumers are gravitating to those brands, notably the premium side, which again, put another quarter up of 44% growth. This all largely remains contained to the home and office side within the direct delivery channel. But no, I think broadly speaking, this was the time for a change, and that's what happened. Eric Foss: And Derek, it's Eric. If you wouldn't mind, I'd just make a brief comment. I think as I step in, I think the Board felt like this was the right step for the company at this point in its journey. I think David referenced that and it's really all around maximizing the full potential of this business. So I want to emphasize that the long-term investment thesis here is still fully intact, right? We have a very attractive category, large and growing. As you continue to see consumer tailwinds around health and wellness and hydration, that's going to continue to be at the forefront of their decision-making matrix. And we're the #1 player. We've got leading brands. In the quarter, we actually saw an improvement in household penetration. We saw volume growth on the retail side, along with some share momentum. So I really do think that the long-term kind of value creation thesis and the financial model is still fully intact. We have an issue that, as you mentioned, started a quarter ago that we've got to get our hands around, which is really around last mile direct delivery. Derek Lessard: Okay. That's great detail. And then just maybe one follow-up to that, David, is it -- I guess, is it safe to assume that the majority of the integration challenges are now behind you guys? David Hass: Yes. Again, as I mentioned in my prepared remarks, product availability and stability and days on hand is back to their normal potential. Most of the routes are performing at or above expectations from pre-merger. And then when you look at some of the sort of consumer-oriented data points, call volumes are now back below sort of pre-integration levels. And then consumer sentiment, while that I understandably takes a little bit of time to rebuild trust, those that are choosing to post are starting to improve their sentiment and the large negative sentiment spikes we saw during the peak integration challenges have pretty much dissipated. So we feel very comfortable there. It's just a matter of time of resuming volumes to those customers and continuing day in and day out of building trust back with those customers. Derek Lessard: Okay. And congrats to Eric. Looking forward to working with you. Operator: Your next question comes from Daniel Moore with CJS Securities. Dan Moore: Yes. I wanted to ask, I know we'll get into a lot of detail in terms of the numbers, but high level, either for Dean or Eric or both, we had the disruptor Hawkins that said, the integration much more complex and challenging than we expected or believed it to be. Was it simply a case of moving too quickly? Or are there sort of naturally larger dissynergies at least initially involved than expected, projected. Any high-level thoughts there would be really appreciated? Eric Foss: Sure, Daniel. It's Eric. I'll take that. I think again, to use the term, I think most of the direct delivery disruption has been self-inflicted. And sometimes mergers can be complicated and more complex than maybe even anticipated going into them. I do think we probably moved too far too fast on some of the various integration work streams. There's no doubt that, that speed impacted product supply. There's no doubt that, that speed impacted our ability to get through a lot of the warehouse closures and route realignment without disruption. And the ultimate output of that was the customer service issues that we've highlighted. There are also where, I believe, some just integration issues related to the technology move over. But at the end of the day, as David said, the team has really been and continues to work hard to address those and correct those. I think in the quarter, David highlighted this, we saw continued improvement on multiple fronts. I think on the product supply front, we're pretty much corrected on that relative to in-stock conditions. But we still have work to do at the moment of truth around making sure our deliveries are on time with the right product. We did see each of the kind of process metrics around customer call volume and did see both improvements in the quarter on customer sat scores. But again, there is more work to do on this front to completely get the issues solved and corrected. Dan Moore: Really helpful. And a quick follow-up. Are there -- if we sort of look at Q3 as a baseline, is there more cost investments that will need to be made in terms of routes, drivers, customer service, marketing, et cetera, kind of more permanent costs that may need to incur relative to our initial expectations to maintain that customer service. David Hass: Yes, Dan, this is David. You'd be right there. Across Q2 and Q3, we started to move some routes back in to stabilize success rate across the customer visit. Obviously, we've had some, what I'll call, middle mile or interbranch transfer cost to sort of keep product supply stable. Those will largely dissipate and again, once we have a more stable and consistent pattern of delivery success, which has been happening post quarter to today's call, that will allow us to start to slowly work back out some of the excess routes or what I'll call over time or weekend support, which will bring our units per route up. And as you are familiar, legacy Primo Water really had a large drive toward that productivity at the route level, that will resume. And as we head into '26, we'll really start attacking miles, which was really part of the main benefit of this merger, which was the density of the route between the two customer bases. So yes, I would say that, in short, we've had some surges in costs to both handle call center and the routes and the labor across the middle mile. And those things will start to unwind as we exit the year. And that puts us back into allowing the synergy capture to start to reveal itself more clearly in the P&L. Operator: Your next question comes from Eric Serotta with Morgan Stanley. . Eric Serotta: So a shorter-term question and a longer-term one. In terms of the short term, can you help us unpack the fourth quarter guidance between direct delivery and retail? It would seem that if retail is going to be -- growing even modestly, the guidance implies a pretty steep decline in direct delivery. And along with that, like what was the exit rate, whether you want to talk September or recent weeks, like what is HOD running in terms of a year-on-year rate now? And then longer term, just wanted to circle back on the prior question, make sure I understood correctly. You're expecting the incremental costs to dissipate? Are you reaffirming the earlier back from February, the '26, '27 EBITDA margin targets or should we assume that between or EBITDA dollar target, should -- or should we assume that even if the majority of these costs dissipate that there is some incremental cost that will be ongoing that will kind of lower the earnings power versus what you previously thought? David Hass: So yes, as mentioned, a lot of the -- let's go through the exit categories. So like office coffee, exiting on trajectory, the dispenser headwind from tariffs exiting on trajectory, exchange and refill performing to their pretty regular nice growth, nice consistent volumes. And then the retail business, obviously the largest part of our business, once we've been through the Hawkins moment, if you will, and weather being less of a challenge, it's going to perform and exit the year sort of on track with our previous revision back in August, which has about a 2% second half exit rate. So we feel very confident there. Obviously, that leaves us now with the direct delivery business, which is largely the HOD component. As I mentioned, I wanted to clarify just for people who are curious what all goes into that disclosure line in our earnings supplement. And that's largely the HOD part. And so again, we are at a moment where we're successfully visiting customers on schedule. It's accurately and to the maximum potential fulfilling their order, whether that be in the base 5-gallon unit, whether that be in a case pack unit or a premium unit that comes off the route. So again, most of that exit challenge remains just fulfilling volumes to the appropriate level, but we have greatly reduced friction by missing their original dates or things that led to call center or negative sentiment online. Transitioning to the second part of your question around margins. We obviously will have a lower base as we ideally exit the year at $1.45 billion in EBITDA. And approximately 22% margins. From there, we do intend to, again, unwind costs at the end of this year and early in Q1 and then resume sort of our margin expansion walk. Dollars obviously, will be slightly different than the original outline. We are not changing our synergy capture targets. And obviously, we'll look at 2026 when we provide full year guidance likely in February of next year. So again, I think it remains a very healthy story, a very healthy exit on service that's helping sustain our customer retention at this point, but it's really getting back into the merits of this original deal, which is the right route count, the right drivers, the right units per route and the right support cost in the business. Eric Foss: And Eric, I would just add to David's comments. I think as I mentioned earlier, the investment thesis is intact, but the long-term algorithm is also doable, and I want to make sure you hear that from my perspective. We have to get this business growing, and we certainly have plans to do that. But at the same time, we do continue to have margin opportunities. And so I think the way to think about this is there are multiple value creation levers available to us, multiple growth vectors. Obviously, the synergy capture is on track, and it's been executed pretty well, and we'll have ongoing cost and productivity initiatives as well that should lead to improved profitability, free cash flow generation and conversion and wealth creation -- value creation going forward. So again, I want to make sure that is fully, fully recognized. Operator: Your next question comes from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: And Eric, congratulations. I look forward to working with you again. I also have a couple of questions on your direct delivery business. I guess, first, I really want to make sure I understand what drove the sequential deterioration in Q3. I mean did you lose more customers in Q3 than what you lost in Q2. And then I guess I'm trying to understand why the implied decline in Q4 is worse if service is improving. And then ultimately, curious if you expect these declines to persist into the first half of next year as well. And do you have any visibility into a return to your long-term algo for your total company of the 3% to 5%? I mean, should we think about that more of a second half '26 or '27 story? Just any help there would be appreciated. David Hass: Sure, Bonnie. Thanks. This is David. Again, we believe that July was basically the peak disruption in customers where our add was not outpacing sort of the churn or the challenge from sort of our integration friction. As we've exited Q3 and entered into October, that has largely stabilized. We believe we'll be at a point where we will be able to get to a net positive customer position in the month itself as we exit the year, and that requires us to then continue to recuperate some of those lost volumes from that period of time, if you will, of where that ultimate friction occurred with the consumer and our delivery customer. So it's largely isolated solely to the home and office side. Exchange is a business that runs off that truck. That business has resumed its growth as the consumer is shopping every day at our regional and national chains like Lowe's, Walmart, Home Depot, et cetera. When you move into next year, Q1 obviously was a 3% positive quarter, 4.2%, I believe, when we leap adjust it. So that will be obviously a difficult quarter to compare based on the exit rate and sort of our run rate within that home and office delivery business, but our optimism remains in the other parts of the company. And again, we'll continue to repair customer volumes in the home and office side that will get us back towards that long-term algorithm. But we'll comment specifically on '26 and longer-term outlook in February. Eric, anything else you want to add there? Eric Foss: No. Operator: Your next question comes from Steve Powers with Deutsche Bank. Stephen Robert Powers: I guess following up on that. So if I heard you right, then net customer add losses will be assuming -- I don't know where we are entering the quarter, but if we're going to exit the quarter positive, they should be down relatively thinly -- relatively narrowly, which implies that the -- the sales decline in direct delivery is going to be a combination of either just lower velocity on those customers or lower value per customer because of price inducements or what have you. So is that right? What is the kind of the estimate around those variables? And then how do those -- how does the velocity and the kind of the value per customer pricing kind of dynamic flow into next year as you get back to net customer adds in your... David Hass: Yes. Thanks, Steve, for the question, it's David. With regard to the customers, again, in the closing months here of 2025, we'll be at the monthly level we believe we'll be back to an add position. That will take us a few months to sort of repair some of the losses. Again, what we really focus is on volume. So in the past using the exchange business, using the refill business and other things that consume 5-gallon units, along with the home and office delivery side. We believe we can get back to volume growth. That volume growth has also been complemented by upsell and premium that comes off route. At this point, part of the disruption, we really focused on was getting 5-gallon supply stabilized back into the hands of our branches, back into the hands of our consumers or customers. And as that stabilizes, that should help improve. As we head into '26, we're going to look across price pack architecture for the entire company whether that be retail, premium, our retail-oriented 5-gallon products like exchange or refill or the specific harmonization activities that occur in HOD, which was part of the original thesis that we had of bringing these businesses together with what I would call the pricing matrix that was not aligned appropriately for how we wanted to run the business at the local market level. So those will be all areas available for us with regard to growth vectors that we can sort of improve as we continue to work through the customer part. Stephen Robert Powers: Okay. And just to clarify, when you say net customer adds on a monthly basis, are you saying, you're going to be adding in December versus November? Or are you saying you're going to be adding in December versus last December? David Hass: Yes, we would just be, in the month itself. The adds less the quits of the particular month we'll be back to a positive position in the month itself. And as you -- the more months you string together of that outcome, you obviously start to replace sort of the trough of your base spread. Stephen Robert Powers: So adds versus the end of November? David Hass: That's correct. Operator: Your next question comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: I was just hoping to see if you can speak to the -- kind of consumer dynamics in the purified water, in particular, I know you had increased some promo during the quarter to support some of the affordability we have been seeing in the consumer side. Can you comment to that? And then another question is how you're seeing distribution of the premium segment on the retail side, obviously, unfolding and how you can see this? Obviously, you had this 46% growth in the premium water segment, how we should be thinking as we enter 2026, any particular gains in distribution or even on-premise or off-premise that you wanted to highlight? And from there, also how you're going to balance this price pack architecture as we go into next year? And finally, welcome, Eric. Looking forward to working with you. Eric Foss: Thanks Andrea, it's Eric. I'll start and let David fill in. But I think if you really look at the consumer and how the consumer is engaging with the category and our brands, there's really a lot to like, I think, first and foremost, while you do have a change in consumer sentiment broadly, the reality is, is their appetite for healthy hydration hasn't waned as evidenced by the household penetration numbers in the quarter that were actually up for our brands, and we have a pretty significant penetration advantage versus our other key competitors. If you look at the brands really broadly, I'll come back to premium in a minute, but obviously, premium has been on fire and we'll continue to be on fire given some of the continued opportunities we have and just the brand strength of both Saratoga and Mountain Valley. So -- but at the end of the day, it's really important to come back to the broad, I think, strength of our brand portfolio. We're seeing good growth across that portfolio. The regional springs, Arrowhead, Ice Mountain, Poland Springs, et cetera, we saw in the category at retail. We grew our volume, we grew our revenue, we grew our -- both our volume and value share. So a whole lot to like. Relative to premium, we continue, despite great progress by our sales teams to have distribution opportunities. We're going to continue to invest in capacity. We referenced that in our prepared comments. The way I would describe it is we are in the very, very, very early innings of a long runway of opportunity for those brands. And I think relative to your pricing question, we're going to be balanced relative to the growth algorithm. It's going to be volume and price. You can expect -- other mechanisms. Operator: Cut out there a little bit during that answer. Eric Foss: You have us now? Operator: We have you now. Yes. Thank you for confirming. Eric Foss: I'm not sure where I was cut off. So let me double back. I think my point was from a consumer standpoint, really, really encouraging. We continue to create household penetration, both the category and our brands. Premium has been on fire. Saratoga and Mountain Valley have tremendous upside and runway ahead, good growth on our regional spring water. So at the end of the day, at retail, we grew our volume, grew our value share. Strong performance will continue on premium, distribution opportunities and investment in capacity, early innings with long runway ahead of us. And on pricing, I was mentioning that we'll be balanced in our approach, but start with the consumer, make sure we understand how she defines value and again, take advantage of that opportunity as we walk forward. David? David Hass: Andrea, I think all I'd add to that is as we head into '26, we've talked about the Mountain Valley supply constraint. That's coming online in the spring and summer. And we really think that helps unlock -- within these results, I would say Mountain Valley has been held back a little bit, so I really think that unlocks us for '26. Andrea Teixeira: That's super helpful. I just want to maybe double click on the retail side, especially the purified. Is there any improvement there as you exit the quarter? And then a second clarification with the exit into the Israel? David Hass: We can hear the operator, and I did hear Andrea, but she was cutting out, if there was a follow-up. Andrea Teixeira: Yes, please. If I can just follow up on, as you exit the quarter -- two follow-ups. One, as you exit the quarter, how was the purified performance, just to think about like if the consumer got slightly better as you exit? And then a clarification on the exit of the Israel operations. Like is that -- was that included in a headwind into the quarter or no? David Hass: No, let me start there, please, just to clarify for everyone. Israel had always been in discontinued operations since the announcement of the original international sale. So that had nothing to do with the quarter itself. Andrea Teixeira: From an investor, and I figured that was the case, but yes, I wanted to clarify. David Hass: That's correct. And then with regard to the purified water, largely the disruptions within the home and office delivery space created the challenges there. But at retail, our Pure Life brands and the Primo Water brand that goes to market through the exchange and refill services remains quite strong. Operator: Ladies and gentlemen, due to timing. Our last question will come from Andrew Strelzik with BMO. Andrew Strelzik: When you were talking about the service levels over the last several months, you gave some good kind of regional color about some of the markets that were lagging and kind of how that was progressing. And so I was just hoping to get a sense for the breadth maybe of this fulfillment issue that is ongoing. Is it kind of nationwide? Is it more concentrated in certain areas? Any help around that would be helpful. David Hass: Sure. Thanks, Andrew. So again, we go to market in six divisions. We track our DSR rate that we've talked about throughout the last couple of months of our journey. Again, that exits and sits today -- exited Q3, right around the 93-ish or so percent range. Today, it stands at 95%. Generally, there are a couple of divisions performing above that. And then some of the more slow-to-recover areas have been in the Southeast and the Mid-Atlantic, but those are within 93%, 94%. So again, the overall mean is where we want it. Again, we need to continue to improve the volume of those routes, however. We -- as I mentioned in the prepared remarks, we did go through a wave of integration in September because we had more time to prepare for the team for the change of management, the amount of leaders that went to the market to ensure that success that was very successful. We had very little friction at the consumer or customer level. So again, that really gives us the confidence that as we head into the first quarter with our remaining two waves that the time and the preparation activities that we can put into it is quite helpful for the success of that. So again, I think we're just continuing through improving at the volumetric level at this point. Andrew Strelzik: Okay. And is that challenge also kind of regionally concentrated? Or is that more broad-based? I guess that's what I was -- I mean I guess I was trying to get. David Hass: Yes, it would be in those same regions that we're continuing to support and improve over time. Operator: It's my pleasure to turn the call back over to Eric Foss for closing remarks. Eric Foss: Thank you. So in closing, let me just emphasize the confidence we have in this business looking forward. I think the combination of our brand leadership position, as well as the increased focus on execution and operational performance can and will deliver a resilient top line algorithm as well as value creation going forward. And so I look forward to sharing our progress in the coming quarters. Operator: Ladies and gentlemen, this concludes today's conference call. We thank you so much for your participation. You may now disconnect.
Martin Adams: Good morning. Hi, everybody. Thank you for joining us this morning for our half year FY '26 results presentation. We have a short presentation from our CEO and Founder, Kristo, followed by a presentation by our CFO, Emmanuel Thomassin. And then we will move on to Q&A. We'll start in the room, and then we'll jump over to Zoom. Thank you. [Presentation] Kristo Kaarmann: I'm being here today with us again. So about 70% of people discover Wise because their friends and family tell them about Wise. We've been really proud about this. And I've just lost the notes on the back screen, which will come up in a second. But actually making ads is quite fun in Wise because what we get to do is basically tell the stories that our customers tell their friends, their family, tell the stories again and amplify them with the ads. So what you just saw now is a set of ads we're running in the U.S. on TV, and they kind of follow the same narrative. This is what our customers are telling their friends. Our update today will show how Wise is yet again serving larger and larger groups of people and businesses, moving more and more cross-border volume and how we're fixing larger and larger use cases for them. So let's get started. We added 2 million active customers over the year, coming to 13 million people and businesses now using Wise and cross-currency transactions in the last 6 months. So that is either moving or spending money across currencies. Our work on infrastructure and product, the service experience has led to stronger recommendations. And then assisted by advertising, it has led to more new customers, but also stronger affinity to Wise, which then means more recommendations, but also staying for longer. And these customers are transacting more with cross-border volumes up 24% to almost GBP 85 billion for this half year. This is quite incredible. This time last year, we took our -- we took pretty decisive action to reduce our average fees down by almost 15%. And so we shouldn't really be surprised that we saw customers react to that. They didn't only increase their persistence of recommending Wise to others, but they also voted with their wallet. So bringing us more transactions and larger use cases. And the volume growth that we've been seeing is especially pronounced in this segment of larger transactions and larger use cases. And you've heard us talk about customers shifting from transactions just using Wise transactionally to using the Wise Account for their international banking features. And my team can be really proud of actually 2 things here. First, clearly, the features we've been adding, they're really resonating. So people and businesses are getting more out of the Wise Accounts. They're using it more. But the other dynamic here is how fast the customer confidence is growing. So our customers are now trusting us with over GBP 25 billion of their cash today, holding this as a deposit or as an investment through the Wise Account. And over this last year, I feel like we pulled off a pretty incredible feat. We've taken down our price point by about 15%, effectively expanding our economic moat quite incredibly. And at the same time, we boosted the growth of volumes and customer holdings. So as the result, recording 13% growth in underlying income. So this is really the result of the efficiencies we get from the infrastructure that we're building, but also the product that we're serving. In the last 6 months, we've been pretty busy shipping more. So as we described on Owners Day, you should expect progress come in 2 main categories. One is the infrastructure side where we go deep in the direct integrations and also in the regulatory infrastructure. And then secondly, you'll see developments for international banking, as our customers keep getting more and more out of their Wise Account. And a good example maybe here is Brazil because in the last 6 months, on the infrastructure side, we went direct really deep with Pix -- brought Pix live to our customers and our bank partners. And then separately on the Wise Account, we added interest to both local currency and U.S. dollar holdings. And then in addition, on Wise Platform, actually, we brought live this integration with Itaú that we were talking about earlier. So we're seeing these investments pay off for our customers and platform clients and quite measurably. So when we look at the payment feeds, the things people really care about how fast the money is going to get on the other side, 74% are now instant. And I need to remind you again what instant means. Instant means money leaving your bank in one country and arriving at the recipients bank on the other side of the world, ready to use in less than 20 seconds and that's now 74% of the payments. And after this large investment in our price mode, we've kept the average rate -- average take rate stable at 52 basis points. Another highlight coming from our fastest-growing segment, Wise Platform, where we see the cross-border volumes now getting to 5% of our volumes. And we're on track to get this to about 10% in the medium term. You've heard us recently talk about the really impressive brand names and big banks that we've signed on Wise platform, but I'm actually really excited seeing the volumes growing on integrations that we brought live years ago. So this is where -- this is the growth that we're enjoying today. And before I hand over to Emmanuel, I just wanted to remind you of the huge opportunity we have ahead of us. Because we're building Wise to move trillions, there is a huge, fast-growing market, the network we've created with our products that customers love. These have been built to make money work across borders, the same as it works at home. So Emmanuel, please take us through. Emmanuel Thomassin: Thank you, Kristo. Good morning, everyone, and thank you for joining us today. I'm pleased to share our financial performance for the first half year 2026 and how our disciplined investments continue to drive sustainable and profitable growth. We're making progress across every single key metric. Our active customers have grown by 21% each year over the last 2 years to now over 13 million active customers for the first half year. The cross-border volume has grown at a similar pace to GBP 85 billion, and the customer holdings have exceeded GBP 25 billion. This is growing by 34% each year. Underlying income growth has grown by 16% to annually GBP 750 million, and we are delivering underlying profit before tax and at the top of the range. Our range is about 13% to 16%, our target margin. So what I want to focus on today is how we achieve this and through focus, targeted investments that build our competitive moat, but also drive long-term growth. Let's start with our customers because clearly, they are at the heart of everything we do at Wise. In the first half of the year, over 13 million customers complete an international transactions with Wise, experiencing the ease, the transparency, but also the affordability that they find us. Personal customers grew by 18% year-on-year to 12.8 million, and the business customers grew to -- by 17% to 613,000, and we're particularly pleased to see the acceleration in this business segment. This is the strongest sequel growth in net addition that we have had. The cross-border volume increased by 24% year-on-year to GBP 85 billion. This is a growth of 26% even in constant currency. This was mainly given by customer growth, but also in addition to that, our existing customers moving higher volumes, a sign of growing trust and deeper engagement. But also, we saw the strong growth in business volumes. And as Kristo mentioned before, the scaling of the Wise Platform, which is now 5% of the cross-border volume means 1% more than in the previous year. And in the first 6 months, we have the pleasure to have major partners like UniCredit or Raiffeisen Bank, and we are seeing also strong growth from our existing partners. So you surely notice that the volume grew at a faster pace than our cross-border revenue, and this is on purpose. Our cross-border take rate decreased by 10 basis points year-on-year to 52 basis points, the [ sharpest ] adjustments in the company history, while our cross-border revenue increased by 5% compared to last year. So we are investing in pricing because we believe that the lowest cost, the lowest price and the best infrastructure provider will win over the long term. The Wise Account is key to our strategy in increasing customer retention and broadening the product usage. The card usage has grown significantly with card spent exceeding GBP 15 billion in the first half year of 2026, generating GBP 132 million in revenue. This is an increase of 28% year-on-year. The popularity of the Wise Account also means that customers are holding more money with us, nearly GBP 20 billion in Wise Account and another GBP 5.6 billion in Assets, So that total customer holdings over GBP 25 billion at the end of the period. And this balance obviously generates significant interest income in H1, even if slowing down pictures of the year-on-year due to the lower yields in the market. So we're successfully shifting the mix of our revenue base, which make our business more resilient, but also represent multiple engine for growth. The non-cross-border revenue now represent 41% of our total underlying income. And we also have a diversified regional footprint, as we continue to invest into growing across multiple markets. So you've seen this investment framework before, but it's worth reinforcing it, as we explain our financial strategy. And this framework ensures a sustainable approach to investment and earnings growth over the long term. So once we achieve efficiencies, we consider investing back into the business. And we also can invest in price reductions, which drive customer and volume growth. This lead to increased profitability, and then we can reinvest. So this is -- let me go through how we deliver on this. Starting with our servicing function. As we build the right structure to onboard and provide a better service to a growing customer base, our investments in servicing increased by 20% year-on-year to GBP 134 million. And we are pleased with the benefit that we are seeing from AI and automation and customer servicing with big improvement here and a lot more is planned as we ramp up AI technology. But we are also investing into our teams, including compliance, which is critical to the success of our business. Our historic investments in servicing are paying off. And as you can see some key examples here on the screen. In particular, we have been able to expand our Net Promoter Score to 69. The high levels of service we provide and our investments into price continue to help us to building a loyal customer base. And this is clearly highlighted by the 70% of customers that joined Wise through the word of mouth. But we are also going beyond that, that as we continue to increase our investments into marketing and sales, as we shared at our Owners Day in April this year. We are investing more strategically across diversified channel, increasing our brand marketing spend and build awareness and drive more organic growth. In H1, our marketing and sales investments increased by 59% year-over-year to GBP 57 million. We invest as much as possible within our targets, and this is evident with our payback period remaining strong at 6 months. So this is -- in H1, we run brand campaign in regions like Australia, Canada and the U.S. And you saw some examples from Australia at our Owners Day in April. And today, we also played an ad of the U.S. earlier today, but that's not all what we are doing. Here, you can see some examples on how we brought the Wise brand to our Canadian customers daily commute. So through these investments, we have continued to drive a constant increase of new customer acquisitions. Importantly, we had 3.5 million new active customers in H1 2026. And this is a result of our strategic investments to attract and retain our customers, including investments into pricing. So next, on tech and development, we invest GBP 144 million in H1, and this is up by 18% year-on-year across multiple teams. This is a significant portion of the spend, goes to maintaining our existing and available products. And for the rest, we continue to invest in launching new features, but also reading out -- rolling out the existing features into new markets. And Kristo shared earlier example of many launches and improvements that the team is working on. So finally, we're also investing in corporate function and infrastructure. And these teams are -- might not be customer-facing, but they are essential for sustainable growth. The spend here increased by 35% to GBP 131 million, supporting areas like compliance, risk, people operations. And this is also including one-off investments related to our dual-listing project. We expect this investment pace to continue in H2 with the administrative expense of around GBP 1 billion for the full year. And this includes investments in our people across the area that I just covered. In H1, we welcome over 1,000 additional colleagues at Wise, and we plan to keep on hiring in H2. And these investments together, with the top line growth, delivered in the period that clearly highlight how we are delivering on our strategy, and as you can see clearly in our margin progression over the past 2 years. The increased profitability we generated in H1 2025 have been reinvested, taking us back to our underlying profit before tax margin target range of 13% to 16%. And this is exactly the model that we promise here, and it's working. So as you know, we only use the first 1% yield we receive of interest income within our underlying profit before tax because we are committed to building a business that is sustainable without relying on cyclical forms of income such as interest. Including additional interest income beyond the first 1%, we reported a profit before tax for the period of GBP 255 million. So now I'd like to cover our expectation for the rest of the year, and we are reiterating our previous guidance. So for the full year 2026, we continue to expect underlying income growth to be within our midterm range of 15% to 20% on a constant currency basis. And based on the phasing of our investments, we continue to expect underlying PBT of around 16% for 2026, excluding the one-off listing expense of circa GBP 25 million -- GBP 35 million. On our capital allocation framework, as we continue to make prudent decisions to deliver on our long-term mission, our business strategy aims to deliver strong profitable growth so that we can generate strong cash in the future. This means that we can sustain strong level of cash, maintaining a strong capital to ensure resilience and flexibility. And on the return of capital, I wanted to share an update on the share repurchase program we announced earlier this year. From -- of the incremental 25 million shares into our Employee Benefit Trust to find historic options, we have already repurchased half of it. So we are executing our strategy with discipline and seeing strong results across every single metric that matters. We're growing our customer base. We're deepening our engagement, diversifying our revenue and investing for the future, all this while maintaining our target profitability range. And the fundamental of our business had never been so strong, and we're just getting started. So now I'll leave you with another ad as we set it up for questions. Thank you so much. [Presentation] Martin Adams: Great. Okay. So we're just going to take any questions that you have. So what we'll do is we'll start in the room, and then we'll jump over to Zoom [Operator Instructions]. Unknown Analyst: [indiscernible] Goldman. Firstly, platforms demonstrated a strong inflection in the half, now 5% of volumes growing around 3x than the total volume. Can you talk to us about some of the momentum and ramp you're seeing within this segment and talk us through that midterm guide of 10% of volumes in terms of the growth you need to get there? And secondly, one for Kristo, please. Stablecoins are certainly gaining traction within the payment ecosystem. Can you talk to us about where you see Wise positioned with respect to stablecoins? And what are some of the opportunities and potential challenges, given you built one of the lowest cross-border payment infrastructures? Emmanuel Thomassin: Well, I'll start with platform. Well, thank you very much. Yes, you're right. I mean we have a very good momentum. I mean every time we meet, we are pleased to announce our new names, new partners joining the platform. That was also driving inbound calls so that we're really, really pleased with that. You see basically new names coming and we are integrating them. But also, as I mentioned in the presentation, you see also the ramp-up of names that we mentioned before, where we see the volume increasing over time. So today, we are at 5% -- a little bit more than 5%. So this is 1% more than our last meeting that we had in April. And yes, we're on track for delivering the 10% midterm and the 50% long term. So yes, we have a good momentum here. And we see interest from new partners or potential new partners. Kristo Kaarmann: On the stablecoin question, so indeed, you're right, we've built the world's fastest, the most efficient, the lowest cost way of moving money between countries and currencies. And we've been -- when we talk about this, we often talk about the direct integrations and how we link together the local payment networks. But in fact, Wise Network also comes with this regulatory infrastructure that allows us to do this in each of the jurisdictions around the world. So if we ask about stablecoins in that context of money transfers that goes just beyond moving U.S. dollars between wallets, then it's these regulated on and off ramps into those local currencies, how do you get the money into the USD stablecoin and out of that USD stablecoin. And that's actually the hardest thing to achieve reliably, which is exactly what we built Wise Network -- or this Wise infrastructure for. So if we want to think about Wise in that context, then as these legitimate use cases of USD clearing outside of the Federal Reserve and outside of the main banks emerge, and we're starting to see reliable anti-fraud, anti-bribery, anti-tax evasion, anti-money laundering mechanics come live on the stablecoin environments. Then of course, we have the best on and off-ramps to make use of this new technology across the world. And furthermore, if these challenges improve, I'm actually personally quite excited if we can add something like this to move U.S. dollars next to Fedwire and Zelle and Venmo and other options that are out there today for our own customers. Adam Wood: It's Adam from Morgan Stanley. So I've got 2 questions for you. Just first of all, on the pricing, obviously, a big reduction over the last 12 months. The policy in the past has always been to cut pricing as you engineer cost out of the platform. Could you just give us any change to that, first of all? And then any visibility insight you could give to how you're thinking about that over the next 12 months? And then secondly, on the investment side of things, obviously, a big investment gone in already and more in the second half. Do you see any change in the payback metrics that you're getting? Would you be more comfortable with maybe moving those payback periods out a little bit? And then critically, in some of the new markets you're in, there's a big flywheel effect with Wise in terms of getting people on and getting volumes up to bring the cost down, and we know how that works. Are you seeing that this advertising is accelerating that flywheel in some of these newer markets you're going into? And again, would that push you to do a little bit more to accelerate how you get to more of those instant transactions and so on? Kristo Kaarmann: Let me try to respond more principally, we're keeping our investments. We aim to