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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.
Operator: Hello, everyone. Thank you for attending today's GFL Third Quarter 2025 Earnings Call. My name is Ken, and I will be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Patrick Dovigi, the CEO and Founder of GFL. Please go ahead. Patrick Dovigi: Thank you, and good morning. I would like to welcome everyone to today's call, and thank you for joining us. This morning, we will be reviewing our results for the third quarter and updating our guidance for the full year 2025. I'm joined this morning by Luke Pelosi, our CFO, who will take us through our forward-looking disclaimer before we get into the details. Luke Pelosi: Thank you, Patrick. Good morning, everyone, and thank you for joining. We have filed our earnings press release, which includes important information. The press release is available on our website. During this call, we will be making some forward-looking statements within the meaning of applicable Canadian and U.S. securities laws, including statements regarding events or developments that we believe or anticipate may occur in the future. These forward-looking statements are subject to a number of risks and uncertainties, including those set out in our filings with the Canadian and U.S. securities regulators. Any forward-looking statement is not a guarantee of future performance, and actual results may differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements speak only as of today's date, and we do not assume any obligation to update these statements, whether as a result of new information, future events and developments or otherwise. This call will include a discussion of certain non-IFRS measures. A reconciliation of these non-IFRS measures can be found in our filings with the Canadian and U.S. securities regulators. I will now turn the call back over to Patrick. Patrick Dovigi: Thank you, Luke. Once again, I want to start by thanking our incredible employees whose commitment drove another quarter of exceptional performance. Our results exceeded expectations from top to bottom. For the quarter, we achieved the highest adjusted EBITDA margin in our company's history at 31.6%. All of this was accomplished despite the challenging macro backdrop and an incremental commodity-related headwind. As I said last quarter, we view the consistent delivery of record-setting results even in the face of challenges as a continued demonstration of the quality of our asset base, the effectiveness of our value creation strategies and the resilience of our business model. Near double-digit top line growth is driven by the continued success of our pricing strategies, the impact from our disciplined rigor on price/cost spread, harvesting pricing opportunities related to ancillary surcharges and incremental price discovery opportunities as well as the EPR ramping and other contract renewals were apparent in the quarter and position us now to expect pricing for the full year of 6%. Industry-leading volume performance also contributed to the top line growth. MSW volumes and the ongoing tailwinds from our recent EPR investments more than offset the impact of softer construction-orientated activity, lower manufacturing and industrial collection, C&D landfill and special waste volumes. We continue to see broader economic uncertainty impacting the level of activity in these areas of our market, but remain well positioned to participate in upside when these volumes inevitably return. Operational costs as a percentage of revenue trended lower in the quarter in response to our continued improvements in labor turnover and our ongoing focus on cost discipline, process optimization and the realization of self-help opportunities across our portfolio. The effectiveness of these cost efficiencies is seen in the margin line, where we once again delivered an industry-leading 90 basis points of adjusted EBITDA margin expansion. Luke will take you through the detailed bridge, but when you factor in the impact of commodity prices and credits realized in the year, we realized over 250 basis points of underlying margin expansion. With each passing quarter, we are proving out the business' ability to meet and exceed the industry-leading margin expansion targets we laid out in our Investor Day presentation. We also remain highly confident in the targets we set out at Investor Day for M&A. Year-to-date, we have deployed nearly $650 million into acquisitions, including approximately $50 million deployed subsequent to quarter end. We have several incremental deals in process and we will deploy incremental capital into M&A before year-end. Our M&A pipeline remains very active and anticipate transactions will close in the first half of next year as well. The rollover impact of these transactions provides us with significant growth tailwinds as we head into 2026. The strength of the base business performance and the anticipated contribution from recent M&A allow us to raise full year guidance for the second time this year. Luke will provide you with those details. In the quarter, we also completed the previously discussed recapitalization of GIP by partnering with ECP, a leading investor in critical infrastructure. The transaction valued GIP at $4.25 billion, returned approximately $585 million to GIP shareholders and added $175 million to the balance sheet to fund future growth. Since our original investment in GIP in 2022, I have consistently expressed my belief that GIP would be a vehicle for significant value creation for GFL shareholders. The recapitalization back in 2022 valued our original investment at $250 million and at over $1.1 billion, returning nearly 4.5x just over in 3 years. I believe this is yet another reflection of GFL's strength of the management team and the effectiveness of our strategy to create longer shareholder value. GFL received $200 million of the shareholder distribution and continues to own 30% of the equity of GIP that will allow us to participate in what we expect to be continued value creation from the GIP business. We are pleased with the valuation we realized on GIP and Environmental Services transaction earlier this year, but currently see a significant dislocation in the value of GFL share price and therefore, see share repurchases as an attractive opportunity to deploy capital. We repurchased $350 million of shares in the third quarter and nearly $2.8 billion of shares year-to-date. Going forward, we will continue to be opportunistic on executing share buybacks. I will now pass the call over to Luke, who will walk you through the quarter in more detail, and then I'll share some closing comments before we open it up for Q&A. Luke Pelosi: Thanks, Patrick. Consolidated revenue for the quarter grew 9% over the prior year, driven by a 50 basis point sequential acceleration in pricing to 6.3% and 100 basis points in positive volume, which more than overcame the headwinds from commodity prices and fuel surcharges that were even greater than anticipated. The accelerated realization of incremental price discovery opportunities that we outlined at Investor Day is increasing our full year price growth expectations another 25 basis points to around 6%. Even when excluding the pricing impacts from large-scale contract renewals, both in collection and recycling processing, we continue to see pricing in excess of our internal cost of inflation, driving appropriate returns on our invested capital. Volumes grew 100 basis points as the benefits of recent growth investments and improved MSW volumes offset the ongoing softness seen in the broader macro environment. Volumes were up 5% in Canada and 0.9% behind the prior year in the U.S., inclusive of 3% lower C&D and 9% lower special waste volumes. While Q4 is expected to see negative volumes on a tough hurricane cleanup comp, we remain well positioned to benefit from a broader economic recovery. Adjusted EBITDA margin for the quarter was 31.6%, the highest in our company's history and ahead of our internal expectations. Commodity prices, which slid over 20% sequentially from Q2 and were down over 30% year-over-year, continue to be a drag on margins. M&A and the nonrecurrence of ITCs recognized in the prior year comparative quarter were also headwinds, whereas RNG and fuel prices were tailwinds. Excluding these items, underlying solid waste margins expanded 250 basis points. Adjusted free cash flow was $181 million, better than planned on account of the outperformance of adjusted EBITDA and the timing of CapEx, partially offset by changes in working capital items. With the continued strength of our operational performance, we are able to raise our guidance for the year yet again and now expect to be at or above the high end of the previously reported ranges. Specifically, we now expect full year revenue to be between $6.575 billion and $6.6 billion and adjusted EBITDA to be about $1.975 billion, over $50 million more and nearly 3% higher than our original guidance for the year on a constant currency basis. Adjusted free cash flow remains at $750 million as the incremental adjusted EBITDA is offset by incremental working capital and cash interest. While the incremental M&A expected to be completed before the end of the year will have minimal contribution to the 2025 results, it will add to the nearly 150 basis points of acquisition revenue rollover already in hand. Additionally, the continued ramp of EPR in '26 should add another 75 basis points of incremental revenue growth in next year. And while we will wait until February to provide our detailed guidance for '26, we remain confident in our ability to deliver on GFL's multiyear growth trajectory that we laid out at our Investor Day. I will now pass the call back to Patrick, who will provide some closing comments before Q&A. Patrick Dovigi: Today, we're keeping it short and sweet as we think the results speak for themselves. Our focus is singular and our path forward is clear. Even in the face of uncertain economic environment, the setup for 2026 is simple and clear. We are very confident in our operating plan as you have witnessed quarter after quarter. Our M&A pipeline has never been stronger, and we now have the balance sheet that allows us to keep repurchasing our own shares at what we believe to be dislodged prices. I will now turn the call over to the operator to open the line for Q&A. Operator: [Operator Instructions] We have our first question from Sabahat Khan from RBC. Sabahat Khan: So just on the guidance update, can you maybe just walk us through some of the puts and takes reflected in the guidance uptake? I think there's some upside in the Q3 results, but just wondering how you took into account M&A, FX and some of the moving pieces and sort of how comfortable you are with the guidance uptick. Luke Pelosi: Sabahat, it's Luke. Great question. Obviously, something that in this environment, we're very pleased to be able to come for the second time this year and push the numbers even sort of further up. Now if you think about the year as a whole, right, initially at the top line, we had guided at the midpoint about $6.525 billion of revenue, and if you use the constant currency FX, that would have equated to about $6.625 billion for the year as a whole where we're at today, but roughly $100 million incremental. So I'll just take the translational impact of FX out of the equation for a second. And if you think about that $100 million, really, what we have happening at the pricing line, we've now taken pricing up to close to 6%, nearly 75 bps higher than where we started. So you have sort of $40 million to $50 million of incremental pricing action is a good guide. That's largely offset by the fuel surcharge and commodity-related headwinds that you've seen through the industry for the year, pretty equally offset. So you have about $40 million to $50 million negative coming from that. Then you have the volume story. Now volume for the year is going to be plus or minus 25 bps. We're pleased to be able to report that we're going to be slightly positive on volume. But really within that number, again, you have puts and takes. Our EPR ramping has outperformed, and we're enjoying excess benefit from some transitional contracts that have come on faster than anticipated. And obviously, offsetting that is some of the C&D and construction-oriented materials that Patrick alluded to in his opening remarks and consistent with the industry as a whole. And then you have the M&A, right? So very pleased that we've been able to acquire about $200 million of annualized revenue for the year. And roughly, you're going to recognize half of that in year and half is going to sort of roll over. So that's really driving the majority of that raise, but very interesting and happy to see the benefits of our strategies being able to overcome the real industry-wide headwinds that have been present throughout 2025. Sabahat Khan: Great. And then just for my follow-up, I guess, maybe just recap where we are on the EPR runway and it looks like it's starting to contribute. But maybe if you can just walk us through kind of the wins you have, how much of that is starting to roll in and how much more is likely to come through 2026 and beyond? Luke Pelosi: Yes. So Saba, just continuing with what I just said, I mean, this year, we've had sort of great outperformance coming from EPR. And what we have spoken about for each quarter is how the Canadian, both price and volume has been enjoying uplifts as all these EPR contracts are coming online. And as I alluded to, we're seeing transitional arrangements whereby our customer base is asking us to do larger quantities of volume or start doing work earlier than initially anticipated. And we're, therefore, enjoying an acceleration of the realization of those EPR benefits in '25 on amounts that were otherwise going to be coming in '26. Now where we sit and what I said, it's looking like '26, we're going to have an incremental roughly 100 basis points of top line rollover from incremental EPR revenues coming online, offset by the reduction of some of these transitional contracts that I spoke to. And so you're going to get this net 75 basis point impact rolling into '26. As we've kept alluding to, there's still smaller opportunities that we continue to pursue, which could be additive to those numbers. But feeling really good to be entering '26 in addition to our normal course organic growth, normal course M&A to have this incremental tailwind of roughly 75 bps at the revenue line, which, as we said before, will be margin accretive to the business as a whole and certainly to our Canadian segment, which is very quickly closing the gap on that blended margin, and you're seeing it consistently trend at north of 30% margins. Operator: We have our next question from Kevin Chiang from CIBC. Kevin Chiang: Congrats on a good Q3 there. I know we'll wait until, I guess, February when you provide 2026 guidance. But maybe if I just look at some of the moving parts, and I appreciate some of the top line comments you provided, Luke. But if I look at your run rate EBITDA at the end of Q3, and I know there's a bunch of moving parts in there. But I take that and look back to your Investor Day in terms of the growth you expect organically and what you can get from an M&A perspective. It seems like a run rate EBITDA of just over $2.1 billion could be close to $2.3 billion next year. Maybe some incremental M&A needs to be completed to get there. But just, I guess, how do you think about that directionally, just given the strength you're exiting Q3 and 2025. Luke Pelosi: Yes. Great question, Kevin. Thank you for the comments on the quarter. Look, the run rate number being reported right now is a little bit skewed by virtue of the inclusion of some of these large EPR collection contracts as you're actually getting that number included in your run rate metric this year, even though the sort of performance will come throughout 2026. So I think to grow organically off that number, you're effectively double counting a little bit. But the way I would think about next year and without forcing us to give you our guidance, what we've said is we're going to enjoy periods of outsized margin expansion over the near term as we execute on our strategies and realize the benefits of the self-help levers. So the guidance we've just given for this year, you're ending at 30% margin, right? I think the revenue building blocks we just gave, you get to a revenue number that's north of 7% -- starts with the 7% and our margin expansion on that outside, I think you should be banking on something north of 50 basis points. So when you put that all together, I think on the 1975 of EBITDA that we are guiding for the current year, there should be a double-digit growth number coming on that, consistent with what we said at Investor Day. Now as Patrick said, there's a very healthy pipeline and stuff that we're actively working on and any incremental acquisition activity would be additive to that. So I think if you take the building blocks, you can -- where you sit today, see a 10% EBITDA growth before considering the impact of any incremental M&A or the recovery of some of the industry-wide headwinds, namely commodities and volumes as all of that will be upside to where we sit today. Kevin Chiang: That's extremely helpful. And maybe just a follow-up here. I noticed your SG&A intensity as a percentage of revenue, it was if my math is correct, down about 80 basis points quarter-over-quarter. And I think that's the best we've seen since you've gone public. I know you've been shifting the portfolio a bit here. But just maybe thoughts on SG&A trends over the medium term here. It does feel like you're starting to get some of that cost absorption benefit you talked about at your Investor Day. Luke Pelosi: Yes. Thanks for noticing, Kevin. But I mean what we're excited about is not just on the SG&A line. You're right, you have that 70, 80 basis point improvement in SG&A. But if you look at labor and benefits, our main cost category, you had 40 basis point improvement there. The R&M cost, you had about a 50 basis point improvement. So it's really across all the cost categories. And you're seeing that coming through, and it's a function of obviously improving labor turnover, which is the narrative you heard throughout the industry, and we're certainly realizing that as well, which is certainly coming through in the cost. But it's also just leveraging the infrastructure and cost base that we put in place. I mean, as we spoke about before, effectively, our corporate cost segment, which was trending down towards 3% with the divestiture of ES jumped back up north of 4%. And now you're getting the operating leverage, both organically as you execute on our price-driven growth strategy, but also inorganically, right, because we don't really need to add to that supportive shared services and broader executive infrastructure to accommodate the incremental M&A contribution that's coming online. And so you're going to see the operating leverage. I think we're set up to print the corporate segment at a sort of 4% of total revenue this year, and that's going to continue to trend down. And I think that's part of our excitement as we go forward over the near to medium term is that we have the cost in place and the scalability, and we can now execute on both our organic and inorganic growth initiatives and be able to leverage these relatively fixed cost basis. So thanks for the question, Kevin. Operator: We have our next question from Stephanie Moore from Jefferies. Stephanie Benjamin Moore: Now Patrick, I think you've been pretty open about your view on just the underlying value of shares. And I think you've taken pretty decisive actions to unlock value, whether it's selling ES or GIP and anything else here. So as we think about where the business stands today, are there any other actions that you would consider that you believe would further unlock value for shareholders? Patrick Dovigi: Yes. I mean I think when you sort of sit and look at it, everyone said what's the relative value of the business. And I think we clearly demonstrated that the multiples that these businesses are trading at today, when you look at the crown jewels of all of our asset bases, I'm not just talking about GFL specifically, but just the industry in general and where valuations have trended, I think we've been handed -- the industry has been handed a bit of a bad deck of cards today. I mean if you look at the results of all the companies across the sector, even in the face of this economic environment, it's certainly overdone in my view. And if you look at the valuations in the private market and private capital and the returns that can be generated in the private markets, I mean, that's what should drive what the multiples of these businesses trade for. And I think today, it's clearly not right. And I think that's why even -- we execute on these transactions, exited those 2 businesses and kept meaningful equity stakes, but 15x to 16x for 2 businesses that I would say are slightly inferior to the solid waste business of RemainCo. That being said, it provides a great opportunity. And as you've seen, we bought back -- we anticipate that we buy back sort of between $2 billion and $2.3 billion of stock at the beginning of the year, and we've acquired -- we bought back $2.8 billion to $2.9 billion. And me as the largest individual shareholder, I think that's the best use of our capital today, and that's why we did that. That being said, we're obviously executing on continued the M&A pipeline. And I think in my closing remarks, I basically said what I said, which is very straightforward plan moving forward. We're very confident in our operating plan. We have a balance sheet now that we can execute on share buybacks with what we believe to be dislocated share prices. And our M&A pipeline since going public has never been better. So I think in the Investor Day presentation, we had a base number of sort of spending $750 million to $1 billion. I think next year will be an outsized year again. I think well in excess of $1 billion. So we've teed that up, coupled together with the rollover. I think at the end of the day, the stock will move at the appropriate time. Obviously, we don't control the share price. But when we see opportunities like this, we're going to lean in pretty heavily to own more of the company, and I want to own more of the company at these prices. Operator: We have our next question from Trevor Romeo from William Blair. Trevor Romeo: I wanted to maybe dig in a little bit more on your price metric for this quarter because it did seem a little different than the typical seasonal cadence throughout the year going up 50 basis points relative to last quarter. So maybe I missed it in the prepared remarks, but was there like a specific portion of your book that had really