keep our investments really balanced and steady. So we saw -- as we're describing, we did a pretty decisive move about a year ago and now been kind of stable. Going forward, we try to avoid big swings, but definitely, the strategy hasn't changed because we amazingly see this working. We see more volume even coming up in the short term, let alone this economic mode that we're building. So this is definitely going to continue, but we're going to try and avoid big swings. So that will be kind of a steady expectation. And then the other question that you had around do we see the marketing working? For sure. And I think we're one of -- potentially our marketing team is one of the world's most disciplined when it comes to payback. And I don't -- I think the magic still is if you can reach more people with the same investment return because at the end of the day, we're investing our shareholders' money and that has to have a return. Unknown Analyst: Kristo, first of all, looking at that photograph, I wanted to ask you which shampoo you use. But the real 2 questions really are, one is in terms of margins going ahead, are we kind of -- sorry, let me ask the margin question second. The first question really being, you obviously currently Wise transfers kind of charges per transfer. And are you thinking of something like an Amazon Prime model where somebody pays in, let's say, GBP 10 or whatever in whichever currency and then they kind of -- monthly, they can have so many transfers. Are you thinking about that? Have you already tried that in any particular market? So that was my first question. And my second question was about basically margins. Obviously, it's a huge, huge market out there. And are you also thinking of kind of saying -- willing to kind of take lower, lower takes and lower margins because obviously, the volumes that we are talking about are like 100 or 1,000x potential. Kristo Kaarmann: I'll take the first one. Emmanuel will take the second. Emmanuel Thomassin: Yes. So I won't talk about shampoo. But on the margin, look, I mean, we guide the market to 13% to 16%, and we are really serious about this. I mean, like we want to grow because there's a massive opportunity out there, as you know. So we -- Kristo mentioned just now how we reinvest in pricing, but this is one of the options that we have. This year, we are investing in marketing. We're investing in servicing. We're investing in product and development. We're investing in people so basically to offer the best service we can. And we anticipate, obviously, the growth. We have the strongest ad customers in this -- in history of Wise and basically for customers and businesses. So we know this is working. And while we still guide the market at the 13% to 16%. So this is a massive investment that we're doing. We're delivering not only on the fields that I mentioned, but also all the features the direct integration. So we're really, really busy. And we still deliver like on this margin at the top of the range right now. So I think in terms of margin, we are really disciplined. I mean the money, we don't spend, we invest. We want to have a return, and that's help us this discipline to guide the market to the 13% to 16%. As long as we get room to invest and we get a good return and the time is so fantastic, I think it will be set enough to do this, but you can expect us to be disciplined. Kristo Kaarmann: And your other question on the different charging models or bulking together. Of course, we play to a reasonable extent with all of those, and you might see some evolution there. But I think principally, we really value this loyalty that comes with our strings attached. And this is quite amazing if your customers don't come back to you because they bought a subscription, but they come back to you because they want to come back to you. And that's kind of something that however we end up pricing, I don't want to lose a trade away. Operator: This is Aditya from Bank of America. Aditya Buddhavarapu: Three questions from my side. Firstly, on the platform volumes, could you just talk about how much of the growth came from the, as you said, customers who have been live for a long time versus the ones who have been onboarded over the last year or so? Second, on the hiring, so you've hired 1,000 people just in the first half versus the initial expectations of, I think, hiring 700 people for the full year. So there's been an acceleration. So could you talk about why you decided to step up the pace of that? Which areas you've been hiring in? And then how should we think about that for H2 and for next year as well? And then the last one on GBP 35 million one-off, should we think about that -- as you think about the next year, does that one-off, I guess, get reinvested back into other areas? Or we should think about that, again, flowing back into the profitability? Kristo Kaarmann: I'll take the easy one, if you don't mind. Your question on investment and how did we -- how are we able to invest so much in this first 6 months. So I'm actually really, really, really pleased with that. It seems like it's a fantastic time to invest. If you look at all of those categories that Emmanuel went through, starting with servicing, so the payback that we get from like an instant service and the confidence that customers then bring like GBP 25 billion of their money to hold with you, that's amazing, and there's still room to invest there. Let alone the rate of the growth that we're now seeing, we need to be ready. There's going to be a lot more customers to serve going forward. So with that, then we talked about marketing already that has a very direct, very clear payback, has a very, very good ROI to use money. And then on engineering, we're actually -- if you look at the numbers, we're actually investing not as fast as our volumes are growing. So we're investing even lower. I wish we could go faster there. So -- and that will take a bit of ramp-up. So I'm actually pretty proud that we wanted to invest. We talked to you about this at the Owners Day that this is a fantastic time to invest now and feel like we made kind of more progress in the first 6 months than we hoped for, but... Emmanuel Thomassin: Yes. On the -- because your first question was on platform. Actually, what we see is that we have a ramp-up of new customers, like basically volume coming from new customers, but also partners that have been there before that are extending the contract with us. So we are in a very comfortable position where basically, as we told you, usually, we start with one route and then over time, they extend the contracts. This is what we see. So clearly, there's new customers that we signed last year. So -- and then on top of that, the former one that are extending the contract. So this is really a mix of both, which is very, very healthy. So that's -- and that's driving this 1% increase or a little bit more than 1% increase. Yes, on the hiring, just like as Kristo said, I mean, like Wise is a brand that people are attracting. And then basically, we are in a position where we can scale and anticipating the growth rate that we see on the customers. So that's very good. I think on the last question was the reinvesting capacities or -- yes, I mean this is clearly a one-off due to the dual listing. That's why when we guide right now on the margin, we clearly exclude basically the one-off. So we don't -- we're going to have a small part of recurring cost, but this one is a one-off in nature. You should not forget the left side. Pavan Daswani: Pavan from Citi here. I've also got a couple of questions. Firstly, on instant payments, good to see the step-up to 74% from 63% last year. What's really driving that? Is that mainly from the go-live with Pix in Brazil? And should we expect that to step up again when you go live in Japan? And then secondly, on the elasticity of pricing, you've reduced pricing by 15% over the last year. Has that really translated into the volume uptake that you've seen so far? Or is that really a multiyear payoff? Kristo Kaarmann: I'll take the first one. So you're directionally correct that these instant payment rates are basically a reflection to the large part of how good is our local connectivity, how fast we can get Australian dollars to the end recipient. Given the timings, I would probably attribute this more to our Australian integration that went live about a year ago or about 6 months ago, it kind of ramped up. So it's probably more of that than Pix. We'll see some from Pix as well going forward. So I'm definitely looking forward to this number going up further. Emmanuel Thomassin: And on the price elasticity, so it's clearly for us like a long-term strategy. We know that price matters to every single customer. So that's the first maybe statement. Like we know long term, price will matters, and it will position us at the #1 option. Last year, as we do the price adjustments, we also increased some price. I mean, like it was not only going down, and it was by design. So basically, what we've seen is that the larger transfer is becoming cheaper and more attractive for our customers. And that we saw immediate reaction. So we saw that basically people are reacting to our offering, as we decrease the take rate for the larger transactions. So there is an immediate reaction, but we think that price is anyway a long-term game, and that's why we want to push on efficiency so that we can pass this back to the customers. Unknown Analyst: I'm really interested in the decline in take rate that you're reporting. And can you just help me understand and unpick that a bit and the difference between changing mix in the business and like-for-like price cuts on your kind of rate card? And what's the balance between those drivers of a decline in the reported take rate? Kristo Kaarmann: I can take that. This is very much driven by us setting the fees and setting the fees lower than we did before. It does bring about a secondary effect of a bit of a mix shift. So for example -- kind of coming up with an example, if in a country, we used to be -- we discovered one payment method, say, people paying in with cards, is particularly more expensive and we raised the fees on cards, lower it on bank transactions, then what you do see is the shift from people who used to use cards before because they were kind of subsidized, moving into bank transfers, bringing down the take rate. But for them, this is actually a benefit. So you get these little secondary mix shifts, but generally, it is -- like we set the prices. Eleanor Hall: Eleanor Hall, Rothschild & Co Redburn. I just wanted to follow up a little bit more on the stablecoin question from earlier. And I know earlier on in the quarter, there was some news around you potentially exploring hiring in the digital asset space. I know you've been speaking to customers in terms of is this something they'd be interested in. And I'm just wondering if you could comment on the outcome of those discussions or any kind of further updates on things that you're looking at internally to do with stablecoins? Kristo Kaarmann: As I already covered, the investments that we're making are quite general in terms of we're building the network that will be useful in the context of stablecoins or without the context of stablecoin. So we're not making a bet on one payment scheme over another or one transaction method over another, but there's a lot of -- we're going to be very deliberate on what kind of use cases are we going to accept and how -- where is it actually going to be useful. So going forward, I think you should expect us to be very deliberate about that. Unknown Analyst: Vineet from Autonomous Research. Just 2 questions. What other countries do you see -- do you need to do direct integrations that will complete your overall infrastructure build? And any thoughts on rumors about Wise exploring a banking license? Emmanuel Thomassin: Well, on direct integration, we're not done yet, right? I mean like there are so many payment systems that we think we should integrate in order to be even increasing the instant payment. I mean, like we've done a tremendous job. I mean like if you remember, we were at 64%, if I remember last year, we're now at 74%. We want to integrate more systems. I mean we want to make sure that we come to the highest number as possible in terms of instant payment. So there are plenty of payment systems, and you can imagine that our team is working actively on that to add more in the future in terms of, well, having the license and then the technical integration. So we -- it's not over yet. I mean, like we have 8 today. We will continue to integrate more payment systems. Kristo Kaarmann: And then on the comment of rumors. So just the fact is the OCC in the U.S. has reported that we're in the process of a license application for a trust license, which is a form of banking charter. It's not quite a banking charter, but it's a trust charter. So that is indeed true. In the U.K., there haven't been any announcements. And generally, of course, we have licensing procedures or processes ongoing in probably 20 countries in parallel for different things that we could do for our customers. Unknown Analyst: Simon Young. Could you just help us understand what the correlation between your direct payments and -- sorry, instant payments and the ones that are direct and therefore, also the impact on the gross margin? Because if I understand it, the gross margin is very high on stuff that goes through the direct payments. And if it goes higher, obviously, gross margin should go up and yet gross margins in the first half were flat. Can you just help me understand what's going on, please? Kristo Kaarmann: I'll try a little bit. Just to build your intuition about this a little bit, I think if you look at mechanically on the cost base, you maybe see less of an impact going direct or having a very good indirect clearing mechanism. However, the COGS benefit or the cost benefit does come through quite a lot in the reliability that you get being direct and also the customer experience that you get. So it's not as direct as what I think you had in mind. But indirectly, indeed, we should see benefits operationally, benefits from customers and customer affinity and so on. So it's definitely very worthwhile investments, but I'm not sure you can translate this as directly into the gross margin increase. Unknown Analyst: Culture is a massive issue for any company. How do you embed successfully 1,000 people in a half and keep the culture that Wise has obviously developed so successfully in the last 12 years? Emmanuel Thomassin: I'm glad you asked this question because I'm here for a year, but I can tell you, basically, the onboarding is very successful. I mean, like you really quickly understand the culture of Wise. It's a developing culture and you get the support of your colleagues. I mean -- so I think Wise is a brand that is really highly seen by candidates. But the way we integrate people is really like supporting -- the team are supporting and managing to onboard newcomers like me very, very quickly. Last year, I have the pleasure to be here after 4 weeks. It was because basically my colleagues also in this room who were helping me a lot to onboard. So I think this is the culture that we have. We have one mission. We repeat this mission. We want to move [indiscernible] and everyone is working every day on that path. Kristo Kaarmann: I would amplify that the job of onboarding the 1,000 people is of the 6,000 that are already here. So it's not that hard if you take it this way, 6:1. Martin Adams: So moving over to Zoom, Justin Forsythe from UBS. Justin Forsythe: I want to hit a couple of questions on my side. So first, Kristo, the foray into stablecoins. Maybe you could just talk a little bit, it felt like 6 months ago, it was a bit of an afterthought for you guys. Clearly, quite an evolution there. Maybe you could just talk through a little bit your evolutions personally in coming to an understanding with this aspect of the market. And it does seem like there's a lot of players in this on- and off-ramp business within stablecoins. How do you expect to differentiate there? Is it simply because of your connection to local faster payment schemes? And is it fair to assume that a lot of those providers, those competitors, if you will, do not have the same level of licensure and local scheme connectivity that Wise has? Question number two, Emmanuel around the PBT margin. So I think 1H was ex-listing costs around 17.5%-ish. Now you effectively reiterated the full year guide, but ex-listing costs, so to me, that implies 2H margin down quite a bit sequentially, I think, around 14.5%. Then if you include listing costs, I think you're down at like 11.5%. So I just want to understand, one, if that's the correct math and maybe a little bit more detail on what's driving it. And what that also implies for the cost base going forward in the beginning parts of the next fiscal year. And on top of that, thinking about underlying income growth because it seems to imply that there's quite a large acceleration. Could you be doing 20% plus in 2H, as the take rate comparison eases? Kristo Kaarmann: Thanks, Justin. You were slightly tricky to hear in the room for the audio. It's probably an issue on our side. But let me try and respond to the first part, which was imagining the stablecoin ecosystem improving, then how are we competitive in these on and off ramps. And I think you're spot on there that the qualities that make these on and off-ramps so amazing in the fiat world of going from Australian dollar to U.S. dollar to euro, that's exactly the same cost speed, regulatory reliability, the same things that will matter in the stablecoin world. So this is -- you're spot on that this does work exactly the same way. Emmanuel Thomassin: I mean, like I start with the margin evolution. So the margin that -- the guidance that we give for the full year, excluding our one-off expense for the listing, and we want to be at the top of the range, we reiterated this, at the 16%, around 16%. What we will see basically in H2 is that we're driving the investments in first half year, and we will also continue to invest in H2. And this is basically our promises that we give in Owners Day. I mean we're going to invest where we can where we get a good return and still guide the market to the 13% to 16%. And that is without [indiscernible] or the dual listing cost? Bear in mind that this is a one-off by nature. I mean, for next year, we will have some recurring costs, but nothing compared to the GBP 35 million that we're expecting for this year. And when it comes to income -- underlying income growth, I hope I understood your question rightly. So yes, you have a kind of disconnect between the volume growth that you see, the cross-border volume and underlying income -- or the revenue that you generate out of this volume -- cross-border volume. But this is basically a like-for-like issue. So we're comparing basically 2 period of time where we had the price adjustments last year, in the first half year, that is coming to play. And then the comparison like-for-like is very difficult. You will see this -- we will see the real growth -- I would say, the real growth in brackets in the second half year when this pricing adjustment is not affecting anymore the comparison for year-on-year comparison. So I hope I answered your questions. If not, please just let me know. Martin Adams: We'll now move over to Bharath. Over to you, Bar. Bharath Nagaraj: Bharath from Cantor Fitzgerald. Could you highlight some of the logos that you signed previously within the platforms business where you're now seeing volumes ramp up? Is there any kind of like a case study with regards to how long it normally takes to ramp up volumes materially here? And what are the conversations that you're having with these kinds of customers? Is it to do with like lower take rates for these businesses or anything else? That's the first question. The second one, could you speak about your investments -- the marketing investments across the U.S., Australia and Canada, which ones are faring better? Are you seeing any regions with better ROI relatively speaking? And has there been any change in this ROI coming from these investments, given the macro worries? Kristo Kaarmann: I'll try to take the first one, Bharath, unfortunately, I think if we did a case study, it will be misleading because each of the -- we're onboarding the world's largest financial institutions often and each of them is so different. So it's going to be really hard to average those. The -- we're pretty -- we're very happy actually with our past announcement, past logos that have gone live, and you see that in the results. So it's something where it's very early to start singling anyone out, but we're very happy with the onboarding progress here, and that gives us confidence that we mentioned today where you kind of can see getting to 10% in medium term with the platform volumes. Emmanuel Thomassin: To your question on marketing and ROI comparing Australia and U.S. So first, maybe I should start that we're using the same discipline and the same KPIs, and we have the same expectation on return no matter, which campaign we started in which country. However, comparing Australia and the U.S. is difficult at this time because Australia campaign is running for 1.5 years, where the U.S. is basically starting, I think, 2 months ago or so. We are very pleased with the return that we see, and that's why we continue to invest in Australia. And we see also that the campaign in the U.S. is quite successful. We invest also in 3 other countries, New Zealand, Canada and U.K. So we are monitoring the progress in every single country, but it's really, really difficult because of the difficult -- it's challenging, let's put it this way, to compare Australia where we have this campaign running out for 1.5 years, and we continue to invest because we see the result. Result is, the CPA is going down. So the cost per acquisition are going down as longer we take the campaign. So that's -- we're monitoring. We're also adjusting to be quite frank, we do some time adjustment in tricks. We say this creative that you see today, we have to adapt this for this country, and then we start a campaign again. But what I can tell you is that we're looking at this with the same lens. So basically, we want to have the same return no matter what. And if a campaign is not as successful as we expect, either we do the creative again or we change the campaign or we stop the campaign and we come with a better idea. Martin Adams: Well, thank you very much for joining us today. That concludes our presentation and Q&A for our half year results for FY '26. Thank you very much. Emmanuel Thomassin: Thank you very much, everyone. Kristo Kaarmann: Thanks everyone.
Operator: Thank you for standing by. My name is Van, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 Hecla Mining Company Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Mike Parkin, Vice President, Strategy and Investor Relations. Please go ahead. Mike Parkin: Thank you, and good morning for joining us on Hecla's Third Quarter 2025 Results Conference Call. I am Mike Parkin, Vice President, Strategy and Investor Relations. Our earnings release that was issued yesterday, along with today's presentation, are available on our website. On the call today is Rob Krcmarov, President and Chief Executive Officer; Russell Lawlar, Senior Vice President and Chief Financial Officer; Carlos Aguiar, Senior Vice President and Chief Operations Officer; Kurt Allen, Vice President, Exploration; as well as other members of the management team. At the conclusion of our prepared remarks, we will all be available to answer questions. Turning to Slide 2, cautionary statements. Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks as shown on Slide 2 in our earnings release and in our 10-Q filings, with the SEC. These and other risks could cause results to differ from those projected in the forward-looking statements. Non-GAAP measures cited in this call and related slides are reconciled in the slides or the news release. I will now pass the call over to Rob. Robert Krcmarov: Thank you, Mike, and good morning, everyone. So turning to Slide 3. Let me just start by reminding you why Hecla stands apart in the silver sector. As the oldest silver company on the New York Stock Exchange with a history dating back 134 years, we operate exclusively in the premier jurisdictions of the United States and Canada. We maintain peer-leading silver exposure on both a revenue and resource basis with an average reserve life that's double our peer group. We're building project momentum through strategic investment in our pipeline, and we're achieving cost excellence as the lowest cost producer among our peers. I've got to say these are exciting times, and Hecla really is thriving on strong silver and gold prices. We're using this momentum to strengthen our finances, fund high-return projects and boost shareholder value. But I think the outlook is even brighter. Silver faces its fifth consecutive year of supply shortages with rising industrial demand and investment flows expected to support prices for years to come. And unlike most of our peers, we're uniquely positioned with one of the most favorable silver to gold revenue ratios in the sector, allowing us to capitalize on the silver strength and drive meaningful value creation for our shareholders. Moving to Slide 4. Q3 really was exceptional, and just let me walk you through why. Firstly, record results. We delivered record results this quarter. We hit revenues of $410 million. Net income came in at $101 million and adjusted EBITDA was $196 million. These aren't just numbers. They prove that our business model works. We capture upside in strong markets while our cost position offers protection in weak ones. Now here's what matters a lot, and that's our balance sheet transformation. Net leverage has improved from 1.8x this time last year to 0.3x in Q3. So that's an 83% reduction. And that's in a single year. That's a structural derisking of the company. This deleveraging consisted of fully repaying our revolver, redeeming $212 million of debt and paying the CAD 50 million note due to Investissement Quebec. So this deleveraging effort has eliminated over $15 million in annual interest expense. We've gone from being capital constrained to capital flexible. Our cash flow generation has been nothing short of stellar. We've generated $148 million in operating cash flow, while consolidated free cash flow came in at $90 million. And here's the key piece. All 4 of our producing assets, Greens Creek, Lucky Friday, Casa Berardi, Keno Hill generated positive free cash flow for the second consecutive quarter. So that's operational momentum. On the operational front, our silver production was 4.6 million ounces, up 2% from last quarter. Cash costs were negative $2.03 per ounce, thanks to strong by-product credits, while all-in sustaining costs came in at $11.01. As a result of this performance, we've tightened our production guidance and reiterated the cost guidance. Lucky Friday surface cooling project is progressing on track and is expected for completion in the first half of 2026, while Greens Creek received its wetlands permit for the dry stack tailings expansion. Completion of these projects is critical to the future success of the company. So in summary, our operations have executed really well. We've derisked the balance sheet and built financial flexibility. We're cash-generative across all assets. And we're positioned to invest in growth, and that's the transformation story. I'll now pass the call over to Russell. Russell Lawlar: Thank you, Rob. Moving to Slide 6. I want to continue to highlight the strong financial performance we delivered during the third quarter. We generated $393 million in mine site revenues with silver continuing to be our primary revenue driver at 48% of the total, followed by gold at 37% and base metals rounding out the balance. This percentage of silver revenue, especially with the jurisdictions in which we operate makes us a standout in the industry. Our silver margins remain robust at $31.57 per ounce, representing 74% of the realized price of silver with all-in sustaining costs of just over $11 per silver ounce. We're demonstrating excellent cost discipline across our operations. Our net leverage ratio improved to 0.3x during the quarter, the lowest in more than a decade, down from 0.7x in the second quarter. This reflects our adjusted EBITDA growing to $506 million on a trailing 12-month basis as well as our significant reduction in overall gross debt outstanding while maintaining disciplined capital spending. Most importantly, we generated consolidated free cash flow of more than $90 million during the quarter. Greens Creek led the way with nearly $75 million, demonstrating why it remains one of the world's premier silver mines. We continue to see the free cash flow inflection we've been speaking about at Casa Berardi with nearly $36 million in free cash flow during the quarter, while Lucky Friday added $14 million and Keno Hill impressively contributed more than $8 million, while we continue ramping that asset up. The third quarter marked the second consecutive quarter of all of our producing mines contributing to positive free cash flow. As you can see, at current prices, we anticipate generating significant cash flow. As we turn to Slide 7, I'll walk through our capital allocation framework, which is a discipline and focus -- which is disciplined and focused on 6 clear priorities with each one having a specific purpose. Our first priority is investment in safety and environmental excellence. This is non-negotiable and is the foundation of everything we do. Second is investing in sustaining capital at our operating mines. We target a minimum of 10% to 15% returns at these operations. Investing in sustaining capital keeps our production stable, extends our mine lives and generates cash flow with low execution risk. Third is our investment in growth capital, where we target returns of at least 10% to 12%. This investment is intended to increase production and extend mine life. However, we will only make these investments if they demonstrate robust economics at conservative prices. Fourth is investment in exploration. Historically, we've underinvested in exploration. However, because of the deleveraging of the balance sheet and associated cash flow that's been freed up, we anticipate further investment in this area. In fact, we are currently targeting 2% to 5% of revenues as we look to 2026. Investment in exploration provides asymmetric upside. And although we're planning to invest more in this area, we'll also be prudent with our investors' dollars and target the highest return opportunities, both brownfield narrow mines and greenfield optionality. Fifth is we plan to make further investments in deleveraging and strengthening our balance sheet. From a pure financial perspective, we anticipate a return of 5% to 7%. However, more importantly, having a strong and delevered balance sheet reduces risk and provides flexibility. It also allows us to maintain investment during downturns and seize opportunities when they arise. The last priority is shareholder returns. We currently pay a quarterly dividend, and we'll consider further shareholder returns only after operational requirements are met and the balance sheet is strong. That said, we're confident enough in cash flow to start thinking about this. In summary, this framework isn't complicated. It's about maximizing value while maintaining financial flexibility to navigate cycles. We're operating under this framework now, and we've seen better prices and stronger cash flows. We'll see those -- the capital and exploration projects we invest in meet these above criteria, including the remainder of this year. And with that, I'll turn the call to Carlos. Carlos Aguiar: Thank you, Russell. Turning to Slide 9. Greens Creek is delivering exactly what we need from our cornerstone asset, a strong operational quarter, driving robust free cash flow generation. The third quarter silver production came in at 2.3 million ounces with 15,600 ounces of gold, both tracking well to full year guidance. Sales came in at $178 million, up 46% from last quarter, driven by higher volumes sold and metal prices. More importantly, the unit economics are excellent. Cash costs came in at negative $8.50 per silver ounce and AISC of negative $2.55 per ounce, both offset by-product credits. Free cash flow was nearly $75 million for the quarter. Based on our strong year-to-date performance at Greens Creek, we are tightening our silver and gold production guidance and lowering our capital expenditure guidance while reiterating our cost guidance. Moving to Slide 10. Lucky Friday continues to do what it does well, deliver consistent profitable silver. Third quarter silver production was 1.3 million ounces with a 7% increase in milled silver grade. Sales came in at $74.2 million, up 15% quarter-over-quarter. The free cash flow was $13.5 million, nearly triple the prior quarter, reflecting improving operational momentum. The surface cooling project is on track for 2026 completion. This investment is strategic. It opens access to deeper high-grade zones, extending mine life and profitability. Thanks to our strong year-to-date performance on Lucky Friday, we are tightening our silver production guidance, reiterating our total capital expenditure guidance and modestly raising our cost guidance. Turning to Slide 11, Keno Hill. We have now delivered 2 consecutive quarters of positive free cash flow, a significant milestone. Third quarter silver production came in at nearly 900,000 ounces at an average milling rate of 323 tons per day. Keno Hill is well positioned to deliver on its 2025 silver production guidance. The free cash flow was $8.3 million, positive cash generation while still in ramp-up and investment mode. We have hedges through the second quarter of 2026 providing silver price protection during this period of capital investment. Our reliability improved significantly in the third quarter, thanks to the Yukon Energy successful repair of the hydroelectric plant. This reduced a key operational risk we have been managing. Consistent with the other 2 primary silver mines, we are tightening our silver production guidance at Keno Hill based on a strong year-to-date performance. Capital expenditures are expected to modestly exceed our original guidance as we are outperforming on several key factors, including the underground development, which is tracking 13% above plan year-to-date. Turning to Slide 12. Casa Berardi delivered another solid performance, setting the mine up well to achieve guidance. Gold production of 25,000 ounces, down 11% due to planned lower underground ore grades, and cash costs of $1,582 per ounce and AISC of $1,746 per ounce. We are tightening gold production guidance for Casa Berardi based on a strong year-to-date performance while maintaining our cash cost and AISC guidance. Our 2025 capital expenditure guidance for the mine remains unchanged. The company is actively evaluating options to extend production beyond 2027. These initiatives could potentially reduce the previously disclosed production gap and enable Casa Berardi to remain a sustaining cash flow contributor to the portfolio. I'll now turn the call over to Kurt. Kurt Allen: Thanks, Carlos. Moving to Slide 13. Our Nevada assets offer opportunities to unlock hidden value. We have 3 key properties with significant historical production. Midas, 2.2 million ounces of gold historically, with a fully permitted mill and tailings capacity. Hollister, 0.5 million gold equivalent ounces within hauling distance of Midas. And Aurora, 1.9 million ounces of gold historically with an on-site 600 ton per day mill. All properties have significant exploration potential, minimal regulatory hurdles and existing infrastructure. We're developing a comprehensive Nevada strategy with an exploration update on Nevada, Keno Hill and Greens Creek coming later this month that will shed light on our Nevada exploration progress and what's to come next year. You can expect a heightened level of activity in Nevada next year as we work to surface value from this exploration portfolio. I'll now turn the call over back to Rob. Robert Krcmarov: Thanks, Kurt. I'm pretty excited what you and your team are doing in Nevada, so keep up with this work. We've got 4 strategic priorities that flow directly from our transformation. And the first is long-term value creation at Keno Hill, prioritizing permitting and execution. At current prices and even at lower prices, this asset is expected to generate material returns at 440 tons per day and has expansion optionality beyond that. Second, continued deleveraging and strengthening our balance sheet with focus on free cash flow generation across all assets. And we've proven in Q3 that we can do this rapidly when the metal prices support it. Third, establish a capital allocation framework, balancing further debt reduction, organic growth investment, exploration and potential shareholder returns. And fourth, portfolio rationalization, continually assessing which assets deserve more capital and where to monetize noncore assets for high-return opportunities. With that, I'll turn it over for questions. Operator: [Operator Instructions] Our first question comes from the line of Heiko Ihle from H.C. Wainwright. Heiko Ihle: Can you hear me all right? Robert Krcmarov: We can hear you. Heiko Ihle: Perfect. Do you want to just go through some of the inflationary factors that you're seeing at mine -- at your asset base across the mines. I assume the effects of that have been muted a little bit in the last few quarters. But maybe just go through some of the inputs or equipment or hires, whatever, where you're still seeing inflationary impacts and also maybe some supply chain bottlenecks? Russell Lawlar: Heiko, this is Russell. I'll take this question. And Carlos, please chime in as well. But I would say that the biggest inflationary factor we've likely seen or the biggest maybe cost pressure that we've seen is with the metals price environment that we've seen, there's obviously competition for labor. And so we have to be competitive as it relates to what we pay for labor, but also filling roles and looking for where we can't fill them, we have to fill them with contractors. And that's been something -- a challenge that we've had now for quite some time. It's just with the higher price, you see that getting exacerbated. But then in addition to that, what we do see from a pure inflationary perspective, I'd say the impact is relatively muted, like you said, but we are seeing some tariff costs as we think about capital projects and maybe there's components that we have to import. And so then we'll see potential tariffs on those types of items. We try to minimize that, right? And we try to find the best competitive bid for the quality of components that we're looking for. But there's a little bit there as well. Carlos, do you have anything to add to that? Carlos Aguiar: Yes, there's a little bit related with mining supplies and reagents and air movement. That is mainly all the stuff related with the workforce consultants and labor. Heiko Ihle: I had a different follow-up question planned, but now you got me curious. I mean you spent almost $9 million on exploration, $8.8 million, I think it was. What are you seeing with labor costs related to drilling and also timing for getting your assays back? Is there any positive or negative changes? Robert Krcmarov: You, Kurt? Kurt Allen: Yes. This is Kurt. We have seen some increase in our drilling costs. Really, it's associated with labor, drillers and drillers helpers. Regarding assaying, turnaround has been somewhat normal. Of course, this time of the year, it starts to tighten up a little bit as people are getting their summer sampling programs into the assay labs. But it hasn't been as bad as it was a few years ago. Operator: Our next question comes from the line of Alex Terentiew from National Bank. Alexander Terentiew: Congrats on another great quarter here. I got 2 questions. The first one, I think your last comment there about providing an update on exploration and projects in about a month or so that may kind of -- might have to wait for that, but I'll ask it anyways. I mean obviously, your balance sheet has improved quite a bit and your cash flow outlook has improved. So when it comes to exploration next year and projects that you're getting excited about, can you give us any kind of taste of where you are? What you're thinking about? Maybe you got the permit approval to start doing some exploration as well. You made a good mention here of Nevada. I'm just trying to get a better look of -- a sense of what we can expect there? And then my second question, Keno Hill, again, the second quarter in a row where you guys look to seem to have made some pretty good progress. Can you remind me of what metrics you need to see there to get that mine or that project rather declared commercial? Robert Krcmarov: Sure. I'll start with exploration, and then I'll hand it over to Kurt to fill in some more details. So we're going to substantially increase our exploration budget in Nevada. In fact, we've increased it beyond what the starting budget was this year. I'm quite excited by the results that we're getting there. We've also had quite a few dormant projects, which we expect to reinitiate. So things like the Rackla build targets up in the Yukon. This is virgin country with outcropping gossans, and so we need to make some advance there. And then obviously, our near-mine exploration where we continue to do resource extension drilling and seek new discoveries. Could you just fill in some more gaps, please? Kurt Allen: Yes. Next year, we're really planning on focusing on near-mine and brownfields to start with. That's going to get the biggest part of the budget for next year. And then we're also doing more greenfields exploration and early-stage exploration than what we've done in the past with a generative exploration program that will be kicked off next year as well. We've got some really good targets. We've got some really good property packages. As Rob said, the Rackla district is just ripe for discovery, and we're looking forward to getting in there and spending the summer, doing the basic boots on the ground field work there. And then Nevada as well. Go ahead, Rob. Robert Krcmarov: Kurt, Sorry. Kurt Allen: And Nevada, I'm really excited about. Like we talked about, we've got infrastructure, minimal requirements on the permitting side of things. So that's really, in my view, a faster track to production probably from any of our exploration projects outside the mine -- the current mine operations areas. Robert Krcmarov: If I could just... Alexander Terentiew: Yes, go ahead. Robert Krcmarov: Sorry. If I could just add, Kurt touched on a point that's quite important, and that's that we're increasing our project generation efforts. I mean coming into this -- coming into Hecla, one of my observations was that we generally stuck to our knitting. We stuck to our existing mine sites and focused all of our exploration there. I've talked about portfolio rationalization, and we will be farming out and divesting some projects, but we need to replace that. And so project generation is an important skill to have. We also need to become a little bit more commercial and create a whole series of options. And so look in the future for us to be doing earn-in agreements on other company properties. So that's exploration. On Keno Hill, look, for commercial production, we've got 5 criteria that we laid out for commercial production. And honestly, we're really only there on one, and that's the silver recoveries right now. Everything else, the completion of the major components, hitting 75% of mill capacity, finishing the major CapEx, that's all still in front of us. And so our current ramp-up plan really has us getting to commercial production around about 2027 at roughly 345 to 385 tons per day. And then the following year, 2028 would move towards nameplate throughput. And that's assuming that we get the water discharge approval sorted with the Yukon regulators. So in summary, call it, 2027 for commercial and 2028 for full nameplate. Alexander Terentiew: Okay. That's great. And obviously, a lot of exciting stuff to come next year on the exploration front. Looking forward to it. Robert Krcmarov: Thanks, Alex. Operator: [Operator Instructions] Our next question comes from the line of Joseph Reagor from ROTH Capital. Joseph Reagor: I had a question on your guidance. Obviously, raising the low end was great. But it seems like if I look at, say, like Greens Creek's gold production, Lucky Friday's silver and Casa's gold production, you'd have to have a pretty weak quarter for Q4 to not hit like above the high end. And so I'm wondering if that's just a matter of like company policy not to raise the high end of guidance? Or is it that you guys are having some expected downtime or anything during the quarter or lower grades? Just help me figure out how to stay within that high end. Russell Lawlar: I think, Joe -- Joe, this is Russell. I'll take the question, but my colleagues, they will chime in as well. If you go look and take a look at the -- in our earnings release where we have our past 5 quarters of production, you will see Greens Creek, for example, does have kind of a production profile that will vary, right? So Q3 of last year, Q4 of last year, we were less than 2 million ounces. I think what the guidance would probably tell you is we'll probably see a 2 million or so ounce quarter at Greens Creek for the Q4. And I think as we think about our guidance, we try not to guide to the quarter, but we also understand that we've only got 1 quarter left. And that's kind of where our models say we're going to come in. Joseph Reagor: Okay. That's fair. And then looking at the really strong price realizations you guys had in the quarter. I mean normally, there's some fluctuation, but it was abnormally strong this quarter. Was there anything specific that led to that? Was it just timing of shipments? Did you have more like late quarter shipments and early quarter shipments and that's how the weighted price got so well above spot? Or is there something else I'm missing there? Russell Lawlar: I would say I'll jump in again. There's 2 factors here. One is the timing that you mentioned. The Greens Creek, obviously, is our largest silver producer, and they ship once a month. And they tended to ship later in the quarter. And as you see the price change throughout the quarter, it ran up at the end of the quarter, which obviously weighted our sales toward the end of the quarter. That's part of it. The other thing that -- and I've got Anvita Mishra here, she's our Treasurer. You guys all know her since she did IR recently. With the change of the silver dynamics, where we've seen the more upside potential, I'll say, we've actually started to utilize more collars as it relates to our provisional hedging, which gave us that upside. And so I think in the past, you would have seen us use forwards. But as we saw the market change, we started to be more flexible on using collars for provisional hedging, which has allowed our investors to enjoy more upside. So I would say it's both of those factors. Operator: [Operator Instructions] There are no further questions. I will now turn the call back over to Rob Krcmarov, President and CEO, for closing remarks. Robert Krcmarov: Thank you, Van. So let me bring this all together. We came into 2025 with a clear mission, and that's to transform Hecla from a cash-constrained operator into a financially flexible company that can pursue value-creating opportunities. And I think our results clearly demonstrate that we've executed on that plan. And really, there's 4 things I want to reemphasize. First is operational execution is solid. All 4 of our producing assets generated positive free cash flow this quarter. Greens Creek and Lucky Friday are performing as we expected. Casa Berardi is tracking cost improvements, and Keno Hill has achieved consecutive quarters of profitability and is ramping towards our next production target of 440 tons per day. Secondly, record financial performance with quarterly revenue, net income and adjusted EBITDA at all-time highs. And we did not leave deleveraging to chance. We combined operational cash generation with strategic capital deployment to fully repay our revolver, redeem $212 million in debt and fully repay the maturing IQ notes from free cash flow. And in doing so, we moved from 0.7x to 0.3x leverage in a quarter. So that's a disciplined capital management, and it gives us the flexibility that we need. Third, we have general -- we have genuine optionality now. So reserve lives between 12 and 17 years, expansion potential at Keno Hill, strategic evaluation of the broader portfolio to surface value for shareholders and the ability to pursue value-creating M&A, but only if the right opportunity emerges. And that flexibility is what we lack as a cash-constrained company. The next phase is about demonstrating consistent execution, stable cash generation, continued deleveraging and disciplined capital deployment. And that consistency is how we recapture our historical value premium, and we're confident in our path. Fourth, strategic direction with 4 well-defined long-term pillars that will guide our capital allocation, and we'll elaborate more on that in our Strategy Day on the 26th of January, our Investor Day rather. And so summing up, I think there's a compelling valuation with industry-leading reserve life, peer-leading silver exposure and strong jurisdiction quality, all at reasonable valuation that we believe offers significant upside. And we're executing on our plans, generating substantial free cash flow and building a foundation for sustained value creation for shareholders. With that, thank you, everyone, for dialing in, and have a good day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon. This is the conference operator. Welcome, and thank you for joining the d'Amico International Shipping Third Quarter and 9 Months 2025 Results Web Call. [Operator Instructions] At this time, I would like to turn the conference over to Federico Rosen, CFO. Please go ahead, sir. Federico Rosen: Good afternoon, everybody, and welcome to d'Amico International Shipping Q3 Earnings Presentation. So moving straight. Okay. Moving -- skipping the executive summary as usual and moving straight to Page 7, snapshot of our fleet. As of the end of September, we had 31 ships, 31 product tankers, of which 6 LR1s entirely owned, all owned after we exercised the purchase option on the Cielo di Houston, which was previously in bareboat chartered-in for $25.6 million at the very end of September. We had 19 MRs, of which 17 owned and 2 bareboat chartered-in, and we had 6 handy vessels. Still a very young fleet relative to the industry average. The average age of DIS fleet was 9.7 years at the end of September against an industry average of slightly less than 14 years for MRs and 15.4 for LR1s. We increased the percentage of our eco ships, which is now 87% of our fleet. This follows the sale of one of the Glenda vessels, the Glenda Melody, which was delivered to the buyers in July this year. Moving to the next slide. Bank debt situation, very straightforward. We had $19.6 million of bank loan repayment or scheduled bank loan repayments in the first 9 months of the year. We had $5 million of repayment on one of the vessels that we sold. We expect to have $6.2 million of scheduled repayments in Q4 this year. And going to '26 and '27, we're expecting to have slightly less than $25 million of scheduled loan repayments with a minimum level of debt coming to maturity in '26 for only $3.2 million. And a bit of a higher amount of $64.8 million coming to maturity in 2027. At the same time, as you know, we are expecting the delivery of our 4 newbuilding LR1s in the second half of 2027, and we're expecting to finance the ships with a 50% leverage right now, which equates to a bit more than $111 million. Pretty impressive, I would say, the graph on the right that we always show, this goes back really to the significant deleveraging plan that we have been implementing in the last years. Our daily bank loan repayment was $6,147 a day in 2019, and it dropped to $2,426 that we're expecting for 2026, with a total repayment, as I said before, of slightly less than $25 million per year. Moving to the next slide. A bit of a rough outlook on the Q4. Q4 looks really good so far. We have already fixed 54% of our days with time charter contracts, time chartered-out contracts at slightly less than $23,500 a day. We have already fixed 23% of our days at $28,262 on the spot market. So that means that for Q4, we have already fixed 77% of our days at $24,930. So it looks like another very profitable quarter for us. Looking on the right, as always, we show a bit of a sensitivity. So, should we make $18,000, which seems pretty unlikely on the 3 days that we have for Q4, so the days that are fixed right now, that our total blended daily TCE, so spot plus TCE would be of $23,355. Should we make $21,000 a day, our blended daily TCE would rise to $24,000 a day. Should we make $24,000 a day on these unfixed days, our blended daily TCE would be of $24,719 a day. Moving to the next one. Estimated fleet evolution, we're expecting to have 30 ships. As you know, we agreed a sale of 2 vessels, 2 of the older ships of our fleet at the end of Q2 this year. One ship, as I just mentioned before, was already delivered to the buyers in July. The other one is going to be delivered to the buyers by the 20th of December this year. So after that, we will have a fleet of 30 ships at the end of this year, mainly owned, 28 ships owned and 2, which are the High Fidelity and High Discovery, 2 MRs still bareboat chartered-in. Moving to the graph on the right at the top -- sorry, Carlos, if you go one back up. Potential upside to earnings, we still have a sensitivity for every $1,000 on the spot market of $6,000 a day for the remainder of this year. We have a sensitivity of $7.2 million for '26 for every $1,000 a day, we make more or less on the spot market. And the sensitivity is much bigger for 2027, is of $10 million right now. And at the bottom of the page, you also see, as always, what our net result would be for '25, '26 and '27, should we make -- should we breakeven for the day -- in the days that are not fixed right now. So, should we breakeven? For the days -- for the 3 days, we would make a profit of $21.9 million this year, $26 million in 2026 and $4.6 million for 2027. And on the right, you can also see the sensitivity relative to the spot market. So if we make $80,000 a day on our free days on the spot market for 2025 for the remainder of 2025, then our net result would be of $83.8 million. Should we make $21,000 a day, our net result would be of $85.6 million. If we make $24,000 a day, our total net result for the year would be of $87.5 million. And looking at next year, again, should we make $80,000 on the spot on the free days, our net result would be of $47.7 million. Should we make $21,000 a day, we would make a net result of $69.4 million. Should we make $24,000 a day on the free days, our net result would rise to $91 million. So, strong upside to earnings. Going to the next page on the cost side. OpEx, we had a daily OpEx of $8,148 in the first 9 months of 2025. We still have some inflationary pressure that we've been talking about in the last quarters, also in the -- also in Q3, also in the first 9 months of the year. However, the trend is staining a little bit. The overall daily figure is not significantly higher than the same period of last year. And it's really related, as we mentioned previously, to higher crew cost to higher insurance costs, which is also the reflection historically of higher vessel values and also to some inflationary pressure that we also had on some technical expenses. On the G&A side, we had $19.2 million of total G&As. And here, the variance relative to the previous years, as we mentioned in the past, is really related to the variable component of personnel costs, which is really correlated to the very good years that we've been having recently. Moving to the next page. Very strong financial position, as you can see. We had a net financial position at the end of September 2025 of $82.4 million or $80 million if you exclude a small residual effect related to the IFRS 16. Gross debt of $231.1 million, with cash and cash equivalent of almost $149 million at the end of the period. So if you compare a net financial position to the fleet market value of our fleet, which at the end of the quarter was assessed in $1,085.3 million. Our financial leverage, so calculated as the ratio between the net financial position and the fleet market value was of only 7.4%. And just to remind everyone that this figure, this ratio was 72.9% at the end of fiscal year 2018. And this goes back to this very significant deleveraging plan that we've been implementing. Going to the next page. On the income statement side, strong quarter. We made $24.3 million of net profit in the third quarter of the year, which is 24% better than in Q2. Looking at the first 9 months of the year, we made a profit of $62.8 million, which includes also an asset impairment of $3.8 million that is related to the 2 Glenda vessels that we sold. This was booked in Q2 that I just mentioned before. Excluding some non-recurring items from the first 9 months of the year, our net result would rise to $67.1 million. Of course, this is significantly lower than the same period of 2024, in which we had an even better, as you know, freight market, although as you can see, this year is still significantly profitable. Going to the next page, key operating measures. We achieved a spot average -- a daily spot average in the first 9 months of the year of $23,473. We also covered with time charter contracts, 48.4% of our days at $23,700 a day on average, which means that we reached a blended daily TCE of $23,583 in the first 9 months of the year. Looking at Q3, looking at the third quarter, we had a spot average of $25,502, which is a bit more than $1,000 a day more than in Q2 -- what we made in Q2 and almost $4,300 a day more than what we made in Q1. We also covered approximately 55% of our days in the quarter at an average of $23,378. And so our blended daily TCE for the third quarter of the year was at $24,335, and it is so far our best quarter this year. Next page, I pass it on to you, Carlos. Antonio Carlos Balestra Mottola: Good afternoon. Thanks, Federico. So now we look at our CapEx commitments. Not much left in this respect for '25, only maintenance CapEx. And then for '26 and '27, we have the remaining installments for the 4 LR1s ordered for a total investment of $191 million, of which only $17 million next year. And most of this instead due in '27 and more specifically at the delivery of the vessels. Going on to the following slide here, the leased vessels. We exercised the Houston, as previously mentioned by Federico. We still have the Fidelity and Discovery, which we can exercise. These are long lease contracts, which terminate only 2032 and interest rates still haven't come down to levels, which would make exercising these options attractive. So for now, we keep them going. But next year, a window might open up depending on the path followed by the interest rates for us to exercise these options. On the following slide here instead, we show the difference in the market value of the vessels, which were previously on TCE and whose options we exercised and their book value as at the end of September. And we see there's still -- the delta is very positive at around $46 million, slightly less than the $57 million, which represented instead the difference between the market value of the vessels and the exercise price at the exercise date. Going on to the following slide. Here, we show our contract coverage. And for Q4, we have a coverage of 54% at a very profitable average rate of almost $23,500. For '26, we actually have a slightly higher rate than that, $23,700 for 32% of the available vessel days. TCE rates have been gradually moving up over the last few weeks, reflecting the strong market conditions and the strong outlook for the market for the coming years for the reasons, which we will be discussing, outlining in the rest of this presentation. At the bottom, we show the increasing percentage of eco vessels that we are controlling as a result of the disposal of the new eco vessels in our fleet and of course, in the previous years also of the deliveries that we had of new eco vessels, which joined our fleet. Here, we see on this page that on the left, TC rates, the blue line and spot rates with the yellow line have been moving up since April. And on the right-hand side, we see also that asset values have stabilized and actually are moving also -- have been moving slightly up in the last few months. And we show here that the estimated rate for a 1-year TC for an eco MR today is at $23,500. So very profitable rate and for an eco LR1 at $26,500. So going on to the following slide. Russian exports of refined products, they held up very well after the onset of the war for some time. But more recently, we are seeing a decline this year, in particular from April this year. We have seen these exports starting to drop more decisively. And that is the result both of tougher sanctions being imposed on the country as well as the activities by the Ukrainians, which have been targeting Russian oil assets, infrastructure, terminals and in particular, also many refineries. At a certain point this year, we had almost 20% of the Russian refining capacity, which was offline, which could not be used because of these drone attacks by the Ukrainians. So as a result of these attacks, also the Russian government had to take some decisions to reduce exports of diesel, in particular, to keep more of the product domestically. And so I think this is only the beginning and the full effect of the latest sanctions, which were announced on Lukoil and Rosneft are still to be felt. And I think we are going to be start seeing them towards the end of November because there is a phase-in period end December. And then we are going to be starting to see a more pronounced decline in exports of refined products from Russia, which is an important exporter of such products. So, lower exports from this country is going to tighten the refined product market and has already contributed to an increase in refining margins, so as we will see later in the presentation. So here, talking about another disruption to the market, the attacks by the Houthis to vessels crossing the Bab-el-Mandeb strait. Although there is a peace agreement, fragile peace agreement, I would say, in place currently between Israel and Hamas. Vessels have not returned to crossing the strait in a normal fashion. Crossings are still well below where they were prior to the beginning of the conflict. And as we see on the bottom left chart, the red line, which depicts the percentage of crossings through the Bab-el-Mandeb strait. On the top right-hand chart, instead, we show the East to West and West to East CPP ton day volumes being transported. So as a result of more volumes having to sail the longer routes through Cape of Good Hope, if volumes had not been affected as a result of this conflict of having to sail these longer routes, we would have expected ton days to have risen and that authorized. That is what happened in the first 9 months of '24, where we saw a big spike relative to the red line, which is the average for 2023. But thereafter, we saw a decline -- a quite pronounced decline in the fourth quarter of '24 and a further small decline from that level in the first 9 months of '25. There was a pickup in activity over the summer. But nonetheless, the average for the period is well the average of 2023. And then there was a more pronounced decline in October. So, I would argue that even a normal -- if normal crossings were to resume because this peace agreement holds and then this will not -- is not likely to be negative for the market, and it could potentially be also positive. The environment we had in the first 9 months of '24 was exceptional. We had very, very strong refining margins and big arbitrage opportunities, which opened up to import these products into Europe, where stocks were very low. And therefore, traders could justify paying up for vessels and saving the longer route and incurring these additional costs associated with saving such longer routes. In a more normalized market, where these arbitrages are not as big than having to sail the longer route could actually be a negative because it could really kill the trade and force product to stay more regionally, which is what happened mostly since Q4 '24. And here, we show also the effect of cannibalization, which we do not see in the graph in the previous slide. So, not only the ton days overall declined since Q4 '24, but also a larger portion of the products of these products on this, in particular, East to West route were transported on non-coated tankers, VLCCs, but even more so on Suezmaxes. As we see here on the graph on the right-hand side, the blue bars are the Suezmax volumes transported. And on the left-hand side, on the yellow line here, we see the percentage of volumes transported on uncoated tankers. It did spike at 12% in 2024 when the dirty markets were weak and the clean markets were doing very well, and there was a big incentive for vessels -- dirty vessels to clean up to transport these products. It then declined very sharply this percentage, but then it bounced back and now it's at 7%. So, we continue seeing this cannibalization ongoing. It's more to do now with vessels performing maiden voyages. So, newbuilds delivered that transport CPP on their maiden voyages rather than cleanups, but there is also some cleanups which have happened this year. Going forward, it is -- this cannibalization is, we believe, is going to be driven mostly by new builds, transporting CPP on their maiden voyages because of the acceleration in deliveries of newbuilds that is expected, planned, let's say, for the rest of this year and the coming 2 years. Here, we see that the refining margins have increased quite sharply, especially here, we see crack margins for Rotterdam and they have moved up quite significantly over the last few weeks, in particular, for diesel and gasoline. And this spike here, we see coincides with the introduction of the tougher sanctions on Russia on Rosneft and Lukoil by OFAC. U.S. Gulf Coast refining margins also are holding up at very attractive -- at attractive levels by historical standards. So, this should drive refining activity, strong refining activity in the coming weeks and months in our opinion. And this year is actually very important, what we are seeing here on the slide. On the graph on the left, we see this increase in sanctioned oil and water. This is a very pronounced increase on sanctioned oil and water, which has been ongoing, but which gained new impetus this year and in particular, also over the last few months as a result of the tougher sanctions imposed on both Iran, but in particular, on Russia. On the right-hand side, we see the total number of vessels sanctioned, which is above 800 vessels, which on a deadweight ton basis represents more than 15% of the tanker fleet. So it's a huge number. And there are also other vessels which still haven't been sanctioned, which are still involved in trades, which are shady. So part of the, let's say, shadow fleet. So if we include also these vessels, we are at around 20% of the tanker fleet on a deadweight ton basis. So it's a very high percentage of the fleet. And these vessels when they are sanctioned, their productivity falls. We have seen that vessel speeds have increased for non-sanctioned vessels over the last few weeks and months as is to be expected given the strong freight rates, especially for crude tankers that we are seeing. But we have seen a decline in average speeds for the sanctioned vessels. And a lot of sanctioned vessels are really not able to find, let's say, a destination for the product. So now they are on a wait-and-see mode in some cases. So let's say, this increase in oil and water is linked to a more inefficient process to sell these vessels. But to a certain extent, it could also be seen as a sort of floating storage, which is happening because this sanctioned oil is finding it hard to then find the final buyer. We do expect that eventually this sanctioned oil will be sold because these counterparties have proven very adept at circumventing sanctions, but it creates inefficiencies in the market and the product might have to sail twice. There might be an intermediate destination to which the oil is sold and then it's retransported to its final destination where it is consumed. So the more use also of, of course, middlemen to obfuscate the origin of the product and of course, more ship-to-ship transfers. And here, we see instead the fees on both U.S. -- by both the U.S. and China, which were imposed and then removed. Of course, it started with the U.S. imposing fees on vessels, which were built or operated in China by Chinese companies. And these fees took effect on October 14. And just before they were supposed to take effect, China introduced similar reciprocal fees on vessels, which were linked to U.S. interest. And then a few weeks later, the 2 countries managed to reach an agreement to postpone the implementation of these fees by 1 year. But nonetheless, in particular, the fees imposed on Chinese vessels is quite impactful because China is such an important country for the production of vessels today. And the threat of such fees means that companies are not as keen in ordering in China as they otherwise would be. So, these fees might end up never being implemented, but there is a risk that they will be. And as they had been -- as per the last, let's say, version of these fees, those imposed by the U.S., a large number of bigger tankers would built in China would be affected. But of course, even if you are ordering a smaller tanker, you still would have concerns in doing so in China because you never know how the legislation could then be modified at a later date. Going on to the following slide, we see here the dynamics for oil demand and refining throughputs. Both are not growing at a very strong pace, but they are still expanding nonetheless. And what is quite important here is where this growth is happening, in particular, for the refined volumes. And what we are seeing is that quite important closures of refineries in Europe and in the U.S. West Coast. So, we are seeing declines in refining throughputs in these regions, which is being more than compensated by additional refining volumes coming from the Middle East, Asia and Africa. And that, I would say, is very supportive for the market going forward. As we saw over the summer here on the graph on the right, there was quite a sharp increase in refined volumes. And then the decline in October as usually happens because of refinery maintenance before winter in the Northern Hemisphere. And then we have this pickup in refined volumes, which usually happens in November and December and which we expect will occur also this year as refineries increase volumes in the coming months. Oil supply growth has been very abundant this year. It was expected to be a strong year in this respect. But with most of the increase coming from non-OPEC countries, OPEC instead decided to undertake an accelerated unwinding of the cuts, which had been previously implemented between April and September this year. It increased the production quotas by almost 2.5 million barrels per day with other increases then implemented in October and then also planned for November and December this year at a lower pace since October, but nonetheless, a very pronounced increase in production quotas from OPEC this year, which coupled with the non-OPEC supply, which came to market is -- would have created a very oversupplied market. But this didn't happen to the extent that could have been expected because China, in particular, stepped in to buy more products. So, China has been building up its oil stocks, strategic oil stocks, so compensating for what otherwise would have been an oversupplied market. And going forward, it is likely that the lower production from Russia and from Iran could also act as a balancing mechanism to compensate for the sharp increases expected in production also for next year. And that would be good for the market because we would have a situation where sanctioned oil is being replaced by non-sanctioned oil, which, of course, then will be transported on non-sanctioned vessels. So, increasing the demand and the freight rates for the compliant fleet. And going on to the following slide, we see here that the total oil at sea has been rising and not as much as the sanctioned oil at sea, but it has been rising nonetheless also and it's now at levels, which are higher than at any point in time since January 2020 and well above also the levels, which were reached in April 2020 when there was this trade war between Russia and Saudi Arabia for market share where they inundated the market with oil, and we had a big spike in floating storage as we see on the graph on the top. We are still not seeing the spike in floating storage, but we are seeing a big increase in oil and water. So as I mentioned, some of this oil and water is potentially, let's say, a kind of floating storage, which is still not being classified as such. But a lot of it is actually just oil, which is being transported in a more inefficient way, being triangulated more ship-to-ship transfers, vessels, sanctioned vessels slowing down. And going on to the next slide. Here, we see the individual components of oil demand growth. At the beginning of the year, naphtha was expected to be an important contributor together with jet fuel. Jet fuel maintained, let's say, its promises and it was the second biggest contributor, but naphtha disappointed to a large extent. And that has to do with the -- possibly the positive -- more favorable arbitrages available for purchases of LPG, which competes with naphtha as a petrochemical feedstock. And however, what surprised positively, the product which surprised positively this year was diesel for which at the beginning of the year, the demand growth was not very spectacular, the anticipated demand growth. And instead, it ended up being the product which contributed more positively to demand growth this year. Here, we see that despite what we were discussing on the previous slide and not very pronounced growth for naphtha demand, Chinese imports of naphtha have been growing quite sharply over the last few years and also this year despite a decline over the last few months. And that has also to do with the tariffs, which had been imposed by China on imports of U.S. LPG. U.S. is one of the biggest exporters of LPG. And given these tariffs imposed by China on this product from the U.S. it became more attractive for them to import naphtha. And here, we see this is quite an important slide now because as we have been mentioning now for some time, we anticipated the crude tanker market is doing well and that they were going to be providing support to the product tanker market through positive spillover effects because of these transmission mechanisms, which there are between these 2 markets. And that is happening now. So, this thesis is playing out in this moment, and we are seeing this very big spike in freight rates now for the crude tankers, in particular, VLCCs are doing very well right now, trading at above $100,000 per day, but also Suezmaxes and Aframaxes are doing very, very well. And not surprisingly, we have seen that the percentage here of LR2s, which are trading clean has fallen since July '24 from 63% to 57%. So, there's been a steady decline in the percentage. And this has happened despite the large and increasing numbers of LR2s that have been delivered over the course of this year. So as they are delivered, they are delivered as clean vessels, but they have -- a large portion of them have been moving straight into dirty trades, and that has contributed to this reduction in -- as well as the cleanups of vessels, which were previously trading clean to this sharp reduction in the proportion of LR2s trading clean. And this can continue. I mean, in July 2020, this percentage was as low as 54%, but there is nothing which prevents this percentage going even lower than that in the future. And given the strong outlook for the crude markets for next year, for the reasons that we previously discussed, I would expect this percentage to continue falling and therefore, to indirectly continue tightening the clean markets. And going on to the following slide, we see here that once again, there are these closures of refining capacity in Europe and in the U.S., particularly in the U.S. West Coast. And those in the U.S. West Coast also are quite important because of The Jones Act and the high cost of distributing product domestically in the U.S. The needs which are going to arise, import needs for the U.S. West Coast are likely to be met with imports -- increasing imports from Asia, so contributing very positively to ton miles. Here, we see Africa has been an important contributor in '24. Now, there is talks of Dangote, which opened the 650,000 barrels refinery last year, also expanding, more than doubling its production capacity in the coming years to 1.4 million barrels per day. So, Africa and in particular, Nigeria could become a very important exporter of refined products in the coming years according to the government plans. And on the slide here, we see that this is another very positive message that we can show here. And whilst at the end of '24, we had these 2 lines, the gray and the blue line on the graph on the top left, which were very close because of the sharp increase in the order book. Now, they are starting to diverge again. Very few vessels ordered this year. So the order book has declined as vessels have been delivered and now it stands at 14.4%. But in the meantime, the fleet continued aging. So, we had 19.5% of the MR and LR1 fleet now, which is more than 20 years of age. So, this gap between these 2 lines bodes well for the market -- for the future market despite the acceleration in vessel deliveries, which is planned for '26 and '27. But these vessels will then, as they age, soon start reaching also the 25-year mark as we see on the bottom left. And in 2028, you have 4% of the MR and LR1 fleet, which is reaching that threshold and then that percentage in the following years increases even further. So, there's ample scope for demolition starting from 2028, and that should support the market going forward. Demolitions on the bottom graph, you see that they are still at very low levels, but they have been picking up over the last few quarters. So, 11 vessels demolished in Q3. So, well below levels reached in 2021 and 2018, and even more so below what is anticipated from 2028. So on the top graph, we do see that there is this acceleration in deliveries from Q3 '25 and into next year. But if we look at the -- yes, here, we see only 37 vessels ordered this year. So, very low number if you analyze this. This is in the first 9 months, so very low relative to historical standards. And so despite this acceleration in deliveries, the fleet growth across all tankers for next year is around 3%. And given what we discussed with the increasing vessels being sanctioned, the decreasing productivity of the sanctioned vessels, the aging of vessels, we expect the market to be able to absorb this fleet growth quite well and for us to continue benefiting from strong markets also next year. It also should be pointed out that the fleet growth -- if we look at the fleet growth in the sub-20 fleet next year across all tankers, it's less than 1%. So, I think that's also an important indicator because vessels as they cross the 20-year mark, whether they are sanctioned or not, they do start trading in more marginal trades. And so the market for sub-20 vessels is still expected to be very tight also next year. And then finally, here, we show our NAV discount, which is still very significant, although it has fallen a bit over the last few months. We are still at 40%. Okay, this is at the end of September. Thus, the share price has traded up slightly since then, but we are still trading at a big discount to NAV. Here, on the CapEx commitments, I think we already covered this on the previous slide, the use of funds. And yes, just quickly to mention, we didn't talk about the dividends. The Board approved an interim dividend of a gross amount of $15.9 million. And so we don't -- as previously discussed in other occasions, we don't have a dividend policy. But what we can guide today, the market, we can provide some guidance in this respect to the market today in relation to the dividends to be paid out of the 2025 results. The expectation is that the Board is going to be approving for next year an additional final dividend, which would then imply a payout ratio, including the share buybacks where we haven't been very active this year of 40%. So the same payout ratio that we had out of the 2024 results. And so this dividend, which was approved by the Board today is an advance on what we expect them to be, the decision in relation to the dividend that will be approved next year. And finally, yes, we continue working to make our fleet as efficient as possible through energy-saving devices and operational measures. But I think these are the most important slides that we wanted to cover. So, I pass it over to the Q&A. Thank you. Operator: [Operator Instructions] The first question is from Gian Marco Gadini of Kepler Cheuvreux. Unknown Analyst: Just a quick one on the fixing of the spot rates on Q4. We see that they were pretty strong at $28,000 per day. And I was wondering whether this is due to specific events, specific routes or it's something that we can also expect going forward? Antonio Carlos Balestra Mottola: Yes. Thank you, Gian Marco. Thanks for the question. No, I believe it reflects -- I mean, I think we don't have such a big fleet today on the spot market. So, we are slightly more than 50% covered through period contracts now. So, of course, this creates a bit more variability in the spot results and our results can differ slightly more from the market averages because of that. So we were, let's say, I think we employed our vessels quite well over the last few months. So, we managed to catch some good spikes in the market. But we have experienced quite strong markets, I must say. So, this result is a reflection of a strong market, which typically, usually in October, we actually have a quite pronounced correction in the market because of the maintenance activity that we referred to before, and we saw the graphs from the EIA with refined volumes dropping quite sharply in October. But despite that, markets held up at very good levels, especially in the U.S. Gulf. I think they were very -- we had a number of spikes in the market, a lot of volatility, but a number of spikes. And also East of Suez markets held up quite well. So, that is why we have these good results in the days fixed so far in Q4. The markets at this very moment are slightly weaker than that, than these averages that we managed to achieve so far in Q4. But I personally expect that the market will then bounce back in the second half of November and in December, and we are going to have a very strong end to the year. And I'm not the only person expecting that. If you look at the paper markets, also the rate -- the levels are very strong for the last 2 months of this year. So, there is this expectation that we will end the year on a high note because of the very strong -- very high volumes of oil and water, the high refining margins that there are right now. So as these refineries come out of maintenance season in the coming weeks, they're going to be pumping more oil into the market, more refined products. Now, we have a lot of crude oil at sea, but very soon, we will be going to have also a lot of refined product at sea. Operator: The next question is from Massimo Bonisoli of Equita. Massimo Bonisoli: Carlos and Federico, I have 2 questions. One regarding the recent buildup in floating inventories. Could this dynamic accelerate into 2026 if the Brent forward curve moves further into contango? How much demand would create for clean tankers in your opinion? And the second, let's say, on the TC rates, how would you describe the current condition in the time charter market? Are clients still showing reluctance to commit to medium-term contracts? Or are you seeing sign of increased appetite to lock in rates? Antonio Carlos Balestra Mottola: Yes. Massimo, thanks. Good questions. On the floating storage, let's go back to the slide here, which maybe helps us. But this is the sanctioned oil and water, right, where we see this very big pronounced increase here of around over the last few months, 100 million barrels per day -- 100 million barrels, sorry. And that is the main factor, which has driven the increase in the total oil at sea, which we see here in this graph. It seems less pronounced, but still it is at very high levels here. What seems not to be still have risen very much is the floating storage. So, this is oil at sea and on vessels, which are moving. So, they are not being classified as floating storage, but part of this could end up becoming floating storage in our opinion. But a large portion will then be discharged eventually at shore. It will take longer than usual because of the sanctions, because of this need of triangulations. So it will create a more inefficient market. So unless the oil price curve goes really into contango, we are not going to be seeing the onshore storage filling up to the levels, which would then encourage also the floating storage. We are not there yet, but it could happen. Of course, if that were to happen, too, then that would be an even bigger contributor to a very strong market, right? So it would really fire the market up. And some analysts believe that could happen, and they think that if that were to happen, you could see VLCCs reaching $200,000 per day. So it's not inconceivable. We saw VLCCs a few weeks ago, they were at $120,000 per day. So it could happen, and it will drive up all the market, right, not only the VLCCs for the reasons we mentioned because of the transmission mechanism, which there are between these different segments of crude and product tankers. And whether it will happen or not will also depend on how efficient or effective Russia is in continuing to finding workarounds to continue exporting its oil, right, and then how the OPEC reacts to that. So, what is the reaction function of OPEC? If these sanctions do slow down and reduce Russian exports, that could act as a rebalancing mechanism for the market and coupled also with tougher sanctions on Iran could mean the market is not as oversupplied as feared, in particular, if the Chinese continue building stocks. And in that case, we wouldn't be seeing a market going into contango, the forward curve going into contango. If you said the market is flooded with oil because we have not -- Russia continues exporting at the same levels as it was previously. And we have this anticipated growth in non-OPEC and OPEC oil supply. The OPEC supply growth now apparently is going to slow down because they are going to -- after this increase in December, they seem to want to pause further increases for a few months. But there's still a lot of non-OPEC growth planned for '26 and apparently much more than the demand growth. So, that in itself could create a very oversupplied market and a forward curve that goes into contango, if it's not compensated by lower production from Russia and Iran. And in that case, we could see onshore storage filling up and then floating storage happening. That would not be positive for the market longer term because eventually, those stocks would have to be digested, but it would create a very strong boost to the market short term. But yes -- so we don't know how this is going to play out, but there is this possibility. With respect to TC rates, we are seeing more interest today for TC, a lot more interest actually. We have had a lot of counterparties knocking at our doors to take vessels on TC. Also more interest for longer-term deals, which is also a positive sign. And so we will take advantage of that to gradually increase our contract coverage, which is already now at a higher rate than -- we are already now at 32% contract coverage for next year. But I wouldn't be surprised if that rises more before the end of the year. Operator: [Operator Instructions] Gentlemen, there are no more questions registered at this time. I'll turn the call back to you. Antonio Carlos Balestra Mottola: Great. So if we don't have any more questions, thank you, everyone, for participating in today's call and look forward to seeing you again next year when we announce and present our full-year results. And yes, thanks a lot, and see you soon then. Federico Rosen: Thank you. Goodbye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices. Thank you.