good results this quarter or any mix impacts? Or maybe you could just dive into the price a little bit more and what drove the improvement? Luke Pelosi: Yes. Great question, Trevor. You're absolutely right. It does sort of defy the typical seasonal cadence, and that's really driven by sort of 2 pieces. So one is EPR. And as we're going through this transitional period, we are starting to have new contracts come on and recognizing price on that on a sort of off typical calendar perspective. And so you're seeing the pricing of that come through. And the Canadian pricing was a sort of high 6s number for the period and really getting benefit from EPR coming through, defying the normal course seasonal cadence. The other piece is -- you know, another part that we're really excited about is just the execution of the strategies that we sort of spoke so much at our Investor Day. And this is really realizing the latent benefit within our existing book, primarily related to ancillary surcharges, right? And we've sort of talked about that we are actively going to be ensuring that we are sort of paid the appropriate rates on the services we provide, and we are out there executing on that strategy. And so you're seeing that start to sort of ramp, which is providing incremental sort of support to our blended pricing line and something that is setting us up with a high degree of conviction for visibility of pricing as we go into '26. So I'd say it's both of those things together, Trevor, that underlying is normal course seasonality and then you have these bolstering in the second half of the year. Trevor Romeo: Okay. That is helpful. And then for my follow-up, maybe just ask for an update on labor turnover. I think you touched on costs a little bit earlier, but maybe labor turnover specifically has been a good story across the industry. What kind of improvement have you seen so far this year? What do you think is possible next year? And how does that translate into the kind of wage inflation that you're seeing now and maybe heading into next year? Patrick Dovigi: Yes. I think -- it's Patrick speaking. I think, obviously, it's trended in the direction that is very favorable. And with the unquantifiable costs with the lower turnover numbers that are relevant to the overall P&L, i.e., productivity, overall sort of performance, et cetera. But today, we're sitting at high teens today in the voluntary turnover line, which, again, as you know, in COVID, that sort of ramped up to north of 30%. If you look at historical averages pre-COVID, we were always around sort of 17%, 18%, 19%, and that's basically where we're sort of sitting today. We think, obviously, in this macro environment, that probably has the ability to continue to trend lower as labor pools have broadened in a lot of the markets. Not every one market is the same. But we saw markets where our best drivers are expecting above average increases and the driver pools are shrinking for high-quality drivers. But that being said, we feel very comfortable. The voluntary turnover line of sort of high teens is very comfortable. If we can trend towards mid-teens, obviously, there's going to be further improvement on the sort of margin line for us. Operator: We have our next question from Shlomo Rosenbaum from Stifel. Shlomo Rosenbaum: It's a really good quarter. And I'm trying to just get underneath the numbers a little bit more just to understand kind of the organic growth trends in Canada versus the U.S. I don't know if you could parse a little bit more about what's going on. You saw the organic growth in the U.S. trended down a little bit. I'm not sure how much of that was commodities prices coming down. But I was wondering if you can just kind of unpack some of the trends there and how that translated to the organic growth rates of the 2 different regions. Luke Pelosi: Yes. Thanks, Shlomo. It's Luke speaking. Great question. As you see in the headline reported numbers across the segments, Canada did enjoy a higher overall organic growth number than the U.S. If you break the pieces apart, look at the pricing, both markets continue to sort of price at the levels we need to be. And I think both pricing in Canada and the U.S. was sort of north of 6%. I think low 6s in the U.S. and high 6s in Canada. And that's always blending to the general 6.3%. I'd say the uplift in Canada was really driven by the EPR contribution. And ex that, Canada would have actually been slightly lower than the U.S. as some of the sort of ancillary surcharge recognition we were saying is actually being realized in the U.S. at a faster rate than sort of Canada. Volume is really the differentiator between the 2. Again, Canada, positive volume once again and is really being supported by EPR, not entirely because even ex EPR, Canada still enjoyed positive volume, but I think EPR contributed about an incremental $15 million in Canada for the quarter, which certainly was a great support to an otherwise sort of sluggish macro. I'd say U.S., U.S. had negative volume for the quarter. It's really a function of the, I'd say, landfill C&D and special waste volumes and a little bit on the collection side. The special waste and C&D, while soft, I'd say, on a macro basis, you can still enjoy volumes geographically if you happen to be in an area where there is activity going on. There still is some activity, just muted. And I highlight that because, for instance, our Canadian business actually had positive special waste volumes in the quarter, whereas our U.S. business was negative, by negative 3% C&D and negative 8% special waste in the U.S. I'd say just sometimes luck of where your site is sort of located. But take away those things around the edges. I think underlying, we continue to see similar sort of organic trends in each of our markets, and it is that there is a softness in the broader sort of manufacturing-related industrial expansionary sort of CapEx spend and you're seeing that in your volumes. But underlying, our market selection continues to sort of bolster our volumes by being in the demographic regions where people are moving to. Our strategic investments in items of EPR and other are providing volumetric tailwinds and our pricing strategies continue to remain strong regardless of the broader macro environment. Shlomo Rosenbaum: Okay. Great. And then I'm just trying to map the 4Q EBITDA guidance and implied going to the top end of the range. I guess from the midpoint would be $12.5 million. You've already exceeded expectations in the third quarter by $10 million and leaves you like kind of $2.5 million. You've done an incremental $25 million in M&A. It looks like pricing is better, incremental FX tailwinds. Can you just give me the puts and takes? It just seems to me that you're -- there's certain conservatism that might be in there and maybe that's it or maybe there's other headwinds on the commodities or things that I'm not fully able to calculate. Luke Pelosi: Yes. So Shlomo, I think the issue is in the seasonal climates like Canada and other, it's difficult to just say whatever your H2 guidance was if you have outperformance in Q3, it therefore, all carries forward. Just going back to my comment I made on Canadian special waste volumes, we enjoyed a very strong quarter in Q3, and that may now actually result in some sort of softness in Q4. So I don't think it's appropriate to roll forward that 10%. Obviously, we have some sort of conservatism as we want to make sure that we can sort of deliver. But commodities is an incremental headwind coming against you. The broader sort of volumetric story doesn't seem to be improving anytime soon. And you got a really sort of tough comp that last Q4, you did enjoy a whole bunch of volume related to hurricane and other sort of special waste cleanup that we're not seeing sort of materialize. So I think it's an appropriate degree of guidance. Is there a little bit of conservatism in there? Sure. We hope to be able to do better versus doing worse. But I would factor in the commodity and just that timing cadence before just extrapolating the Q3 results to an expected outcome for the year as a whole. Operator: We have our next question comes from Konark Gupta from Scotiabank. Konark Gupta: I wanted to touch on the sustainability targets you guys set out at the Investor Day, specifically as it pertains to RNG, I guess. I mean the commodity prices, right, like they have been volatile this year so far and what you expect for next year. But I mean, it doesn't seem like the RINs are trending at the range that you guys were assuming back then, maybe they rebound next year. But do you need to reevaluate any of these RNG projects or investments as you consider the current commodity prices? Patrick Dovigi: Yes. I think, again, everyone got a little bit -- and everyone seems to tend to forget where the RIN prices were when we actually embarked on these projects. We underwrote these projects had a $2.25 RIN. Yes, over the last couple of years, RINs under the last administration ran to $3 to $3.25, and that just made the profitability of those and paybacks of those RNG build-outs look that much better. But that being said, we always underwrote at $2.25. So we still feel very confident about where we are in terms of returns on invested capital, coupled together with obviously, bonus depreciation and other things that we were able to use on some of the build-outs just make the returns look that much better. As we articulated last quarter, we did slow things down a little bit, just ensuring that the administration wasn't going to make drastic changes to the program, which they didn't. So yes, we moved some of our RNG project build out 6 to 12 months sort of to the right. But from our perspective, we are -- we do have plans now to sort of ramp that back up, back half of this year as we started and now into next year. So we will restart that program. But from our perspective, at a $2.25 RIN, returns on invested capital are very good. Paybacks are still sort of 3 to 3.5 years versus the 1.5 to 2 years we were getting when RINs ran to $3 to $3.25. But if you look at the forecast of what a lot smarter people than me are forecasting in terms of the RIN program, people are forecasting back to high $2s, low $3s over the next couple of years. But that being said, our investment case is based on a $2.25 RIN. And even at a $2.25 RIN, we feel very comfortable about where the returns are at that. Konark Gupta: Okay. That's great color. And Luke for you, I think on the leverage side of things, I mean, it creeped up, obviously, in Q3. And I think you're expecting to now finish the year around those levels, roughly speaking. But in terms of philosophy for leverage ratio, I mean, I think you guys have like the buyback opportunity has increased now given the stock price and the M&A kind of remains pretty high. I mean, would you be comfortable kind of like remaining in this range, like low to mid-3 or something for the foreseeable future, like as long as you have these opportunities? Patrick Dovigi: Yes. I think as we articulated at Investor Day, as we continue to articulate, we'll be opportunistic, low to mid-3s is where we want to be, given the free cash flow generation, the free cash flow ramp over the next couple of years, we feel very comfortable operating in that space. And we have ultimate operating flexibility, as we said, one, to buy back shares; and number two, to execute on the M&A pipeline. Operator: We have our next question from Bryan Burgmeier from Citi. Bryan Burgmeier: Maybe just following up on RNG. Luke, I heard you call out the benefit for 2026 from the M&A rollover and the EPR. Are we still expecting another kind of incremental step-up from RNG next year? And then I think there's maybe a larger step-up into 2027. Is that still accurate? Luke Pelosi: Yes, Bryan, thanks for the question. '26 is rather muted in terms of production volume. Now the incremental production volume really as you had facilities come online in '25 and are now fully ramped is probably offset by today's RIN pricing. So modest incremental amount in '26, but it really is '27 and into '28 when you get the sort of next leg up. So we'll put a pin in our guide depending on where RIN prices are at the beginning of the year when we speak in sort of February. But the expectation where I sit today is the modest incremental units of RNG will be offset by the year-over-year price declines. And it's really '27 and '28 where we'll get that next leg up in tailwinds. Bryan Burgmeier: Okay. Yes, makes sense. And then just one more question for me. You've spoken a lot about price on the call, but maybe just any details on sort of the restricted price versus the open market price and how that sort of trended in the back half of the year? And if you have any preliminary thoughts on '26, that would be helpful as well. Luke Pelosi: So look, I'd say our blended kind of pricing is typical cadence, what you're seeing open market commercial industrial is high single-digit numbers. your residential sort of restricted is on the lower end of mid-single digits. And then as you're getting renewals and contracts being reset to appropriate pricing for today's cost environment, you're seeing the higher end of mid-single digit, touching high single-digit price blending to sort of residential collection pricing in the higher end of sort of mid-single digit. Post collection, you're seeing that sort of healthy mid-single-digit sort of level. So we continue to like the industry, be constructive of the narrative that we need to move our restricted pricing off of CPI-related indices as it doesn't necessarily accurately reflect our underlying cost structure. I'd say we're in the nascent stages of that migration vis-a-vis some of our competitors, but certainly something that we're sort of supportive of, and we'll continue to sort of move forward. But I'd say we view the pricing in our industry continue to remain rational, disciplined and sort of healthy. And I think all of us are unwilling to give away our valuable services at rates that don't provide appropriate sort of levels of return. So we're going to continue to do that. As we round out the year here, we'll form a view on 2026 expected internal cost inflation, and you're going to see us pricing at a blended level in excess of that in order to generate the return that the shareholder group is looking for. Operator: We have our next question from James Schumm TD Cowen. James Schumm: Yes, I wanted to see if you could provide a little bit more color on those cost inflation expectations for next year. Should we be thinking about 4%? Or could it be as low as 3.5%? Luke Pelosi: James, it's Luke speaking. I mean, we're going to wait until '26 before we form a view. I mean, where I sit today, I feel it's very squarely going to start with a 4%. I know sort of CPI may be doing what it's doing. But when you look at labor costs across the industry, notwithstanding the current labor market, those numbers are going to be north of 3% on a blended labor cost number. You start thinking about the potential delayed impact of some of these tariffs or other sort of regulations starting to bleed through into spare parts and other items. I think there's a very viable path where your cost inflation on those amounts is something higher than a mid-single-digit number. And then again, people focus on sort of labor and labor stand-alone. But when you think about medical costs and other benefit costs in the U.S., those are accreting every year at something well north of sort of 3%. So when you put that all together, I'm expecting a number that starts with a 4%, but we are going to wait until 2026 to put a finer pin in that, James. James Schumm: Okay. And then just on pricing, are you trying to -- based on your earlier answer there, you're in the early stages of trying to move off CPI. Are you trying to move to CPI water, sewer, trash or is it -- would you want like just a 4% number? Or where are you trying to go with that? And then as we think about pricing next year, you're at roughly 6% this year, and you noted some benefits from EPR this year. Is that -- I mean, I think we're all expecting that number to be lower -- but do those onetime benefits mean that we see like a larger move lower because you won't have as much of those EPR benefits? Or just if you could give any help there, it would be appreciated. Luke Pelosi: So Jim, I'll take the latter part, and I'll pass it to Patrick how we think strategically and moving... Patrick Dovigi: Canada, I mean, breaking apart Canada and U.S. Canada obviously doesn't have sewer sort of water trash index. That being said, the trend we're seeing in Canada is -- and what we're pushing for is going to Luke's point, headline CPI is not reflective of the true cost of our business to operate our business. So what we're pushing for a lot of the contracts are fixed price increases of high 3s to 4%. If we don't see that, then we're pricing it in day 1. I think we're articulating the story to our customers that, hey, we need this price in order to continue to be competitive and give you the best service that you've been experiencing to keep the best drivers. And that has been received fairly well. This is more of a phenomenon on the sort of on the municipal collection side as well as sort of the landfill transportation processing facilities because obviously, on the commercial book, we can price where we need to be based on what we believe our CPI is internally at the time. But yes, and obviously, in the U.S., wherever we can, we obviously want to move to a more favorable index than CPI, which is not reflective of our sort of business cost. But that trend is sort of happening. It's been more of a West Coast phenomenon, truthfully in the U.S. than it has been on the East Coast. But we are looking for the same type of opportunities that we -- that exist in the West Coast move to the East Coast. And whether that's fixed pricing, whether that's moving to another index, or whether it's pricing it in sort of day 1, we are sort of finding that solution. Luke Pelosi: And then, Jim, on your second part of your question, as you think about next year's pricing, high level, you're absolutely right. This year, you're getting the benefit of the sort of EPR ramp manifesting in the pricing line. The incremental ramp next year will be manifest more in the volume line. So you can think between 75 to 100 basis points of this year's price is by virtue of incremental EPR ramp. So if you were to sort of back that out on the basis, you'd only be getting a portion of that next year. Yes, you would be looking at a pricing level something closer to 5% than the 6% that you're having today just on that math alone. But again, we'll save our detailed pricing guidance until we speak to you again in February. Operator: We have our next question comes from Michael Doumet from National Bank of Canada. Michael Doumet: Just going back to pricing, the incremental price recognized in Q3 versus Q1 60 basis points. How much of that was recognized from surcharge implementation? And again, I'm just curious how much more is there to go get? And would that flow through into 2026 incremental to whatever underlying price expectation? Luke Pelosi: Yes. Michael, it's Luke. Thanks for the question. Look, the surcharge absolute quantity it gets complicated as you think about sort of volumes puts or takes and volumes attracting a different degree of surcharge. But holistically, I think we said in the Investor Day, there was a $50 million to $60 million price. Forgive me, I might be a little off, I'm not trying to recast the guide. whatever the number we had said in the Investor Day, I don't have it right in front of me. I think the idea was we're going to ratably recognize that over the next sort of couple of years. I think we've had great success in 2025 and starting the recognition of that earlier than anticipated. And so you're seeing that come and sort of support the overall pricing number this year. But we remain well on track to realize that overall price as it relates to ancillary charges that we had articulated over that sort of '25 through '28 period. Michael Doumet: And Patrick, you made some remarks on first half '26 M&A. And given the second half '25 looks to be pretty deal heavy, I would have thought maybe that you would be working down your M&A pipeline into the year-end. But from your comments, it sounds like you're actually going the other way and potentially entering '26 with a healthy pipeline. Is there anything specific driving the larger pipeline or more of the activity that maybe larger deals that you can comment on? Patrick Dovigi: Yes. I think we spent the last half -- sorry, the last quarter of '24, really focused on repatriating capital and simplifying the business, which was really coming up with a plan for the EES business and completing that transaction, which was an $8 billion transaction. And then around GIP and which we always said. So we spent the first half of '25 focusing on those divestitures, which got executed. We said the M&A pipeline for GFL would be back half of '25 weighted, which you're seeing. We had a high level of confidence given the pipeline that we had built the stuff that was going to close in '25 or H2 sort of '25. And then when I look at H1 '26, again, these are all opportunities that we've been working on for a long period of time, relationships we've been fostering for a long period of time, sellers that want to deal with us. These are not bank run processes. These are opportunities that are sourced by ourselves with relationships from either myself or the team sort of in the field. And where I sit today, I think as we said at our Investor Day, $750 million to $1 billion would be the sort of average spend and there would be years where there would be a higher level of M&A. And I think when I look at what we have teed up for H1 of next year and then opportunities that are in the hopper, I think we're going to have a bigger year on M&A next year than we've had this year. And I think that could be 50-plus percent higher than what we did this year. So we feel very comfortable with that. Again, back half of '25, as you're seeing and what we've articulated has been strong. And first half of next year looks to be very strong as well and a lot of opportunities that will backfill into the second half. So we're feeling very good about the M&A pipeline for next year. And as I said, it's -- for us, in the markets where we want to be, again, focused on opportunities that are in existing regions where we can leverage existing infrastructure, we believe those are going to get the highest returns on invested capital for us. And that's where we're focused, and that's where we're focused on executing. We're not looking to buy a business in a new geography at the moment. These are all things within the existing footprint that work with our existing footprint that we can leverage those