Operator: Good day, and welcome to the NewLake Capital Partners Third Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Valter Pinto from Investor Relations. Please go ahead. Valter Pinto: Thank you, operator. Good morning, and welcome, everyone, to the NewLake Capital Partners Third Quarter 2025 Earnings Conference Call. Joining me today are Gordon DuGan, Chairman; Anthony Coniglio, President and Chief Executive Officer; and Lisa Meyer, Chief Financial Officer. Before we begin, please note that certain statements made during today's conference call may be deemed forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially due to a variety of risks and uncertainties. For a detailed discussion of these risks, please refer to our press release issued yesterday, our Form 10-Q for the quarter ended September 30, 2025, and other filings with the SEC. In addition, we will discuss certain non-GAAP financial measures, including FFO and AFFO. Reconciliations to the most directly comparable GAAP measures are included in our earnings release. With that, let me turn the call over to our Chairman, Mr. Gordon DuGan. Gordon DuGan: Thank you, Valter, and good morning, everyone. Our third quarter financial results were in line with our expectations, reflecting the quality of the investments we made several years ago and the disciplined underwriting approach we have taken since the company's inception. Where possible, we are being proactive in managing risk within our portfolio as demonstrated by lease amendments we announced with C3 and similarly by our collaboration with Curaleaf to relocate a dispensary asset last quarter. Being responsive to a changing landscape is critical to managing risk and optimizing long-term shareholder value. As we've discussed in prior quarters, the cannabis sector remains difficult with limited access to capital, slower market growth and ongoing regulatory uncertainty. Given these dynamics, we remain cautious on new investments in the cannabis sector and are focused on maintaining a strong balance sheet and sustaining our dividend coverage. At the federal level, we continue to await meaningful reform that would improve the operating environment for these state legal businesses. Unfortunately, the recent government shutdown and related political gridlock have further delayed progress on this front. While the timing remains uncertain, we believe reform will ultimately occur. And when it does, NewLake will be well positioned to benefit. In the meantime, we remain focused on execution, supporting our tenants and delivering long-term value for our shareholders. With that, I'll turn the call over to Anthony. Anthony Coniglio: Thank you, Gordon, and good morning, everyone. As Gordon mentioned, our third quarter results came in line with expectations. AFFO increased more than 2% versus the third quarter of 2024, and our AFFO payout ratio was 82% within our targeted range of 80% to 90%. We collected all scheduled rent during the quarter, except for the 2 AYR properties where we received cash rent for July and applied security deposit for August and September. We have since regained control of those AYR properties in Pennsylvania and Nevada, completed the necessary cleanout and preparation work and brought them to market as we begin the re-tenanting process. Overall, our portfolio remains in a solid position. Tenants representing approximately 50% of our annual base rent reported solid third quarter results this week. Curaleaf expanded adjusted gross margins and generated over $100 million in cash flow year-to-date. Cresco delivered positive cash flow, reduced debt and completed a refinancing, while Trulieve delivered some of the highest gross margins in the industry, nearly 60% and generated over $60 million of free cash flow during the quarter. Green Thumb also reported another profitable quarter with $23 million of net income and $74 million of operating cash flow. That said, the broader cannabis landscape remains challenging in the absence of federal reforms, and we continue to focus on proactively managing risk and identifying opportunities to strengthen our portfolio. A good example, as Gordon mentioned, is our recent lease amendments with C3. Lisa will provide more detail. But as a reminder, we discussed in prior quarters that higher-than-expected construction costs made the Hartford project much less attractive. We worked collaboratively with the tenant on a solution that manages our risk while maintaining AFFO for our investors. This follows a similar collaboration last quarter with Curaleaf, where we worked with the tenant to relocate a dispensary asset. Altogether, this marks the fifth time we have partnered with tenants to find creative solutions to address their needs while strengthening our risk profile and enhancing long-term shareholder value. Turning to regulatory matters. We're encouraged by actions at the state level, but concerned with the continued delays in federal reform. The recent expansion of the Texas Medical marijuana program and this week's election of a new governor in Virginia, which should lead to the long-awaited launch of adult-use are both good examples of continuing opportunities for growth happening at the state level. However, the health of the cannabis industry remains in a prolonged holding pattern awaiting meaningful federal reform. This lack of clarity continues to weigh on an operator sentiment and capital formation. Against that backdrop, we continue to focus on maintaining our disciplined underwriting and conservative balance sheet while remaining cautiously optimistic regarding the broader environment. Lastly, before I turn it over to Lisa, I want to address a question I've been getting more frequently about whether we plan to diversify into other real estate sectors outside of cannabis. Our view is that it's our fiduciary responsibility to evaluate all avenues for creating long-term value for shareholders and that does include considering opportunities beyond cannabis. We continually monitor the broader real estate landscape to identify attractive investments, particularly where we can leverage our expertise in underwriting highly regulated special purpose properties. We'll continue to do that work. And if we find a compelling opportunity that aligns with our strategy and risk profile, we'll bring it to the Board for consideration. With that, I'll hand the call over to Lisa to review our financial performance. Lisa Meyer: Thank you, Anthony, and good morning, everyone. In the third quarter of 2025, our portfolio generated total revenue of $12.6 million, a 0.3% increase year-over-year, reflecting the solid performance of our portfolio in a challenging environment. Key drivers of the increase include a full quarter of rental income from the 2 Cresco dispensaries acquired earlier this year. While we did not fund any improvements during the third quarter, we received a full quarter of rental income from $1.2 million of improvements funded after September 30, 2024, at our Arizona and Connecticut cultivation facilities. And annual rent escalators across the portfolio continue to provide consistent revenue growth. These increases were partially offset by the vacancy of our Fitchburg, Massachusetts property following Revolutionary Clinics departure in July of 2025. As mentioned earlier, during the quarter, we applied $505,000 of security deposits from AYR to cover August and September rent for our Pottsville, Pennsylvania and Sparks, Nevada properties after AYR failed to make rent payments beginning in August. At quarter end, approximately $408,000 of security deposits remained, which we subsequently applied to cover the nonpayment of October and November rents. For the 3 months ended September 30, 2025, net income attributable to common shareholders was $6.7 million or $0.32 per diluted share compared to $6.4 million or $0.31 per diluted share in the third quarter of 2024. Adjusted funds from operations increased 2.4% year-over-year to $11 million or $0.52 per share, primarily driven by lower general and administrative expenses. We declared a third quarter 2025 cash dividend of $0.43 per share of common stock or $1.72 on an annualized basis. The dividend was paid on October 15, 2025, to stockholders of record as of September 30, 2025. The dividend remains fully supported by the earnings power of our portfolio with an AFFO payout ratio of 82%, comfortably within our target range of 80% to 90%. As of September 30, 2025, our balance sheet remains among the strongest in the sector with $432 million in gross real estate assets and a very conservative debt profile of just 1.6% debt to total gross assets with no maturities until May 2027. Our liquidity is strong with $106 million available, including $23.6 million in cash and the remaining capacity under our $90 million revolving credit facility. This provides us with ample flexibility to execute our business strategy and grow earnings by continuing to invest in high-quality assets. Lastly, I'd like to briefly discuss the recent amendments to our lease agreements with C3 Industries as outlined in our earnings release and Form 10-Q. These changes reflect our collaborative approach to tenant relationships. Under the amended Hartford lease, we agreed to pursue a sale of the property, which includes a make-whole provision to address our respective investments. C3 will continue paying rent through the sale date and after which a portion of that rent will be reallocated to the Missouri lease. This incremental rent will remain in place until we reinvest with C3 under our right of first refusal agreement. With that, I will turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Pablo Zuanic with Zuanic & Associates. Pablo Zuanic: Look, I know in the 10-Q and in the press release, you gave color on the impact on AFFO from AYR, but -- and you use some of the deposits for October and November. But can you try to quantify by the first quarter next year, what would be the full impact from AYR if the properties remain vacant? And also remind us, in the case of Revolutionary Clinics, was there any rental or deposits that were reflected in AFFO in the third quarter? And if not, what -- and if some was reflected, what would be the full quarter impact by the fourth quarter? Anthony Coniglio: Yes. Thank you, Pablo, for the question. I'll address Revolutionary Clinics and then Lisa can talk about AYR. So for Revolutionary Clinics, if you recall, we had them staying in the facility during their receivership period, and they were paying cash rent and security deposit for that was utilized in previous years actually when they started their economic decline. And so that deal with the receiver was to get cash paid through the end of July. And so no, that arrangement has no further security deposits to apply. And then Lisa, why don't you address AYR? Lisa Meyer: Yes. So with AYR, as we disclosed in our last earnings call, we think the impact for first quarter is going to be a little over $0.035, maybe $0.036. Pablo Zuanic: Right. And similar question, in the case of C3, on a full quarter basis, what will be the impact on rental income? Lisa Meyer: We structured that transaction so that it would have a de minimis impact on net income. So we don't anticipate seeing any decline in net income or AFFO as a result of that transaction. Anthony Coniglio: To add to that, Pablo, they will continue to pay rent until the building is sold. Once it's sold, the revenue is going to move over to the Missouri facility. So we will see from an AFFO perspective, no adverse impact from that. Pablo Zuanic: Right. I'll ask a couple of more, and apologies if there's people in the queue here. Look, I mean, obviously, if there's any other problems with your other tenants, I know you would disclose that, right? So I'll be careful about addressing questions about other tenants. So for example, PharmaCann is one of your tenants. I know a smaller tenant in your portfolio, but they have defaulted in leases with IIPR, that's public information. And then Cannabis is the company that has a stretched balance sheet. But I mean, obviously, both are current on your leases, right? And I'm sorry to ask the question, but given the public information, I see them as risky tenants. But again, the question is they are current, right? Anthony Coniglio: Yes. Pablo Zuanic: Okay. That's a simple question. And then just moving on, in terms of Virginia potentially going rec, Pennsylvania potentially going rec, Texas Medical, I know that there's potential for those markets to expand. We don't have an exact line of sight on when that will happen. But talk about the lead time in terms of when operators start approaching you negotiations, if that were to impact your book in a favorable way and you earn AFFO in a favorable way, are we talking about in a best case scenario, still 1 year out, 2 years out? How would you frame that? Anthony Coniglio: Yes. I would say if your question is really getting to growth, the growth dynamic can come from existing states as well as ones that are experiencing expansion the way you just described. I would say that, that lead time for a dispensary could be a quarter. The lead time for cultivation should be 6 to 8 months. From a macro perspective, I would say that the industry is cautious, I think appropriately so, the industry is cautious with respect to large-scale CapEx projects. And so while we see a couple here and there for cultivation, I think for the foreseeable future, most of the opportunities available for sale leaseback in the sector will be dispensaries and smaller cultivation sites. Pablo Zuanic: Right. Okay. Look, Anthony, I want to ask you one more question here, one last one. You, among the various CEOs out there in the industry are one of the most, I would say, high profile in terms of giving opinions about the industry. And I say that, of course, in a very positive way. You're very thoughtful in terms of your remarks about -- you make about the industry. I'd just like to hear, in your view, your opinion about the so-called promises that have been made by the President in terms of rescheduling the promises that he made through social before the election and the implied promises that were made around medical cannabis, hemp-derived CBD by the reposting of the Commonwealth project video into social back in September. Some of us -- I mean, I myself think that some of those promises, if they are promises, are somewhat in conflict, right, and that may delay and complicate things. But I'd like to hear your thoughts in terms of where -- the way you think about these promises and how it all plays out. And again, I'm taking the liberty to ask this because I think that you've given very thoughtful views on these topics in the past in other forums. Anthony Coniglio: Well, thank you for the question, your kind comments. Yes, this industry has become sitting on the edge of its seat with every comment, every post, every indication to try to figure out when this reform will occur. And each of these data points are positive and move us in a positive direction. But for me, I'd step back and say that when you look at polling, when you look at sentiment in this country, when you look at the political dynamics of cannabis, I do firmly believe that we will get reform. So it's really a question of when that occurs. I think the other reality, if I believe firmly that we'll get reform, I also believe firmly that politically, this is not a priority for any party. I think both parties have demonstrated that through the last couple of administrations. So I do believe this administration supports reform. I do think that we will get it. I just think there is no way to know when the political landscape lines up with the legislative landscape and the election calendar to actually get the meaningful reform that the industry should have and needs. I hope that answers your question. So I guess let me summarize for you, Pablo, by saying long-term optimistic, but I think sometimes as an industry, we sit on the edge of our seat with too many of these individual statements. They all paint a mosaic of reform, but I don't think we can utilize any of this to try to predict the timing. And then one more comment, you mentioned CBD. I think we also need to recognize that the hemp-derived products have had a significant impact on the industry. And if it means waiting a little bit longer for federal reform, if we can get regulation around the hemp-derived products, which I don't think anybody ever intended to truly legalize under the 2018 Farm Bill, then I'm willing to wait a little bit longer so we could get it right and get this industry on a long-term foundational -- on a foundation built with long-term benefits of reform soundly in place. Operator: [Operator Instructions] It appears we have no further questions at this time. I'd like to turn the floor back over to Anthony for closing comments. Anthony Coniglio: Great. Well, thank you, everybody, for joining our call today. We appreciate all of your support. And as we approach Thanksgiving, which isn't that far away, we're thankful for you all as investors and supporters of our company. We hope you have a great day. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to the Insulet Corporation Third Quarter Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Clare Trachtman, Vice President, Investor Relations. Clare Trachtman: Good morning, and welcome to our third quarter 2025 earnings call. Joining me today are Ashley McEvoy, President and Chief Executive Officer; Flavia Pease, Chief Financial Officer; and Eric Benjamin, Chief Operating Officer. On the call this morning, we will be discussing Insulet's third quarter results along with our financial outlook for the fourth quarter and full year 2025. With that, let me start our prepared remarks by reminding everyone that certain statements, including comments regarding our financial outlook for the fourth quarter and full year 2025. The anticipated impact of our strategic actions, the potential impact of various regulatory and operational matters in the macroeconomic environment on our results of operations contain forward-looking statements that involve risks and uncertainties. And of course, our actual results could differ materially from our current expectations. Please refer to today's press release and our SEC filings for more detail concerning factors that could cause actual results to differ materially. In addition, on today's call, non-GAAP financial measures will be used to help investors understand Insulet's ongoing business performance, including adjusted operating income, adjusted EBITDA, adjusted tax rate and constant currency revenue, which is a revenue growth, excluding the effects of foreign exchange. A reconciliation of certain non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in the accompanying investor presentation and available in our earnings release issued this morning, which are both available on our website. Additionally, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year reported basis with the exception of revenue growth rates, which will be on a year-over-year constant currency basis. During the Q&A session this morning, Ashley, Flavia, Eric and myself will be available to address questions. Now I'd like to turn the call over to Ashley. Ashley? Ashley McEvoy: Thank you, Clare, and welcome. Many of you already know Clare and we're excited to have such a respected and proven professional in her role. I'd like to welcome Flavia, who is joining us for her first call as Insulet's Chief Financial Officer. Flavia is a highly accomplished financial executive with world-class health care and med tech expertise, and we're thrilled to have her with us on the team. Her extensive leadership experience in complex global organizations combined with her proven ability to drive financial performance and create long-term value, make her the ideal CFO to help guide Insulet's next phase of patient-centric growth. Flavia's thoughtful contributions and active engagement as a member of our Board were instrumental to our strong performance and are now enabling a seamless transition. And finally, I'd like to congratulate Eric on his well-deserved promotion to Chief Operating Officer. With more than a decade of experience at Insulet, Eric truly embodies our mission. His relentless drive to innovate and to find a better way has been a cornerstone of our success, and we're excited for the leadership he'll bring in this expanded role. I also want to introduce Manoj Raghunandanan as our Chief Growth Officer. Manoj brings 20 years of consumer health leadership to a newly created role overseeing market development, demand generation, commercial capabilities and our global brand and customer experience. These leadership changes further strengthen our team, bringing proven industry and functional expertise that aligns with Insulet's unique and advantaged position at the nexus of consumer health, health care and med tech. Our vision is a world where diabetes places less burden on daily life until there is a cure. Driven by empathy powered by ingenuity and validated by science, our mission is to transform life with diabetes for people everywhere. Now turning to our results. This was another standout quarter for Insulet, showcasing the durability of our recurring revenue model, which resulted in robust growth and improved profitability. We surpassed $700 million in quarterly revenue for the first time with 28% year-over-year growth at constant currency rates. This performance reflects continued strong retention and a record number of new Podders across the U.S. and globally, including continued acceleration in Type 2. Operating margins expanded 90 basis points year-over-year to 17.1%, as we generated operating leverage while continuing to strategically invest in our innovation road map and field expansion. I want to thank the Insulet team for their hard work this quarter and their tireless commitment to delivering for Podders worldwide. We continue to drive progress against our strategic objectives. In the U.S. Type 1 market, we are extending our lead with sequential and year-over-year growth in new customer starts, fueled by ongoing prescriber expansion and the highest number of competitive conversions since late 2023. Our growing prescriber base of more than 27,000 health care professionals underscore the strong return on our investments in expanding our sales force, improving our commercial execution and increasing health care professional education and outreach. In U.S. Type 2, we are seeing strong momentum. New customer starts more than doubled year-over-year and grew sequentially. As we saw with Type 1, the power of real-world outcomes to turn skeptical providers and patients into believers is unmatched. In addition to the tremendous NCS growth, there was a large sequential uptake in Type 2 prescribers this quarter. Encouragingly, this was driven both by increased adoption among our existing Type 1 prescriber base and by our DTC efforts to activate new customers and increase the number of new prescribers. I want to highlight that our strong Type 1 foundation, the familiar prescriber base, our pharmacy access and Part D coverage, along with our brand and community give us a substantial head start in developing the Type 2 market. Our conviction and our ability to unlock the Type 2 opportunity at scale is growing rapidly. Our international business continues to deliver robust growth, reflecting increasing global demand and successful execution. We're seeing consistent momentum across key geographies as we expand access, deepen customer engagement and scale our operations worldwide. Revenue grew 40% year-over-year on a constant currency basis, driven by the continued rollout of Omnipod 5. In established markets like the U.K., France and Germany, we're seeing robust growth supported by our launches of the latest sensor integration as well as ongoing positive price/mix realization from DASH to Omnipod 5 conversions. In Germany, for example, our G7 launch has fueled rapid uptake among new and existing customers. We're also benefiting from growing contributions from markets like Canada and Australia, where Omnipod 5 launched earlier this year and is taking share. [ Eliza and her mom Melissa, ] whom I met while visiting our team in Toronto are among the first Canadians to benefit from Omnipod 5. Just 3 years old, Eliza struggled with overnight glucose control and Melissa rarely sleept through the night. Since starting on Omnipod 5 in April, Eliza has seen her A1C drop from 8.6% to 6.8% and her time in range double. And Melissa and her husband are finally getting a full night sleep. Eliza now loves to dance, swim and it's fast becoming one of the faces of Omnipod in Canada as local demand growth. With more Omnipod 5 rollouts planned in 2026, our opportunities to grow in our existing international markets and help more people like Eliza and Melissa remains significant. Last quarter, I laid out a focused set of investment priorities that will enable us to move faster, deepen our competitive advantage, drive penetration, unlock new opportunities and scale profitably. We will talk in great detail about these long-term priorities in 2 weeks at Investor Day. For now, let me share some of the progress we've made during the quarter. First, innovation. Our focus on accelerating the pace of innovation and being ready to launch alongside our partners is reflected in our integration work with Dexcom's 15-day sensor. When Dexcom launches, so will we. Libre 3 integration in the U.S. is on track for the first half of 2026 and is a top priority. Our experience across our markets shows that bringing new sensors online drive growth. We also continue to promote adoption of phone control. More than 55% of U.S. Omnipod users now control their system via smartphone, up from 45% last quarter. That shift toward app-based control improved convenience, retention, satisfaction and outcomes. Looking further ahead, we've completed recruitment for our STRIVE pivotal trial for next-generation hybrid closed loop and for our Evolution 2 feasibility study for fully closed loop in Type 2. I'm excited to share more about these next-generation products and their market-changing potential at Investor Day. Next is market development. We are pressing the advantages of our unique pay-as-you-go pharmacy access. Omnipod is already easy to access and affordable. Our system is available in more than 47,000 U.S. pharmacies and covered by over 90% of commercial plans allowing us to reach more than 300 million lives. Most users can start on Omnipod for about $1 a day without upfront costs or lock in commitments. Our focus now is addressing the remaining barriers to access with targeted programs aimed at easing the prior authorization submission process, and we're continuing to expand access for underserved populations more than 2/3 of our government insured customers pay less than $10 a month and over 60% pay zero. Third is demand generation. This quarter, we invested meaningfully in DTC investments, and they are yielding record levels of qualified leads. The majority of our DTC leads approximately 65% in the quarter come from patients treated by providers who are not currently called on by our sales force. These patients are actively requesting Omnipod 5, driving awareness and adoption with their providers. Upon seeing patient success, these providers continue to recommend Omnipod 5 creating a powerful flywheel effect that amplifies the return on our DTC investments far beyond the initial demand generated. Finally, its global operational scale. Our manufacturing facilities in Acton and Malaysia are ramping ahead of plan, delivering strong customer service and improved margins. We're accelerating investments to further increase capacity at these facilities to support our strong growth trajectory. And we continue to integrate AI and cloud-based tools to streamline and scale our service operations efficiently. In closing, our momentum and our strategic progress gives us confidence in our outlook and make us excited about the path ahead. Our growth is broad-based and durable. Our business model is scaling profitably. Our opportunities are vast and our team is energized and stronger than ever. We're eager to share deeper insights into our growth strategy, innovation road map and long-term vision in a couple of weeks at Investor Day. I'll now turn the call over to Flavia to discuss our third quarter results and guidance. Flavia Pease: Thank you, Ashley, and good morning, everyone. First, let me start that it is an honor and a privilege to join Insulet at such an exciting time in the company's journey. Our commitment to improving the lives of people with diabetes is deeply inspiring and I look forward to partnering with Ashley and the entire Insulet team to build on our strong foundation and continue to deliver industry-leading financial performance. With that, I'll turn to our third quarter performance and the outlook ahead. The Insulet team delivered a strong third quarter, marked by total revenues of over $700 million, an increase of 28% at constant currency rates and 30% at reported rates. Foreign currency contributed 170 basis points to third quarter reported growth. Notably, during the quarter, total Omnipod grew 29% as compared to the prior year on a constant currency basis. During the quarter, new customer starts grew both on a year-over-year and sequential basis in our U.S. Type 1, U.S. Type 2 and International Type 1 market. And we achieved a record number of total new customer starts in the U.S. and internationally. Similar to previous quarters, over 85% of our U.S. new customer start came from MDI, while competitive switches also contributed to growth. Additionally, more than 35% of our U.S. new starts were from Type 2. Our estimated global utilization and annualized global retention rate remains stable. Overall, our team continues to deliver robust top line growth and improved profitability, resulting in increased earnings per share and strong cash flow generation. I will now walk through some additional details of our performance in the quarter. First, turning to our U.S. and international revenue drivers. U.S. Omnipod revenue grew 25.6% above the high end of our guidance range, driven by continued demand for Omnipod 5 across Type 1 and especially among Type 2 customers. As a reminder, U.S. revenue growth this year has been impacted by rebate timing and prior year inventory stocking dynamics. Normalizing for these impacts, U.S. growth in the third quarter was approximately 30 basis points higher, representing an acceleration from normalized second quarter growth levels. In our international Omnipod business, we achieved a revenue growth of 46.5% on a reported basis and 39.9% on a constant currency basis, which was also above the high end of our guidance. International revenues crossed $200 million for the first time. Our growth this quarter was fueled by robust demand for Omnipod 5 underscoring its market appeal and the benefit it delivers to patients. Positive price/mix realization also contributed to performance as customers shift from Omnipod DASH to Omnipod 5. We continue to see strong growth in the U.K., Germany and France, in addition to other countries where we have launched Omnipod 5. On a reported basis, foreign currency contributed 660 basis points to growth as compared to the prior year. Continuing down the P&L, our third quarter gross margin reached 72.2% reflecting a 290 basis point expansion year-over-year. This improvement was fueled by strong top line growth, supported by higher volumes, manufacturing productivity and favorable pricing. As we all know, innovation is the lifeblood of any company. We remain relentlessly committed to advancing breakthrough solutions and strategically funding initiatives that empower us to better serve our Podders and unlock meaningful incremental value across our portfolio. During the quarter, R&D expenses increased 41%, up 80 basis points as a percentage of sales compared to the prior year. This increase in funding is focused on additional resources to support our innovation pipeline and associated clinical development. In addition, stronger-than-expected growth in the quarter created an opportunity to accelerate our commercial investments with a particular focus on demand generation. These investments included our direct-to-consumer campaigns, both digitally and in mass media, to enhance brand awareness globally. This resulted in a record number of DTC leads that will help support future growth. In addition, we expanded our commercial and customer experience teams as we continue to enhance penetration and extend our leadership in both Type 1 and Type 2. We look forward to further discussing many of these initiatives during our upcoming Investor Day on November 20. Third quarter adjusted operating margin was 17.1% and adjusted EBITDA margin was 22.7%. Our operating margin this quarter underscores the strength of our top line performance, which enables us to continue investing in our innovation road map, and strategically accelerate targeted commercial investments aimed at fueling long-term growth. As Ashley mentioned, we are well positioned to continue investing aggressively for future growth, while also delivering meaningful margin expansion. Our third quarter non-GAAP adjusted tax rate was 22.5%. Turning now to cash and liquidity. We ended the quarter with approximately $760 million in cash and the full $500 million available under our credit facility. We continue to strengthen our balance sheet, improve our financial flexibility and lower our cost of capital. We have now successfully eliminated all convertible debt from our capital structure, by extinguishing $800 million of our convertible notes due in 2026 and the cap calls associated with the notes. During the quarter, we repurchased approximately 91,000 shares for $30 million. These purchases are intended to offset dilution from stock-based compensation. Now turning to our outlook for the fourth quarter and full year 2025. As the newly appointed CFO, one of my priorities is to evaluate and refine our guidance practices. My goal is to ensure these practices reflect the key drivers of shareholder value and provide investors with a clear understanding of our business and strategic direction. I believe guidance should reflect a balanced outlook for the business and acknowledge potential risks and uncertainties as well as potential upside opportunities. Our objective going forward will be focused on providing guidance that reflects a high degree of confidence in achieving while endeavoring to be more reflective of the underlying momentum in our business. Starting with the fourth quarter, we expect total Omnipod revenue growth of 27% to 30% and total company growth of 25% to 28%. On a reported basis, we expect a favorable impact of approximately 200 basis points from foreign currency. We expect fourth quarter U.S. Omnipod growth of 24% to 27% and international Omnipod growth of 37% to 40%. In our international business, on a reported basis, we expect a favorable impact of approximately 1,000 basis points from foreign currency. Turning to our full year 2025 outlook. We're raising our total Omnipod revenue growth to 29% to 30% from prior guidance of 25% to 28%. We're also raising our total company revenue growth to 28% to 29% from 24% to 27%. We expect favorable impact of approximately 100 basis points from foreign currency for the year. For U.S. Omnipod, we are raising our revenue growth to 26% to 27% from 22% to 25%, driven by increased penetration from MDI users and competitive gains. We continue to expect year-over-year growth in U.S. new customer starts for the year. As a reminder, our U.S. growth guidance also assumes similar trends in pricing, utilization and retention as we saw in 2024. For international Omnipod, we're raising our revenue guidance to 38% to 39% from 34% to 37%. On a reported basis, we expect a favorable impact of approximately 500 basis points from foreign currency. Like the U.S., we expect year-over-year growth in international new customer starts for the year. While volume remains the primary driver of our international revenue growth, our guidance also reflects a benefit from positive price/mix realization as customers transition from Omnipod DASH to Omnipod 5. We're also assuming stable utilization and slightly improving retention for 2025 relative to 2024. Turning to 2025 gross margin. Given our strong performance year-to-date, we now expect full year gross margin of more than 71% as compared to our prior guidance of approximately 71%. We're also narrowing our outlook for operating margin. We now expect operating margin to be between 17.3% and 17.5%, reflecting stronger top line growth and continued investments in R&D, market development and demand generation. The updated outlook represents a 240 to 260 basis point improvement over the prior year period. We remain committed to enhancing profitability and will continue to deliver meaningful operating margin expansion year-over-year. At the same time, we're scaling our investments thoughtfully to support our long-term growth ambitions and ensure sustained value creation. Looking at a few items below our operating income. We now expect our 2025 net interest expense to be approximately $20 million higher than 2024 due to the transition from convertible debt to traditional debt, which carries higher coupon rates and the extension of our interest rate swaps. For the year, we now expect our non-GAAP tax rate to be in the range of 22% to 23%. We also expect the 2025 ending balance of our diluted share count to be around $71 million, which is approximately 5% or 3.5 million shares lower than prior year due to the extinguishment of our convertible debt. We remain confident in our ability to deliver strong free cash flow in 2025 compared to 2024 supported by robust growth and continued margin expansion. We anticipate a meaningful increase in capital expenditures during the fourth quarter as we invest strategically to enable long-term growth. As highlighted last quarter, we are actively assessing opportunities to accelerate our manufacturing expansion plans and look forward to sharing further updates at our upcoming Investor Day. Our team remains steadfast in its commitment to driving top-tier growth, expanding margins and increasing profitability and free cash flow. These efforts are central to our long-term value creation strategy and enable us to reach and serve more people with diabetes around the world. Finally, I want to extend my heartfelt thanks to the entire Insulet team for the warm welcome over the past month. Your dedication to our mission and your unwavering commitment to improving the lives of people with diabetes, inspire me every day. I'm excited to be part of this journey with you. With that, operator, please open the call for questions. Operator: [Operator Instructions] As a reminder, the speakers available for Q&A today are Ashley McEvoy, Flavia Pease and Eric Benjamin. Our first question is from the line of Robbie Marcus from JPMorgan. Robert Marcus: Good morning and congrats on a great quarter, and welcome Flavia. I wanted to ask sort of a higher level question. Another great quarter, good -- record new patient growth, U.S., outside the U.S., 85% from MDI. [ Again ] double-digit new patient growth in Type 1 and Type 2 in the U.S. So clearly, Omnipod 5 appears to be winning, both U.S. and outside U.S. There's a lot more noise in the marketplace. A lot of people are talking about patch pumps. You're about to go from 2 public competitors to 3 public competitors and it seems like there's just a lot more noise out there, but you're coming above the crowd and delivering the best results. So maybe just walk us through where and how Omnipod 5 is winning? Is it just form factor? Is it the algorithm? Is it the easier onboarding? And really, just what's going on in the field? And what gives you the confidence you can continue to deliver great results like this. Ashley McEvoy: Thanks, Robbie, for the question. I would just frame to say it's really broad-based, balanced growth, which really is showing that our strategy is working. It's really a combination of very strong, compelling science as evidenced by our SECURE-T2D trial, our RADIANT trial, as well as our very compelling real-world evidence. The second is we really do have this beloved brand. Customers love our differentiated form factor, and we're going to continue to stay ahead of the curve in that regard. Third really is around our differentiated access and affordability. Fourth is really, I would say, our supply chain. We've invested over $1 billion over the years to create a highly