post-collection assets, and that's what we're focused on. Operator: We have our next question comes from Tobey Sommer from Truist. Tobey Sommer: I want to follow up on that M&A comment for next year. I'll just clear pricing for now. Given the more permissive U.S. antitrust posture, is that a factor that could lead to larger deals for GFL or maybe within the industry over the next 3 years? Patrick Dovigi: If you're thinking about a mega merger, now is probably the time. I don't think, from my perspective, much has changed in terms of the HSR and the regulatory environment under the old administration, the new administration. That being said, 95% to 99% of deals that we do don't even require HSR approval because they're under the threshold. So the lion's share of what we do is falling under HSR. Yes, we might have 1 or 2 that exceed. But from where we sit today, we haven't seen much of a change. But I think if someone was trying -- wanting to do something much larger, this would probably be the administration to do it under. Tobey Sommer: Appreciate that. And then curious what you think the upper bound as a percent of sales you think the business can have associated with commodity-related areas within the portfolio and still warrant that higher multiple versus the current dislocated price. Patrick Dovigi: Yes. I mean commodities today are sort of a relatively de minimis number. I mean, not only for us, but sort of for the rest of the industry. I mean what do you have going in that bucket? You have RNG today that would have a little bit of volatility and then you have sort of all the recycling volumes. I think today, where we all sit today, I think the entire industry is that sort of sub-10%. These are very good margin accretive assets that we want to own regardless. And I think most importantly, meets the returns on invested capital thresholds that we all basically run our businesses on. So from my perspective, again, do you want to have that number 20%? Absolutely not, but anywhere sort of in the 10% to 15% range, I think is more than comfortable, particularly with the structures that we all have today. Operator: We have our next question from Chris Murray from ATB Capital Markets. Chris Murray: Turning back to some of the self-help initiatives and thinking about this, you go back to the Investor Day. And at the time, your CEO had been in the chair for about a month. Maybe had a little more time to think about the operation, and look, there was all kinds of levers. There was technology, there was turnover, pricing strategies, things like that. But just thinking about ideas as we go into 2026, where do you feel you are on the self-help levers at this particular point? And are there any new opportunities you're starting to uncover or think about doing? I guess what I'm trying to figure out is where we are in the margin kind of catch-up or progression against the rest of the industry and anything you think you can do on the MSW business to drive margins over the next couple of years? Luke Pelosi: Chris, it's Luke. Great question and something that hopefully, we're demonstrating we're sort of delivering on quarter after quarter, continuing to lead the industry with the margin expansion and being able to beat our -- the guide that we lay out that's already inclusive of industry-leading expansion. But you said Billy was in the seat for just a month. I mean, Billy has been here with us for years and has been an active sort of member of the operational and senior executive leadership team all that time. So it's not as if we put together that sort of plan with imperfect information per se that has been sort of well crafted and Billy was an author of that over the sort of years leading up to that Investor Day presentation. So I'd say our strategies and/or focuses have not changed. In Patrick's remarks, you heard him say that we are clear and our focus is singular, and I would echo that. Those are what we believe to be the highest and best use of our time and efforts in terms of award that's going to come out, so it is the area of focus. In terms of the cadence by which we are realizing that, look, every quarter with which we exceed our otherwise provided EBITDA guidance, we are doing better than a pro rata ramp, right? So if you say in that presentation, we said we're going to go from X to Y from '25 to '28. Well, this year, we've now just added 20 basis points to our margin expansion that we said at the beginning of the year. Well, that puts us that much further sort of ahead of the curve. So we're feeling really good. I don't think the levers are going to materially change over this window of the medium term. Those are going to be the things you're going to hear us talking about. It will get boring, but hopefully, the sort of results are anything but that. So I'd say we're feeling very good about our progress towards those goals. And as Patrick alluded to, the setup we have going into '26 makes us feel that we'll get even further ahead of that otherwise pro rata cadence. Operator: We have our next question from Will Grippin from Barclays. William Grippin: Just one question for me here. I wanted to come back to leverage. Obviously ticked up a little bit quarter-on-quarter on a trailing 12-month EBITDA basis. Just given your comments around possibly ramping share buybacks here and a very strong M&A pipeline and outlook into 2026, how should we think about maybe the trajectory of that leverage ratio over the next several quarters? And I know you kind of reiterated the low to mid-3x target, but should we think about this not being sort of a straight line down? Maybe there's more variability quarter-to-quarter just around actual capital deployment? Patrick Dovigi: Yes. I mean leverage, again, we spent time moving leverage from low 4s to low to mid-3s. And I think we've made a commitment that we will keep leverage that will toggle between low 3s and mid-3s. So you'll see us reinvesting the free cash flow of the business based on those sort of leverage targets. So that's what we're focused on. Luke Pelosi: Yes. Well, I mean, there is a seasonal cadence, obviously, naturally with the free cash flow. Q4 is a higher free cash quarter. And so you'll see the generation and the reduction in debt coming out of that. But then buybacks and M&A can sort of augment that otherwise organic cadence. But in a given year, it's not going to be perfectly straight line because the pace of M&A and/or buybacks and/or just general underlying free cash flow won't be a perfect straight line. But I think what you hear is the sort of absolute commitment to live in and around these ranges. And obviously, if there's a higher level of sort of M&A at one point, then you afforded the opportunity to sort of temporarily pause as you then bring leverage back in and so on and so forth. So it's not going to be perfectly straight, but it will be absolutely committed over sort of 4 quarter period to live within the sort of ranges that we're talking about. Patrick Dovigi: Well thank you, everyone, for participating today. And -- sorry, operator, is that the end of the last question? Operator: Yes. Thank you. Patrick Dovigi: Okay. Thank you, everyone, and we look forward to speaking with you in February when we report our full year results and giving our full outlook for 2026. Operator: Thank you very much. This concludes today's call, and thank you for your participation. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Commerce Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Tyler Duncan, Vice President, Finance and Investor Relations. You may begin. Tyler Duncan: Good morning, and welcome to Commerce's, formerly BigCommerce's Third Quarter 2025 Earnings Call. We will be discussing the results announced in our press release issued before today's market open. With me are Commerce's Chief Executive Officer, Travis Hess; and Chief Financial Officer, Daniel Lentz. Today's call will contain certain forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning financial and business trends as well as our expected future business and financial performance, financial condition and our guidance for both the fourth quarter of 2025 and the full year 2025. These statements can be identified by words such as expect, anticipate, intend, plan, believe, seek, committed, will or similar words. 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, by their nature, address matters that are subject to risks and uncertainties that could cause actual results to differ materially from expectations. For a discussion of the material risks and other important factors that could affect our actual results, please refer to the risks and other disclosures contained in our filings with the Securities and Exchange Commission. During the call, we will also discuss certain non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures as well as how we define these metrics and other metrics is included in our earnings press release, which has been furnished to the SEC and is also available on our website at investors.commerce.com. With that, let me turn the call over to Travis. Christopher Hess: Thanks, Tyler, and good morning, everyone. Q3 marked another solid step forward for Commerce. We delivered revenue of $86 million, in line with our guidance range. Non-GAAP operating income reached $8 million, which significantly exceeded the high end of our profitability guidance while operating cash flow came in just under $11 million. For the 12 months ending September 30, 2025, we had total revenue of $340 million and non-GAAP operating income just above $30 million. For the 3 months ended September 30, 2025, we had approximately 80.8 million common shares outstanding and 81.3 million fully diluted shares outstanding. We are now in full execution mode, and our focus is on scaling profitable, sustainable growth across each of our core offerings. AI is reshaping how customers discover, evaluate and purchase products. The future of commerce is intelligent, composable and agentic. Traditional e-commerce flows are shifting to conversational discovery, personalized curation and increasingly autonomous purchase journeys. AI agents like ChatGPT, Gemini, CoPilot and Perplexity are fast becoming the entry point for commerce. This requires a fundamental shift in how merchants think about visibility, relevance and conversion. When product discovery begins with a prompt, not a home page, it is the quality of data that determines whether you get seen, chosen and purchased. We've architected Commerce to meet this shift head on. Feedonomics syndicates enriched structured product data into all major AI services. Merchants can surface their catalogs in the exact context where intent is detected and decisions are made. We are building and launching new products anchored by Feedonomics to meet this need, and we see strong pipeline signals emerging as we head into the holiday period. Similarly, Makeswift empowers marketers to build and update AI optimized site experiences in real time without writing code. Through our open modular platform, merchants can seamlessly integrate AI-driven services whether it's agent-assistant support, dynamic pricing, intelligent fulfillment or automated merchandising directly into their stack and at their own pace. Last week, PayPal reinforced our shared vision by publicly announcing a new initiative focused on enabling agentic commerce and named Commerce as a strategic partner in that effort. This recognition underscores our leadership position for an AI-led future. It further validates the architecture, openness and data infrastructure we built over the last year. This isn't a theoretical roadmap. It's already happening. Our partnerships with Perplexity, Microsoft, Google and Stripe and PayPal are examples of how we're building for an agent-led world where intelligent commerce needs to be fast, adaptive and always on. Whether the buyer is a person, an algorithm or a fully autonomous agent, Commerce ensures our merchants remain discoverable, performant and in control of their customer experience. Our B2B momentum also remained strong in Q3. We continue to attract some of the world's most respected brands. We welcomed ADI Global, a leader in security and low-voltage distribution; Big Ass Fans, a global manufacturer known for its high-performance industrial and commercial fans, and Pantone, the world's authority on color standards and design tools. We also celebrated successful new launches from innovators like F&C Distributors, Hengstler-Dynapar and Fisher Tools Handles all choosing Commerce to modernize and scale their businesses. In Q3, IDC validated our platform's impact through its study The Business Value of BigCommerce B2B Edition. IDC found that B2B Edition customers achieved a remarkable 391% 3-year ROI, a 24% boost in sales productivity and an 82% improvement in platform stability. In addition, Gartner once again recognized BigCommerce for its fully integrated B2B capabilities, including native CPQ, our strategic partnership with PROS, and the continued evolution of our Catalyst storefront for B2B experiences. When we announced our new Commerce parent brand last quarter, I committed to take steps to unify our product portfolio. Today, I want to share a couple of steps we have taken in this area that also demonstrate strategic progress with small business customers. In Q3, we launched Feedonomics Surface, a feed management product available to all BigCommerce merchants. Surface gives merchants an easy way to connect and optimize product feeds across Google and Meta directly from their control panel. It represents a clear step forward to bring enterprise-grade capability down market. Future upgrades will include additional paid features such as advertising channels and agentic channels, data enrichment tools and AI-powered feed optimization features. We also remain on track with the planned launch of Makeswift on Stencil in 2026. We are also proud to announce that we are bringing Feedonomics order orchestration capabilities to BigCommerce customers through Feedonomics order orchestration. This capability was previously available only through the larger Feedonomics bundled product suite. It gives merchants the ability to optimize fulfillment across locations with efficiency and control and is now available a la carte to pilot merchants on both BigCommerce and Shopify. It is another step towards realizing our vision of unified commerce from feed to fulfillment. Earlier this week, we announced the launch of new capabilities for Shopify merchants through 2 applications: Feedonomics for advertising and Feedonomics for listings and orders. These 2 Feedonomics applications are available on the Shopify App Store and provide a robust foundation that empowers merchants and partners to manage complex cross-platform operations. Shopify merchants can improve product discoverability, increase advertising performance and drive additional revenue for their businesses. In Payments, we announced a new embedded payments offering in partnership with PayPal, BigCommerce payments powered by PayPal. This new co-branded solution will launch in early 2026 and will offer full stack payment capabilities embedded directly into the BigCommerce control panel. Merchants will be able to manage balances, payouts, currency conversion and settlement, all from within our platform. We believe this will strengthen retention, expand wallet share and bring modern payment functionality to thousands of small and midsized customers. Looking back on our progress so far in 2025, I see a lot to be proud of and a lot that must still improve. We drove a tremendous amount of organizational change this year, changes in strategy, operations and leadership. That said, we need to grow faster, and we need to do so more profitably. That is our focus as we enter 2026 planning. We see a clear path to greater sales and marketing expense efficiency through multiple levers, including partner-led distribution with global system integrators like Accenture, simplified product packaging and pricing for mid-market customers, and tighter resource alignment across key verticals. Taken together, our rebrand to Commerce, our bundling strategy, and our leadership position in agentic commerce are all aligned to deliver measurable results for both our customers and our shareholders. With that, I'll turn it over to Daniel to walk through the financials. Daniel Lentz: Thanks, Travis. For those of you who are newer to our story, Commerce serves tens of thousands of accounts globally, including just under 6,000 accounts using our enterprise plans. Our platform powers both B2C and B2B ecommerce for leading brands and manufacturers, with capabilities that span storefront infrastructure, data syndication, and visual design. Our Feedonomics product sits at the center of our data strategy. It ingests, enriches, and syndicates product catalog data across channels like Google, Meta, Amazon, and, increasingly, AI-driven surfaces like OpenAI, Perplexity, Gemini, and Copilot. This enables merchants to increase discoverability, drive marketing spend performance, and optimize channel-level return on ad spend. As of the end of Q3, our annual revenue run-rate was approximately $356 million, with 76% of ARR coming from customers using enterprise plans and corresponding average revenue per account exceeding $46,800. Our multi-product model combines recurring subscription revenue from our core platform and Feedonomics with revenue share from a curated ecosystem of technology and service partners, all underpinned by a disciplined operating model and strong balance sheet. We remain focused on delivering profitable, high-quality growth by expanding share of wallet within our installed base, acquiring new merchants, and scaling emerging self-service product lines across small and mid-market businesses. In Q3, we delivered revenue of $86 million, a 3% increase year-over-year and consistent with our guidance range. Non-GAAP operating income landed at $8 million, or 9% of revenue, which exceeded the high end of our profitability guidance by nearly $5 million. This represents a 413 basis point improvement year-over-year. Operating cash flow was approximately $11 million, marking our second consecutive quarter of double-digit operating cash flow margin and further demonstrating the operating leverage in our model. ARR ended the quarter at $356 million, up 2% year-over-year. Enterprise ARR represented 76% of total ARR compared to 74% in the prior year with average revenue per enterprise account reaching 46,806, a 7% increase from Q3 of last year. Non-GAAP gross margin came in at 79%, and we maintained cost discipline even as we reinvested in product development and sales enablement. Partner and services revenue grew modestly to just above $21 million, up 2% year-over-year. We also strengthened our balance sheet. We closed Q3 with approximately $143 million in cash, cash equivalents and marketable securities. Our net debt position is now just under $11 million, reflecting an 86% decrease since Q3 of 2023. Additionally, as of December 31, 2024, the company had net operating loss or NOL carryforwards for U.S. federal income tax purposes of approximately $249.7 million which we expect to continue to offset taxable income in future periods. For the 3 months ended September 30, 2025, we had approximately 80.8 million common shares outstanding and 81.3 million fully diluted shares outstanding. This strong financial position gives us the flexibility to invest where we see compelling ROI opportunities and maintain discipline in our operating model. Before I turn to guidance, I want to briefly discuss how AI is also helping drive monetization opportunities across our business. As more discovery and decision-making shift to agent-led interactions, the value of structured high-quality data and the platforms that manage it increases significantly. This trend plays directly into our core strengths. Feedonomics Surface, which we launched this quarter, starts as a free product for BigCommerce merchants. It also includes a clear and scalable monetized upgrade path. As merchants grow, adopt more channels or require deeper feed customization and optimization, we can monetize that growth through premium feature tiers. Similarly, BigCommerce Payments powered by PayPal set to launch next year, will generate monetization upside through payment economics and deeper merchant engagement, all within a model that keeps us aligned with merchant success. In both cases, these are product-led growth motions designed to start simple, scale with the customer and create sustainable revenue streams that improve average revenue per unit and strengthen retention over time. Let me now turn to guidance. For Q4, we expect revenue between $87.8 million and $92.8 million and non-GAAP operating income between $4.3 million and $9.3 million. For the full year 2025, we are updating guidance to reflect our Q3 execution and improved visibility into year-end performance. We now expect full year revenue between $340.6 million and $345.6 million. We expect full year non-GAAP operating income between $24.7 million and $29.7 million, with a midpoint of $27.2 million, representing a $5.2 million increase from our prior midpoint of $22 million. As we look ahead, we are focused on efficiency and operating leverage and top line revenue motions. We're focused on scaling responsibly, growing profitably and driving continued operating leverage across our business. We believe the investments we're making in product innovation, solutions bundling and go-to-market efficiency will continue to deliver meaningful returns in 2025 and beyond. With that, Travis and I are happy to take your questions. Operator: [Operator Instructions] The first question today comes from Ken Wong with Oppenheimer. Hoi-Fung Wong: Fantastic. I want to start with you, Daniel, hoping you could maybe address the sequential decline in enterprise ARR and the downtick in enterprise customers would just love a sense of kind of what's happening there and maybe what you're seeing in terms of how that might trend going forward? Daniel Lentz: Yes, Ken, thanks for the question. I think what we're seeing there is kind of just a reflection of where we're at in progress through the year. We wanted to be a little bit further along in bookings by this point in the year than where we are. Really, it's a function primarily of net revenue retention last year and the year before, we were around 98% or 99% in net revenue retention. So far this year, we're in a very similar place. And we are absolutely focused on what we're doing in that area of the business and focusing on our existing customers and existing customer expansion to help drive that. I think broadly speaking, what we're seeing in the market, a lot of the energy and focus is in what's going on in AI and agentic which is good for us because we've got a ton of stuff coming through there, which Travis will speak to here in a minute that we think is going to build a lot of momentum there. It's been just a little bit tougher on the platform side, which I think is what's really reflected in those numbers. Hoi-Fung Wong: Perfect. And then, Travis, in your prepared remarks, you alluded to seeing some strong signals into the holiday season. I would love if you could perhaps expand on that and just help us think through how things might play out this Black Friday, Cyber Monday, Christmas season and kind of how that's kind of baked into your expectations? Christopher Hess: Yes. Thanks, Ken. Yes, I think a lot of the momentum, as Daniel just alluded to, is certainly around the AI piece. We've had several very large branded manufacturers, retailers in closed beta for the last couple of months around AI readiness. We're kind of adding to that on a weekly basis. We'll share more about that, obviously, in next quarter's call. But that's where a lot of the peak demand is in. It's a lot of what we're doing in some of the larger GSI motion around distribution, particularly with Accenture, having had a tremendous amount of shared clients between themselves and us, particularly on the Feedonomics side where that's on the B2C side is where almost all of the momentum is right now just given the time of year. So right now in discovery, it's starting to trickle into shopping, but certainly, that's where most of the efforts, most of the energies are and to Daniel's point, we're sitting in a, I think, a really nice spot with obviously the existing installed base on the Feedonomics side, and that will trickle into more Makeswift stuff as we get into more brand agents, merchant agents, things like that, that are expanding pretty quickly in here into Q4 that we'll have more to share obviously in next quarter's call. But that on the B2C side is there. On the B2B side, we've had strong momentum on platform for most of the year. We kind of talked about that in the prepared remarks. We're continuing to see that into Q4 as well. But on the B2C side, it's been mostly on the data front on the AI front. That's helpful. Operator: Next question comes from DJ Hynes with Canaccord. David Hynes: So Travis, we've obviously seen a number of e-commerce platforms start to partner with these answer engines, right? It feels like a little bit of a land grab, which makes sense given where we are in the cycle. Can you guys maybe talk about competitive dynamics of discoverability as it relates to these answer engines. Is it going to come down to who has the most store front, who has the most traffic stores, who has the best product data? I guess I'm curious if it's a function of who has the better product or who gets there first? Any color there would be helpful. Christopher Hess: Yes, it's a great question. We very much believe it's the quality of the data. It's not just the structured data. It's going to be unstructured data. That's combined. And what I mean by unstructured data is anything from product spec sheets to brand guidelines to call center transcripts to articles, to blogs, to ratings and reviews, user-generated content, you name it. All of those assets can be combined with typical structured data that were already enriching and syndicating and that quality of that data and how it's being syndicated into these answer engines per their spec and ultimately, the hypothesis of how we're optimizing to potential prompts and the feedback and analytics associated with that is ultimately going to drive the most amount of efficacy in our opinion. Obviously, we're sitting on many, many of some of the largest branded manufacturers and retailers on the Feedonomics side today. I mean that is our moat, the fact that we have the most enriched basis of their catalog and their product data today to syndicate that in we feel very strongly. As it relates to shopping and monetization, we very much view being open and agnostic is a massive advantage. We don't have a walled garden. We don't need to commercialize it by pushing it through our checkout. We're seeing several different models where that would go through other people's rails, some models now that would disrupt traditional channels where we go through our rails. You saw our announcement around PayPal last week. You're starting to see some of the payment providers that have broad reach that have security and identification capabilities that are starting to play in this as well. I think the reality of it is embracing a standard, embracing to be in enrichment of both structured and unstructured data, the enrichment of such and being able to syndicate that at scale agnostically regardless of the commercial model or regardless of where the market takes us, we think, is the ultimate advantage. And it's hard to read the tea leaves for those not in the space because it seems like every week, it's changing and seems to be, one, trying to disintermediate somebody else, but the reality of it is that openness coupled with the existing client relationships and what we're doing on a day in and day out basis, we feel is a massive advantage for where we are. That's helpful. David Hynes: Yes. Yes. No, it's super helpful. And then, Daniel, maybe a follow-up for you. I mean, obviously, margin progression has been a bright spot during this period of slower growth. You gave us a really wide range for Q4, wider than you normally do. Just talk about what you're contemplating in that? What kind of gets you to the high end of the guidance, what gets you to the low end of the guidance? Or how are you thinking about planned investments for Q4? Any color there would be helpful. Daniel Lentz: Yes. Let me first just address the guidance question really quickly, and then let me just talk about kind of progress in general. So from a guidance range perspective on the revenue side, we've got a range of about $5 million. A lot of that for me really lands based upon where things come out with the consumer and where is the holiday shopping season and where does that land? I think we're just giving ourselves a little bit of room there to see how that can shake out. Just based on the fact that there's a lot of things we see that are really resilient and good on the macroeconomic side of things, but there's also just some signals that just make us be a little bit cautious in that. But we were not intending to signal some sort of bigger risk level than what we've seen in previous holiday period, some of that's just conservatism. What I'd say like just to focus on what I liked so far and what we've seen in the year and what we've seen, particularly on the quarter. I mean we've posted stable revenue growth. We've got new products launching with more in pipeline that we think can drive stronger growth in 2026. That's really the focus. The pace of new launches, what we've already shown, whether it's Feedonomics Surface or a whole host of other things. I'm really encouraged by, we have more new products coming out in the AI space, particularly in Feedonomics. I can't even keep up with how many of them there are, actually, which is a big shout out to our product team, which I appreciate. We delivered revenue in line with expectations. Like you said, we had really meaningful improvement to profit and cash flow. Profit margins were up 413 basis points versus a year ago. Operating cash nearly doubled versus a year ago. And we've eliminated nearly 90% of our net debt in the last 18 months without reaching our growth potential to get there, which I'm really proud of. We're still seeing good improvements in average revenue per account, was 7% last quarter. I'd also call out there that's broad-based across all customer sizes. We're actually seeing, in some cases, even better ARPA growth with some of our smaller customers that aren't buying enterprise plans, which gives Travis and I a lot of bullishness going in planning for next year and thinking about what's the upside we see in this business, even with some of our small and medium-sized customers, which is, I think, really encouraging for next year. And we're also -- last thing I'd just call out is, we're still seeing really good progress on bookings quality. Deferred revenue was up 28% versus a year ago. And I expect RPO to go up meaningfully in our Q4 results as well, now that we have a new agreement signed with PayPal and some other agreements as well. So by and large, I mean, like you said, in terms of quality of bookings and quality of revenue, I feel really good about it. Going into next year though we think that we can do a lot better, not just in growth, but really delivering value to shareholders next year, looking at what we're doing in profit and cash flow and what we think we can do with that. We're not at all satisfied with what we've been able to deliver so far this year, and we are kind of laser-focused on how we can deliver better shareholder returns on those areas next year. Operator: Next question comes from Maddie Schrage with KeyBanc. Madison Schrage: My first one is just maybe could you talk about which of your new product rollouts you're most excited for in 2026. And then I'm also curious, are there any early learnings from Feedonomics Surface? And is the intention to always keep this only for big commerce customers or maybe open it up later? Christopher Hess: Maddie, thanks for the question. Oh, gosh, to pick a favorite, I'm going to have folks on the product side, someone's going to be mad here. Honestly, Feedo Surface coming out probably, I will say, too, Feedo Surface, which we just released to GA, it's the most downloaded app in that App Store for us. There's only 2 channels today. We're obviously looking to expand that substantially. Really excited about that. We've not had a lot of product-led growth here. Quite frankly, it was one of the big things that I wanted to change when I first came in, kind of started with leadership, went into go-to-market, evolved into, obviously, the rebrand and the last is really product. We've had a high reliance on growth based on landing new accounts. When I got here, it's just not a sustainable model. We need to be able to sell more into the existing installed base and obviously, service is the first of many in doing that. So really, really excited about that. To the second part of that question, yes, the plan is that Feedo already runs agnostically today. You saw us in the prepared remarks, talked about partnership with Shopify, we've been supporting that for a long time. We have many, many Feedonomics clients that use Shopify as a commerce platform, which is great for them. They use Feedonomics for all of the enrichment and syndication across ads and marketplaces and presumably at some point into LLMs depending on the brand and the merchant. So really excited about that as well. And then on the Makeswift side, we talked about this in the prepared remarks as well. When we bought Makeswift, it was put into play by way of catalysts. So very high-end headless architecture. It was really targeted to some of our most sophisticated merchants that were net new, it was limited to net new. Obviously, putting that out on Stencil next year is going to be a massive move and upgrade similar to Feedo Surface. So really excited to do that. We're also exploring Makeswift on other surfaces as well as a Visual Editor. So very much taking an agnostic approach there as well, which we feel from a distribution perspective, could be very enriching to shareholders. Daniel Lentz: And one thing -- this is Daniel. Let me just add on that. Just to be really clear, we have already through Feedonomics given customers access to hundreds of channels. And it's not rocket science for us to extend those channels into Surface but do it at a price point that makes it much more sellable for -- not only our installed base, but to your point, we definitely think there's an opportunity in the future to extend Feedo Surface on to other platforms. I think we've been very deliberate, and I think Travis is being very deliberate in his language to reflect the fact that Commerce is a platform-agnostic company. We have a platform product that works for the part of the market that we're targeting. But we also partner with a lot of the other platforms that we compete with, with BigCommerce, and we think Feedonomics Surface in the future could potentially be something that could be great for other platforms to use with their customers as well. Operator: [Operator Instructions] The next question comes from Scott Berg with Needham. Scott Berg: Daniel, I just wanted to follow up on a comment you made a moment ago around your expectation that I think you said RPO is going to be up in 4Q with regard to the PayPal partnership. Can you maybe give a little bit more color upon that, at least I view the opportunities you have there are going to be more transactional than something that would be maybe hitting RPO. Christopher Hess: That's a good question, Scott. What I mean by that is there's a lot of elements within our agreements with different technology partners, some of which are purely volume-based, where you get a certain amount of take rate based on volume. Those elements to your point, don't typically hit RPO, but there's a whole lot of other economic arrangements within those agreements, whether it's the equivalent of slotting fees or development fees and otherwise. That does end up hitting RPO and part of why we've seen a flattish more looking RPO over the course of the last few quarters is because we've been approaching the end of the agreement with PayPal and needed to get to renewal. And that's where we will see that effect reflecting in the Q4 numbers. Scott Berg: Understood. Helpful. And then following on kind of the PayPal theme here is the Commerce for payments that you know are going to release early next year is as you're farther down that road right now and starting to think about '26, I know you're certainly not guiding for anything financially in '26. But how should we think about that impacting the P&L? Is it really just upside opportunity within the PSR revenue line item? Or is there maybe another impact there that I haven't considered yet? Daniel Lentz: Yes. Let me -- I'll address the question on the P&L side really quickly and then turn it over to Travis to talk about kind of what the long-term vision is for what this looks like. We talked at our Investor Day about the fact that we are at this time, not kind of going kind of as a full in payments process. So we're going to be taking on pricing, getting incremental spread from that, but we're still going to be recognizing this net on P&L. So I don't anticipate anytime soon, we're going to end up with a P&L that looks like fintech. We think this is going to be high margin revenue because of the fact that we're not going to be recognizing full interchange in cost of revenue. Christopher Hess: Yes, Scott, I'll just dovetail on that for a second. I think directly and indirectly signaling, I feel very differently than previous leadership about this. This is kind of the first step in monetizing this capability. And I would expect us to go deeper here into 2026, we'll probably have a little bit more to share about that in the next quarter's call as we set kind of guidance for 2026. But yes, hopefully, this is a shot over the bow that we're open to this. We think it's an interesting opportunity to bring value not only to shareholders, but to our merchants. And to the extent we continue to do that and accelerate it, we'll lean in pretty aggressively. Operator: The next question comes from Josh Baer with Morgan Stanley. Kathleen Alexis Keyser: Katie Keyser on for Josh Baer. I appreciate the question. Interesting to hear about kind of the unbundling of the Feedonomics order orchestration, you being kind of available a la carte for merchants. So maybe just a pricing and packaging question. I mean, first, how do you expect kind of the unbundling dynamic to drive this better adoption of the product? And then just related, any broader updates on pricing and packaging strategies, where are you leaning into kind of simplification and bundling relative to other areas of the platform that could be run kind of more a la carte like this? Christopher Hess: You bet. That's a great question. On the order orchestration piece, I've kind of alluded to this a few times in previous calls that with agentic in particular, obviously, it's front and center in discovery right now that, that's going to evolve into, obviously, shopping and will introduce a fair amount of complexity around order orchestration in particular, which Feedo was already doing behind the scenes. We've not touted it as a stand-alone SKU as a product that just kind of organically travels with a lot of these larger merchants as it relates to sinking inventory and pricing and availability across all these different channels as they're selling across different surfaces and channels. That's obviously extending into what we've talked about and offering it a la carte. I think there's a lot of investment going into that product, and we'll evolve it appropriately in market for availability just as things get more complicated as merchants are selling across different services. We view this as very much a cost savings element as well, maintaining obviously positive customer experiences by sinking all of this data is obviously pertinent in that experience as folks are selling across different channels, making sure they're not overselling in certain capacities. And so we'll continue to roll out elements of this to the point we made earlier. Sometimes it will be a la carte, sometimes it will be properly bundled. I'll let Daniel allude to some of the bundling and packaging strategy we've got coming up. But any time we see an opportunity as the market evolves to bring value and monetize or make it easier for a merchant, certainly, we're going to take an opportunity to go do that. This is kind of the first of many in the evolution of that product as it maps to what the demand and changes in markets. Daniel Lentz: And what I would add on top of that, look, we're always pretty transparent. We try to be really transparent about what we think has gone well and what we think needs to improve. If you look at where we are as a business, I think it reflects the fact that we've -- we are and will always be an open company and the way that we think about things. We want to give customers freedom of choice. We want them to be able to pick the solutions that are right for them. But we also want to create products that make it easy and seamless for customers to use the products. It's just easy to use. What that creates is an opportunity for us to actually improve the business model by creating more opportunities for cross-sell bundling or unbundling to your point, depending upon how we think about the product. The business historically has not focused enough on having a typical SaaS product-led growth self-serve upgrade motion, and it's reflected in the net revenue retention results that I spoke about earlier, and this is why it's a huge area of focus for our entire leadership team to do this. So if you look at Feedonomics surface or BC Payments as 2 examples of that. We've had Feedonomics as an upmarket product for a very long time, but it's at a price point that made it difficult to cross-sell into our mid-market customers. And we have tens of thousands of them on the platform, right? So by launching Feedonomics Surface, it's a free product to start with, but we're going to be introducing additional channels that will have either paid channels or paid features. So as customers adopt and grow and use the product, they are going to grow and expand what they're spending with us as a company. And there's a lot of ways that we're looking across the business model to say, how can we augment the existing product offering through bundling and partnerships and picking a couple of partners that are best in their area and building their solution into our so that it looks almost native. That's the bundling strategy. There's also another version of that where you can take the products that we have, like Feedonomics and say, "Look, we're going to put this at a price point that our core customers can buy, so we can expand adoption and usage" But we are also, again, in our ethos, open and we are agnostic. So how can we then extend that to Shopify customers? How can we extend it to WooCommerce customers and Wix customers. It's just a philosophically different way of approaching things that shores up the business model and we think creates a lot of upside to growth and efficient growth next year. But when Travis went through his list of areas of focus and the last one he mentioned was investments in product, we're not talking about new features and functions and things that we launched. What we're focusing on here are things that we think can be transformative to the economics of the business model and ultimately make this a lot more profitable for shareholders in the long run. Operator: The next question comes from Brian Peterson with Raymond James. Brian Peterson: Just one for me. Just as we're thinking about the overall demand environment and the pipeline of opportunities, would you say that's changed overall in 2025? And as some of the larger merchants are potentially thinking about AI initiatives, has that accelerated their investment in innovation or maybe that's taken a step back in terms of them evaluating alternatives? Would love to get some color there. Christopher Hess: Yes. I think we both alluded to it earlier, the demand for B2B has been consistent and solid. I think that was expected kind of coming into the year, and it's something that we've seen since I've been here to be the norm. On the B2C side, I think the behavioral change really over the last 6-or-so months as agentic has become front and center, obviously, that sucked a lot of the air out of the room, just given organic traffic dropping for a lot of these brand manufacturers and retailers, which has probably softened their demand for wanting to replatform. I'm not saying we're not winning deals out there. There's certainly deals out there to be won. But I would say, especially the larger ones, agentic has shifted their focus. I think you're seeing a blending of marketing and commerce organizationally. It's starting to catalyze a lot of transformation. We've been very deliberate in our partnerships, particularly around Accenture and how astute they are around digital transformation. They're obviously front and center of this as well with a lot of shared clients. And what you're seeing is a lot of energy and effort going towards optimizing one's data strategy within the organizations and how the organization needs to ultimately support that, where again, getting ready particularly around, obviously, Discovery right now is front and center. And then as this evolves into shopping, what does that look like from a branded manufacturer or retailer perspective, how do I protect that experience? How do I make sure that I'm serving up relevant contextual content and experience and product availability through those conversations? How do I protect the monetization of the brand experience? How do I protect my AOV? How do I ingest loyalty and think about security and everything else. And obviously, we're front and center in a lot of those conversations across all the different services and people are still figuring out some of those commercial models as well on the answer engine side. So that's where you're seeing a lot of the energy and the effort. I can't speak tangibly to what the monetary investment is at the merchant level. I can just tell you from an effort and an importance and an angst perspective, this is absolutely front and center and taking most of the air out of the room versus a replatform. I think folks know that replatforming is not going to solve this challenge. If you solve this challenge, it may do other things, but I think that's what's front and center right now if that's helpful. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Travis Hess, CEO, for any closing remarks. Christopher Hess: Thanks, everyone, for joining today. Looking forward to our Q4 call, where we'll share much more about 2026 and kind of the evolution of what we alluded to today around partnerships, advancement, momentum and lots of things we're excited for going into next year. So thank you all. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to the Cogent Communications Holdings Third Quarter 2025 Earnings Conference Call. As a reminder, this conference call is being recorded, and it will be available for replay at www.cogentco.com. A transcript of this conference call will be posted on the Cogent's website when it becomes available. Cogent's summary of financial and operational results attached to its press release can be downloaded from the Cogent website. I would now like to turn the call over to Mr. Dave Schaeffer, Chairman and Chief Executive Officer of Cogent Communications Holdings. David Schaeffer: Thank you, and good morning, everyone. Welcome to our third quarter 2025 earnings call. I'm Dave Schaeffer, Cogent's Chief Executive Officer. And with me on today's call is Tad Weed, our Chief Financial Officer. I'd like to recognize a number of significant events in the quarter and discuss a few matters and then turn things over to Tad. First, our program of return of capital and our aggregate leverage. Following extensive discussions with our Board of Directors and engagement with shareholders and bondholders, we have refined our capital allocation priorities to strengthen our financial flexibility and accelerate our delevering strategy. The decision to reduce our quarterly dividend to $0.02 per share per quarter was made after careful evaluation and will allow us to redirect capital towards reducing leverage, while remaining a disciplined approach to shareholder returns. Supported by our growth in EBITDA, recurring cash inflows under our IP Transit agreement and continued operational efficiencies, we will reduce our net leverage ratios. These actions position us for long-term growth and enhance the financial resiliency of our business. We intend to maintain our updated dividend policy until we reach a net leverage target of 4x EBITDA on an LTM basis. On our last earnings call, we stated that we believe our leverage had peaked on an LTM basis. We also indicated that amounts due to us under the T-Mobile payments on our transit agreement and purchase agreement should be considered in calculating our leverage ratios. We believe these amounts essentially represent both short-term and long-term cash amounts based on the credit quality of T-Mobile. Our total gross debt as adjusted for these amounts of T-Mobile for the last 12 months EBITDA as adjusted ratio was 7.74 last quarter and was reduced to 7.45 this quarter. Our net leverage ratio was 6.61 last quarter and 6.65 this quarter. T-Mobile pays us $25 million each quarter through the fourth quarter of 2027 under the IP Transit services agreement. These payments will be -- will reduce the total amount due to us each quarter from T-Mobile. We are also temporarily suspending our stock buyback program. Now, for a couple of comments on our data center divestiture and monetization. In early October, we entered into a nonbinding letter of intent with a credible counterparty to sell 2 of our larger data centers out of the 24 data centers that we had repurposed. This agreement calls for a cash payment of $144 million. The counterparty has demonstrated to us the ability to complete this transaction and is completing its due diligence. We are in the process of finalizing the asset purchase agreement. We intend to monetize all 24 of the data centers, either through outright sales as with this $144 million transaction for 2 facilities or by leasing the acquired space on a wholesale basis. We are in active discussions, negotiating LOIs with other parties that we feel are credible to purchase or lease these facilities. Now, for a couple of comments on our wavelength trajectory. At quarter-end, we're offering wavelength services in 996 data centers with the capability of provisioning 10-gig, 100-gig and 400-gig services within a 30-day installation window. Our wavelength services revenue in the quarter was $10.2 million, an increase by approximately 93% on a year-over-year basis. And on a quarterly sequential basis, our wavelength revenue increased 12%. At the end of the quarter, we had sold and provisioned waves in 454 locations as opposed to the 418 data centers that we had installed waves in at the end of Q2. We currently have a backlog and funnel of wave opportunities of 5,221 opportunities. We intend to continue to capture market share and believe our goal of 25% of the highly concentrated long-haul wavelength market in North America in 3 years is achievable. Our EBITDA increased sequentially to $48.8 million, and our EBITDA margin increased sequentially by 50 basis points to 20.2% from continued cost reductions and product optimization. Our EBITDA as adjusted increased to $73.8 million, and our EBITDA as adjusted margin increased sequentially by 70 basis points to 30.5%. Our IPv4 leasing activity materially accelerated. Our IPv4 leasing revenue increased by 14.1% to $17.5 million on a sequential basis. And on a year-over-year basis, revenues from IPv4 leasing increased 55.5%. Our average revenue per IPv4 leased in the quarter was $0.31 per address due to some larger wholesale leasing activity. We were able to accelerate this growth by entering into these more flexible agreements. We were leasing 14.6 million addresses at the end of the quarter, a sequential increase in the number of leased addresses of 10.7%. We have in inventory a total universe of approximately 38 million addresses. We have essentially completed the integration of the Sprint network and the repurposing of the facilities that we deem appropriate for data center activity. As a result of this, there was a significant reduction in our capital expenditures in the quarter. At quarter-end, we were providing services in 1,686 carrier-neutral data centers and 186 Cogent data centers. The Cogent data centers have an aggregate of 214 megawatts of installed and available power. We anticipate our long-term annual revenue growth rates will be between 6% and 8% and an increase in our EBITDA as adjusted margins of approximately 200 basis points per year. Our updated revenue and EBITDA guidance are intended to be multiyear goals and are not intended to be used as specific quarterly or annual guidance. Comment on our revenue. We are nearing the end of grooming of our low-margin Sprint-acquired contracts. As we have stated on our last earnings call, we expect to return to total revenue growth by mid-third quarter 2025. However, our revenue for the quarter declined at $4.3 million or 1.7%. For the quarter, we experienced a $1.3 million decline in noncore revenues and an additional decline of $800,000 in USF revenues. Our high contribution on-net services and wavelength services, both increased in the quarter. Our on-net revenues increased by $2.9 million sequentially or 2.2% from last quarter. Our wavelength services revenue increased by $1.1 million or 12.4% from last quarter. And our IPv4 leasing revenue increased by $2.12 million or 14.1% from the previous quarter. We remain highly focused on selling products that deliver higher margins and allow our EBITDA margins to continue to expand. Now, I'd like to turn it over to Tad to read our safe harbor language, provide some additional operational metrics, and then we'll close with a few closing remarks and then open the floor for questions and answers. Thaddeus Weed: Thank you, Dave, and good morning, everyone. This earnings conference call includes forward-looking statements. These forward-looking statements are based on our current intent, belief and expectations. These forward-looking statements and all other statements that may be made on this call that are not historical facts are subject to a number of risks and uncertainties, and actual results may differ materially. Please refer to our SEC filings for more information on the factors that could cause actual results to differ. Cogent undertakes no obligation to update or revise our forward-looking statements. If we use non-GAAP financial measures during this call, you will find these reconciled to the corresponding GAAP measurement in our earnings releases that are posted on our website at cogentco.com. Some comments on overall results. Our revenue for the quarter was $241.9 million. Our EBITDA as adjusted was $73.8 million for the quarter, an increase of $0.3 million, and our EBITDA as adjusted margin increased sequentially by 70 basis points to 30.5%. Our EBITDA as adjusted accounts for payments under our IP Transit agreement with T-Mobile. Under this agreement, we received 3 monthly payments totaling $25 million in this quarter and the same as last quarter. We will continue to receive an additional 26 monthly payments of $8.3 million until November of 2027. There are further cash payments related to lease obligations that we assumed at closing. That totals at least $28 million. This $28 million will be paid to us in 4 equal payments from December 27 to March 2028. We analyze our revenues based upon network connection type, which is on-net, off-net, wavelength and noncore, and we analyze our revenues based upon customer type. We classify our customers into 3 types: NetCentric, corporate and enterprise. Our corporate business represented 43.5% of our revenues for the quarter. Our corporate revenues decreased by 9.5% year-over-year and sequentially by 3.5%. These decreases in corporate revenue are primarily due to the continued grooming of low-margin off-net customer connections and the continued elimination of acquired noncore products acquired with Sprint Wireline. Our NetCentric business continues to benefit from the growth in video traffic, activity related to artificial intelligence, streaming, IPv4 leasing and wavelength sales. Our NetCentric business represented 41.4% of our revenues for the quarter. Our NetCentric revenues increased by 9.2% year-over-year and sequentially by 3.1%. Our enterprise business represented 15.1% of our revenues for the quarter. Our quarterly enterprise revenue decreased by 25.7% year-over-year and sequentially by 8.6% due to a reduction in acquired noncore and off-net low-margin enterprise revenues acquired with Sprint Wireline. On-net revenues: we serve our on-net customers in 3,537 total on-net buildings. Our on-net revenue was $135.3 million for the quarter, a small year-over-year decrease of 0.9%, but a sequential increase of $2.9 million or 2.2%. Off-net revenue: our low-margin off-net revenue was $95.1 million for the quarter. That was a year-over-year decrease of 14.5% and a sequential decrease of 6.9%. It was $7.1 million of the decrease sequentially. We serve these 25,518 off-net customers and 18,400 off-net buildings. Our off-net revenue results are impacted by our migration of off-net customers to on-net and the continued grooming and termination of acquired low-margin off-net contracts acquired with Sprint Wireline. Some comments on pricing. Our average price per megabit for our installed base decreased sequentially by 10% to $0.16 and decreased by 31% year-over-year, both amounts in line with historical trends. Our average price per megabit for our new customer contracts for the quarter was $0.07, a sequential price per megabit decrease of 8% and 15% year-over-year. Our ARPUs for the quarter: our ARPUs for the quarter were as follows. Our on-net ARPU was $515. Our off-net ARPU was $1,225. Our wavelength ARPU was $2,108. Our IPv4 ARPU was $0.31 per address for the quarter. Churn rates: our on-net and off-net churn rates both improved marginally from last quarter. Our on-net unit churn rate was 1.3% compared to 1.4% last quarter, and our off-net churn rate was 2.1%, a slight improvement from 2.3% last quarter. Traffic: our IP network traffic growth accelerated for the quarter. Our network traffic increased by 5% sequentially and year-over-year by 9%. Rep productivity metrics: our rep productivity was 4.6 this quarter. It was 4.8 last quarter and 4.0 in the third quarter of last year. Foreign exchange: our revenue earned outside of the U.S. is about 20% of our revenues for the quarter. The average euro to USD rate so far this quarter was $1.16 and the Canadian dollar rate is $0.72. Using these average rates, we estimate that the FX conversion impact on our sequential quarterly revenues would be a negative $200,000 and the impact of the year-over-year quarterly revenues would be a positive $2.6 million. We believe that our revenue and customer base is not highly concentrated. Our top 25 customers represented about 16% of our revenues for the quarter. CapEx and payments on capital leases, principal payments. Our CapEx declined by 35.5% sequentially and was $36.3 million this quarter, down $20 million from $56.2 million last quarter and down $23 million or 38.8% decrease from the third quarter of last year. Our principal payments on capital lease were $8.8 million this quarter, similar to $8.5 million last quarter. Some comments on debt and our debt ratios. Our total gross debt at par, including $601.8 million of finance lease obligations, was $2.3 billion at quarter-end. And our net debt -- total net debt [ of our cash ] and our $224.2 million due from T-Mobile was $1.9 billion. Our leverage ratio as calculated under our more restrictive covenants on our unsecured $750 million 2027 notes indenture was 5.66, and our secured leverage ratio was 3.49. Our fixed coverage ratio was 2.62. The definition of consolidated cash flow under our $600 million secured 2032 notes indenture includes payments -- cash payments under the IP Transit Services agreement with T-Mobile in that definition and determination of consolidated cash flow. And those payments totaled $100 million for the last 12 months. As a result, our leverage ratio as calculated under the $600 million 2032 notes indenture was 4.39. Our secured leverage ratio was 2.7, and our fixed coverage ratio was 3.38. Lastly, some comments on bad debt and DSO. Our DSO improved. It was 30 days at quarter-end compared to 31 days last quarter. Our bad debt expense was less than 1% of our revenues for the quarter. It did increase from last quarter, about $1.2 million, which is not material, but it was only 0.5% of our revenues for the quarter. Last quarter, our bad debt expense was artificially low because we had some bad debt recoveries, which helped our SG&A expenses. But overall, our target and our historical rate is 1% of revenues, and we are -- our results are better than that historical rate. And with that, I will turn the call back over to Dave. David Schaeffer: Thanks, Tad. I'd like to highlight just a couple of strengths around our network, customer base and sales force. We continue to be beneficiaries of continued migration to over-the-top video, artificial intelligence activities and various other streaming trends. At quarter-end, we were able to sell wavelength services in nearly 1,000 carrier-neutral data centers with expedited delivery capabilities. At quarter-end, we sold IP services in a total of 1,872 data centers across the 57 countries and 302 markets in which we operate. At quarter's end, we were directly connected to 8,043 networks. 22 of these networks represent peers, and 8,021 of these networks are, in fact, paying Cogent transit customers. We continue to remain focused on improving the productivity of our sales force and managing out those reps that are underperforming. Our sales force turnover rate was 6.6% a month in the quarter, down from a peak of 8.7% during the height of the pandemic. It is, however, above our historical average turnover rate of 5.7% of the sales force per month. At quarter's end, we had 617 quota-bearing reps. Our sales force includes 294 sales professionals focused on the NetCentric market, 309 sales professionals focused on the corporate market and 14 sales professionals focused on the enterprise market. We have modified our return of capital program, allowing us to accelerate the pace of our delevering. We are actively working to monetize our acquired Sprint assets such as the data centers that we do not feel are core to our business and will allow us to further accelerate that delevering and allow us to resume our return of capital to our equity holders. We have effectively completed the integration of the former Sprint network and buildings into the Cogent infrastructure, and now, we operate a single unified global network. We have completed the conversion of the Sprint facilities that we deemed appropriate to be converted to data centers. And as a result of this, we anticipate a continued reduced level of capital spending going forward. We are optimistic and enthusiastic about our wavelength services business. While we have installed more wavelengths than customers have actually accepted, we are seeing changes in customer behavior and believe we will be able to accelerate the revenue recognition from these wavelength services going forward. Our wavelength services are differentiated by the quality and reliability, the uniqueness of the routes, ubiquity of our footprint and the speed at which we can install these services. Since our inception, we have built our business on offering superior services, expedited provisioning and disruptive pricing. That is why Cogent is a market leader in the services we sell. With that, I'd like to open the floor for questions. Operator: [Operator Instructions] Your first question comes from the line of Greg Williams with TD Cowen. Gregory Williams: Dave, first question is on the dividend cut. Do you see the company returning to a $4 dividend level as you reach that 4x leverage? Or would it sort of ramp up and do you see it at that level at some point in time? And I ask that because with your diminished ownership, just trying to understand if a sizable dividend is still part of the DNA of the stock. Second question is on the data center sale. Nice to see a couple sold here. Can you help us with the valuation? How much was it per megawatt? And when you think about the remaining 22 data centers or potential data centers, could they set similar valuations? Or did you just sell sort of the higher tier ones? I know you said these 2 were larger than the others. So I was wondering if that valuation will be sort of sustainable with the remaining facilities. David Schaeffer: Yes, sure. Let me try to answer both of your excellent questions, Greg. First of all, on the reduction in the dividend until we reach a net leverage target of 4x. This was not taken lightly. It was actively debated by the Board, and we weighed feedback from equity holders, as well as feedback from bondholders, and we felt in aggregate, this was the best strategy. Two, once we have reached that target, we are committed to continuing to return capital to shareholders at a similar rate to what we were doing previously. What I cannot commit to is an exact restart where we left off on a per share per quarter rate. We also may be more aggressive in doing buybacks than dividends. But our commitment is to return all surplus capital to shareholders beyond the capital that is needed to run the business. As you can see from our accelerating rate of EBITDA growth that we will be able to delever more rapidly now and then continue that EBITDA growth to be able to return even larger amounts of capital per quarter to shareholders ultimately. Now, with regard to the data center sales, we have a number of other LOIs in negotiations. We have, I think, groomed the pool of parties we're talking to, to only those that we feel comfortable can actually perform. The 2 facilities that have been agreed to are representative of the base. We are very pleased with the price per megawatt, and it is definitely within the range that we would have anticipated for the entire portfolio. However, I am not comfortable in disclosing that because that would then set a benchmark for our other negotiations. And in some cases, some of those negotiations are going to yield higher prices per megawatt. Each facility is slightly different based on its size, current power availability and potential for future power augmentations. So I'm reluctant to put an exact price per megawatt out into the market because then I'm locking, I think, the company into capping what we will receive on the other negotiations. And at this time, I expect at least some of the other facilities could potentially yield even higher prices per megawatt based on the unique characteristics of those facilities. Operator: Your next question comes from the line of Frank Louthan with Raymond James. Frank Louthan: Great. Can you talk to us a little bit more about the run rate on the waves? You'd stated hitting a run rate of $20 million to $25 million, I think, by year-end. Just talk to us about that. And then, on the products you're selling, is it mostly 100-gig waves? And any thoughts on your ability to capitalize on demand for 400-gig and 800-gig waves with your current network? David Schaeffer: Yes. Sure, Frank. I'm going to actually take those in somewhat reverse order. We are capable today of selling 10-gig, 100-gig and 400-gig across the entire footprint that we have outlined. While the equipment in our network can actually support 800-gig and even 1.6 terabit interfaces, those interfaces for customers are not readily commercially available, and there really is no commercial market today for 800-gig. But our network at all sites will be capable all the way up to 1.6 terabits per wave as that market develops. In terms of the mix, today, roughly 79% of our wave sales have been at 100-gig. That is very different than the aggregate market, which is today dominated by 10-gig wavelengths. And