resilient supply chain that can scale at very competitive cost. We're producing millions of pods. And then I would say the last is just the flexibility of our balance sheet to be able to continue to invest in innovation to really -- to continue to stay as a market leader. Operator: Your next question comes from the line of David Roman from Goldman Sachs. David Roman: I wanted just to start on the Type 2s. You're about a year into having the indication for Type 2 in the U.S., I guess it was last August of '24. Can you talk a little bit more about how the adoption is built over the past year, where we are in kind of an uptake? And how we should think about that segment going forward? And maybe just perhaps related to that, you talked about DTC advertising as one of the big drivers here of SG&A growth in the quarter. Can you just maybe help pull the thread all the way through from that investment to new patient starts to revenue and maybe how that ties to the Type 2 adoption as well? Ashley McEvoy: Yes, sure. Thank you, David. It's great to be a year into this. And I would say, like let me first start with, it's a very large TAM in the U.S. with Type 2. And I think that we're starting from a position of strength, which is really our 25 years of serving people with Type 1 diabetes. As you know, that there is a very similar call point there, starting with endos. And what we really saw in quarter 3 is echoed is that prescribers that are prescribing Type 1 for AID are also now prescribing Type 2. And not only is it giving birth to accelerated Type 2 adoption, it's also helping the prescribing behavior for Omnipod among the Type 1 community. We saw in Type 2 that our -- the prescriber base went up 26% in the quarter. Year-over-year NTS is up 100% and quarter-over-quarter was up 26%. And I would say it's really a combination of: one, strong science, as I first spoke about earlier. Two, it's around the leverage that we have invested with this call point on reputation and science. And three, we have activated some meaningful investment in DTC this past quarter, where we saw a very strong amount of leads from people who we do not call on. And we got -- we were able to kind of get those new colleagues on to pod. So I would say all three of those is what's giving us nice momentum 1 year into this launch of Type 2 with many years ahead. Operator: Your next question comes from line of Joanne Wuensch from Citigroup. Joanne Wuensch: I too am going to go for a big picture question. It is rare that we see an entire new team from the CEO to the CFO to Investor Relations and just watching a company knock fall out. So I'm really curious what the 3 of you or 2 of you or collectively are planning to do differently to keep this momentum generally. Ashley McEvoy: Well, listen, thank you, Joanne. I have to first say it's really a nice combination to see some very strong talent elevated, taking over more responsibility in the company. People like Amit Guliani, who is now our new Chief Technology Officer, people like Eric Benjamin, who spent nearly a decade at Insulet now assuming the post as Chief Operating Officer. And then obviously welcoming Flavia and some new capability with Manoj. I would describe it, Joanne, as the following. We have a remarkable technology. We sell on passion. We're going to sell more on science. We have invested ahead of the curve of our supply chain, which is giving us really scale affordability. And we now are the market leader, and we spent 25 years working on disrupting the market leader, we now are the market leader. So we are going to really start to continue to invest in things like market development and demand generation to create that endurable competitive moat going forward. Flavia Pease: Yes. Joanne, just to add, as Ashley has said, even in her first 6 months, I think what all of us that are newer to the team inherent is a strategic and capital allocation strategy that are going to -- remain intact. We're just going to continue to build from a very strong foundation. And in my first 30 days, I've really been focusing on just continuing to understand those priorities, our innovation road map, our commercial plans and then the significant opportunities that we have to continue expanding penetration in this large market we operate in. And then going forward, how can I partner with the team to further activate levers that are going to allow us to continue delivering sustainable top-tier growth, expanding our margins and ensuring that we continue to execute with discipline and precision. So it's a really great time to be joining the Insulet team now in this new capacity and continue to improve the lives of people with diabetes and deliver shareholder value, so. Operator: Your next question comes from the line of Travis Steed from Bank of America. Travis Steed: Maybe I'll start with maybe just high level, some kind of puts and takes on '26 and how we should think about the year with Libre integration possibly and Type 2 accelerating. Can you continue to put up record new starts? And I wanted to also touch on the evaluate and refine our guidance practices. If you could elaborate on that, I think you said reflect the balanced outlook for the business and acknowledge potential risk. So I just wanted to make sure I elaborate on how you think about guidance going forward. Ashley McEvoy: Thank you, Travis. I'll start and I'll turn it to Flavia later. I would say clearly, we're really pleased with the momentum that we have in the U.S. and O.U.S., and we see a clear pathway to delivering continued top-tier growth, really backed by these proven leadership in these very large underpenetrated markets. And I think that we're confident in the strong growth and improved profitability when we expect that to continue in 2026. So we're going to provide '26 specific guidelines on our quarter 4 call. Consistent with historical practice. But I'll turn it over to Flavia to speak a little bit about your philosophy on guidance. Flavia Pease: Yes. Thanks, Ashley. Travis. So obviously, we set guidance with the intent to deliver, and that is clearly not changing. I think what we will try to do as we continue to mature and evolve as an organization is trying to have a balanced view of our expectations, acknowledging that there are risks and uncertainties but also potential upside opportunities. So we are not changing how we guide other than ensuring that we have a balanced view going forward. I think we're also, as Clare and I continue to onboard and going forward into 2026, we look into what KPIs make the most sense to continue to provide as drivers of the performance of the business and help shareholders really understand our strategic direction. So we might evolve a little bit the metrics that we focus on and guide to, but more to come on that when we guide to 2026. Operator: Your next question comes from the line of Jeff Johnson from Baird. Jeffrey Johnson: Ashley, I'm sure that you're going to get a lot of these questions here for the next year or 2. But just as we see 2-piece patch potential market entrances over the next 18 to 24 months or so, I'd love to hear kind of some early and I'm sure we'll get more at the Analyst Day, but kind of early thoughts you have on how you protect and maybe even extend your competitive moat there on the patch pump side. Ashley McEvoy: Thank you, Jeff. I would say, first of all, we really -- our key focus is about expanding the market and really taking people from MDI into the market, and we continue to lead the market. You'll hear more about this at Investor Day about kind of the performance, the percent of growth that Insulet has driven for the category has really been the majority, not a surprise. And so we want to continue to focus on our efforts of making AID accessible and available to as many patients as possible coming from MDI therapy. Now as you've heard us talk about, actually, this quarter, we did experience one of the strongest quarters in the past 2 years of sourcing also competitively. And I think that, that speaks to just the highly differentiated technology that Omnipod 5 is delivering for more customers around the world. I think it speaks to the investments we've been doing in making it a very frictionless customer experience from how we first make them aware of the product, whether that be through DTC or whether that be through their prescriber and then get them on pod and then keep them on pod. It's the investments, Jeff, that we're making in our pipeline that you're going to hear a lot more about in Investor Day. We spoke about in quarter 3, getting people, more people on phone control, going from 45% to 55%. We shared at the ADA real-world evidence, which showed that more people who are on phone control bolus more often. That's a really good thing for health outcomes. And you're going to see us continue to invest so that we are always staying ahead of the curve of demand on capacity investments and making sure that we continue to have a very diversified, very resilient supply chain that allows us to serve more Podders around the world. Operator: Your next question comes from the line of Michael Polark from Wolfe Research. Michael Polark: I have a question on the outside United States performance, obviously, remarkably good. Now for 2 years running and it seems at this stage is set for this to continue into '26. I'm just -- I want to make sure models this year are kind of properly based as we go into next. Is there anything on the volume side as you roll out O5 and convert from DASH. I hear the price and mix stuff, but on volume kind of first fill dynamics, distributor stocking, these were positive influences called out as O5 rolled out in the U.S., I haven't heard anything about this O.U.S. Anything for us to keep in mind as we move into the next couple of years internationally? Ashley McEvoy: Yes. Let me just start, Mike, and I'll turn to Flavia. I would say we have very robust durable growth in O.U.S. performance. And what we're seeing are the conversion, I would say, the upgrades of turning some of our DASH markets into Omnipod 5 markets. And we are benefiting some price materialization, but also a very accelerated volume uptick. And that's what's really enabling this business and internationally to post performance to like 40% and to have some of our NGS looking at 68% growth. I'll turn it over to Flavia. Flavia Pease: Yes, Michael. So to your specific question, there is no material or immaterial, for that matter, impact of distributor stocking in the quarter or over the last several quarters. To Ashley's point, the growth internationally really has been primarily driven by volume. There is a bit of price/mix realization as you pointed out, as we continue to upgrade from DASH to Omnipod 5. And we are also not -- we still have headroom to go on that conversion. But again, the primary driver is volume, and there's no noise on stocking. Operator: Your next question comes from the line of Larry Biegelsen from Wells Fargo. Gursimran Kaur: This is Simran on for Larry. I guess I just wanted to focus a little bit more on U.S. Omnipod. Obviously, a really strong quarter, and it looks like you raised your guidance by more than double the beat. What exactly is driving the upside to U.S. expectations from kind of how you were guiding previously. And I guess, should we kind of continue to think about U.S. new starts on a quarterly basis being record new starts here moving forward. And just a little bit more about how should we think about sort of sustainability of some of those underlying trends that you're seeing in the U.S. business going forward? Ashley McEvoy: Yes. Thank you for the question. Again, I'm going to say it's really a combination of both. Our core business, which has been Type 1 in the U.S., which is the site being in this business for 25 years, the penetration is still 40%. We still have a lot of upside. And we still have a lot of -- still clinical inertia that behavior of clinical prescribing behavior is not matching the ADI standard of care guidelines, which is to recommend AID therapy at the point of diagnosis. So we are going to continue to educate in that regard, and we have been doing that specifically in quarter 3, and we're seeing uptick of increased prescribing behavior. In addition to that, we -- obviously, it's Type 2. We've been at this for over -- for a year. Unbelievably low penetration rates, less than mid-single digit and with a lot of upside. And we are taking the science to the street is what I call, which is really about educating predominantly endocrinologists first, as well as high-prescribing PCPs on the science and the state of science and adoption of care. And really arming our field to go educate in that regard, doing a lot of peer-to-peer education of AID evangelist, if you will, and making sure that they can help with adoption in the Type 2 community. And then you also heard us talk about activating directly with consumers to make them aware that if they are someone with Type 2 diabetes, they should be seeking out a prescriber and asking them about Omnipod. And that has resulted in very meaningful lead in quarter 3. So it's very balanced on continuing to get strong performance from our core as well as getting really accelerated momentum with our new indication and our new customer base of people with Type 2. Operator: Your next question comes from the line of Matthew Taylor from Jefferies. Unknown Analyst: All right. This is [ Matt ] on for Matt Taylor. I just wanted to ask maybe one specific question on kind of contracting in the pharmacy channel. So as you see kind of more competition come in there, would you characterize any differences in your contracting dynamics that is anything on price or tenor? Ashley McEvoy: Matt, thank you for the question. I would -- the short answer to that is, no. I would say that we've been at this for almost 8, 9 years of really kind of leading the pay-as-you-go business model in the pharmacy. Not only where people can pick up their insulin in about 47,000 pharmacies but equally with payers around taking the very strong health economic story and clinical outcome story to payers that has really enabled us to procure 300 million lives out of 317 million available lives and the majority of those at a preferred status. And so we -- for the majority, it translates to about $1 a day. And we're also working with a lot of our patients who have the government as some of their payers to make sure that they have good affordability and access. So I would say right now, we're really focusing our efforts on the very few minority where they are getting stuck, if you will, on prior authorities to really streamline that approval process. We've seen a meaningful uptick in our ability to -- in essence, get that need from 75% getting prior office through with like 90% completion rate. Again, that's the minority because we -- the majority, we have preferred status and you do not need a prior auth. Operator: Your next question comes from the line of Richard Newitter from Truist Securities. Felipe Lamar: This is Felipe on for Rich. Just on converting Type 2 patients, could you just talk about how maybe the customer acquisition cost compares to that of Type 1? And just maybe how your scale could give you an advantage over the long-term in converting that patient population considering how early we are in adoption stages. Ashley McEvoy: Yes. Thank you. And I would just say it's a great question, we're always looking at. We're not going to share that with us with you all the time, but we do look at the cost to acquire and the cost to serve and the lifetime value of our customer base. And the person who is leading all that work is Eric Benjamin. So Eric, why don't you talk about that? Eric Benjamin: Thanks for the question. And just a little bit of color. As Ashley described earlier, we have the advantage of having a common call point that we've been in for 25 years as we've built the Type 1 business. And those are folks who are already prescribing AID for Type 1 who are familiar with technology, and so it's a really strong commercial synergy to be able to bring the SECURE-T2D data to that call point and help turn that existing call point already come full of technology into advocates and believers in AID for Type 2. And that's been a big part of our initial launch strategy is activating our current call point, which has high commercial synergies and is really efficient. We still have opportunity there. So we've had nice success activating that call point, we have more to go. So Richard, there's some -- there's a good tailwind there that we're building on. In addition, we're activating new prescribers. And obviously, we watch those efficiency metrics closely. In the early days as we're getting folks to start-up that is a higher cost, it takes some time to educate new providers on the benefits of Omnipod and how technology works. We've gotten good at it and folks know that Omnipod is easy to write, and we see high interest from new writers when our team enters new accounts to get them ramped. So as we're expanding the call point, we're doing that effectively and efficiently with a close eye on overall customer acquisition cost. Operator: Your next question comes from the line of Jon Block from Stifel. Jonathan Block: Actually, maybe a little bit high level, but I'm just curious, DTC driving solid leads, spoke favorably to that and type 2 in the quarter already surpassing 35% of U.S. new starts. So at a high level, like any refined thoughts on where pump penetration can go within the T2II segment of the market? Just based on what you're seeing to date, would love to hear your thoughts. Ashley McEvoy: Thank you, Jon. And we hope you're coming to our Investor Day on November 20 in Acton, because we have been long waiting kind of share our story, if you will, of what we think our growth algorithm is and what our pipeline looks like and showcase our talent and really our steely determination to go serve more Podders. I would say a couple of things around Type 2. I mean it is a very large underpenetrated market in the U.S. It is globally as well. Right now, we're indicated for the U.S. And as Eric mentioned, I think our approach is differentiated versus maybe what some other offerings may be happening in the marketplace. And that really is around first starting with the equity that we've made with the call base over the past 25 years with Type 1 diabetes. And there's beautiful synergistic value that we've earned over 25 years, and we're going to parlay that into -- for the people with the Type 2 community. Interestingly enough endos write more scripts for people with Type 2 diabetes than they are for their Type 1 for AID therapy in the U.S. of what we're experiencing. And so I think we're going to couple that with continuing to invest in the science and continuing to invest in innovation and making it a frictionless experience. And then continue to invest in the supply chain. And last is kind of activating using the power of brand to make AID therapy seem less scary, if you will, of activating our DTC efforts, which really activates consumers to go ask for Omnipod specifically. Operator: Your next question comes from the line of Danielle Antalffy from UBS. Danielle Antalffy: Congrats on a good quarter there. And sorry about that, Eric. It's not often you get to say good morning, ladies as a group. So I couldn't resist. But just a question following up on the Type 2 versus Type 1, but more around endos versus primary care. And Eric, I was just curious if maybe you could talk a little bit about the difference in the go-to-market strategy, number one, between the two? And then number two, though, maybe more relevant how you guys think you are positioned right now within primary care? How much runway is there still to go to get some of these doctors online and prescribing? Eric Benjamin: Danielle, thanks for the question. So a couple of things. It is two different calls that our team makes as you described. So we've been in the specialty call point for 25 years. Those folks know about technology. They know how to write technology. And so there, we're selling science. We're selling the benefits of Omnipod, and we're selling the fact that we're the #1 prescribed product that should be first line for folks who are considering AID and that message resonates. As we go beyond, so we expanded the sales force very actively earlier this year to call on another decile of primary care providers this year and that was effective. And as we make those calls and expand the call point, it's an activation. So it's a nurture call where we're introducing technology often to offices that haven't prescribed AID before. We're very thoughtful about going into places that have high opportunities, so they see and treat a lot of diabetes. And Omnipod is as strong proven outcomes, is easy to use, is differentiated. And our team can assess pretty quickly whether it's an office that's ready to become a regular AID writer or whether we just go activate a patient, for example, who may have been interested in technology from DTC on more of a one-off basis. So we're very selective about that to make sure that we're making the commercial investments and building the relationships that will turn into long-term writers, but we also make sure that we have DTC leads that we can serve those patients effectively. The bottom line is we see a lot of runway to be able to do that effectively as we keep ramping our commercial strength in the market and the team is executing really well. Operator: Your next question comes from the line of Matthew O'Brien from Piper Sandler. Matthew O'Brien: Welcome Flavia. The commentary about your highest competitive conversion rate in years was interesting to me. Is that a global comment? Or is that just domestic focused? And if it is global, can you just talk a little bit more about what's really driving that? I mean what's new? I know Omnipod 5 was great, but the sudden acceleration in terms of competitive conversions is kind of unique versus what you've been doing and what you've been seeing. So any commentary there would be very helpful. Ashley McEvoy: Thank you, Matthew. I'll start and maybe turn to Eric. That is a U.S. number, just to clarify, and I would say, while we've been in the U.S. with Omnipod 5 for coming up on 3 years and we weren't the first AID. I think what we're seeing is the highly differentiated form factor that customers love. We hear that again and again from all of our Pod community. We hear, I would say, the comfort level that prescribers are getting with Omnipod 5 performance backed by very strong evidence. So the SECURE-T2D, as well as the RADIANT, as well as real-world evidence is showing that it works. It reduces A1c, it improves time and range. It prevents lows. It doesn't promote weight gain. In fact, you have to use less insulin. That's a very compelling value proposition. And then coupled with the, I would say, very differentiated access and affordability of really pioneering the pay-as-you-go business model in pharmacy where people pick up their insulin and really working with payers to demonstrate our health economics and clinical outcomes to go get preferred status. That really is driving increased adoption. And it's really enabling Omnipod 5 to be the preferred AID of choice, and that's what's enabling our market leadership now for Type 1, but also the Type 2 indication. And so I still think we're very, very early innings of this. Operator: Your next question comes from the line of Bill Plovanic of Canaccord. William Plovanic: It's really -- I wanted to go back to the DTC marketing you outlined actually. And I think I heard a discussion on both the digital and the mass media and then also I'm kind of curious, there was some commentary regarding the prescribers and the patients. So -- and I wanted you to kind of -- if I heard that right, and if any color there would be appreciated. Ashley McEvoy: Thanks, Bill. I'm going to turn it to Eric to talk about DTC. Eric Benjamin: Bill, it's Eric. So Bill, when we do demand generation three things happen that all work together. The first is we've built a proven demand generation engine where we can produce leads, so interested qualified customers who are interested in Omnipod. That's effective. The two things that we also described are those folks then show up in physician offices and health care providers really appreciate a motivated customer asking about technology. We're creating a new market here, especially in Type 2, where there is some skepticism in the market about whether folks who live with Type 2 diabetes are ready for technology. And so when an activated lead walks into a health care provider office and asks for Omnipod, it's either that conversation for the health care provider and helps the health care providers see that technology is good for that population. So we see that, too. And finally, we had about 65% of the leads that we generated in the quarter are actually from customers that were cared for by folks with whom we don't have a direct sales relationship. And so those become warm invitations for our team to go have a conversation with those health care providers and assess might they be good prescribers of Omnipod for the future. So those are the three things happening with our demand generation DTC efforts. Operator: This concludes our Q&A section. I would like to turn the conference back to Ashley McEvoy. Ashley McEvoy: Thank you for joining. And I just wanted to also just thank the Insulet team. It's been a very strong quarter, and I'm very proud of how they continue to serve many more Podders around the world, and thank you for joining. Operator: Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.
Operator: Hello, and thank you for standing by. Welcome to the Phibro Animal Health Corporation First Quarter 2026 Webcast and Conference Call. [Operator Instructions] I would now like to turn the conference over to Glenn David, Chief Financial Officer. You may begin. Glenn David: Thank you, Sarah. Good day, and welcome to the Phibro Animal Health Corporation Earnings Call for our fiscal first quarter ending September 30, 2025. My name is Glenn David, and I am the Chief Financial Officer of Phibro Animal Health Corporation. I am joined on today's call by Jack Bendheim, Phibro's Chairman, President and Chief Executive Officer; Donny Bendheim, Director and Executive Vice President, Corporate Strategy; and Larry Miller, our Chief Operating Officer. Today, we will cover financial performance for our first quarter and provide updated financial guidance for our fiscal year ending June 30, 2026. At the conclusion of our remarks, we will open the lines for your questions. I would like to remind you that we are providing a simultaneous webcast of this call on our website, pahc.com. Also, on the Investors section of our website, you will find copies of the earnings press release and quarterly Form 10-Q as well as the transcript and slides discussed and presented on this call. Our remarks today will include forward-looking statements, and actual results could differ materially from those projections. For a list and description of certain factors that could cause results to differ, I refer you to the forward-looking statements section in our earnings press release. Our remarks include references to certain financial measures, which were not prepared in accordance with generally accepted accounting principles or U.S. GAAP. I refer you to the non-GAAP financial information section in our earnings press release for a discussion of these measures. Reconciliations of these non-GAAP financial measures to the most directly comparable U.S. GAAP measures are included in the financial tables that accompany the earnings press release. We present our results on a GAAP basis and on an adjusted basis. Our adjusted results exclude acquisition-related items, unusual, nonoperational or nonrecurring items, including stock-based compensation, other income expense as separately reported in the consolidated statement of operations, including foreign currency gains and losses net, income taxes related to pretax income adjustments and unusual or nonrecurring income tax items. Now let me introduce our Chairman, President and Chief Executive Officer, Jack Bendheim, to share his opening remarks. Jack Bendheim: Thanks, Glenn. In the first quarter, we delivered 55% growth in Animal Health sales and an 85% increase in Animal Health adjusted EBITDA, clear evidence that our strategy is working. Medicated Feed Additives led the way with 81% growth, supported by solid gains in nutritional specialties and vaccines. This performance reflects our continued success in seamlessly integrating the acquired MFA portfolio into our operations. At the same time, our legacy Animal Health business continues to outperform, delivering 11% growth overall and 6% growth in legacy MFA and other products. These results highlight the strong demand across our diversified animal health portfolio and the enduring strength of global protein production. We are also encouraged by emerging research showing that GLP-1 users while spending less overall on food are increasingly choosing high-quality animal-derived proteins. This evolving consumer preference supports our industry long-term growth and reinforces the relevance and value of Phibro's offerings. Our ability to translate this demand into stronger bottom line performance is being driven by our Phibro Forward initiatives. These efforts continue to enhance operational discipline, accelerate innovation and sharpen our focus on strategic growth. As a result, we're gaining the flexibility to invest in high-impact opportunity across our portfolio, positioning Phibro for sustainable long-term value creation. Looking ahead, we remain focused on innovation and execution. The recent launch of Restoris, our proprietary dental gel for dogs marks a major milestone in our companion animal strategy. Together with our newly licensed early-stage therapeutic compound targeting canine periodontal disease, we're building a differential oral care portfolio that we believe will drive long-term growth. As Glenn will discuss in more detail, thanks to our strong performance and disciplined approach, we're raising our full year earnings guidance and continue to invest in the future of animal health. I'll now hand it back to Glenn, and I look forward to your questions. Glenn? Glenn David: Thanks, Jack. Starting with our Q1 performance on Slide 4. Consolidated net sales for the quarter ended September 30, 2025, were $363.9 million, reflecting an increase of $103.5 million or a 40% increase over the same quarter 1 year ago. The Animal Health segment grew 55%, while Mineral Nutrition grew at 7% and the Performance Products declined by 7%. GAAP net income and diluted EPS increased significantly, driven by the successful integration of the new MFA business, increases in demand, improved gross margin due to favorable mix, offset by increased SG&A due to higher employee-related costs. After making our standard adjustments to GAAP results, including acquisition-related items, foreign currency losses and certain one-off items, the first quarter adjusted EBITDA increased $31.2 million or 102% versus prior year. Adjusted net income increased 112% and adjusted diluted EPS increased 108%. Increased gross profit driven by sales growth was partially offset by higher adjusted SG&A and higher adjusted interest expense. Moving to segment level financial performance. The Animal Health segment posted $283.5 million net sales for the quarter, an increase of $100.9 million or 55% versus the same quarter prior year. Within the Animal Health segment, we reported legacy MFA's net sales increase of $6.9 million or an increase of 6%. The new MFA business contributed a full quarter of sales of $80.5 million, driving the total MFA and other growth to 81%. Nutritional Specialties net sales increased $5.5 million or 13%, mostly due to higher demand for microbial and companion animal products. Vaccine net sales grew $8.1 million, a healthy 25% increase, driven by continued growth of poultry products in Latin America and higher international demand. Animal Health adjusted EBITDA was $74.9 million, an 85% increase driven by the new MFA business, higher gross profit from improved mix in the legacy business, partially offset by higher SG&A. Moving on to first quarter financial performance for our other business segments on Slide 6. Starting with Mineral Nutrition. Net sales for the quarter were $63 million, an increase of $3.9 million or 7% due to an increase in demand for copper and trace minerals. Looking at our Performance Products segment, net sales of $17.4 million reflects a decrease of $1.4 million or a decrease of 7% as a result of lower demand for the ingredients used in personal care products. Mineral Nutrition and Performance Products adjusted EBITDA were $4.5 million and $1.6 million, respectively. Corporate expenses increased $3.4 million, driven by higher employee-related costs. Turning to key capitalization-related metrics on Slide 7. We generated $34 million of positive free cash flow for the 12 months ended September 30, 2025. We generated $77 million of operating cash flow and invested $43 million in capital expenditures. Cash and cash equivalents and short-term investments were $85 million at the end of the quarter. Our gross leverage ratio was 3.3x at the end of the first quarter based on $749 million of total debt and $227 million of trailing 12 months adjusted EBITDA. Our net leverage ratio was 2.9x at the end of the first quarter based on $664 million of net debt and $227 million for trailing 12 months adjusted EBITDA. Please note that the trailing 12 months of adjusted EBITDA includes 12 months from the Zoetis Medicated Feed Additive portfolio, 1 month of Zoetis history and 11 months from Phibro ownership. On interest rates, there are no changes to our current swap agreements. Turning to dividends. Consistent with our history, we paid a quarterly dividend of $0.12 per share or $4.9 million in aggregate. Let's turn to Slide 8, which lays out our guidance for fiscal year 2026. Please note that this guidance includes a full 12 months of the Zoetis Medicated Feed Additive portfolio. Also included in this guidance for fiscal year 2026 are benefits related to our Phibro Forward income growth initiative that will help drive additional EBITDA and margin growth. Onetime costs related to this initiative are also included in our GAAP guidance and primarily consist of onetime consulting fees. This initiative is focused on unlocking additional areas of revenue growth and cost savings. Our guidance for fiscal year 2026 is as follows: Net sales remain the same at $1.425 billion to $1.475 billion. This represents a growth range of 10% to 14% and a midpoint of approximately 12%. Total adjusted EBITDA increased from $225 million to $235 million to $230 million to $240 million. This represents a growth range of 25% to 30% and a midpoint of approximately 28%. Adjusted net income increased from $103 million to $110 million to $108 million to $115 million. This represents growth of 26% to 34% with a midpoint of approximately 31%. GAAP net income and EPS assumes constant currency and no additional gains or losses from FX movements. Also included in our GAAP net income and EPS are onetime costs related to our Phibro Forward income growth initiative. In closing, we're excited about the strong performance and start to fiscal year 2026. We are confident in the demand for our products around the world and look forward to seeing continued improvement in our business as we move forward in the coming months. With that, Sarah, could you please open the line for questions? Operator: [Operator Instructions] Your first question comes from Erin Wright with Morgan Stanley. Erin Wilson Wright: So first on the MFA business. So how are you thinking about the sustainability of growth in that legacy MFA business? I guess, can you break out a little bit of what you're seeing price versus volume on that front? And what I'm trying to get at here is what's the underlying run rate that we should be thinking about? And I get there's some other drivers going on, but were there any timing dynamics in the quarter? Is the Zoetis business growing faster than you would have expected at the core? So yes, just what's the appropriate run rate for that business as we lap the deal? Larry Miller: This is Larry. Thank you for the question. So we see continued growth, strong demand, particularly across the MFA portfolio and basically the poultry, swine as well as the beef cattle segment. As we look at indications of protein consumption growth, et cetera, we continue to see that grow. I think that we -- as far as our expectations for growth in the future, we are seeing really nice synergies again between the Phibro legacy products as well as the acquired products and being able to bring more products and design programs to our customers. Glenn David: Yes. The only thing I'd add, Erin, also to your question on price versus volume. When you look at the first quarter, in particular, there was limited impact on price. One of the reasons for that being is all of the legacy -- or all the Zoetis MFA growth gets put into volume just because we have no comparator for the prior year. But this has been an area of focus for us is improving the price -- the overall net price for the Zoetis products, which has helped with our overall profitability. So as we move forward into Q2 to Q4, we will see an impact on price, particularly from the Zoetis portfolio. Erin Wilson Wright: Okay. That's helpful. And then another run rate question just on the margin profile that definitely stood out to us and maybe that's some of what you were just speaking to. But anything to call out on that front? How do we think about the margin profile for the remainder of the year in the context of both what you were saying and any other dynamics from an expense perspective that we should be thinking about? Glenn David: Yes. So in terms of the margin profile, we saw good favorability in Q1. A lot of that was driven by mix. Strong growth in the vaccine portfolio of 25%, strong growth in nutritional specialties of 13%. Those tend to be higher-margin products for us. So that certainly helped with the overall margin. We also saw some favorability in our overall expenses versus our initial expectations just based on the timing of building up some of our support for some of the new products. And again, we'll also be investing in the next future quarters in some of the launches such as Restoris. So we do -- while we've had a very good start to the year, if you look at our guidance, we would expect margins to drop a little bit as we move through the year. Operator: The next question comes from Ekaterina Knyazkova with JPMorgan. Ekaterina Knyazkova: So first is just on the guidance update. It seems like the EBITDA and EPS range are coming up, but I think the revenue range isn't despite what looks like a nice top line beat in the quarter. Just anything you would call out there, maybe just some degree of conservatism or some headwinds we should kind of keep in mind on the revenue side of things? And then second question is just on the licensing you announced for the dental asset. Just elaborate a bit on what brought you to the product and how it fits into your strategy? And maybe just more broadly, your latest thoughts on the role the company can play in the companion space. Glenn David: Yes. So I'll start with the guidance, and then Donny will cover Restoris. In terms of the guidance, so the favorability that we saw particularly in the first quarter was related to some of our expenses as well as the favorability that we saw in gross margin related to mix. Very strong performance at the top line, but we're really only 1 quarter into the year. So we didn't find it necessary to update the revenue guidance at this point in time, but we did take the favorability that we saw in the first quarter related to expenses and the favorable mix into account in updating the guidance. Daniel Bendheim: And with regard to our dental assets, so we actually -- we've announced, obviously, 2 assets this quarter. We -- the first one, which you alluded to, the licensing, we licensed a pharmaceutical product. That will not be anything near term. It's a long-term play. But the category as a whole with -- as you see with the Restoris is something we're very excited about. We think dental is an unmet need within the vet and the dog market. Only about 15% of dog owners bring their dogs in for annual dental. Only about 4% of dog owners actually brush the teeth of their dogs every day. As a result, as you can imagine, there's tremendous need for solutions there. And we think we actually have a nice 1-2 punch here with our solution. So Restoris, which is what we launched last week and which is actually shipping beginning this week, will allow dentists and their vets to actually treat periodontal disease. It's a medical device, so it allowed us to get into the market quickly. But right now, the method that dentists use to treat periodontal disease is extraction, and that's the main method. And this, we believe, will allow them to offer something to their customers that will be able to avoid extraction. And it's extremely positive from the vet perspective as well because in most states, I think in 35 states, only vets are allowed to do extractions considered oral surgery, whereas the application of Restoris will be able to be done by a vet tech. So that will free up the clinic for more high-value procedures. And then down the road, we will look to follow it up, hopefully, with our licensed product, which we believe will allow people to take -- dogs to take a daily to a weekly application and prevent the buildup of the bacteria that leads to periodontal disease. Operator: The next question comes from Michael Ryskin with Bank of America. Unknown Analyst: This is Alexa on for Mike. My question is on end markets. So you've talked about the strong livestock demand you're seeing and peers have called out the same strength, especially in cattle. Can you talk about what's driving this? And how sustainable do you think it is? Is it more protein cycle driven based on input feed dynamics or consumer demand? Additionally, is it geography-specific or more broad-based? And should we be thinking about this as a 2- to 3-year phenomenon as something shorter term or something more structural? Larry Miller: This is Larry. I'll take that question. I think you might address that really in 3 aspects. The first would be on the protein demand. And then the second would be on the livestock sector profitability and then really what Phibro's position is given those first 2 market dynamics. First, in protein demand, we continue to see a resurgence in the demand for animal-based proteins, both meat, eggs and poultry and dairy. We believe this trend is poised to continue with global population and income growth and demand is also supported by changing views on things such as dietary fats as consumers increase demand for higher quality, simpler and more wholesome proteins and move away from higher processed foods. These factors all make animal-based proteins highly compatible with consumers' dietary as well as lifestyle changes. The second, the livestock sector profitability. Overall profitability for all livestock segments, not only in North America, but in the key segment -- key markets around the world continues to be positive in the top positive margin territory with sound poultry fundamentals, strong beef demand, disciplined pork supply and good dairy performance demand. All livestock sectors continue to benefit from lower costs of feed and grain input prices. The value of each animal is worth more, so livestock producers are willing to invest more in animal health products to prevent disease and keep their animals healthy. Every pound of protein matters more than it really ever has. And on Phibro's position, we've had a strong geographic presence in the key livestock production markets around the world. Our market reach had complementary for expansion even went -- was complemented and got stronger with recent acquisition of the MFA business, particularly giving us a stronger base in Asia and in China, Western Europe, Middle East as well as the U.S. beef and swine sectors. We believe Phibro is really well positioned with our customers on farm, and we're in a unique position to provide customized solutions that address animal health and disease challenges, including a wide choice of MFAs, nutrition specialties and vaccine products, combined with the high level of service and animal production experience that our field team has and brings to our customers' farms. Operator: The next question comes from Navann Ty with BNP Paribas. Navann Ty Dietschi: One more on the legacy business. The growth was above our expectations. So what drove the better growth than the 2 last quarters? Was there any nonrecurring or pull-forward items to be aware of? And then my second question is on the Lighthouse licensing agreement and Restoris. Does that signal a higher focus on companion animal? And generally, is your BD strategy to target innovation in areas that are not targeted by the big 4 players? Glenn David: Yes, Navann, I'll take the first question in terms of the legacy portfolio. As we said, really strong performance across legacy MFA, nutritional specialty as well as vaccine. Nothing significant to call out. I think we're just seeing good underlying demand across the board. One thing I will point out within the legacy MFA, there are certain customers that make larger purchases that occurs between one quarter or another, could have a small impact on the performance. We did see some of those purchases occur in Q1, probably see a little less of that in Q2, but overall, nothing too material to results. Daniel Bendheim: And then -- it's Donny. As far as our business development, I think we -- for a couple of years now, we have talked about our main focus remains the production animal side and specifically on the nutritional and the vaccine side of production animals, that's where we're probably going to spend our largest dollars. But we are looking at opportunities on the companion animal side. And to your point, for the most part, we're not looking to go head-to-head with the larger companion animal players in most segments. We're looking for unique opportunities that we think that we can play a real role in. Operator: [Operator Instructions] With no further questions, this will conclude the question-and-answer session and will conclude today's conference call. We thank you for joining. You may now disconnect.
Operator: Good day, and welcome to the Epsilon Energy Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Andrew Williamson, Chief Financial Officer. Please go ahead. J. Williamson: Thank you, operator. And on behalf of the management team, I would like to welcome all of you to today's conference call to review Epsilon's third quarter 2025 financial and operational results. Before we begin, I would like to remind you that our comments may include forward-looking statements. It should be noted that a variety of factors could cause Epsilon's actual results to differ materially from the anticipated results or expectations expressed in these forward-looking statements. Today's call may also contain certain non-GAAP financial measures. Please refer to the earnings release that we issued yesterday for disclosures on forward-looking statements and reconciliations of non-GAAP measures. With that, I'd like to turn the call over to Jason Stabell, our Chief Executive Officer. Jason Stabell: Thank you, Andrew. Good morning, and thank you for participating in our 2025 third quarter conference call. Joining me today are Andrew Williamson, our CFO; and Henry Clanton, our COO. We will be available to answer questions later in the call. This was a big quarter for the company. The announcement of the transactions in the Powder River Basin is a major strategic milestone that positions the company for success and outperformance over both the medium and long term. Before I discuss the deal, I'd like to offer some comments on the quarter results. In the Permian, we participated in the drilling and completion of the eighth well in our project. The well commenced production late in the quarter, and the asset continues to perform well. Since inception a little over 2 years ago, we've invested approximately $42 million in our Texas asset, which has generated more than $18 million in operating cash flow through quarter end. Looking ahead, we expect Permian drilling activity to resume in the first quarter of next year. Turning to the Marcellus. Shoulder season inventory builds drove sub-$2 net gas pricing in the back half of the quarter, which resulted in some operator elected production curtailments during the quarter. However, a colder start to November has strengthened pricing and allowed for a staged return of these volumes. We are actively engaged with the operator regarding forward investment plans. At this time, we do not anticipate any material investments in the first half of 2026. We'll provide updates when second half 2026 plans firm up next year. On the transaction, to summarize what we announced in August, we executed definitive agreements to acquire the Peak companies with operated assets in the Powder River Basin. The transaction includes the issuance of up to 8.5 million Epsilon shares and is subject to shareholder approval at the meeting scheduled for November 12. Due diligence and integration planning have progressed as expected, and we anticipate closing shortly after the shareholder vote. Based on recent BLM approvals, we expect the 2.5 million share contingent consideration to be paid at or near closing. A really nice positive surprise that will allow us to begin planning on what we believe to be the best inventory in the combined company portfolio. The acquisition adds an experienced operating team, oil-weighted production and a significant inventory of economic locations across multiple benches. Our initial focus will be on production optimization and the highly economic conventional Parkman inventory. The pro forma company sits well positioned to capitalize on an oil price recovery. In addition, we expect investment in our Marcellus position to increase meaningfully over the next several years as our operator shifts their focus towards the Auburn area, which we estimate still holds over 15 gross undrilled locations. It has taken us several years to reposition the company, and I am happy to report that post close, our diversified drilling inventory, coupled with our fee-based cash flows from the Auburn Midstream system, leave us in a position to opportunistically increase investment and cash flows while continuing our track record of shareholder returns. In 2026, our focus will be on integration and execution, setting us up for truly transformational results in 2027 under the right market conditions. With that, I'll now turn the call over to Andrew. J. Williamson: Thanks, Jason. I'll start with the updates we've made to the hedge book over the last few months. On a pro forma basis, with peak PDP oil volumes are 60% hedged in 2026. 3/4 of that coverage is swapped at strike prices above the forward strip with a weighted average WTI strike price of $63.30 per barrel. We like the protection that gives us next year with the recent weakness in oil prices. On gas, we're approximately 50% hedged for 2026, with most of that coverage through costless collars with a weighted average NYMEX floor above $3.30 and a weighted average ceiling above $5, leaving us plenty of upside participation in gas prices next year. We will have protection on for 50% of PDP for WTI and NYMEX for the next 18 months to comply with the terms of our new credit facility. Last month, we announced a new credit facility, bringing in a new lender alongside Frost and Texas Capital and adding term to Q4 2029. Most importantly, we now have the commitments in place to refinance the Peak term loan with our revolver on substantially better terms with excess liquidity on the revised borrowing base after adding the PRB assets at closing. I'll reaffirm the point I made last quarter that the pro forma leverage is very manageable and allows us to execute on our capital investment and shareholder return plans over the next few years. On the results, I'll highlight the year-to-date adjusted earnings of $0.45 per share. The adjustments included the Canadian impairment in the second quarter and transaction expenses in the third quarter related to the Peak transaction. The intention is to highlight the normal course legacy business performance, which was strong over the 9 months. The driver was the new wells, 1.2 net in Pennsylvania that came on in the first half of this year. This is representative of the earnings power incremental Marcellus development can have to both the upstream and midstream sides of our business. One thing to mention on the acquisition, the stock price movement since we first negotiated the deal has worked in our favor from a valuation perspective on the acquired assets. The deal is for a set number of shares to be issued at closing plus the assumption of debt. Using, for example, $5 per share for Epsilon common, we are acquiring core undeveloped net acreage in the PRB at less than $900 per acre or thought of another way, paying less than $300,000 per priority location. Both of those metrics, we believe to be discounts to market value. Now to Henry to provide more detail on the operating team and asset base we're bringing on. Henry Clanton: Thank you, Andrew, and good morning to everyone. I'd like to begin by highlighting again the attributes of the Powder River Basin assets we are planning to acquire. We are thrilled with the strength of the operating team we are bringing on. They have had significant continuity of personnel in their technical team, which is a testament to Peak's founder, Jack Vaughn, whom we are pleased to be adding to our Board. This includes their field staff who continue to operate the wells in an efficient manner, coupled with an excellent track record of compliance with all federal and state regulations. The well site facilities have been outfitted with the appropriate technologies for us to continue to optimize production and reduce downtime going forward. We're very pleased with the excellent design and condition of the field assets. As mentioned last quarter, the PDP is solid with consistently performing producing interests across multiple horizons. The majority of these wells have been developed in the last 10 years, and the value diversity is spread quite nicely. Recently, we participated in a thorough well review for all operated wells and have identified candidates for lift optimization, which we expect will drive operating cost reductions and an uplift in production. The undeveloped inventory associated with this acquisition is substantial. For those who may not have reviewed the deck posted to our website, summarizing the acquisition, we encourage you to do so. With approximately 75% of the leasehold held by production, we have identified 111 net priority locations, priority meaning locations with laterals greater than 10,000-foot completable lateral length, having greater than 45% working interest that meet our return thresholds at a $65 WTI, $4 NYMEX pricing. Planning around this inventory will be the main focus of the technical team post closing and offer the ability to drive production growth in the basin for years. Currently, there are 2 2-mile Niobrara DUCs scheduled for completion in 2026. In addition, as Jason mentioned, the initial focus will be on the Parkman inventory, Parkman, which is a conventional reservoir with lower development cost per foot than unconventional targets in the Niobrara and Mowry. With permits recently being issued by the BLM in Converse County, the team is planning some front-end facility work for a multi-well pad development corridor in the area to be able to efficiently execute on the best inventory across the business. Turning to the Marcellus. We continue to be aligned with the operator on the seasonal price-related production curtailments to optimize the economics of those reserves. At the expected gas price environment, we anticipate development levels to increase over the next several years relative to the last several years in the Auburn area. Our Permian Basin Barnett project continues to be a solid performer. The eighth well in the play is performing very consistently compared with the first 7 wells. We now have 2 net wells making approximately 575 barrels of oil equivalent per day in the project. At least 2 more Barnett wells, 0.5 net are planned for 2026. In our Canadian JV, we are in discussions with the operator on potential plans for the next 18 months. And lastly, the company is in the early stages of exploring a sale of our noncore Mid-Con assets in Oklahoma. Thank you. And now back to Jason. Jason Stabell: Thanks, guys. We can now open the lines for questions. Operator: [Operator Instructions] And the first question will be from Anthony Perala from Punch & Associates. Anthony Perala: Great news on the BLM permit front. Just first off, any more that you can add to that and kind of the clarity and line of sight it gives to you being able to develop some of those Parkman wells in Converse County and maybe what your time line is over the next couple of years and how much capital you could commit to? I think what you highlighted in the deck was greater than or close to 100% IRR given the 65 for commodity prices. Jason Stabell: Sure. Yes. Thanks for the question. I'll maybe start and let Henry fill in where I'm incomplete. So we have been informed and observed that the BLM has started reissuing permits in Converse, which was part of the issue on our contingent share consideration. So as we see it right now, we think we're going through confirmation, but we think all of the requirements for that consideration have been met. So what that allows us to start doing is really, as Henry mentioned, next year, doing the front-end planning around some infrastructure for -- there's a particular area down there we call [ I Knot ] in Converse. So we're going to do some initial infrastructure investments. So I'd expect that to really kick off. Earliest would be late next year, but most likely, it's going to be a first half '27 where we're going to roll out a pretty steady program, commodity prices being compliant with us here, but '27 is going to be a big year for Converse activity. And as Henry mentioned, '26, we've got Campbell County Parkman that we're going to focus on that pads have already been built. Infrastructure investments have already been made. So we're in a great shape there to put that money to work. And then as far as your IRR, yes, the way we modeled the Parkman based on offset data and type curving, we do think the Converse stuff is from a rate of return standpoint, the most attractive. Campbell is a close second, but it is just based on offset data that we have. It's slightly below that Converse stuff. So I guess the other thing we'd offer, we underwrote the Parkman value at 2 wells per section. We've done some incremental work that indicates at least on parts of our acreage based on what other operators have done and are doing, we think we could actually have more sticks in the Parkman than that 14 priority locations that we listed in the deck. So that's nice upside that seems to be falling out of this as well. So does that answer all your question? Or Henry, do you have anything to add to that? Henry Clanton: I'd only add color to the infrastructure that we would be looking to build in Converse County. It ties mainly to water sourcing and storage. and will begin setting us up for future development in the area thereafter that will allow us to drive some economies. But working next year, primarily in the summer months will be the water sourcing and storage that we'll be looking at. Jason Stabell: And I think, Anthony, as a placeholder on the Parkman, just kind of a 2-miler, we budget that at somewhere between $7 million to $7.5 million per well. So we're talking $750 or lower a foot on that. So it's pretty attractive even at a low 60s oil price. Anthony Perala: And then could you speak a little bit to just expecting on kind of the existing 2026 activity, what you want to be doing next year? Jason Stabell: Yes. We're still finalizing that. We've got a Board meeting later this month where we're going to be laying out firmer plans there. But we put out a preliminary plan last quarter that had nominally $20 million of CapEx in the Peak assets. We provisioned for the 2 wells in the Permian that Henry mentioned. So that's about $6 million net to our interest. And then the other piece of that was the Marcellus. We had $13 million of CapEx there for the back half of next year, which at this point, as I indicated in my part of the speech, I think there's some potential that some of that CapEx slides into '27. We haven't firmed up plans with the operator there yet. But as we also mentioned, based on our conversations, we're excited about what seems to be their shifting focus to Auburn over the coming years versus where their focus has been in the last several. So I'd say that the moving piece probably at this point will be a little bit on that Marcellus, how much of that will actually fall into '26 versus '27. Anthony Perala: That makes a lot of sense. And it was a '27 kind of cash flow event anyways once it gets into production? Jason Stabell: That's right. Anthony Perala: Okay. And then kind of as you've got your kind of focus on the integration and execution here in the next 18 months. If you could speak a little bit more about just the lift it requires to integrate that team, maybe investment to get -- hit the ground running and some of the non-drilling investment that you mentioned a little bit on the call, but what you can do to optimize a little bit here maybe in December and in the first half of 2026 once the deal does close? Jason Stabell: Yes. So we've been working closely with the Peak team. So I actually feel -- I think we're going to hit the ground running pretty close after close, Anthony, because we've done a lot of front-end work on making sure we have the right team in place post close, making sure we have in the right areas, the transition arrangements with some folks as well. So I'm real happy about how our cultures have fit. We're 2 small teams coming together that have complementary skill sets. They've got a long history of over 100 wells drilled in the Powder. So we're picking up a really solid team that has the experience and has done it. So I don't think that's going to be a real impediment to rolling out what we want to do in the Powder. Anthony Perala: That's great. And then just last one here. If you could speak a little bit to what other operators are doing kind of an offset activity in both, I guess, Campbell County and then Converse, if maybe areas where either they already have BLM permits or kind of planned activity around you the next 18 months here? Jason Stabell: Sure. Yes, we watch offset operators pretty closely. I would say as a general observation, most offset operators with acreage around us have drilled up the Parkman because it is so economic. So what they're focused on primarily is Niobrara and to some degree, the Mowry. The Mowry is a little gassier. I think as we see gas prices improve, we'll probably see some increased capital allocation to the Mowry in the PRB. And then as we move a little bit to -- I've noticed a little bit to our west, there's still some Turner or what they call frontier development that's also going on. So there are about 8 rigs active in the basin right now, and that's been pretty consistent, and that's with some pretty big name operators that will be familiar to you, Continental, EOG, Devon, a big private company named Anschutz and then a company called WRC, which is a large -- has a big position there that's also a private entity. They've been consistent investors in the basin over the last several years. So we're pretty happy with how things are going and frankly, think that probably activity levels going forward have more upside from here than where they've been in the powder over the last several years. So I wouldn't be surprised if rig counts increase over the next 18 months. Operator: [Operator Instructions] Ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the conference back to Jason Stabell for any closing remarks. Jason Stabell: No closing remarks other than to thank everybody for joining us today, and hope you have a great Thursday. And as always, if you've got questions, comments, feedback, please reach out to us here in Houston, and I look forward to hearing from everybody. Operator: Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Papa John's Third Quarter 2025 Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker for today, Heather Hollander. Please go ahead. Heather Hollander: Good morning, and welcome to our third quarter 2025 earnings conference call. Earlier this morning, we issued our third quarter earnings release, which can be found on our Investor Relations website at ir.papajohns.com under the News and Events tab or by contacting our Investor Relations department. Joining me on the call this morning are Todd Penegor, President and Chief Executive Officer; and Ravi Thanawala, Chief Financial Officer and Executive Vice President, International. Comments made during this call will include forward-looking statements within the meaning of the federal securities laws. These statements may involve risks and uncertainties that could cause actual results to differ materially from these statements. Forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our SEC filings. In addition, please refer to our earnings release and our Investor Relations website for the required reconciliation of non-GAAP financial measures discussed on today's call. Lastly, we ask that you please limit your questions to one question and one follow-up. And now, I'll turn the call over to Todd. Todd Penegor: Thank you, Heather, and good morning, everyone. I want to start first by thanking our franchisees and team members for their continued commitment to our customers and for their dedication to advancing our strategic priorities as we transform the business. Papa John's has a strong foundation from which to build, including an outstanding brand, a differentiated product proposition, a loyal customer base and a strong balance sheet. That said, we are navigating weaker consumer sentiment and a more promotional QSR marketplace, particularly in North America, resulting in mixed third quarter performance. Global comparable sales were flat for the third quarter, while North America comparable sales decreased 2.7%. As we move through the third quarter, we saw the greatest order decline within small ticket web customers in North America. Small ticket web orders tend to over-index, with lower-income customers, corresponding with the disproportionate sales pressure we've seen with this cohort. Within North America, core pizza sales were flat. We sold 3% more pizzas and 4% more pizzas per order, but total pizza sales were effectively flat as order mix shifted to more medium pizzas and fewer added toppings. The majority of North America sales pressure was driven by declines in product outside of our core pizza offering, including wings, bread sides, Papadias and Papa Bites. As consumers are pressured, they tend to control their spend by focusing on center of plate rather than adding sides and desserts. As part of our product innovation work, we are taking action to develop more compelling sides and desserts at more accessible price points. I'll share more about that in a moment. Outside of North America, however, we are encouraged by the upside that is being created as a result of the changes we are making. Our international business delivered exceptional results, generating comparable sales growth of 7% in the quarter. These results were driven by strength across key markets in Europe, the Middle East and Asia Pacific. Ravi will share more about third quarter results in his remarks. While we address the immediate market headwinds, particularly in North America and execute our transformation strategy, we are also working to be a more nimble, efficient organization with a leaner G&A structure. As we discussed last quarter, efforts to optimize our North American supply chain and reduce overall cost to serve are expected to result in at least $50 million in supply chain savings by 2028, $20 million of which are planned for 2026. We have identified productivity opportunities through procurement vendor negotiations, evaluating our freight and transportation services and reducing our fixed cost leverage throughout the commissary, all while maintaining our commitment to quality. As for restaurant level financial impact, we expect that the cost savings will equate to approximately 100 basis points of 4-wall EBITDA improvement for both franchise and company-owned restaurants by 2028. This quarter, we are also announcing 2 new efficiency initiatives with respect to the company's overall cost structure and our refranchising program. First, during the quarter, we initiated a comprehensive review of our expense structure to streamline our organization, reduce noncustomer-facing spend, simplify our operating model and better align our resources to support our transformation. We have already identified at least $25 million of savings outside of marketing to be captured across fiscal years 2026 and 2027. These actions will create incremental flexibility across the business, provide fuel for future growth and improve the earnings power for both company and franchise restaurants and for Papa John's as a franchisor. The review of our cost structure is ongoing. And based on this work, we expect there to be additional efficiency opportunities. We look forward to sharing more details about the cost review, including impact to our fiscal 2026 guidance when we report fourth quarter results. Second, we are also announcing today that the company will be accelerating our refranchising program over the next 2 years, which we believe will strengthen our local markets and increase our operational efficiency. I'll share more on this shortly. Ultimately, we are positioning Papa John's to compete better in 2026 and beyond. We are aligning our system around a more comprehensive value proposition to address near-term consumer pressure. We are building a stronger, more impactful product pipeline, with a relentless flow of innovation built around 3 major new platforms to extend our addressable market and expand margin, including reimagined sides to drive add-ons. We are strengthening our competitiveness in strategic markets, both domestically and internationally. We are removing noncustomer-facing costs from the business. We are creating a more nimble, efficient organization. We are standing up a technology platform to differentiate the customer experience. We are building a more efficient supply chain and improving our food cost, and we are accelerating our North American refranchising program. We are confident that our transformation work will ultimately position Papa John's to generate sustainable, profitable growth across our portfolio, better respond to customer needs and effectively navigate a variety of consumer environments, all while maintaining a healthy balance sheet. With that backdrop, and before we move to a more detailed update on our transformation priorities, I want to address the recent M&A rumors and speculation regarding the company. As a Board and a management team, we are focused on maximizing shareholder value. We are open-minded about the path to do that. And to the extent there is an alternative to our strategy that is available and maximizes shareholder value, we would fully consider it. At this time, the opportunity before the company to drive the greatest value creation is through the execution of our transformation strategy, and that is where we have directed our attention. While our transformation is in the early innings, we are making progress. And as you've heard today, we are committed to accelerating the momentum, including pursuing cost actions, faster refranchising and meaningful operational improvements. Let me share more. First, we are relentlessly focusing on our core product proposition and premium innovation. Our culinary and product development teams have rebuilt and reinvigorated our innovation framework, which is now grounded on 3 approaches: form innovation, size innovation and platform innovation. In September, we launched Papa Dippa, the first innovation under the new framework, showcasing form innovation. Papa Dippa is an on-trend shareable pizza cut into strips made specifically for dipping. Our newest innovation launched this week is built around size. The Grand Papa is our largest pizza ever with deli-style pepperoni and large foldable slices, perfect for sharing. In 2026, we expect to have a consistent flow of impactful innovation at compelling price points, which will better allow us to drive sales in a challenging consumer environment and extend our addressable market. For example, we are reimagining our side offerings and developing more sides at accessible price points to drive add-on sales and margin expansion. Additionally, our 2026 innovation pipeline begins to expand our aperture beyond traditional QSR pizza and adds new sales layers to our business, including menu items more akin to what you would find at your neighborhood pizzeria. Combining this kind of right price innovation with Papa John's quality, craftsmanship, variety and freshness results in a distinct competitive advantage to win new customers. Importantly, our menu expansion and exciting platform innovations are supported by our Perfect Bake project, which encompasses oven calibration and operations excellence work and advances the quality and range of products we're able to prepare in our restaurants. As part of our incremental marketing spend this year, we've also invested in a comprehensive testing program, which allows us to rigorously vet our new products and ensure that innovation is truly customer-led and insight-driven, which will benefit the business in '26 and beyond. In the third quarter, we continued to reinforce our barbell strategy by leveraging value messaging alongside full margin product, positioning our $6.99 pop-up pairings platform, alongside our Buy One Get One offer in addition to introducing our garlic 5 Cheese crust in August. Combined, these offerings helped deliver another quarter of growth in total number of pizzas ordered. To remain competitive in the dynamic QSR marketplace, we must execute on our second strategic priority of amplifying our marketing message to differentiate our brand and win customer consideration. And in this environment, price is a key component. Accordingly, we sharpened our value proposition. We pulsed in additional promotions such as, Buy One Get One Free Pizza offers in mid-September and mid-October, which were effective in driving orders with multiple pizzas and bending the trends for select weeks. To capture the small ticket, lower frequency customer, we recently launched a 50% off carryout offer supported by media. Very preliminary results show improved order trends, but we would like to see the offer out in the market longer before making any definitive statements. We are also very excited to have achieved our highest sales day ever in North America on Halloween last week. So we are managing the moment, with a more forward-leaning value proposition, we are also building for the future with initiatives that will grow sales and expand margin, including a robust innovation pipeline, new sales layers, elevated operations and a technology platform that delivers a seamless connected customer experience. In the third quarter, we invested an incremental $4 million towards supplemental marketing to support our value proposition and build on the foundational investments we've made through the year. We directed part of this investment toward working media to support our BOGO offer during the quarter, which drove improvement in order trends while the promotion was in market. By optimizing our channel mix and audience strategy, we achieved more efficient media spending. We also invested advertising dollars in non-working media to launch a comprehensive testing program and better inform future spend. These foundational investments will continue to deliver benefits heading into 2026 as we further optimize media mix, launch products and campaigns informed by our test and learn program and expand our social share of voice. These non-working media investments are onetime and not expected to repeat in 2026. Turning to our brand positioning. We continue to showcase Papa John's differentiation, emphasizing the 6 simple ingredients of our fresh, never frozen original dough. Third-party research consistently tells us that customers value high-quality real ingredients, and we believe that our commitment to fresh, quality, simple ingredients is especially important given current customer trends. For example, we have seen strong improvement in our brand perception quality score since the onset of our Meet the Makers marketing campaign, which emphasized our product differentiation and six simple ingredients. Our third strategic priority is investing in technology and our tech stack to deliver a more seamless experience across our digital assets and own channels, better connect with customers and support greater efficiency across our operations by leveraging data and AI. We are especially excited about the power of building on our marketing advancements by inviting customers into the brand and then layering in hyper-personalization to drive additional engagement and retention. With approximately 70% of our sales generated through own digital platforms, delivering an effortless customer experience is essential. We recently achieved a major milestone with the launch of a modernized first-party digital ordering platform across our mobile apps on both Android and iOS, which improves navigation, reduces clicks to purchase and improves order tracking and targeted communication. The platform improvements are already driving higher conversion rates, reflecting our continued focus on performance, usability and speed to market. Building on this success, we are working to modernize the design and to deliver an elevated customer experience on our website, which we expect to launch in December. In addition to our improved digital ordering platforms, we continue to enhance our end-to-end digital customer experience and CRM platform to increase engagement, session conversions and repeat purchases. Over the last quarter, we benefited from our higher CRM engagement, with customers through e-mails, app push notifications and SMS communications. This is important foundational work that will continue to drive benefits in 2026. Our fourth priority is differentiating our customer experience to meet and exceed the convenience, value and quality expectations of our customers, across all of our demand channels. Starting with loyalty. Our loyalty program is a prime example of how we continue to evolve and build brand advocacy amongst our most valuable customers. It's been almost 1 year since we launched our enhanced loyalty program with a lower redemption threshold for Papa Dough, and a call to action for our loyalty members. We continue to see benefits of these changes with increased Papa Dough redemptions and higher order frequency amongst our loyalty members. As of the third quarter, I'm pleased to say that, we've reached 40 million total loyalty accounts, an increase of almost 1 million new members over the last 3 months. It's crucial that we serve our customers with excellence every time, no matter which demand channel they choose. Despite increased competitive pressure and promotional activity during the quarter, we continue to generate positive sales and order growth in our aggregator channel, with sales through our partners remaining accretive and beneficial to 4-wall profitability. The aggregators deliver a customer that is, on average, more affluent compared with customers utilizing our first-party digital platforms. We believe that with our premium product position, high-quality ingredients and our value message, Papa John's has a compelling competitive advantage with the aggregator ecosystem. This resulted in a low teens improvement in total net sales across the aggregators. Turning to first-party delivery. Delivery is an important component of our business, and we are committed to consistently providing an excellent delivery experience, while also improving our performance in the channel. We continue to roll out our delivery tracking service across our system, with approximately 60% of the U.S. restaurants now offering the service. We expect to substantially complete the rollout to all U.S. restaurants by the first quarter of 2026. Finally, our restaurant general managers and their teams are hard at work executing and delivering a more consistent experience in our restaurants. We've expanded our operations evaluation tools to additional restaurants, which is driving higher product quality, taste of food and customer satisfaction scores. Our fifth strategic priority is partnering with and evolving our franchisee base to drive profitable growth by expanding our share in the most impactful markets and further improving our restaurant economic model. As mentioned at the outset of the call, we plan to accelerate our domestic refranchising program over the next 2 years. In terms of scale, we expect to reduce our company restaurant ownership to a mid-single-digit percent of the North American system. We believe that refranchising with strategy forward, well-capitalized growing franchisees strengthens the long-term health of the Papa John's system and unlocks future growth opportunities. We expect to finalize the sale of our ownership stake in a joint venture that operates 85 restaurants in the Mid-Atlantic region in the fourth quarter. Those restaurants will be operated by a growth-minded franchisee, with the requisite capital and strategic approach to grow their business. In summary, we are navigating a challenging consumer and competitive environment and executing a strategy to ensure Papa John's delivers sustainable, profitable growth. While the full benefits will take some time, our transformation strategy is showing positive results, and we are taking far-reaching actions to accelerate the progress we are making. We are driving noncustomer-facing costs out of the business, accelerating our refranchising program, rebuilding our innovation pipeline, sharpening our value proposition and making returns-driven investments in technology, all while maintaining a healthy balance sheet. Transformations by their nature, aren't linear, but we are managing the moment, while building for the future. I am confident that the actions we are taking will position Papa John's to deliver long-term value creation, for all of our stakeholders. And with that, I'd like to turn it over to Ravi to discuss our third quarter financial results in greater detail. Ravi? Ravi Thanawala: Thank you, Todd, and good morning, everyone. I'll begin my comments with an overview of our third quarter results, followed by our financial outlook. Please note that, all comparisons and growth rates referenced today are compared to the prior year period, unless otherwise noted. In the third quarter, global system-wide restaurant sales were $1.21 billion, up 2% in constant currency as higher international comparable sales and 1% global net restaurant growth on a trailing 12-month basis more than offset lower North America comparable sales. As Todd discussed, North America comparable sales decreased 2.7% in the third quarter, with the majority of sales pressure driven by declines in products outside of our core pizza offering. To improve this trend, and drive add-ons and ancillary sales, we are rebuilding our innovation pipeline, including reimagining our sides offering. Third quarter transaction comps decreased 4%, predominantly driven by a decline in orders from small ticket web customers. We are amplifying our value proposition accordingly to drive transactions, while maintaining our premium positioning. Third quarter ticket comps increased 2%, as we benefited from an increased number of pizzas sold per order, partially offset by mix shift into medium pizzas with fewer toppings, strategic changes we made last year to our loyalty program and a decline in add-ons. Turning to our international business. International comparable sales increased 7.1%, supported by our cross-functional transformation initiatives, which are yielding operational improvements as we continue our focus on priority markets, adding compelling product innovation to our menus and taking a consumer-first mindset across our global operations, setting the stage for long-term value creation across the segment. We expanded our exciting Croissant Pizza offering to 3 additional markets in the third quarter, generating significant media buzz and activations, alongside solid sales and order mix improvement, demonstrating the power of compelling product innovation. I'm proud of how our international teams have come together to drive improvement across global operations, achieving 4 quarters of positive sales comps with sequential improvement each quarter. Total consolidated revenue for the third quarter was essentially flat at $508 million, as higher international revenue was mostly offset by lower revenues generated in North American restaurants and QCCs. Total international revenue increased approximately $6 million as our transformation initiatives in the U.K. and our priority markets have resulted in better performance across all lines of business. Total North American revenues, inclusive of our full restaurant portfolio and our commissary decreased approximately $6 million in aggregate, primarily driven by lower comparable sales during the quarter. Consolidated adjusted EBITDA declined slightly to $48 million as we continue to build on the foundational investments we have made through the year and position the brand for long-term growth. Third quarter consolidated adjusted EBITDA performance was impacted by incremental marketing investments of approximately $4 million and an anticipated elevated G&A related to approximately $2 million of higher incentive compensation, partially offset by commodity deflation and outperformance in international. Our third quarter domestic company-owned restaurant segment EBITDA margin, which includes G&A expenses, was 2.4%, declined by approximately 20 