there is a product rotation that is ongoing across the industry where customers who had previously had 10-gig waves are now migrating to 100-gig. And then, there is further migration from 100-gig to 400-gig waves. Today, just under 10% of our sales have been at 400-gig, but we expect that to continue to accelerate. We have the capability to provide any to any data center connectivity. I know you wrote an extensive research piece on the total market for wavelengths. While we can serve the long-haul, the regional and the metro market, our greatest competitive strength is in the long-haul market because of the uniqueness of our routes, but we will be able to sell an end-to-end wavelength product that will include both metro and regional, as well as the long-haul, in a single unified product, which gives us a large addressable market. Now, with regard to the acceleration in wavelength sales, we are continuing to build a funnel. We installed more wavelengths this quarter than the previous quarter and expect that trend to continue. As I commented in my prepared remarks, we have still installed more wavelengths than customers have accepted. We are actually encouraged by the fact that there's been a competitive response by other providers in the market to shorten their provisioning windows. That may sound counterintuitive, but it's actually helping us condition customers to take wavelengths as quickly as we can provision them. Now, with regard to our exit run rate, it is highly dependent on customers' acceptance. To just clarify, we had talked about a monthly exit run rate at the end of Q4 that would get us to a quarterly rate of $20 million to $25 million. It is extremely dependent on the customers' acceptance of the waves that we have installed. At this point, we don't have enough visibility sitting here, the first week in November, to absolutely say that the backlog that we have installed will actually be accepted by year-end, but we are hopeful. Hopefully, that answered all your questions, Frank. Okay. Frank Louthan: Great. And are you still confident in your long-term goal of wavelength revenue on an annual basis? David Schaeffer: Yes. We absolutely believe that we will capture 25% of the addressable market. And while the entire North American addressable market is $3.5 billion today and growing because of AI demand, we feel that the $2 billion, which represents the long-haul portion of the market, is where we have the greatest competitive advantage, and we should be able to capture 25% of that or a $500 million run rate. Operator: Your next question comes from the line of Walter [ Piecyk ] with LightShed Ventures. Walter Piecyk: It's Piecyk and LightShed Partners in this particular role, as you know, Dave. Just on the wavelength, so the $20 million run rate, I think you talked about last quarter exiting the year, or maybe I missed it when you were just responding. Is that -- are you expecting to hit that? And I think there was some maybe a little confusion last quarter whether that doesn't necessarily imply $20 million for the quarter, just the run rate that you're exiting as of December 31. David Schaeffer: I'll take those again in reverse order, Walt. To be clear, and I thought I was clear enough both on the call and in subsequent conversations, it was a monthly run rate that would get us there, so not a revenue run rate for the full quarter, but an exit run rate. And then two, just reiterating what I said in answering Frank's question, to the first part of your question, while we will install enough wavelengths to hit that target, I am not today confident enough that the customers will accept them and we can start recognizing that revenue, although... Walter Piecyk: Even for the $20 million run rate, yes. I understand. Got it. Understood. David Schaeffer: And we are encouraged by the fact that the gap between installation and acceptance is shrinking. Walter Piecyk: Got it. Dave, there's been some -- I mean, over the course of the quarter, since you had to sell your shares, there's been some conversation about how you get re-upped and how that process works. And obviously, you cut the dividend today, which probably is going to have an impact on the stock, which would present an attractive entry point, although, from a shareholder perspective, there might be questions about that, like if the Board re-ups you after driving the stock down. Is there any discussion in terms of your additional stock getting tied to perhaps the $500 million wavelength target that you have set out for the middle of 2028? Or should we expect the Board just to re-up you at this depressed level in the stock? David Schaeffer: So those are ongoing discussions. I am committed to Cogent and currently do not have a contract that will extend beyond the end of the year, but I am in discussions with the Compensation Committee and then ultimately, the entire Board around that. The exact form of those incentives will be based on a number of operational metrics, as they've been in the past. And just to remind you that many management teams set the bar low, so they always hit the performance targets. In my case, I have been, in multiple instances, forfeiting shares because those targets have not been met. And the exact nature of how that program will be put in place is just still an ongoing discussion. Walter Piecyk: Okay. I think you understand maybe the perception issues if it's an end-of-the-year thing not tied to future numbers. But again, that's for the Board to decide. Dave, I want to go back to kind of our core here or what used to be the core. Obviously, wavelength is kind of a new growth opportunity and maybe IP addresses and data centers. In corporate, I saw on Bloomberg that in New York, like vacancies were like at an all-time low compared to COVID. I realize there's some Sprint trimming and there's some, whatever, not on-net stuff that's trimming, but 10% growth in corporate. Like, why is that still happening? And when can that invert or at least stop declining? David Schaeffer: So our off-net corporate business declined $7.1 million on a quarter-over-quarter basis. The vast majority of that was acquired Sprint off-net corporate customers. The underlying Cogent corporate on-net business is growing in low-single digits, roughly about 3%. That is clearly not where we were pre-pandemic when that segment of our business was growing at nearly 11%, but it is a recovery from the low point. In the Sprint customer base, we acquired a mix of corporate and enterprise customers, virtually no NetCentric customers. And virtually all of that business was off-net. We have been aggressively managing out less profitable revenue. It's how we've been able to grow margins even though we have had top line declines that continued this quarter and will continue. There is probably some customer circuits that we lose that we wish we didn't lose because the customer has 5 locations, 3 of which are gross margin negative, and we either raise prices or ask them to turn those services off. They may also turn off the 2 locations that are acceptable margin and we would like to keep. The $7.1 million corporate off-net decline sequentially was greater than we had anticipated. In aggregate, since we have acquired Sprint, the rate of revenue decline has been over double what it was going into the acquisition because of this intentional grooming. We are near the end of what we can groom. The noncore revenue decline sequentially of $1.3 million, if we declined at that rate again, we'd have negative revenue. Thaddeus Weed: There was only $1.4 million left. David Schaeffer: Yes. It's all gone. And I think this is helping us drive margin expansion. Walter Piecyk: If I could just sneak one last one in, Dave. On the data centers LOI on the announcement, what type of due diligence do they have left? And I assume there's some taxation on that or maybe you have some -- I guess, you don't have NOLs, right? You've been giving the cash back through the dividend. But yes, just on the due diligence, what do they have to do? What are the -- what's our risk that it doesn't get finalized? David Schaeffer: So there is a detailed list of diligence items. They have third-party consultants verifying the data that we have provided them, inclusive of third parties going and doing site inspections. Probably the most important of those diligence items is actually the verification from the utility of what the utility has verified to us in terms of serving power availability. Because these facilities have been effectively dormant for close to a decade, we initially, before we spent the capital, reached out to each of the serving utilities and confirmed that if we spent the capital that the power would be available. We got those affirmations, and the counterparties that are acquiring these facilities are doing that same utility verification. That's probably the most important point. And then, in terms of taxes, you are correct, Walt, we have very few usable NOLs left. While we have a significant number of NOLs, they are mostly outside of the U.S., and there is virtually no tax basis in these facilities other than the capital that we have spent to modernize them. And because of bonus depreciation, we have very little basis in these facilities. Walter Piecyk: Got it. So what's the tax rate on that? Just like 20%, 30%, 40%? What is it? Thaddeus Weed: Well, company tax rate is 25%, effective income tax rate. Walter Piecyk: Even on sales like that? Yes, okay. David Schaeffer: Yes. That's federal and state. Yes, that's right. Thaddeus Weed: But with bonus depreciation going forward, we do not expect, even if this closes with the $144 million, that we would have a material income tax liability. David Schaeffer: Because we have the bonus depreciation. Thaddeus Weed: Right. With the [ tax bill ]. Operator: Your next question comes from the line of Chris Schoell with UBS Financial. Christopher Schoell: Maybe just a follow-up on the wave competition. You've talked about a mix of market concentration, route diversity and faster provisioning driving your competitive edge. With Lumen enhancing its provisioning timelines and expanding its wave network, is this taking away from your edge? And has it had any ability -- impact on your ability to scale so far? David Schaeffer: So, thanks for the question, Chris. So the answer is, not yet, but we're only 1.5% of the addressable market today, and Lumen is the dominant player. Our largest competitive advantages actually come from the route diversity that we offer and the reliability of our network vis-a-vis others. It is hard to count that as a competitive advantage until you actually have installed customers. So in kind of an early deployment, we had to focus on things such as provisioning speed and ubiquity of footprint. We still have over 3x as many data centers as Lumen that we can connect and provision in what they are alleging their improved provisioning times are in a subset of their data centers. But what they don't have is the uniqueness of footprint that we got from Sprint and the fact that the Sprint network was deployed with a much deeper buried cable that has been cut much less frequently, therefore, resulting in higher reliability, better throughput and ultimately, less future cuts going forward. We monitor the cut activity on a per kilometer basis versus the fiber that we have bought through IRUs. We have bought fiber now from 378 different suppliers around the world, roughly 124,000 route miles of IRU fiber. And across that footprint, the frequency of fiber cuts from IRU fiber, not calling out Lumen specifically, but across the entire base, is 7x that of what we experienced on the Sprint network. And I think that will ultimately be probably our biggest long-term competitive advantage other than pricing. But we feel very comfortable that we're going to continue to gain market share. Christopher Schoell: Got it. If I could just fit in one more. You still sit on a large portfolio of unleased IPv4 addresses. Can you just help us think through why not sell these excess addresses and accelerate the pace of delevering? And I appreciate, the data centers required investment and due diligence, but would selling this excess inventory be a simple and faster process? David Schaeffer: So it would. However, 2 points. The first one is, we have modified our strategy on leasing that saw a material acceleration in our leasing revenue from these addresses. We had previously not leased out addresses allowing the counterparty to sublease them. We removed that restriction last quarter and entered into one large wholesale leasing agreement kind of mid-quarter. That was partially reflected in our revenue. And we have a second one of those agreements [indiscernible] today. We think that's a significant additional addressable market. And while it does yield a lower revenue per address per month, it does allow us to deplete the unleased inventory much more rapidly than through our direct sales efforts by going through these brokerage or wholesale type counterparties. We then can use that revenue to raise ABS capital at very attractive rates. And the alternative would be an outright sale, which to Walt's point, would have tax consequences because we have no basis in these. But also the market for these addresses has softened on a sale basis because the 2 largest buyers in the market have not been active buyers in the past 24 months. And as a result of that, while there is a broad market, I'm not sure the market is deep enough to absorb the type of volume that we would bring to market. So I think our leasing strategy at this point is the best way for us to generate cash and provide incremental financial flexibility. Operator: Your next question comes from the line of Nick Del Deo with MoffettNathanson. Nicholas Del Deo: First, regarding wavelengths, I think in your remarks, you said that you installed more than have been accepted by customers, you're observing changes in customer behavior, and you're confident that you will accelerate the revenue recognition from waves. I guess, can you expand on those comments a bit, and as part of that, perhaps share the number of provisioned but not yet billed waves that you have to give folks comfort in the outlook you've shared? David Schaeffer: Yes, sure. First of all, thanks for the questions. Let me start with the change in behavior. With our competitors offering accelerated provisioning, we are seeing customers now ordering waves with the expectation that they'll be delivered in a shorter window. Now, some of that could be the confidence that we're building with that customer based on our existing installed track record. Some of it could be the belief that the industry is changing. It's hard for us to disaggregate that. In terms of installed but not billed, it's several hundred waves that are in place today, sitting there waiting for customers to accept them. And with IP services, we do have a mechanism where we require the customer to start paying even whether they have affirmatively accepted or not. We are still probably several quarters away from implementing that same policy to our wavelength products. We are a new entrant. We have 1.5% market share. And what we don't want to do is alienate customers through forced billing that would then preclude them from giving us the opportunity to bid on a greater percentage of their wavelength demand. The other thing that has been encouraging to us has been the fact that customers increasingly are choosing us because of the uniqueness of the route. It's something we expected. But until we had a large enough base, a couple of thousand waves installed, we needed to really hear from the customers why they're buying. And while the city pairs are available from any of our competitors, the actual routes that we're on in most instances, there is no other provider on those routes. And that has turned into, I think, in many ways, today, our most significant advantage. And if I think longer term, I think the greatest advantage that we're going to have is just demonstrating to customers the infrequency of cuts on our network versus the networks that they're more accustomed to. So the measure of quality is multidimensional. I think we're trying to win in every one of those dimensions. Nicholas Del Deo: Okay. That's helpful color, Dave. You kind of -- along those lines, the backlog was up. It wasn't up a ton. I guess, to what degree is that a function of demand or how focused you are with certain customers for sales versus the dynamic you described where customers are ordering closer to when they need the waves because they understand that they'll be provisioned relatively quickly? David Schaeffer: It's a little hard, again, to disaggregate what's driving customer behavior. I also think we have really tried to discipline the sales team around trying to sign orders that will install more quickly. We fully recognize that we can't go on continuously installing more than we recognize revenue for. And while the sales rep does not get paid a commission until the service is installed, we've put some additional incentives in place to help them drive customers that will accept quickly. It will take several months for all these programs to kind of play out. Thaddeus Weed: And just to clarify, the commission is paid when billing starts. David Schaeffer: That's correct. Thaddeus Weed: Not on installation. They get paid when we get paid. Nicholas Del Deo: All right. That sounds good. And can I -- sorry, can I slip in one last question on a different topic. Dave, you alluded to this in your prepared remarks about the inflection to positive revenue growth in mid-Q3. I guess, it wasn't obvious if that happened in September versus August. But I guess, more importantly, should we expect full quarter revenue growth Q4 versus Q3? David Schaeffer: I believe we will see positive revenue growth. It did happen late in the quarter. And the one caveat to that -- and we did see more off-net corporate churn in the quarter than we anticipated. Some of it was collateral damage to other services that we terminated intentionally. I think that's behind us, and we do anticipate returning to aggregate positive growth. Thaddeus Weed: And noncore revenue is now down to $1.4 million. David Schaeffer: Yes. We can't lose another $1.3 million sequentially if there's only $1.4 million total left. So we've got some things, and we don't anticipate the incremental headwind from USF as well. So I think there were just a confluence of things this quarter, whether it be late inflection towards the end of the quarter and these additional headwinds. But we are on the trajectory to total top line growth. Operator: Your next question comes from the line of Michael Rollins with Citi. Michael Rollins: Dave, just maybe a few follow-ups. First, can you share -- if you go by your segments, corporate, NetCentric, et cetera, enterprise, can you share how much of the legacy revenue subject to churn is left? And I have a few other follow-ups, if you don't mind, afterwards. So as we just think about like what the remaining pressure is in each of the pieces, including even in that $1.4 million left of noncore? David Schaeffer: Yes. So there was virtually no NetCentric revenue acquired from Sprint. The vast majority of the revenue was enterprise and a smaller percentage, but not immaterial, was corporate. The aggregate rate of decline of acquired Sprint revenue has been nearly 24% annually. It was 10.6% average negative decline for the 3 years prior. We have groomed virtually everything we want to groom. What we don't have visibility to perfectly is for the business that is left from those customers, which we're happy with and the customers are still using, how much of those services will still churn off because the customer had other services that they wanted to keep with us that we could not keep. Of the noncore revenue, it's down to $1.4 million. It's -- probably 80% of its still left is ex Sprint. I'm not going to say there was 0 Cogent noncore. It was very small pre-acquisition. But yes, it's probably a couple of hundred thousand. And then, in the corporate off-net segment, there still remains some Sprint revenue and 100% of the enterprise revenues, which represent about 15% of our revenues, are still from the enterprise customer base. Michael Rollins: And maybe secondly, you talked about the wave business in terms of the different dynamics of 10-gig, 100-gig, 400-gig. What are the ARPU differentials between these different points as the mix shifts more towards 100-gig and 400-gig and maybe more over time? David Schaeffer: Yes. So the ARPUs are determined by 3 inputs: the physical length of the pack, the size of the wave and the duration of the contract. Kind of the range across all 3 of those metrics goes from about $500 a wave to about $8,000 a wave. Our ARPU in the most recent quarter was $21.08. And I'll just pick kind of a typical, say, 1,500-mile wave. If you did that at a 10-gig rate, it would probably be $600 to $700. At a 100-gig rate, it would probably be $1,600, $1,700. And if it's a 400-gig wave, it would probably be somewhere around $4,000. So, that just gives you a sense. But it's a little hard to answer it exactly because you've got to look at all 3 inputs on a wave-by-wave basis to get to exact pricing. Michael Rollins: That context is really helpful. And maybe just one more. Going back to the dividend cut and pausing the buyback simultaneously, can you give us a little bit more insight into the conversations that changed at the Board level? Where, if you look at the variances in financials in the quarter versus the severity of the action that you're taking on capital allocation, can you give us maybe a list maybe in order of importance to the Board of what really changed and over the time frame that these conversations really accelerated? David Schaeffer: Yes. So 2 very different timelines. The first one is on the reduction in the dividend. We have a very specific target before we reaccelerate the dividend, and that is a leverage target. For the buybacks, we view those as more episodic. They have been temporarily paused, but they are not necessarily tied to the same endpoint. The second point and maybe the more important one that you asked is what changed. And I would say, the 2 inputs that the Board looked at from 2 different capital markets weighed heavily on their decision. They looked at the trading of our secured bonds and the fact that they had traded off to about [ 96 ], and they were concerned that those bondholders were concerned with aggregate leverage. The unsecured bonds continue to trade above [ 99, like 99.5 ]. And we view that as a less relevant input because of the short duration. But because the secured debt had a 7-year maturity, I think the sell-off in those bonds really had the Board focus on that constituency in our capital stack as part of their decision process. I think the second thing that the Board