basis points as the benefit of higher average ticket, almost fully offset lower transaction volume and labor inflation. As we move forward, we are focused on driving sustainable, profitable growth. We're taking action to drive transactions and improve 4-wall margins through innovation, addressable market expansion and a more efficient supply chain, while making strategic investments to further differentiate our brand over the long term. North American commissary segment adjusted EBITDA margins were 7.4% in the third quarter, an improvement of 100 basis points, primarily reflecting higher volumes as we sold 3% more pizzas versus last year. Turning to our balance sheet. At the end of the third quarter, our total available liquidity was $502 million in cash and borrowings available under our credit facilities, and our gross leverage ratio was 3.4x, well within our permissible limits. Turning now to cash flows. For the first 9 months of 2025, net cash provided by operating activities was $106 million. Free cash flow was $59 million, an increase of $50 million, primarily reflecting timing of cash payments for the National Marketing Fund and favorable changes in working capital, lower cash taxes and lower spend related to our international transformation initiatives. Now turning to our outlook. We've revised our outlook to reflect the impact of a softer consumer backdrop and a more promotional QSR marketplace, which we expect to persist through the remainder of the year and into 2026. For 2025, we expect global system-wide sales to increase between 1% and 2%. We expect North America comparable sales will be down between 2% and 2.5%. Softer comparable sales trends in September continued through October. As Todd mentioned, we recently launched our 50% off carryout offer. Very preliminary results show improved order trends, but we would like to see the offer out in market longer before making any definitive statements. Internationally, our transformation is building momentum, and we continue to deliver results that are above our expectations. Accordingly, we are raising our 2025 international comparable sales outlook to a range of 5% to 6%. As we shared last quarter, we expect to finalize the sale of our ownership stake in a joint venture that operates 85 U.S. restaurants in the fourth quarter. As a reminder, this transaction is expected to reduce fourth quarter consolidated revenues by approximately $5 million, including the impact of eliminations. On an annualized basis, this transaction is expected to reduce consolidated revenues by approximately $60 million, including the impact of eliminations and have a negligible impact on net income. These impacts are reflected in our financial guidance. For 2025, we expect consolidated adjusted EBITDA to be between $190 million and $200 million. Our outlook embeds a more competitive value proposition to address the softer consumer outlook and heightened competitive QSR environment in North America, which we expect to continue into 2026. We believe that it is crucial for us to meet the consumer where they are, provide the value they expect given the near-term macro challenges and protect transaction share, while we execute on our strategy to deliver long-term profitable growth. We continue to expect that stock-based compensation will be between $4 million and $5 million per quarter. For 2025 nonoperating expense items, we expect net interest expense to be between $40 million and $42 million, capital expenditures to be between $75 million and $85 million and adjusted G&A expense to be between $70 million and $75 million, which excludes accelerated depreciation related to the deployment of our modernized digital assets and retirement of our prior systems. We expect our 2025 effective tax rate to be in the range of 27% to 30%. Finally, we expect diluted shares outstanding of approximately 33 million in the fourth quarter. Turning to restaurant development. We expect to open between 85 and 95 gross new restaurants in North America in 2025, with all remaining projected openings currently in construction design or later stages. We are working to improve the long-term health of our restaurants and making strategic closure decisions accordingly. For 2025, we anticipate North America restaurant closures will be at the higher end of our historical average of approximately 1.5% to 2%. These closures are predominantly nontraditional or small market restaurants with a blended average sales volume of around $500,000, which is less than half of our system average. Internationally, we continue to accelerate our transformation, delivering positive results across our priority markets. During the quarter, we opened 2 new restaurants in Bangalore, India, featuring a localized menu and a variety of vegetarian options paired with our high-quality ingredients. India is a priority market for us given its rapid growth and robust demand. For 2025, we continue to expect to open 180 to 200 gross new restaurants across our international markets. We anticipate international closures will be at the higher end of our range of 4% to 5% of our international system. Looking ahead, we are positioning Papa John's to compete better in 2026, play the game differently, while continuing to transform the brand and fuel sustainable profitable sales growth in the future. Papa John's is a strong brand, with a healthy balance sheet, and the work underway will position us to drive long-term earnings power across all aspects of our organization. We are confident in our strategy. We recognize the substantial upside ahead, and we are moving forward with excitement and focus as we transform the business. Now, we'd like to open the call up for any questions you may have. Operator? Operator: [Operator Instructions] The first question today will be coming from the line of Brian Mullan of Piper Sandler. Brian Mullan: Just a question on the acceleration of the refranchising program. Can you just talk about how you see the current difficult operating environment influencing this process to refranchise, obviously, you've got to find a buyer and then there's a price you're willing to accept for your assets. So, just talk about the framework you're going to approach us with and what you're going to prioritize the most in this process? Todd Penegor: No. Thanks for the question, Brian. As we think about accelerating refranchising, it's a combination of scaling up existing well-capitalized franchisees that are really focused forward to partner with us to really drive the business and bring in more customers more often and drive the 4-wall profitability. We also got interest on folks from outside the system. So -- we've got the 85 restaurants that will complete the transaction here, hopefully, by the end of this month. We've got a pipeline of other refranchising already in place with existing buyers at multiples that we're comfortable with. And we're going to continue to look at an appropriate pacing of the refranchising through the course of this year and into next to make sure we work ourselves to that mid-single-digit ownership as a percent of the North American fleet. Yes, the market is a little bit different, but there are a lot of well-capitalized franchisees that really want an opportunity to continue to come into the system, or scale up within our system, and we feel very confident that there are buyers at good multiples for our business. Brian Mullan: Okay. And then to follow, just a question on G&A. I guess one for clarification. What is embedded in the guidance for this year? And then the real question is it sounds like you're going to find some efficiencies here. I know you'll guide next year in a few months, but just trying to understand, have you already taken some actions? Or do all of these actions kind of come later on? Just trying to understand, if G&A dollars are going to be headed lower next year. Todd Penegor: Yes. G&A dollars will be heading lower next year. We've continued to prudently manage G&A in the softer sales environment in this calendar year. But as we said in the prepared remarks, we're embarking on an initiative to really look at how do we become a more nimble, efficient organization by streamlining operations, reduce noncustomer-facing spend, simplify our operating model and really better align our resources to our transformation. And we believe we can get at least $25 million of savings, during the course of the next 2 years. And I'd expect about half of that at a minimum to come during the course of 2026. We'll give you all the details as we finish going through the work over the next couple of months here internally and reflected in the guidance for 2026 appropriately. And this is true. G&A costs not impacting any of the marketing investments that we've made. Ravi Thanawala: And Brian, none of these savings are embedded in the 2025 guide. Operator: Our next question will be coming from the line of Andrew Strelzik of BMO Capital Markets. Andrew Strelzik: I wanted to ask, Todd, a little bit over a year since you joined Papa John's. I'd be curious to get your assessment of the turnaround progress and where you are today versus where you thought you might have been when you set out on this journey? And where do you feel like you're maybe farthest along? And what areas maybe been a little bit slower to materialize? Todd Penegor: Yes. Thanks for that question, Andrew. And as you think about the things that I feel good about, right, over the course of the last 14, 15 months, we really improved the value proposition and perception of the Papa John's brand. We continue to improve the quality perception and our brand health, which are positive for the long run, and those are foundational work that we'll continue to do. Our innovation pipeline needed to be rebuilt. You're starting to see some of that news come to life here at the back half of 2025. But really excited around a steady dose of innovation into 2026, not just around core pies, but around other occasions that can help drive the business, whether that be reimagined sides or other handheld opportunities into the future. So, I think there's opportunities to do that. The work we've done to really work our oven calibration and perfect bake to make sure we're making better core pizzas and working with our franchise community to deliver quality product time and again, work always to do on that. But that has set a strong foundation for us to continue to lean into, and it allows us to really open up the opportunity to innovate even more as we get time and temperature set right in our ovens in the restaurants. In our international business, we've made a tremendous amount of progress. A lot of heavy lifting was done just before I got here. We're starting to see the fruits of all of those hard work, and it's really driving our business, and we got really some strong momentum in that business across the globe, and it's widespread. As you think about where the latest environment is around the consumer, around the competitive landscape, we need to make sure that we can continue to compete hard on both sides of the barbell. Quality is always going to be important. We need innovation to bring in those laps to new customers, but we also need to make sure we've got a really balanced barbell to make sure we can compete on the value proposition side too. Do it our way, do it appropriate for the Papa John's brand, do it in a way that brings in more customers more often to drive transactions for the long run. And that's where the focus is going to continue to be. You'll see that in the promotional cadence that we have year to go and into next year. And you'll also see that in how we bring our innovation to life to make sure they're priced appropriate for where the consumer is today. So, we're going to meet the consumer where they're at today. We'll continue to build this brand for the future. Andrew Strelzik: Okay. That was helpful color. And then I just wanted to ask with the 50% off. Can you talk a little bit about the impact or how you're balancing franchisee profitability and kind of the ability to stick with something with that kind of construct from a promotional perspective or from a value perspective, kind of longer term, pulsing in and out or what have you. How are you balancing that? Todd Penegor: You got to remember, when you pulse anything that's on a national message, it's only about 1/4 of our business. So, some of it does provide a halo around the affordability of our brand, and we can play the barbell, because if we can get them in the consideration set, we can convert them either with news or with price. As you think about how we went through the quarter, we pulsed in some BOGO offers, clearly helped us on our core pie business as we've seen our overall pizza sales flat and pie is up. But we did know we had some challenges on that single order customer, web customer, which is on the lower income cohort. So, we wanted to make sure there was an offer there for them, too, and that was the 50% off promotion. It takes a little bit of time. You got to stay out there to make sure it wears in so the consumer is aware that, that offer is there. And we'll continue to partner with our franchise community to make sure that these promotions work not just for the consumer, but they work for the 4-wall economic model. Remember, our business is a high variable margin business. We bring in incremental transactions. The flow-through can be quite nice, and that's where we need to stay focused. It's less about margin and more about driving penny profit and dollars to the bottom line. Ravi Thanawala: And Andrew, the only other thing I'd want to add is the 50% off carryout is really a basket starter. And we see the consumers build a more holistic basket once they get into that promotion. Operator: The next question will be coming from the line of Jim Salera of Stephens. Tyler Prause: This is Tyler Prause on for Jim. I was curious if you could give us some color on the U.S. restaurants within your system that are outperforming. Is this regional-based, tenure-based, updated ovens, et cetera? Additionally, are there any learnings that you can incorporate to the broader store base? Or is it mostly sentiment-driven right now with macro? Todd Penegor: Yes. No, I'll start, and I'll let Ravi talk a little bit about some of the regional differences. But as you think about any franchise system, there is a range across our operators out there. The folks that have leaned into transactions that have been really focused on bringing in more customers more often to really drive that variable margin profit have performed better than the folks that have really been focused on, how do they protect margin and food cost. And our job as leaders is to make sure we find a sweet spot for both of those mindsets to make sure that we're executing and delivering as one system with our national messaging, and then complement it with appropriate local message for whatever that consumer base looks like in those individual local markets. So, we're working that hard with our system. We got work to do to stand up some co-ops into next year, and we're focused to do that in our priority markets that will help us fight at the local level, with some of these regional differences. But Ravi, why don't you talk a little bit about some of the regional differences we've seen? Ravi Thanawala: Yes, yes. We've seen strong performance, particularly in some of our top markets across the U.S. And we've kind of talked about in some of our top 15 markets, there's still really meaningful market share to go get. Second is a strong compelling carryout offers on both a national and local level matter, relentless focus on promoting Papa Pairings on a local level absolutely helps. And more than anything, just like a clear focus to a transaction-driving mindset that is evergreen and the franchisees who have been in transaction-driving mode for multiple years are performing very well. So for us, this is maybe a little bit less about region. It's really about strength of operators, transaction driving mindset where the brand is strong in some of these top 50 markets. And it gives us some real clarity in terms of conversations with the franchisee base, when there's different perspective. The data is exceptionally clear that transaction-driving mindset is good for variable profitability. It's good for brand health. It's good for taking market share for the long term. Tyler Prause: Great. That was super helpful. And just one follow-up. Several of your competitors have called out a specific headwind to the younger and Hispanic demographics. We were just curious if you saw any noticeable step change amongst those cohorts during the quarter. Ravi Thanawala: So what we see is like a very clear occasion that we're seeing a little bit of a headwind. It's small transaction size potentially like where consumers are making a trade-off decision on whether you eat at home or not. We've seen maybe a slightly higher pullback in the younger consumer. That really reinforces why we've been relentless focus on Papa Pairings, bringing the 50% carryout offer front and center, Papa Dippa, particularly around dipping sauces, like speaks to the younger consumer wow. So, we're pulling multiple levers across that front. But more than anything, we kind of want to zone in the occasion is really around this notion of like small transaction size is where the transaction loss has been. On the other side of the coin is like on peak days such as Halloween, the brand is performing really, really well. So, on key pizza moments, we are seeing the brand perform really well in transactions that are 2 pizzas or more, we're continuing to grow. And we're seeing the consumer really focus in on the center of plate right now. Pizza sales from a unit standpoint are up. Our pullback has really been in some of the sides business. Todd Penegor: Well, that's why we want to continue to drive folks into our loyalty program, adding another 1 million folks into the loyalty program where there's great value over the course of the last quarter is going to be super important for all income cohorts, all demographics. And what we're seeing across the loyalty program is that our customer counts are up across every frequency cohort year-over-year. So, the loyalty program is working how it needs to work. Can we drive more add-on? If we get appropriately priced sides, that could be some good add-on for those existing customers. The opportunity is really to bring in those laps to new. And that's where we're going to really amp up and lean into a more steady cadence of meaningful innovation at appropriate price points in 2026. Ravi Thanawala: Yes. And our active counts from a loyalty standpoint are up across all cohorts from like consumers all the way up to our super frequent. So, what we feel good about the long term about is like there's brand advocacy there. There is loyalty to the business and to the brand. Our center of plate is doing well. There's clear opportunity for us to continue to drive AUVs and comps. And I think we've laid out both from a transaction standpoint as well as from a product standpoint, where those opportunities for the brand exists. Operator: And the next question will come from the line of Alex Slagle of Jefferies. Alexander Slagle: Wonder if you could dissect the strong international results a bit and what actions really delivered the biggest improvements there and sort of what other external dynamics are at play as we try to assess sustainability of this momentum. It sounds like 4Q, you expect it to continue, but as we look ahead to 2026. Ravi Thanawala: Yes. Thanks for the question. A couple of drivers we want to lay out. In the U.K., we've been on a multiyear journey, and we're starting to reap the rewards of that. A couple of things. We've really focused in on the priority trade zones that we wanted to compete well in. We've seen substantial sales comp acceleration in the U.K., particularly when we've driven franchise to franchise transfers to make sure we're building really solid trade zones where a franchisee can really dominate their marketplace. Third is we've continued to have a real focus on product execution at the restaurant level. And then lastly, like we've continued to like see the benefits of the Perfect Bake program, and that's really paid off. And the U.K. ran high single-digit positive comps in Q3. Those trends have continued into Q4. Another market where we've been in transformation mode is in China, very similar playbook. We focused in on the cities and trade zones that matter. As you remember, in Q2, we actually took some strategic closures in that market to make sure we were really dialed in on what markets and cities matter most for us right now in China. We continue to expand points of demand generation with further integration with more aggregators. And probably, again, there, we did a holistic consumer review of what our consumer is loving about our product and our service and where the opportunities were, and we found some opportunities. We're going around the globe right now kind of executing this playbook of consumer first, product-driven mindset with a very sharp focus on the priority markets that matter most for us. And we've been encouraged by the sequential gains over the last couple of quarters and continue to be encouraged by what we see in Q4. Todd Penegor: Just a big credit to the team with the focus on the priority markets across the globe and then having that kind of amplified to the rest of the globe. We've built a lot of momentum, continues into the fourth quarter. The pipeline for news and innovation is really strong going into '26. And they've across the globe, have had a steady dose of news and innovation, not just Croissant Pizza, which resonated across the globe. But innovation has been there on the heels of the Perfect Bake project for the course of the last year, and all those things are paying dividends in that business. Ravi Thanawala: And when you look at our footprint relative to the competitive set, we still have a lot of runway to go in international and in these priority markets. We're making sure that we are executing as well as we can in driving AUVs. So, there is real long-term value creation here for the brand and the business, but we're focused on doing it the right way. Alexander Slagle: That's great progress. A follow-up on the U.S. and I guess, the outlook for more innovations, more focus on sides and add-ons. I mean, how do you ensure you're not sort of adding too much complexity or rhythm breakers as you kind of go down that route? Todd Penegor: I do think there are some stuff that are naturally paring down within our portfolio today. You think about where Papa Bites are, where Papadias play. As we talk about some of the sides or other add-on purchases, those have led themselves down during the course of this year. So those are opportunities to potentially come out of the restaurant or be leveraged more regionally. So, I do think we free up some capacity then to come back with some of the new news. Slowing the ovens down, getting the Perfect Bake project right, thinking about how we design the product, not only for the consumer, but for the operator and our folks in the restaurants to make sure that these new products have easy builds that can really drive a high-quality product out of the work we're doing with the ovens is paramount. And we're really working hard to make sure we set up our teams for success. Coaching, training, going back to look at how we're leveraging the tools that we have in our restaurants. So, we're very conscious to not overcomplicate the restaurant. We will have an appropriate pace of innovation next year, but we'll do a really good job around training and set our teams up to deliver a great consumer experience because that's going to be key, right? As we bring in those lapsed, we bring in some new customers, we need to wow them with an unbelievable experience to keep them coming back and drive the frequency through the course of next year. But we haven't had a steady pace dose of innovation that's really incremental that can drive our business for a little bit of time, and we're working hard to bring that to life next year. And I feel really good about the commercial calendar that's in place at the moment and the work that the culinary team has been doing to really deliver on our promise around being better. Ravi Thanawala: Yes. Maybe 2 things I would add is we talked about in Q3, the vast majority of the negative comp came from our sides business. We did not want to simply just pull forward innovations before they were ready. The team has spent the last year really being consumer-led and obsessed on where does this brand have a right to play and what does the consumer really want. So, we talked about in our prepared remarks like multiple platforms of innovation are to come. They're designed to be operationally simple as well as TAM expanders for us because we want to make sure we are capturing the total addressable market, we can for our branded business, but do it truly from a place where this brand has a right to play and it's operationally simple enough where it's going to generate 4-wall margins and strong execution. Operator: And our next question will be coming from the line of Dennis Geiger of UBS. Dennis Geiger: I wanted to ask another one on value. A lot of good detail here. But Todd, it sounds like you're driving product quality, taste of food, customer satisfaction scores broadly. And I think you mentioned to one of the questions, value scores also improving. I wanted to confirm that, though, if the scores are improving, or if you are seeing anything concerning on the value scores. And then as it relates to all those value opportunities that you've been talking about, including the 50% off promo, could you summarize sort of the primary value gaps maybe? Is it on the promotion side of things? Is it maybe some newer menu items at sharper price points? Is it the marketing and the customer just recognizing the value that the brand offers? Just a bit of a high-level summary take from you on that, please. Todd Penegor: Yes. So, a couple of thoughts. So, on the -- over the course of the last 12 months, our value perception has steadily improved. We were out of position a little over a year ago. We continue to make improvements. That's not just with how we're playing the barbell strategy, but the loyalty program plays a role in that. And our personalization through CRM certainly helps, too. But it's not just about value perception around price. It's around worth what you pay at the end of the day. And we continue to make sure that our better ingredients, better pizza message and pay it off with why we're better, 6 simple ingredients, fresh, never frozen original dough. Those things are actually driving our brand health. What we need to be conscious of is the consumer and meeting them where they are today as we know that the consumer is more strapped. And we have to have an appropriate pace of news on the promotional side with some innovation. You think about what we launched in this quarter, the Papa Dippa, a great food form, a lot of excitement, a lot of social engagement. We learned a lot from it. The flight of dipping sauces, especially the roasted garlic parmesan played very well. But it came out at a price point at $13.99 at a time when the competitive and the consumer landscape pivoted dramatically. So, I wouldn't say that it was a failure by any stretch of the imagination. It did its role on the menu. I think there's a time and place for it in the future. but we were just caught at a time when the consumer and the competitive landscape shifted, and it wasn't as incremental as we probably would have hoped. And we're conscious of that as we move forward. I mean, Grand Papa is just our biggest pizza, big deli slice pepperoni. It's great value for the money when you think about the value for the money in the slice. And our large pizzas continue to do quite well when they're promoted. And we're going to be really conscious of that when we drive our innovation into next year to not only bring the news, but make sure there's an appropriate price point to really drive that trial to get folks to fall in love with our great food all over again when they come back to try those things. And that's how we're going to continue to amplify that message. Any other comments, Ravi? Ravi Thanawala: Consumers are finding value in our center of plate. Pizza unit sales are up 3%. We are seeing consumers make different decisions in terms of what pizza they're buying. More mediums are being bought than largest, more Create Your Own with less toppings right now. And that just may be a little bit of a reflection of where the consumers are putting their dollars and how many dollars they have to spend right now. But what's really important for us is we want to be able to communicate 6 simple ingredients, our fresh, never frozen original dough, keep center of plate, like very much top of mind for the consumer with our great pizzas, and continue to build from there. In terms of like opportunities from a value standpoint, like we're really focused in on making sure we have this seamless digital experience that's important for the consumer, especially when they're juggling many things in their lives. And then continue to remind them that, we offer great value in our menu today. And we need to like be on that steady drumbeat every single day right now. And we made that pivot 14 months ago or so that we were going to talk about value every single day. We're not done doing that. We need to continue to bring that notion to every consumer's mind and make sure they don't forget that Papa John's has great value and exceptional quality. Todd Penegor: And that's why we're taking the initiatives that we talked about today. We know we need to create the fuel for growth. We need to be able to compete no matter what the consumer and competitive landscape is. And we've been talking about how do we drive supply chain savings even harder to make sure we improve the 4-wall economics. very confident on $20 million of those savings coming into 2026. And we've talked about $50 million plus over the -- between now and 2028. We're working hard to find even more. The G&A savings play an important role to provide some fuel. Refranchising provides some fuel. Our strong balance sheet provides fuel. So, we got a lot of optionality to really set ourselves up to compete well no matter what the landscape looks like, while we work to continue to drive the transformation of our brand. And we're still in those early innings. We're building a stronger foundation. We still got levers to pull, but we know we can build a lot of momentum in this business over time, and we're going to continue to stay focused on that. Operator: And our last question will be coming from the line of Jim Sanderson of Northcoast Research. James Sanderson: I wanted to go back to marketing spending. I think you've invested about $17 million incrementally. What's the plan for fourth quarter? And without quantifying, how should we look at that potential investment going into 2026, the importance or lack of incremental marketing spending for Papa John's? Todd Penegor: If you look at how we laid out our guidance for this year and what we've talked to in the past is we would spend up to $25 million of incremental marketing. So, $17 million through the third quarter, we'll continue to do the right things to compete to finish the year. So as you look at the bookends of our guidance it complement -- it has up to that $25 million. During the course of this year, some of that $25 million has been in non-working to really test and learn to make sure our testing protocol is set up. We've used some of that money to support some of our incremental advertising around some of the promotions that we had out there. But we also used it to help our franchise community to subsidize appropriately to compete. So, we've used a lot of those levers to make sure we can lean in and make sure the right pressures in the market to make sure that our brand breaks through and resonates, and we're also supportive of the franchise economics to make that happen. As we look to 2026, and we're not providing any guidance for 2026, but we're really trying to provide a lot of fuel to make sure that we have the optionality to invest back to our brand to appropriately connect to the consumer and appropriately support the 4-wall economics of the franchise community. But more to come on that. But any other thoughts, Ravi, that you'd put out there? Ravi Thanawala: Yes. Over the last couple of quarters, we've launched a couple of efficiency initiatives to ensure that we have the right capacity within the franchisor model and the 4-wall economic model to make sure that we can compete and invest for the long term in this business. The pizza category is a large category. We think that there is more transaction share we can go get. We want to make sure we're balancing transactions, sales and 4-wall profitability, and that's why we're really getting aggressive on efficiency levers. James Sanderson: Okay. And just a quick follow-up question. One of your large QSR competitors indicated that about 30% of their sales are exposed to lower income consumers. Is there any way you could give us a context on how PJ's -- Papa John's is exposed to that lower income or low-ticket web-based consumer? Ravi Thanawala: Yes. Maybe the way I'd frame it up is like we talked about more than 50% of our sales come from consumers above $100,000 in income. So that's one data point that we shared in prior periods. Second, just like as you think about the composition of our business, aggregators are 20% of our business at this point. Second, our loyalty program is nearly half the business, and we talk about that, that loyalty business we're up across all cohorts. So that will give you a couple of data points that helps you to triangulate kind of like that web-based consumer. Obviously, not all of that web-based consumer is small transaction. But this is why we've been so relentlessly focused on driving our loyalty business, making sure we maintain or take appropriate share in the aggregator marketplace, making sure that we are speaking with compelling messages across the top end of our barbell as well as the bottom end of our barbell. Todd Penegor: Thank you. And thanks for that, Ravi. I'd like to thank everyone for joining the call this morning and for your continued interest in Papa John's. Especially, I want to thank our team members and franchisees for their dedication to serving our customers. Our teams are hard at work. We're taking immediate action to streamline our organizational structure and become more efficient, while also advancing the strategic priorities that will ensure Papa John's delivers profitable, sustainable growth. We're confident we have the right plan in place to create meaningful value across the organization for our team members, franchisees and our shareholders. We look forward to the journey ahead. Have a great day, everyone. Talk to you soon. Operator: Thank you for joining the conference call today. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Apyx Medical Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Jeremy Feffer, LifeSci Advisor. Please go ahead, sir. Jeremy Feffer: Thank you, and welcome, everyone, to our third quarter 2025 earnings call. Representing the company on the call are Charlie Goodwin, Chief Executive Officer; and Matt Hill, Chief Financial Officer of Apyx. Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including, without limitation, those identified in the Risk Factors section of our most recent annual report on Form 10-K, our most recent 10-Q filing and the company's other filings with the Securities and Exchange Commission. Such factors may be updated from time to time in our filings with the SEC, which are available on our website. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise. This call will also include references to certain financial measures that are not calculated in accordance with generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP financial measures. Reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings press release on the Investor Relations portion of our website. I would now like to turn the call over to Mr. Charlie Goodwin, Apyx Medical's President and Chief Executive Officer. Please go ahead. Charles Goodwin: Thank you, Jeremy, and thank you all for joining us today. For our usual format on these quarterly calls, I will start with a review of our performance over the past several months, and then I will turn the call over to Matt for a review of our third quarter financial results as well as our updated full year 2025 guidance. We will then open the call for your questions. But before I jump into the numbers, I'm excited to share an important update about the evolution of our company and our continued commitment to innovation and meaningful outcomes for our customers and their patients. With the development, clearance and launch of the AYON Body Contouring System, one thing has become clear, our identity and the way we present this segment of our business must evolve to reflect who we are today and where we are going tomorrow. That is why we are officially announcing the rebranding of our Advanced Energy segment, which will now be identified as Surgical Aesthetics. This is not just about a new name, it's about better aligning our brand with our mission and the durable and transformational results that our surgical products deliver. Let me begin with a review of our third quarter performance. We reported total revenue of $12.9 million, compared to $11.5 million in the same period last year. This growth was driven by a $1.8 million increase in sales of our Surgical Aesthetics products to $11.1 million for the third quarter. This is the result of an increase in U.S. sales of over 30% for the quarter and reflects initial sales from our commercial launch of our AYON Body Contouring System during the quarter as well as increased volume of single-use handpieces in both domestic and international markets. Overall, the AYON soft launch, which took place throughout much of the summer and the full commercial launch in September have been overwhelmingly successful. We are thrilled with the market feedback we're receiving, which has translated in both presales and now initial deliveries, which I will get into more in a moment. I want to note that this growth was offset slightly by a decline in our OEM revenue. For the third quarter, we reported $1.8 million, down from $2.2 million in the same period last year. This decline was anticipated and is due to reduced sales volumes to existing customers, including Symmetry Surgical under our 10-year generator manufacturing and supply agreement. Strategically, we have shifted our focus and manufacturing resource from OEM towards our Surgical Aesthetics segment, particularly the AYON launch as we believe this segment represents the future of the company. It is worth highlighting that we made this tremendous progress while emerging from the significant cost reduction and restructuring announced in November 2024. I am proud to share that these efforts have resulted in a leaner operating structure and a meaningful reduction in our cash burn. These improvements have strengthened our overall financial health, giving us the flexibility to invest in AYON and our broader growth strategy with greater confidence. While restructurings are always challenging, I want to express my sincere gratitude to the employees here at Apyx. It is encouraging to reflect on the positive outcome driven by our team's dedication and perseverance. Let me now provide a more detailed overview of our progress. It is amazing to think that only about 6 months ago, we received FDA clearance for the AYON system and soon after began to realize the significant impact this system could have on the market. For those who may not be fully up to date, let me provide a brief overview of AYON and why it's generating such a strong market response and why we believe it will help shape the future of aesthetic surgery. AYON is a groundbreaking body contouring system designed by leading surgeons to address many of the challenges and limitations they experience with current systems in the market. And please keep in mind that most existing systems on the market are limited to a single function while AYON seamlessly integrates fat removal, closed-loop contouring, tissue contraction and electrosurgical capabilities, empowering surgeons to deliver the most comprehensive body contouring treatments available. With advanced features like LIFT technology for real-time adjustments and Renuvion for enhanced tissue contraction, AYON sets a new standard in surgical care, streamlining procedures and maximizing patient outcomes. The result is a system that combines precision, versatility and innovation in an all-in-one platform with unmatched return on investment. And don't just take our word for it. As part of our soft launch, we initiated an ambassador program with key opinion leaders in critical geographies throughout the U.S. Many of these leading surgeons are now actively discussing how AYON delivers consistent and reliable performance with several of them contributing at our workshops and clinical symposia supporting the broader commercial launch. The feedback has been incredible from the start, which we attribute to the system really filling a void in the market that nothing else has come close to addressing. Just last month, we hosted a virtual KOL event for investors and analysts featuring comments from world-renowned general and plastic surgeon, Dr. Paul Vanek. We were fortunate to have Dr. Vanek share several case studies using the AYON system, followed by his general insights on the system's functionality and its potential impact on surgical practices. I encourage any of you that missed this event to visit our events page on our company website to listen to the replay, which is just a very compelling overview of the AYON capabilities. One of the key points raised during the KOL event was the importance of AYON's integration with Renuvion. Our innovative, minimally invasive surgical solution for treating loose and lax skin. Renuvion provides durable transformational outcomes and is rapidly gaining traction among surgeons. We believe it represents the best-in-class option for treating loose skin and should be considered the new standard of care, particularly for patients experiencing skin laxity after significant weight loss, including those using GLP-1 medications. This expanding patient population presents a tremendous opportunity. With more than 15 million people currently on GLP-1 drugs in the U.S. alone, we're still in the early innings of this powerful market shift. We believe Apyx is uniquely positioned to meet this demand and help lead aesthetic market into the next phase of growth. As I have said before, the major shifts in the market with the rapid adoption of GLP-1s are unlike anything that we have seen in recent history, and Renuvion has proven to be an exceptional treatment option for the skin laxity experienced by many of these patients. Combined with AYON's other features, we believe Apyx is further differentiated and has elevated our position in the surgical aesthetics market, thereby making us the trusted surgical partner in the next era of aesthetic care. As I mentioned earlier, the full U.S. launch of AYON began in September and has been highly successful to date. Our team was well positioned following the soft launch earlier this summer and strong interest quickly translated into preorders ahead of the launch. I believe the launch and overall interest in AYON has exceeded all of my expectations across every metric. I look forward to realizing our long-term vision of walking into almost every surgical practice and seeing an AYON system at the center of the operating room. When we first introduced the AYON and talked about the initial capabilities, one of the commitments we made was the submission of an additional 510(k) to the FDA for the label expansion of AYON to include power liposuction. I am pleased that early last month, our team submitted this follow-up application and anticipate receiving clearance in Q1 of '26. This is an important update as receiving market clearance for power liposuction will solidify AYON's position as the first fully integrated body contouring system, positioning AYON as the new gold standard in surgical aesthetics. I think it is important to note that upon receiving clearance from the FDA, we will be able to activate this function on AYON systems already in the field. While we are still in the early stages of the launch, the market excitement is quickly turning into orders for AYON. As a result, we are updating our revenue targets for 2025, which Matt will detail in a moment. I will now turn the call over to Matt for a review of the third quarter 2025 financial results in more detail, along with our updated financial guidance for 2025. Matthew Hill: Thank you, Charlie. Before I get started, please note that all references to third quarter financial results will be on a GAAP and a year-over-year basis unless noted otherwise. As Charlie mentioned, total revenue for the third quarter '25, increased 12% to $12.9 million, compared to $11.5 million in the prior year period. Revenue for Surgical Aesthetics segment increased 19% or $1.8 million to $11.1 million compared to the $9.3 million last year. As Charlie referenced, this growth was driven by sales of AYON as we commenced our commercial launch during the quarter and an increased volume of single-use handpieces in both domestic and international markets. These increases were partially offset by decreases in domestic sales of generators, including upgrades to the Apyx One console, where the purchase of AYON was not part of the sale and upgrades to the Apyx One console in international markets. Turning to the OEM segment. Sales decreased 18% or approximately $0.4 million to $1.8 million for the third quarter of '25, compared to $2.2 million for the third quarter of '24. The decrease in OEM sales was due to a decrease in the sales volume to existing customers, including Symmetry Surgical under our 10-year generator manufacturing and supply agreement. Domestic revenue increased 20% year-over-year to $9.3 million, and international revenue decreased 4% year-over-year to $3.5 million. As a reminder, the medical device industry typically experienced some seasonality with revenue trends generally the lowest in the first and third quarters and strongest in the second and fourth. Gross profit for the third quarter '25 increased to $8.3 million, compared with $7 million in the prior year period. Gross profit margin for the third quarter '25, increased to 64.4%, compared to 60.5% in the prior year period. With respect to tariffs, we continue to monitor trade policy and tariff announcements, including the recent executive orders issued by the U.S. Federal Administration regarding tariffs on imports from various countries. At this time, the overall impact on our business related to these or any other tariffs that may be imposed remains uncertain and depends on multiple factors. Operating expenses decreased to $9.1 million for the third quarter '25, compared to $10.6 million in the prior year period. The decrease in operating expenses was driven by a $0.6 million decrease in selling, general and administrative expenses, a $0.3 million decrease in research and development expenses, a $0.3 million decrease in salaries and related costs and a $0.2 million decrease in professional services expenses. We are pleased to see the results of the cost-cutting measures taken in the fourth quarter of '24 in our current numbers. Loss from operations decreased $2.8 million or 77% to $0.8 million. Net loss attributable to stockholders was $2 million, or $0.05 per share for the third quarter '25, compared to $4.7 million, or $0.14 per share in the prior year period. Adjusted EBITDA loss decreased 96% to $0.1 million, compared to $2.4 million in the third quarter of '24. As a reminder, we provide a detailed reconciliation from net loss attributable to stockholders to non-GAAP adjusted EBITDA loss in our earnings press release. For the 3 months ended September 30, 2025, cash used in operating activities decreased to $3.5 million, compared to $4.4 million used in the prior year period. For the 9 months ended September 30, 2025, cash used in operating activities decreased to $5.5 million, compared to $15.1 million used in the prior year period. We are pleased with the cash and working capital management in the first 9 months of 2025 with cash burn returning to a lower but more normalized rate in the back half of the year as a result of the impacting changes in working capital as a result of the AYON launch. As of September 30, 2025, the company had cash and cash equivalents of $25.1 million, compared to $31.7 million as of December 31, 2024. We believe, based on our cash projections, including the uptake of the AYON platform, working capital management and our strict cost controls, we will yield cash through 2027. Turning to a review of our '25 guidance, which we updated in our third quarter 2025 financial results press release issued earlier today. For the 12 months ending December 31, 2025, we expect total revenue in the range of $50.5 million to $52.5 million, up from our previous range of $50 million to $52 million. We believe this increase shows the strength of the AYON ongoing commercial launch, especially when you look back at our original guidance of $47.6 million to $49.5 million for '25 or compared to the $48.1 million for the year ended December 31, '24. Our revenue guidance assumes Surgical Aesthetics segment revenue in the range of $43 million to $45 million, up from the previous guidance of $42 million to $44 million. Again, since we initiated the soft launch of AYON this summer, we have increased expectations for our original guidance of $39.1 million to $41 million. In addition, this is compared to the $38.6 million for the year ended December 31, 2024, reflecting current trends. OEM revenue is expected to come in at approximately $7.5 million, down from the previous guidance of $8 million as the company focused resources on the Surgical Aesthetics segment, this is compared to the $9.5 million for the year ended December 31, 2024. For the purposes of clarity, we increased the guidance in the Surgical Aesthetics segment by $1 million and decreased the guidance in the OEM segment by $0.5 million from the guidance previously provided in our second quarter conference call. We now anticipate gross margins of approximately 61% for the year and total operating expenses not to exceed $40 million. This completes our prepared remarks. Charlie and I will now open the call for questions. Operator? Operator: [Operator Instructions] Your first question comes from Dave Turkaly with Citizens. David Turkaly: Congrats on the launch and the spending progress. I just had a clarification one upfront here. I know you said the generator sales were down, but I don't think I actually understood the explanation for why that wasn't. You said something about AYON, but I just want to clarify that upfront, if I could. Charles Goodwin: Yes. So look, we're changing, obviously, the way that we classify things because AYON obviously has to have an Apyx One generator. And if you think of our customer base, we have customers that already have an Apyx One generator, they can actually just buy the rest of AYON and have their existing Apyx One generator integrated into AYON. And then we have an installed base of RS3 generators. They need to upgrade to an Apyx One generator and then buy the rest of AYON. And then obviously, if they don't have any of our Renuvion technology, they would need to buy all of AYON that would include an Apyx One and an AYON with it. And so we're obviously classifying those as just AYON sales even though they have an Apyx One in them. David Turkaly: Got it. And then trying to think about the gross margin impact from this. I haven't -- I don't know that you publicly commented on sort of the ASPs or what the uptick might be here. But I guess I'm imagining that the handpiece and the capital might be premium to what you were selling in the past. And as we're looking forward, I don't know if you are comfortable giving any commentary, but I imagine there has to be a significant gross margin uptick if that is the case. And I don't know if you can give any color as we're all trying to look to the out years now, but how significant or how much of an uptick do you anticipate as this rollout continues? Charles Goodwin: Yes. No, thanks for the question, Dave, but you probably know what my answer is going to be in that we're not giving guidance out from either a revenue or a gross margin point of view. The only thing that I would say to that, just to give you a little bit of color is we've always said that the Surgical Aesthetics business, obviously, especially in the U.S., has the highest gross margins anywhere. So the more we sell here of that, the better it is for the entire company. But we're not going to give any color or any guidance on what that is right now. Operator: The next question comes from Sam Eiber with BTIG. Sam Eiber: So clearly, a really exciting opportunity on AYON and getting devices out in the market. But I want to ask maybe about on the consumable side and maybe some pull-through you can get on higher device utilization because of all the new capabilities that AYON has. So I guess my question is, should we also expect a big uptake in consumables in addition to capital sales next year? Charles Goodwin: So I think the uptake would come back from selling new units to people who don't have Renuvion technology today. I think for customers that are upgrading to Renuvion, they're using, obviously Renuvion after their liposuction procedures today. So I don't know that you would necessarily see an uptick from the existing base. But obviously, adding new customers will certainly help that. We had a good third quarter from a consumable standpoint, both in the United States and internationally. And obviously, we're always focused on driving utilization. So as we add more customers, that's going to be the greatest driver of utilization in the future. Sam Eiber: Okay. That's helpful. Maybe I can ask a follow-up on the latest you're just seeing in the market environment. Just getting a sense of any changes to demand trends, GLP-1 dynamics at play? Would just your latest thoughts on the market at this point. Charles Goodwin: Yes. Look, I think it's consistent with what we've talked about before is we've always said that we believe the market has been disrupted from the GLP-1 drugs. We think that companies that have technologies that address skin laxity and address body contouring and are focused on the surgical side of things are going to be where the action is at. And we obviously think the technologies that we have with AYON and Renuvion are going to be very well suited to this marketplace as we keep moving forward and as more people are taking these drugs and having the side effects from these drugs and then wanting to have treatment from these. I think the other side of it is it was McKinsey that just came out with the study that 63% of these patients that are on the GLP-1 drugs are new to aesthetics. And so I think we're just going to see -- I think we're in the early innings of this drug. And I think over the next decade, it's going to be a very good time to be a plastic surgeon in the world. That's for sure. Operator: The next question comes from Alex Fuhrman with Lucid Capital Markets. Alex Fuhrman: Congratulations on a really nice quarter and the launch of AYON. I wanted to ask you, Charlie, how much of your growth in the quarter was driven by the single-use handpieces? And what's really driving that? Are you seeing more lipo procedures being performed or better attach rates for Renuvion, or are you perhaps starting to see more stand-alone uses of Renuvion as well? Charles Goodwin: Yes. So I think the one thing that the quarter-by-quarter is always a tougher way to look at it. As you know, I think last quarter, we were down a bit. This quarter, we were really strong, both the United States and internationally in the growth of handpieces. And I think the answer to your question is all of the above. So we're obviously seeing new doctors come in to adopt the technology for the first time. We're seeing a higher attach rate from patients that are coming into doctor's office and requesting Renuvion. And so after a body contouring procedure, they're going to use that. And then we are seeing it used on a stand-alone basis. And so I think the answer is all of the above for that. And again, as people are looking for solutions to take care of their loose and lax skin, especially following the treatment of GLP-1s, I think this is a trend that's going to play out for a lot of years to come. Operator: The next question comes from Matt Hewitt with Craig-Hallum. Matthew Hewitt: Charlie, congratulations on the strong quarter. Maybe -- and I apologize if I missed this, but talking a little bit about the pipeline. So obviously, you've gotten the initial launch out. Customers have adopted and are utilizing the platform. You've done some KOL events. They're helping kind of spread the word. Are you seeing that pipeline not just grow, but maybe you're reaching an inflection point where it's accelerating faster? And if so, how are you able to kind of get those implementations done with the team? Have you had to add to that team to meet the demand or anything -- any color along those lines would be helpful. Charles Goodwin: Yes. Obviously, we increased our guidance by $1 million for Surgical Aesthetics in the fourth quarter. And so -- and you can see what that -- obviously, you can do the math and translate to see what that works out to in the fourth quarter from a revenue perspective. And obviously, that is on the back of AYON and our expectations for AYON. As far as pipeline, I'm not going to comment too much about that, but the team has done an amazing job of get shoring up the supply chain, getting the supply chain to where it needs to be and being able to take advantage of the interest and the orders that we're getting with that we're getting with AYON. As far as the installations go, we've got a third party that is helping us do that. And so that is taking away some of the burden from the existing employees. And -- but we're doing a really good job as a company of being able to make these to get them installed and to get the doctors trained and get their staff trained and get them up and running. And so it's been a very, very good rollout of a new product and especially a product with this much technicality and sophistication in it, and the team has just done an amazing job of that. Matthew Hewitt: That's great. And maybe -- and I realize it's early days and you're focused on the U.S. market and rightfully so. But how should we be thinking about cadence of rolling AYON out internationally? Are there maybe 1 or 2 geographies that you'd like to target for '26? And remind us what that process is to bring AYON to the masses outside of the U.S. Charles Goodwin: Yes. No, it's a good question, Matt. And we're not going to get specific on that on today's call. But obviously, we want to have AYON registered everywhere in the world because it's not just a product for the United States. It's a product for every surgeon worldwide. Some of the bigger focus markets, obviously, would be Europe, the Middle East, Brazil, Latin America, some other countries in Latin America. Europe is all together. So Europe, you just need a CE mark. And once you get one, you get them all. There are some countries in the Middle East that actually accept FDA. And so obviously, those we would probably start sometime next year there. And then each individual country has its own registration process, and we'll be starting those processes in a lot of the countries. So we'll talk more about that when we get into '26 and we start doing that. And you're right, our focus right now for the third quarter and the fourth quarter is solely on the United States. Operator: At this point, there are no further questions. I will now turn the call over to Charlie Goodwin for closing remarks. Please go ahead, sir. Charles Goodwin: Thank you, everybody, for attending the call. I want to thank the entire Apyx team for their dedication and tireless execution over the past 3 months. It has been an exciting time for the company as we see our plan turn into reality. We appreciate all the support we've received from our shareholders during this time, and I thank you all for attending. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Ferroglobe's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the call over to Alex Rotonen, Ferroglobe's Vice President of Investor Relations. You may begin. Alex Rotonen: Good morning, everyone, and thank you for joining Ferroglobe's third quarter 2025 conference call. Joining me today are Marco Levi, our Chief Executive Officer; and Beatriz Garcia-Cos, our Chief Financial Officer. Before we get started with some prepared remarks, I'm going to read a brief statement. Please turn to Slide 2 at this time. Statements made by management during this conference call that are forward-looking are based on current expectations. Factors that could cause actual results to differ materially from those forward-looking statements can be found in Ferroglobe's most recent SEC filings and the exhibits to those filings, which are available on our website at ferroglobe.com. In addition, this discussion includes references to EBITDA, adjusted EBITDA, adjusted gross debt, adjusted net debt and adjusted diluted earnings per share, among other non-IFRS measures. Reconciliation of non-IFRS measures may be found in our most recent SEC filings. Marco? Marco Levi: Thank you, Alex, and thank you for joining us today. We appreciate your continued interest in Ferroglobe. As we have discussed in previous quarter, 2025 has been marked by significant challenges stemming from unfair trade practices in both the U.S. and EU. After taking proactive measures to create a more level-playing field, we are now beginning to see meaningful progress. Regulators are taking actions, and we are confident these measures will improve the balance in our markets and position Ferroglobe for a much stronger performance in 2026. Starting with the U.S. On April 24th, we filed a trade case in the U.S. regarding unfairly priced imports of silicon metal against Angola, Australia, Laos, Norway and Thailand. On September 23rd, the U.S. Department of Commerce issued preliminary countervailing duties against 4 of those countries that subsidize silicon metal production with the following assessments: Australia, 41.3%; Laos, 240%; Norway, 16.9%; and Thailand, 31.3%. Furthermore, on September 26, the U.S. Department of Commerce issued preliminary antidumping duties on Angola and Laos of 68.5% and 94.4%, respectively. Additional preliminary antidumping determinations are expected by the end of the year for Australia and Norway. Initially, these antidumping measures were scheduled to be announced on November 21st, but due to the U.S. government shutdown, they are likely to be delayed. In parallel with U.S. action, the European Commission launched a safeguard investigation on December of last year, covering silicon metal, silicon-based alloys and manganese alloys. The final decision is expected by November 18. A favorable outcome would represent a significant step forward for the industry and for Ferroglobe, and it would secure the EU's sustainable access to critical and strategic materials, which are required for infrastructure and defense industries. We remain optimistic about the results of this investigation. From a process perspective, the final implementation of safeguards requires approval from at least 15 of the 27 EU member states and by states representing at least 65% of the population. It is important to note that it is unclear at this time which of our products would be included in the safeguards and how these will be implemented. Next, I will provide an update on our partnership with Coreshell. They continue to make great strides in the development of silicon anode technology for next-generation batteries for EVs and other applications. Recently, Coreshell began shipping commercial scale 60 ampere EV pilot batteries to leading automotive OEMs for testing, a major step towards commercialization. The production ramp remains on schedule with consistently high yield and quality, underscoring the scalability of their process. Another advantage is that Coreshell's silicon-rich anode technology removes the reliance on graphite, of which over 90% is produced in China, paving the way for a fully domestic supply chain for EV batteries. Coreshell also expects to achieve commercial deployment of advanced battery systems used in robotics and defense applications in early 2026, a significant milestone that validates the potential of silicon anodes in high-performance battery. I also want to congratulate Jonathan Tan and his team at Coreshell for winning the start-up World Cup in October, a global competition featuring over 100 regional events across more than 20 countries. This recognition highlights the impressive progress the company has made in advancing cutting-edge battery materials. Finally, as we continue to expand our collaboration with Coreshell, we have finalized a joint development agreement and expect to establish a long-term supply agreement for high-quality silicon metal in the near future, positioning Ferroglobe to play a key role in the growing market for advanced battery materials as EV adoption accelerates. On the operational side, I am pleased to announce that we recently signed a new multiyear energy agreement in France effective January 1, 2026, guaranteeing us a very competitive energy price. In addition to low energy costs, the contract provides us the flexibility to operate our plants for up to 12 months a year, a significant benefit compared to our current agreement. This will simplify our S&OP process, inventory management and improve working capital as well as costs through higher fixed cost absorption. Next slide, please. The combination of soft demand and aggressive imports into the EU resulted in declining volumes and revenues in the third quarter. Overall, volumes in our main segments were down 21% from the prior year quarter. However, despite a 19% decline in revenues, we generated $80 million in adjusted EBITDA, only slightly below the second quarter and improved free cash flow. Next slide, please. Moving to our segment update, I'll start with silicon metal on Slide 5. The silicon metal market remains extremely challenging in Europe with significant predatory imports from China, roughly doubling in the first 8 months of this year. The EU should not allow imports of silicon metal designated as a critical and strategic material by the EU to have unfettered access to the European market. Because of these dynamics, we were forced to idle all our silicon metal plants in Europe starting at the end of September. As a result of these imports and weak demand, our third quarter shipments in EU declined by 51% compared to the second quarter. North American volumes remained stable despite soft demand. Within the silicon metal segment, the chemical sector continues to be negatively affected by the oversupply of imported siloxane from China into Europe and the U.S. Siloxane is used in the production of silicones. Index prices saw an uptick from the second quarter in both the U.S. and EU. However, the year-to-date index in Europe is down by 28%, while the U.S. index is flat. Looking forward, we believe the preliminary U.S. antidumping and countervailing duties are a positive indicator of what the final measures we have assembled and are expected to markedly improve the U.S. market dynamics in 2026. The chemical demand is still expected to remain challenging due to siloxane imports in EU and to the lesser extent in the U.S. Next slide, please. After a strong second quarter, silicon-based alloys volumes declined across all regions with Europe decreasing by 15%, followed by the U.S. being down 10%. Overall, the volumes decreased by 19% due to soft demand. This was particularly noticeable in Europe, whereas low restart of post-holiday steel production resulted in a nearly 5% decline in the third quarter compared to the same period of the last year. The pricing environment deteriorated in the third quarter with the U.S. and European indexes declining by 5% and 6%, respectively. For the year-to-date period, the weakness in European steel production continued to weigh on the index, which is down 10%. The U.S. index is flat year-to-date. Steel production is forecasted to increase by 3.2% in 2026 in Europe. Combined with expected safeguards, this sets the stage for much stronger market conditions next year. We expect similar trends in North America based on conversation with our customers and a steady 2.2% projected growth in North American steel production. Overall, we are optimistic that 2026 will be a strong year for total silicon-based alloy sales for Ferroglobe. Next slide, please. Moving to manganese-based alloys. Following the multiyear high shipments in the second quarter, our manganese segment remained solid in the third quarter, despite a volume decline of 21%. This is more a result of an exceptional second quarter, which benefited from delayed shipments carried over from the first quarter and our cost competitive position. Another factor continuing to constrain the manganese segment is the increased shipments into Europe from India, Malaysia and Georgia. Manganese alloys index prices softened in the second quarter by 7% and 3%, respectively, for ferromanganese and silicon manganese. We anticipate manganese demand recovering in 2026 with expected 3.2% steel production growth in Europe and the announcement of safeguards later this month. I would now like to turn the call over to Beatriz Garcia-Cos, our CFO, to review the financial results in more detail. Beatriz? Beatriz García-Cos Muntañola: Thank you, Marco. Please turn to Slide 9 for a review of the income statement. Third quarter sales declined 19% sequentially to $312 million, while raw material costs declined 29%. As a result, raw materials as a percentage of sales declined from 65% to 58%, mainly due to lower energy cost in Europe. The quarter-over-quarter sales decline was driven by lower volumes across the 3 product categories with silicon metal, silicon-based alloys and manganese-based alloys declining 25%, 19% and 21%, respectively. Volume declines were partially offset by higher average selling prices, which increased by 1%, 2% and 1% for silicon metal, silicon-based alloys and manganese-based alloys, respectively. Adjusted EBITDA decreased 15% from the prior quarter to $18 million versus $22 million in Q2. Adjusted EBITDA margin improved slightly to 5.9%, driven by cost improvement in the silicon metal and silicon-based alloy segment. This was partially offset by the manganese segment. Next slide, please. Moving to product segment bridges. Silicon metal revenue declined 24% sequentially to $99 million in Q3, driven by a 25% decrease in shipments to 34,000 tons, partially offset by a 1.2% increase in average selling prices to $2,950. Volume decline was driven by weak demand and dumping of Chinese silicon metal in the European region, as Marco mentioned earlier. Silicon metal adjusted EBITDA increased 81% to $12 million compared to $7 million in Q2 with margins increasing to 12%, up from 5% in the prior quarter. The margin improvement was driven primarily by lower energy cost in Spain and lower overall cost in North America. Next slide, please. Silicon-based alloys revenue declined 17% to $92 million, driven by a 19% sequentially decrease in volumes to 43,000 tons, partially offset by a 2% increase in average selling prices to $2,149 per ton. Adjusted EBITDA increased significantly to $12 million in the third quarter, up to 73% from $7 million in the second quarter. Margins expanded to 13% compared to 6% in the prior quarter. The improvement in adjusted EBITDA and margins was a result of lower energy costs in Spain and cost improvement in France. This was partially offset by higher production costs in the U.S. and South Africa. Next slide, please. Manganese-based alloys revenue declined 21% to $84 million versus $106 million in the prior quarter. The decline was primarily due to a 21% reduction in volumes to 70,000 tons, partially offset by a 1% increase in average selling prices to $1,214. Adjusted EBITDA in the third quarter was $4 million versus $17 million in the prior quarter, a decrease of 74%. Adjusted EBITDA margins declined to 5% versus 16% in the prior quarter. This margin contraction was primarily driven by lower fixed cost absorption in Spain and higher raw material costs in France and Norway. Next slide, please. During the third quarter, we generated $21 million in operating cash flow, a 33% increase over the prior quarter. The improvement reflected a $7 million reduction in working capital on a cash flow basis. Energy rebate improved to $16 million from $7 million in the second quarter. while the change in taxes and others was largely due to profit sharing agreements based on 2024 results. Capital expenditures totaled $19 million versus $15 million in Q2. Despite the challenging market conditions, we generated positive free cash flow in the third quarter. We expect a substantial release of working capital in the fourth quarter due to our focus on inventory management and early idling of production in France. Next slide, please. During the third quarter, we maintained a strong balance sheet while continuing our dividend program. We are declaring a fourth quarter dividend of $0.04 per share, in line with the previous quarter. It will be paid on December 29 to shareholders of record on December 22. We ended the quarter with a slight net debt position of $5 million compared to a positive net cash position of $10 million in Q2. Adjusted gross debt increased marginally from $125 million in the second quarter to $127 million in the third quarter, while total cash declined from $136 million in Q2 to $122 million in Q3. Our year-to-date CapEx was $48 million. At this time, I will turn the call back to Marco. Marco Levi: Thank you, Beatriz. Before opening the call to Q&A, I'd like to provide key takeaways from today's presentation. We expect trade measures in the U.S. and EU to improve the business environment significantly in 2026. The U.S. ferrosilicon case, combined with tariffs and the silicon metal cases, preliminary determinations are encouraging, positioning us well in North America. The EU safeguards are expected to be announced later this month, and we are optimistic they will have a similar impact in Europe. Coreshell is making significant advancements with its silicon anode battery technology and has begun shipments from the pilot battery plant and expects to begin commercial deliveries to robotic and defense-related applications in early 2026. The pilot plant battery production is progressing well with high yields and consistent quality. We continue to focus on cash flow generation and maintaining a solid balance sheet. We expect to deliver meaningful working capital improvements in the fourth quarter as we continue to see benefits from our S&OP process. We signed a very competitive multiyear energy agreement in France, which provides us the flexibility to produce throughout the year. Operator, we are ready for questions. Operator: [Operator Instructions] Your first question comes from the line of Nick Giles from B. Riley Securities. Nick Giles: Appreciate the update this morning. The market obviously remains challenging, but it seems like action to-date is offering some support and there could be more coming. Can you just speak to the demand signals you're seeing today and really how you're thinking about 2026 just from a volume perspective across each product category and region? Would be great to get your thoughts. Marco Levi: Yes. Nick. Let me start talking about Europe. I think that the demand in Europe will be stimulated by protection of the supply chains that the EU has decided to protect. Decisions have been made on steel very recently, where they have further safeguarded European production and pending decisions, of course, are related to our products and to aluminum. So for me, the secret of establishing demand in Europe is linked first to protection and clarity on all these points. But we expect, like I mentioned in my speech, demand in steel still going up. And this will drive, in our opinion, quite significant additional demand of manganese alloys and ferrosilicon. Talking about silicon metal in Europe, I think that the major news is related to the intention of Germany to apply as of January 1, a new tariff on energy that is really going to boost the productivity of chemicals, steel and aluminum players, and this will drive some recovery in silicon metal on top of the other elements that I have mentioned. Talking about North America, we are, on one side, puzzled by the fact that utilization rate of steel mills in U.S. has gone up only 1%, sorry, in spite of the measures -- the protective measures of Mr. Trump. The expectations from statistics is that demand for steel is going to go up next year. And we see that our order portfolio is getting much more robust in ferrosilicon in 2026. We already have this evidence. Talking about silicon metal, I think that the decisions that have been made on the case until now will help mainly some price restoration. Volumes related to the 5 countries involved is about -- is less than 10% of the actual demand. The other key element that is going to drive demand of silicon metal in U.S. is going to be related to whatever action the government is going to take on imports of siloxane from China. So overall, Nick, the scenario seems to be favorable, but there are a lot of decisions that can influence either/or demand for next year. Nick Giles: I really appreciate all that detail. My next question was just about operations and specifically costs. I think you've been really successful in past years of improving productivity and that flowing to the bottom line. It seems like there were some operational efficiencies targeted already. But I guess my question is, how much more could be made and what would be the impact to EBITDA and cash flow? Marco Levi: Yes. Of course, under the current conditions since the beginning of the year, we have been focusing on cash. As you know, last quarter of last year, we started implementing global S&OP. The target was improving in the first year, our working capital to operate the company by at least $50 million. We have already reached $55 million by the end of the third quarter, and we expect to continue this effort to improve the way we operate our company. On cash, as you heard from Beatriz, -- we have reduced the amount of CapEx that we spend. We expect to be close to EUR 60 million this year versus the EUR 80 million, EUR 85 million of the previous years. Of course, we never sacrifice on EH&S. But of course, we need to watch and be selective on how we spend CapEx, especially considering that some of our plants are not operating at this stage. On cost, there are 2 main initiatives. We have been implementing hiring freeze since the beginning of the year for new positions, and we've been extremely selective in replacing positions that got vacant in the company. And the other -- so every new hiring is approved by me, either a secretary or an executive. So this is a fact. And the other fact is that we -- of course, we are on continuous control on discretionary spending and these are the main areas where we are focused on. Nick Giles: Got it. Maybe just one more, if I could. If we're to try and look further down the road when market conditions may have improved, how are you thinking about capital allocation? Could we see increased shareholder returns? You've talked about growth in the past, but obviously, there's been -- we've been kind of in a cyclical trough for maybe longer than anticipated. So just would be great to get an updated view on both of those fronts. Beatriz García-Cos Muntañola: Nick, this is Beatriz speaking. I think the answer is yes, we're going to be considering share buybacks. I think we have been showing a prudent approach to take debt. We reiterate that it's not our intention at the moment to take debt to do any shareholder buyback. But as we progress in our EBITDA results, as you mentioned, when market conditions are different, of course, we're going to be resuming our share buyback program and always focus on this opportunistic approach. We continue to believe that our share price is as evaluated. So of course, we're going to continue with our program at the right time. Operator: [Operator Instructions] Your next question comes from the line of Martin Englert from Seaport Research Partners. Martin Englert: I wanted to touch on the weakness in CMS, which was called out in the press release and you discussed a bit on the call. But I'm curious for silicon metal volumes into the chem's market, what did you see across the U.S. and EU kind of year-on-year in 3Q? And what has that been trending like year-to-date? Marco Levi: I missed one word of the question. Silicon metal into chemical sector? Martin Englert: Yes, silicon metal into the chemical sector, what's been going on year-on-year and year-to-date within the U.S. and then the EU. Marco Levi: Yes. If you talk about Europe, the key thing is related to the decision of one of the major players to switch from producing their own products starting from silicon metal in Europe to buy siloxane from China. And this is one of the major players. So silicon metal demand has gone down. The other key factor is the impact of the polysilicon industry in Asia and the collapse of the industry there has caused significant losses of volume of the European player who is supplying polysilicon to Asia. And as a consequence, lower volumes are purchased in Europe. The third element, of course, is demand that is not improving. And the fourth element is the massive increase of imports of silicon metal in Europe coming from China and Angola on top of the robust imports from Norway. So this is a quick snapshot of Europe. Talking about the United States, we understand that excluding Dow, most of the other chemical players have suffered in terms of demand. And like I said, massive imports of siloxane from China. When you look at the volumes of silicon metal, you will see a significant increase of imports of silicon metal into the U.S. from Brazil. And based on our understanding, these imports are mainly due to a significant improvement of the productivity of the assets of Dow Chemical. So Dow Chemical has increased the captive use of silicon metal. So these are the main factors in the chemical business that I can report today. Martin Englert: Okay. I appreciate the detailed update there. That's helpful. And I'm sorry, I missed this in the prior remarks, but are you anticipating trade actions within the U.S. and/or EU on siloxane? Marco Levi: Well, it's not up to me to decide but I think there is a [ burning ] platform, both in U.S. and Europe to consider taking some actions on siloxane. The problem is that as much as I know is that you have a number of grades of siloxane and this doesn't make the antidumping initiative so easy but I cannot talk more as we are not talking about our products. Overall, for me, if you take the United States, it makes sense to block China on silicon metal, but then if you don't block them on siloxane or silicones, well, the overall measure on silicon metal doesn't make too much sense. Martin Englert: Okay. All right. I appreciate the detail there. And on the EU safeguards, whatever the outcome is, if you feel if it's not sufficient to deal with the market dynamics and the lost market share with imports, I guess I'm curious what are the next steps? And is it something that could be -- what are your next steps as a company then? And then is it something that can be revisited with the European Commission? And how would that timing look if that's even a possibility? Marco Levi: Well, everything can be revisited with the European Commission, but we don't have time for that. We don't have time for that and I'm very confident that some decisions are going to be made by November 18. Now if your question is what if measures are not announced or they are not sufficient, I appreciate your language. The plan is we are ready to announce severe [indiscernible] supported strong antidumping actions, which in case would be specific on China for silicon metal, on India, on all the manganese product mix and Kazakhstan on ferrosilicon. We have not launched the antidumping cases in Europe because we have been dancing since May this year under the expectations that safeguards were going to announce in Europe. But our reaction is going to be immediate if we don't see measures announced. And then it depends on what gets announced, and then we will have to consider what to do with our asset footprint, but this is the second step. Martin Englert: In a scenario where the safeguards would not be sufficient over the near term and additional action would be taken to potentially temporarily idle assets. I know there are many for silicon metal that are currently idled. But I guess, cash costs potentially associated with that? And then anything to think about like ongoing recurring just fixed costs that would continue on a quarterly basis? Marco Levi: Yes. I mean I answered before the question of Nick. At this stage, our cost actions are focused on hiring freeze and discretionary spending. We have partial unemployment measures applied in France. As you know, as of the end of September, we are not producing silicon metal in France. So these are the measures on cost that we have -- we are implementing right now. Martin Englert: Okay. I appreciate all the detail and thought considering the low volumes of cost performance was actually rather good for the quarter. So congratulations on that front. Marco Levi: Thank you. Beatriz García-Cos Muntañola: Thank you, Martin. Operator: This concludes today's question-and-answer session. I'll now hand the call back to Marco Levi for closing remarks. Marco Levi: Thank you. We are optimistic that 2026 will bring a more robust market environment as the trade measures are implemented and trade uncertainties diminish. Thank you again for your participation. We look forward to updating you on the next call in February. Have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.