looked at was the violent reaction of the stock last quarter to my forced sales. Now ultimately, the stock recovered for the most part, but there was a clear decoupling of the dividend yield from the stock price. And I think the Board looked at that and said, it was an indication that the equity holders did not believe the sustainability. So with those inputs, I think the Board realized that it would be in the best interest of all of our stakeholders to put a firm marker in the ground around what an acceptable net leverage target would be, and then two, a program that would help us get there as quickly as possible. Operator: Your next question comes from the line of Michael Ng with Goldman Sachs. Michael Ng: I just wanted to ask about wavelengths and customer acceptance. I just wanted to kind of revisit this concept. Are these orders that you have in hand and there's a certain performance obligation before a customer accepts and you get revenue? Or is this more about you guys converting that [ fallow in ] connected capacity, dark fiber to lighting it up and then expecting to get an order after having that installed capacity? Any thoughts there would be helpful. David Schaeffer: Yes. Thanks for the questions, Michael. So we do not pre-provision any capacity. Each wavelength is built on an order-by-order basis. What we are referring to are wavelengths that customers have ordered, have signed contracts, we have installed, we have provided the customer the test results of that installation and service, and the customer says, I am not yet ready to begin to use the wave. So very different than, say, your cable service at home. When you call the cable company, they turn up the service, you start paying whether you have a television to watch it or not. We do a similar thing with our IP services because we have conditioned customers over a long period that we meet our installation windows. We do allow customers 2 windows where they can move out acceptance on IP and then there is forced billing. On wavelengths, we have not implemented any kind of forced billing, but the wavelengths that are installed have specific contracts. They have been installed to the specification that the customer requested and then the customer has informed us they're not yet ready to utilize the service. Michael Ng: Great. And just as a quick follow-up, when at least I think about the historical customer base of point-to-point, regional networks, international carriers, content distributors, including hyperscalers, like, any specific group of customers that you see that are driving the new aggregate demand for waves? Is it DCI and AI? Or is it kind of more traditional? David Schaeffer: Yes. So there are legacy use cases that remain, but the largest incremental use case that is driving an acceleration in unit volume and an acceleration in aggregate revenue for the entire industry is coming from AI. And the AI demand is coming both from hyperscalers who have both AI and non-AI use cases, as well as neoclouds who are exclusively AI-driven. But that is, by far and away, the dominant driver of incremental demand in the industry. Operator: And there are no further questions at this time. Mr. Dave Schaeffer, I will turn the call back to you for closing remarks. David Schaeffer: I would like to thank everyone for their time. We will be at a couple of conferences coming up, and I look forward to seeing everyone in person. Again, thanks a lot. Take care all. Bye-bye. Operator: Thank you. This does conclude today's conference call. You may now disconnect.
Berit-Cathrin Hoyvik: Good morning, everyone, and welcome to Hexagon Composites Q3 presentation. My name is Berit-Cathrin Hoyvik, and I'll be moderating today's presentation. Joining me in the studio today is our CEO, Philipp Schramm; and CFO, David Bandele. They will take you through our company update, financials and outlook before we wrap up with a Q&A session. And with that, I'll hand the word over to Philipp. Philipp Schramm: Thank you. Good morning, everyone, and thank you for joining us for our Q3 presentation. Let's start with a high-level summary of the third quarter this year. The macroeconomic uncertainty continues to negatively weigh on our business and our core markets are in a cyclical downturn in combination with an unprecedented macro environment. This has significantly affected our volumes and our profitability this quarter, and our Q3 results are weak with group revenues, which came in with NOK 538 million and led to an EBITDA of negative NOK 54 million. August contributed to the majority of our Q3 EBITDA loss. With our banking partners, we decided to initiate an equity raise to improve our balance sheet, and we have raised NOK 590 million. In September, we launched a group-wide cost savings program targeted at reducing our cost base, improving our EBITDA breakeven point and securing our liquidity. I will come back to the results and details of this program in more detail shortly. In addition, we remain focused on executing the strategic steps that will drive the adoption of natural gas in North America and in Europe. So let's take a closer look at how we are managing the current environment. First, let me give you some content to our current market exposure. On the one hand, our Transit, Refuse and aftermarket segments represent sectors that operate largely independently of the macroeconomic environment and typically have an uptick in tough times. This is exactly what we are currently experiencing with our Refuse business. These segments provide our business with resilient cash flows. At the same time, Truck and Mobile Pipeline are cyclical by nature with higher sensitivity towards the macroeconomic environment. These are also the 2 segments which represent Hexagon's largest growth opportunities. For a deeper look into how these 2 cyclical growth markets are developing, I will explain some of the factors that are impacting Truck and Mobile Pipeline in North America. These 2 segments are currently operating in an unprecedented environment affected by a unique combination of external factors. Constantly changing trade and tariff policies have created a wait-and-see environment. In our discussions with customers, as one example, the announcement and then the quick postponement of tariffs on trucks in September further delayed both spendings and projects. Shifting emissions regulations have had a similar effect. The current U.S. administration has created uncertainty on whether the existing emissions, regulations will hold or if other regulations will replace them. This too has caused fleets to sit on the fence. But I do want to be clear, though, that from a regulatory perspective, the removal of the zero emission mandate has supported CNG as the alternative fuel solution to replace the base fuel diesel. The high cost of capital and lower shale activity due to low oil and gas prices are impacting the demand for Mobile Pipeline. Currently, Gas transportation companies have a strong focus on asset utilization in these high capital-intensive markets. For trucks, the freight decline has spent now 4 years. Industry forecast for the Class 8 truck market in 2026 have dropped dramatically over the last few months. Fleets are more reluctant in this environment to adopt to new technologies and to incur higher upfront CapEx cost despite the positive total cost of ownership that CNG now delivers to heavy-duty fleets, thanks to the new game-changing 15-liter engine. If these projections become reality, then we are preparing to navigate this environment. We cannot control the timing of recovery. However, actions that we are now taking will mean that we will be in a more profitable position in the future. So what does this exactly mean? As a company, we are laser-focused on reducing our cost base through this down cycle. In connection with the equity raise in September, we launched a group-wide cost and cash savings program. It follows cost-saving measures that were already implemented earlier this year. In total, by the end of Q3 2025, we have reduced personnel costs by approximately NOK 190 million compared to 2024 on an annualized basis. Approximately NOK 70 million of this reflects structural annualized run rate improvements by the end of Q3. As part of the ongoing program, we are delivering on additional measures and expect to see further effects in the coming quarters. We also see similar positive effects from other operating expenses. Beyond personnel costs, our investments are well below 2024 level and will remain that way. In 2026, we will limit CapEx to a maximum of NOK 80 million for our core businesses. In addition, we have identified significant optimization potential within our inventories. A strategic focus on utilizing our existing assets and raw materials will contribute to a further NOK 150 million to NOK 200 million reduction in the first half of 2026. Improved payment terms will help us as well. As we have communicated in previous quarters, we remain focused on the core business and will have strict investment discipline. We will continue to review how our current assets can create the best value for you, our shareholders. Despite the current environment, this unprecedented market will rebound. We remain focused on driving the adoption of natural gas vehicles, especially in heavy-duty trucking. While the pace of adoption has been slower than expected, we are proactively doing our part to drive the adoption. In September, we formed a strategic partnership with Cummins and Clean Energy to launch Pioneer, an independent leasing company that is dedicated to mobility applications with alternative fuels. In addition, we launched our own demo truck program in October, enabling fleets across the United States and Canada to test how natural gas-powered heavy-duty trucks work in their specific and individual environment. For fleets to experience the potential of these trucks in their specific environment is reducing the barrier and is essential to accelerate adoption. We are already seeing huge interest and confirmation from fleets that they are seeing savings, lower emissions and the diesel-like performance, which can now go hand-in-hand without any compromise. In October, we also closed the full acquisition of SES Composites and will now focus on leveraging synergies in consolidating the European market. With a cylinder site in Poland and a valve manufacturing business in Germany, this acquisition further strengthened our position in the European Transit Bus segment. With that, I will hand over to David who will walk you through the financials. David Bandele: Thank you, Philipp. Good morning, everyone. On a group level, Q3 revenues were NOK 538 million with an EBITDA of negative NOK 54 million. That's after booking severance costs of NOK 9 million. The quarter was heavily impacted by the prolonged market uncertainty in North America. Volumes were lower across all segments and especially in Mobile Pipeline. As Philipp has confirmed, to mitigate the effects of these weaker volumes, we initiated a new cost savings program in Q3. We are laser-focused on our main priority, which is supporting liquidity through this down cycle. In September, we proactively strengthened our balance sheet by NOK 590 million and negotiated an updated bank agreement. We are already seeing the effects of positive working capital releases, and these efforts will continue to become more visible over the next 2 quarters. Headcount reductions totaled approximately 20% as of the end of this quarter compared to 2024 levels. And in light of the market conditions this year, this cost savings program is delivering results with more to come. Now let's look at these results and their drivers in more detail segment by segment. In Q3, our Fuel Systems segment generated NOK 372 million in revenues, weaker than the third quarter of 2024, which was bolstered by deliveries to the large UPS order received in the back end of 2024. The Refuse sector has been incredibly strong in 2025 with continued year-over-year growth in Q3, albeit at slightly lower volumes than last quarter's record performance. Transit delivered steady volumes with deliveries to multiple municipalities, including the large previously announced order to Dallas, Texas. As expected, the Refuse and Transit sectors continue to deliver a stable baseload of demand even amid the current market uncertainty. For the segment as a whole, the EBITDA margin in Q3 came in at negative 4% due to low truck volumes impacted by additional tariffs and further market uncertainties. Now over to Mobile Pipeline, which remained under pressure with continued impact from broader market uncertainty in the quarter. Lower shale gas activity and falling LCFS and RIN credit prices are resulting in customers halting their CapEx spending. With new investments being limited in our core energy end markets, including oil and gas and renewable natural gas, module utilization is being favored by our largest customers who are employing a wait-and-see approach. In North America, this demand halt has resulted in a significant decline in profitability that has impacted group margins. Revenues for the quarter were NOK 93 million with negative margins of 49%. Now outside of North America, the results delivered remained steady compared to the prior quarter. Now moving to our Aftermarket segment, which is our most resilient segment. Aftermarket delivered steady revenues of NOK 97 million in Q3 on par with the same quarter last year. Our Parts and Services business delivered solid volumes in the quarter across both FleetCare and Hexagon Digital Wave. Profitability, while stable, came in lower at 8% EBITDA margin due to an unfavorable mix of internal services and one-off charges. As mentioned previously, 2025 has been a known down year for our modal acoustic emissions technology. At these low levels, the unit actually delivered close to EBITDA breakeven this quarter with cylinder inspection and testing activity picking up in 2026 as the 5-year requalification cycle reaches their next annual milestone. And to counteract and navigate the headwinds, we're experiencing in our cyclical businesses and with continued uncertainty on the timing of demand recovery, we are accelerating our actions on 3 targeted major themes. The first one, key, preserving liquidity through 2026 and beyond. The second one, lowering the breakeven point of our group operations through significant indirect and fixed cost reductions and then in turn, lowering our reliance on demand recovery. And the third, as you've heard from Philipp, increased measures to stimulate the adoption of natural gas transportation in North America, Europe and the rest of the world. As an extension of these actions and to strengthen our balance sheet, announced in September, our refinancing arrangements with the banks have resulted in a suspension of leverage covenant testing up until Q3 2026, at which point, the target will be 4.2x on that quarter based on net interest-bearing debt divided by the last 4 quarters rolling EBITDA with some allowance for certain one-off adjustments. The steep falloff in demand that we have experienced in 2025 has significantly reduced our EBITDA levels and made it technically difficult to show normal leverage until EBITDA levels are steadily built up again over time. In light of this development, we secured a covenant holiday to counter that difficulty and the relevance of the test in such situations. As a condition, our banking partners implemented a conditional reduction in debt levels, commitments and availability. A capital raise was a necessary condition to secure this flexibility and was successfully executed in September, again, raising NOK 590 million. Key changes to the financing facility are described in the Q3 report and include a total facility reduction by NOK 200 million down to NOK 2 billion, of which NOK 1.6 billion is fully accessible and NOK 400 million accessibility is dependent on leverage being less than 2x. Also, that NOK 400 million will be reduced to NOK 200 million progressively through 2027. You also see the reduced covenant levels shown and also introduced a minimum liquidity requirement of NOK 200 million. I will also note that M&A investments and financial support will be subject to the lenders' consent. These updated terms alongside the capital raise have strengthened our balance sheet. While July trading performance was around about breakeven levels, August results generated losses with continued weakness in realized mobile pipeline sales versus our probability-weighted expectations. With the reduced visibility impacting both core businesses and increasing debt and leverage levels, a maximum capital raise under the authority of the Board was executed to ensure that we can best navigate these market headwinds. Hexagon will continue to focus on responsible actions within our control, focused on balance sheet resilience as we face these uncertainties in our markets. Here, we illustrate the impact ranges of our additional cash flow and profitability initiatives for the 4 quarters through to that important milestone of Q3 2026. These are split between balance sheet and profitability drivers. On the balance sheet side, we expect between NOK 150 million to NOK 200 million in working capital reductions as we intentionally reduce our built-up carbon fiber raw materials and other key inventories through negotiated pauses in purchase commitments and, of course, a pull-through of sales. We can reduce CapEx in the short term by a further NOK 50 million to NOK 80 million from an annualized run rate of around about NOK 130 million but we should not hold to those levels in 2027. Interest costs can be reduced by NOK 20 million to NOK 30 million with benefits from the reduction in our absolute debt levels. Of the NOK 150 million cost saving target disclosed in connection with the cap raise in September, an estimated NOK 70 million of positive run rate effects have already been realized by the end of quarter 3, and we expect to realize the remaining NOK 80 million over the coming quarters. We are also actively working on that additional ambition of NOK 50 million communicated in September, which would give us a range then of NOK 80 million to NOK 130 million over the next 4 quarters. Total potential cash improvement is as shown and both before any additional cash generation from sales. Again, I'll reiterate, these are before any additional cash generation from sales. So in summary, we expect to reduce our interest-bearing debt levels over the next 4 quarters. While our cost savings initiatives will give a good boost to EBITDA, we will also be dependent on sales and mix developments in the year ahead. We, therefore, need to keep laser focused to hit our covenant target at Q3 '26, which technically is highly sensitive then to the EBITDA development. Hexagon has a market-leading position and a history of profitable growth, and the market will recover over time. We will, of course, keep close and continuous dialogue with our banking partners in this period. And with that, I'll hand it back to Philipp to share more on our outlook. Philipp Schramm: Thank you, David. So let's turn to the outlook. Overall uncertainty continues to provide limited visibility on how quickly the market will rebound. But we are confident that Q4 will come in better than this quarter with several orders being delivered during the fourth quarter of this year. Our cost-saving program will also have a growing positive impact over the next few months and will improve our margins. Beyond Q4, we will continue the delivery of our strategy. Entering 2026, our visibility beyond our current backlog is limited for our cyclical segments. Our aftermarket and public service segments of Transit and Refuse will continue to provide a baseload of relatively stable cash flows. However, based on our experience and market seasonality, we expect the first quarter of 2026 to be a weaker one. With our cost savings program, we are focused on our cost optimization program. We will deliver efficiency improvements alongside this. This will bear fruit. We have a sound liquidity position, as you have heard, and active cost management will help us as well. And that means despite the current market softness, our growth ambition remains firmly intact. We see 3 major drivers for when our markets will rebound. The first driver is the U.S. Class 8 truck market is at a cyclical low with an aging fleet. Those truck assets will need to be replaced at some point in time. The fact underpins recovery will happen, but the time line and how quickly they get replaced is largely dependent on the macroeconomic situation and how fast freight rates recover. The second driver of our cyclical rebound is pure economics. Natural gas is the only cost-effective and widely available solution to decarbonize long-haul trucking, and it offers an economic payback over traditional diesel trucks. The third driver lies in the positive signals from fleets. The X15N is changing the game, and it is expected to unlock CNG adoption. In talking to fleets and seeing the positive response to our own demo truck program, we are very confident that this technology will scale. The industry ambition remains unchanged at 8% to 10% CNG adoption of Class 8 trucks. In addition to these drivers, we are focusing on key strategic priorities. Driving the adoption of natural gas vehicles is one of those strategic priorities. We are also actively working to broaden our geographic and end market exposure with a purpose of smoothing the current cyclicality and growing our business. Our current opportunities represent market entries, which require limited capital that again can provide us with additional volumes and broaden our market exposure. So it remains a question of when, not if this market cycle rebounds. And when it does, we as the market leader for natural gas fuel system with then an improved cost base, we are in the pole position to capture growth more profitably. So to sum it up, our key markets on a cyclical downturn that is being compounded by overall macroeconomic uncertainty. We are, as Hexagon, doing our utmost to weather the storm and remain focused on driving further cost reduction and cash discipline to secure our liquidity and improve EBITDA breakeven. We remain confident in the long-term growth of Hexagon. That growth story is firmly intact, and we are taking measures to both accelerate the adoption of natural gas and diversifying our geographic, customer, product and end market outreach. With that, I will hand back to Berit-Cathrin for the Q&A. Berit-Cathrin Hoyvik: Thank you, Philipp. We'll start with the first question is for you, Philipp. How have you managed to get in this situation? Shouldn't you have started to cut costs a lot sooner? And what signals are you getting from customers on orders? Philipp Schramm: Okay. Thank you for that question. Since I started, we started to adjust to changing market dynamics. Already in Q1 and Q2, and as I also communicated, we have reduced the cost base. Nevertheless, with the weak results of August, we have taken one of our negative scenarios and initiated more. That was the start point of this major cost reduction program to preserve liquidity, improve our EBITDA level due to the fact that we are seeing more and more fleets are being on the fence, the wait and see to respond to the macroeconomic uncertainty and this unprecedented downturn in trucking in the United States. Nevertheless, the uncertainty is in the market. I cannot deny that. But our growth story is intact. CNG is the only alternative now to replace the base fuel diesel for heavy-duty trucking in the United States. So the growth story is intact. We're adjusting to the new reality. We're adjusting to a declining outlook. But I'm confident that we will weather the storm and come out of the storm stronger than we entered it. Berit-Cathrin Hoyvik: I'll move over to you, David, a question on cash flow. Can you drag us through what the cash flow from investment activities relate to? What is included in the NOK 43 million of CapEx, the NOK 18 million in loan to Cryoshelter and the NOK 50 million in other investments? David Bandele: Sure. So the NOK 15 million was a modest investment into Pioneer, a strategic relationship in order to boost adoption of natural gas trucks. On Cryoshelter, and Cryoshelter, remember, is a pre-revenue company. They're actually working on a contract also on a customer of ours. So we supported their ability to do so. And then on CapEx, it's fair to say it's a normal CapEx that we have been -- that we need to do. But we also note that we've had quite a few ERP programs actually coming to conclusion in Q3. So moving to a cloud system, which has been successful globally for the company and also another ERP project within Digital Wave. Berit-Cathrin Hoyvik: And then continue with you, David. Questions on SES. These 2 questions. So I'll start with the first. Could you please indicate the net interest-bearing debt you took on when you consolidate SES? David Bandele: SES is a debt-free transaction, pleased to say. Berit-Cathrin Hoyvik: Thank you. And the second, in round numbers, what will SES contribute to the Q4 numbers for EBITDA? David Bandele: That's a good question. Obviously, when you do due diligence, we're not yet a feet under the table properly. But of course, as announced, it was reporting around about EUR 30 million in top line and around about EUR 2 million in EBITDA. So we will progress along that basis over the next few quarters. Berit-Cathrin Hoyvik: And then also another one for you, David. Why did payroll increase from the second quarter to the third quarter in 2025? And the second, may we expect other operating costs to stay between NOK 100 million and NOK 105 million per quarter for the fourth quarter and 2026? David Bandele: Yes. The other operating costs as disclosed in the report, that's a fair assumption from the ask of the question. On the other matter, it's just technical. So we have our long-term incentive program costs. We had a credit in Q2 and then more of a normal but reduced run rate in Q3. And that reflects the financial performance projections. So it's just some accounting between Q2 and Q3. One other thing. In Q3, we also booked NOK 9 million of severance cost. Berit-Cathrin Hoyvik: And we will continue with questions on working capital also for you, David. You have more than NOK 1 billion tied up in working capital. Why are you expecting so little working capital release? And the second part of the question, are you committed to purchase some raw materials beyond 2026? David Bandele: We -- of course, we have stated that we expect at least NOK 200 million. We do also expect market recovery in 2026. But yes, there's a good reason to take down working capital as much as we can. Berit-Cathrin Hoyvik: We'll continue questions on Mobile Pipeline. There's 2 questions. So there's one for you, David; one for you, Philipp. So first, David, in your investor presentation in relation to the equity raise, you show Mobile Pipeline is not expected to reach 2024 levels before 2028. Why did you expand capacity by 50% last year? David Bandele: The capacity program was essential also in terms of flexibility of operations. So we have quite a good program of new products coming online, and that gives us increased flexibility. There was also productivity gains, as we mentioned at the time. But at the end of the day, Mobile Pipeline delivered $40 million in EBITDA in 2024 for a $3 million to $4 million investment. We feel that's the right way to set us up also going forward. And of course, we did come into the year with elevated levels of backlog, which we successfully reduced. Berit-Cathrin Hoyvik: And then the second part for you, Philipp, on Mobile Pipeline. You control 50% of the market according to the same slide. Do you not have a dialogue with your largest customers? Philipp Schramm: We do have a dialogue with every one of our customers. And as we stated, and I said multiple times before, is that customers within the gas transportation industry are highly impacted by the oil and gas prices, first for shale activities. On the other hand, the RNG side is impacted by lower credits, as we stated also in this presentation today. This is focusing these companies on asset utilization. And these discussions we are having. But one thing which has changed is now these customers are also truck customers. So every customer who has a CNG unit, one of our Mobile Pipeline trailers can haul these trailers with an X15N engine truck. So we are combining this and approaching all of our customers with every of our product offerings. This is a change which we haven't had last year, and this is what we are moving forward with to offer our customers the entire portfolio, of course. And these discussions are ongoing [indiscernible] yes, unprecedented macroeconomic environment where there's a lot of uncertainty, where there's a lot of wait and see. But if the utilizations and some of the uncertainty is going away, we see also their momentum from the discussions with our customers that this might change. But this is what we are preparing for. And as I said, we are doing our utmost to weather the storm, to improve our cost base, secure liquidity because we are prepared. We have the capacity to do so, and we can scale up. And as I said, it's not about if, it's about the when. And we trust in the market of 8% to 10% as every other industry player does of CNG adoption of the entire Class 8 fleet. Berit-Cathrin Hoyvik: Back to you, David. Even with cost cutting of NOK 190 million, the Q3 covenant looks tight, implying revenue run rate must also come up. How do you see that happen with truck volumes weakening further? David Bandele: Yes. Obviously, we mentioned the maximum effect we expect from the cost initiatives of up to NOK 130 million additional for the next 4 quarters. And the rest, as mentioned there, should come from sales, and that's a fair statement. So if you just repeat that question, sorry. Berit-Cathrin Hoyvik: So even with the cost cutting of NOK 190 million, the Q3 covenant looks tight, implying revenue run rate must also come up. How do you see that happening? David Bandele: Right. So in terms of the recovery, I think you heard it in the presentation that we believe the assets are close to being replacing -- being replaced on trucks. So we look for a truck recovery far closer than we look for a Mobile Pipeline recovery. In Mobile Pipeline, there's also split geographies. So North America is obviously our biggest. But we see promising increases in Mobile Pipeline in the rest of the world and Europe, particularly the Jordan contract, for example. So yes, so those are sort of brighter elements of potential recovery. Berit-Cathrin Hoyvik: And then for you, David, also on working capital. The working capital reductions, is that relative to 3Q '25 level? David Bandele: Correct. So on the slide, we presented additional cash P&L and the balance sheet initiatives. Those are all in addition to Q3 run rate. Berit-Cathrin Hoyvik: And then we have a question for you, Philipp. Hexagon Purus will need more cash or be bought. Will you let anyone buy them? And what is the best case scenario with regards to Hexagon Purus as you see it? Philipp Schramm: I think it's an evaluation. And as I stated before, we believe that we have provided Hexagon Purus with enough liquidity to get through this challenging time. And as with every one of our minority share holdings, we are looking for opportunities to generate and improve shareholder value. So we evaluate situations closely as opportunities come by, and that's the same also with our shareholding in Hexagon Purus. Berit-Cathrin Hoyvik: And then a question for you, David, on gross margin. Could you please elaborate on why the gross margin improved significantly from the second quarter to the third quarter? David Bandele: It's a pretty technical answer, but I'm happy to maybe take that more offline. But of course, any improvement is good. Berit-Cathrin Hoyvik: And that's a question for you, Philipp. Why are you so bullish on truck recovery when the data you're presenting shows further decline in truck orders in 2026? Philipp Schramm: Because I trust first in our case. Secondly, the numbers speak for itself. It's an unprecedented downturn in Class 8 truck decline in the United States. The age of the fleet is increasing. So at some point, there will be a turning point that trucks need to be replaced. And that makes me confident that this will change. And it's not me saying this, if you listen to other market players in this area, they are also seeing that there might be a change. But when it is, that's the question. And that's my role as the CEO of Hexagon Composites to prepare us for this. That's why we have initiated the cost reduction program and the preservation of liquidity. And this is my goal that we are weathering these times and preparing us for the future because as I said before, the adoption in other markets for CNG is possible. So I truly believe why should it be different from our main market in the United States, where the regulations, as I said before, with the move away from the zero emission mandate is actually putting CNG in the spot to be the alternative to replace the base fuel diesel for heavy-duty trucking and heavy long-haul and high energy-intensive mobility applications. Berit-Cathrin Hoyvik: And then a question for you, David, on backlog. Why do you not provide any order backlog information, which would really help outside shareholders close some of the information gap between insiders and outsiders? David Bandele: Sure. I don't think it's relevant in the truck industry with the frame agreements, LTAs that we have. And it is a long-running question when it comes to Mobile Pipeline. We've chosen not to do that historically for those reasons. Berit-Cathrin Hoyvik: Thank you. And then one question for you, David, on the cyclicality. Given the immense cyclicality you apparently are exposed to, should you ideally have financial debt at all? David Bandele: It's a good question to have. But obviously, it's always a balance of your capital structure between equity and debt. So I'll leave it there. Berit-Cathrin Hoyvik: And I think that we have one final question here from -- for you, Philipp, in terms of can you comment on new contracts and the pipeline for Pioneer? Philipp Schramm: For Pioneer. I cannot comment for our partner, an independent company. What we see and what I hear, there is interest, and it's the same interest which we see. As I heard, there might be something coming, but I cannot -- it's just speculation, and it's up to Pioneer to comment on that. Berit-Cathrin Hoyvik: I think that concludes our presentation for today. Thank you for joining. Philipp Schramm: Thank you very much.
Operator: Thank you for standing by. My name is Rebecca, and I will be your conference operator today. At this time, I would like to welcome everyone to the EPAM Reports Results for Third Quarter 2025 Conference Call. [Operator Instructions] I would now like to turn the call over to Mike Rowshandel, Head of Investor Relations. Please go ahead. Mike Rowshandel: Good morning, everyone, and thank you for joining us today on our third quarter 2025 earnings announcement. As the operator just mentioned, I'm Mike Rowshandel, Head of Investor Relations. We hope you've had an opportunity to review our earnings release we issued earlier today. If you have not, copies are available on epam.com in the Investors section. With me on today's call are Balazs Fejes, CEO and President; and Jason Peterson, Chief Financial Officer. I would like to remind those listening that some of the comments made on today's call may contain forward-looking statements. These statements are subject to risks and uncertainties as described in the company's earnings release and SEC filings. Additionally, all references to reported results that are non-GAAP measures have been reconciled to the comparable GAAP measures and are available in our quarterly earnings materials located in the Investors section of our website. With that said, I will now turn the call over to FB. Balazs Fejes: Thank you, Mike, and good morning, everyone. It's a pleasure to be here with you on my very first earnings call as a CEO. And please just call me FB, as Hungarian names are notoriously difficult to pronounce and why FB because in my native language family name comes first. This quarterly call arrived faster that even my standard double espresso shot in the morning, and that's really the theme for the day. Things have been moving quickly since we spoke last, and today, we have positive news to share. Our third quarter results came in better than expected, marking another quarter of broad outperformance and strong delivery execution. We continue to benefit from AI and AI native led demand or thesis that data and modern cloud architecture are critical for AI adoption and auto realization is broadly being confirmed by what we are seeing. Our clients are prioritizing their AI build-outs, turning to EPAM to help them accelerate their investments and innovation in AI. The unique combination of our deeply rooted engineering DNA and our globally recognized best-in-class AI-native expertise continues to differentiate our offerings and help us further expand wallet share within our existing client portfolio and targeted new logo segments. At the same time, we are more focused than ever on upgrading our engineering skills advantage and investing for the future with new advanced AI playbooks and accelerators. Serving as client 0 for adoption, we believe innovation starts from inside, which is why in parallel, we continue to relentlessly push our AI literacy and AI adoption rates. Looking at our progress year-to-date, more than 90% of EPAMers have completed their mandatory AI literacy education and approximately 95% of our engineers have completed foundational AI education. Additionally, our internal business processes are increasingly benefiting from AI-driven efficiencies. As you can see with the recent launch of EPAM AI/RUN Transform, which includes next-generation AI managed services, and EPAM Agentic QA, we are programmatically expanding new offerings and highly specialized capabilities, often in conjunction with our clients and strategic partners, to help clients transform themselves into AI native organizations. Our efforts are being recognized by our partners as well as industry analysts such as IDC Marketscape who have positioned EPAM as a leader across experienced engineering, custom build and AI consultancy capabilities. Further, Glassdoor ranked EPAM #7 on their 2025 best led companies list along with Forbes, who recognized EPAM as one of the world's best employers, our first time being recognized across both. We will dive into the details a bit later in the call, but first, I would like to provide a quick update from my early days of CEO and my recently completed [indiscernible]. Over the past quarter, I met in person with many senior client executives, ecosystem partners, and of course, many, many EPAMers from all around the world. I experienced firsthand the high level of optimism and appetite for EPAM proven quality of execution across our global deeply specialized talent base. I am pleased with our continued and growing ability to ensure higher levels of performance across a much more globally diversified footprint than ever before. But our work is not done. AI presents a permanent fleet change in our industry and across our clients' businesses, driving the need for investment in modernization, data and cloud foundations and critical AI native skills. EPAM is positioned to lead both the foundational and the transformational programs demanded by AI as clients need support from trusted partners who can reliably deliver through the need to simultaneously balance costs and productivity with an increasing need to reinvest, innovate and keep pace with change. In line with Amara's law, we believe that as the productivity grows and as cost to develop software declines, complexity will significantly accelerate pushing the bleeding edge and resetting the boundaries of what is possible. And triggering a flywheel effect of demand for EPAM's unique breed of capabilities and global scale. We believe that as complexity rises so does enterprise risk, raising the importance of highly advanced engineering with proven enterprise-grade quality execution. While we have seen the flashy wide coding video shorts and headlines in our view, the absolute need for true engineering expertise, risk management, full tolerance and reliability are overlooked and underestimated. Now let's turn to some Q3 highlights. In Q3, we delivered another quarter of double-digit revenue growth, including very strong year-over-year organic constant currency revenue growth of 7.1%, which exceeded our expectations set a quarter ago. This marks our fourth consecutive quarter of positive year-over-year organic constant currency growth, reflecting a steady build of improvement and strong execution in our core business as we continue to ramp our AI native services. Our broad-based growth momentum carried forward in Q3 with 5 out of 6 verticals growing year-over-year. Notable standouts included emerging verticals, financial services and software and hi-tech. We also saw solid improvement in life sciences and health care, along with consumer goods, retail and travel while business information and media remains steady. Geographically, all 3 regions delivered strong year-over-year growth. We continue to add net organic headcount across key locations, such as India, Central Eastern Europe and South America. With increases partially offset by ongoing optimization in select pockets that we have discussed previously. Now turning to demand environment. AI continues to trigger incremental demand and is driving positives in our pipeline globally. The majority of our top 100 clients remains highly engaged in AI-native initiatives. Clients engage EPAM to build out their data platforms and modernize their cloud, often redirecting work from other partners who successfully sold advanced capability, but failed to deliver it. Overall, we continue to see improvement in the demand environment as we're seeing a continued upshift in investment towards everything that supports AI adoption and its deployment to production. This is where reputation for trusted quality and execution remains a significant competitive advantage and a key enabler for us to continue to maintain our pricing integrity. We gained traction with our ongoing client-centric initiatives while at the same time, continuously strengthening and optimizing our global delivery footprint, which is enabling us to better meet market demand. When you look across the AI project life cycle from proof of concepts to medium-sized use cases and the large-scale project in production, we're seeing a continued shift in the volume of project towards medium- and large-sized projects. Many making use of our own IP, such as DIAL, AI/RUN and other components, both open source and proprietary. Of the hundreds of individual AI-native projects, we had active in Q3 between 60% to 70% have expanded into larger programs from the origination as proof of concepts, illustrating our ability to scale and deliver AI native solutions in production. We are also seeing positive signs at the top of the funnel, enabling us to replenish our pipeline or some projects come to a natural close. Our hard work and continuous effort to further position EPAM as a leader in AI native services is serving us well as our pure AI-native revenues continues to grow nicely with a third consecutive quarter of double-digit sequential growth. And of course, as we have discussed before, the foundational services necessary to meet AI work are a core fundamental to our business. In both our data and cloud practices, we saw outsized growth in Q3 compared to the rest of the business, which is incremental and highly connected to the momentum we are seeing with our pure AI native revenues. Now turning to our AI/RUN Transform and Agentic QA announcements. First, a couple of core beliefs to frame our evolving AI approach. Number one, AI is not just a technology. It's a transformative force that is already redefining how enterprises innovate, operate and create value in the future. And in this context, advanced engineering, bleeding edge, AI technology and tool sets along with deep knowledge across the software development industry, a new product life cycle are the core competencies that will drive the most tangible AI outcomes. This will become even more evident as we see further rise of AI in the global and regional lineups of players in both Western market and broadly across APAC, LatAm and Middle East. Number two, we believe in the building AI responsibly, with trust, transparency, governance and measuring outcomes at the core. AI must deliver real outcomes with proper traceability and risk management. Number three, we believe we are creating a new AI native engineering profile or North Star when it comes to talent development strategy, embedding AI intelligence and orchestration of agents directly into the development process. Over time, this role becomes the architect of AI native products and experiences augmented by agents to expand the scope of what teams can achieve in the future. And finally, AI investments are in intense race. Our approach is to invest in accelerators, tooling and people who help us deliver reliable outcomes on the promise of AI. We do not sell foundation AI in a silo. Instead, we use our expertise and advanced IP to sell and deliver with AI, with proven quality and execution that guarantees outcome and volume realization. This is true across our entire IP portfolio and is shaping into a structural blueprint we are calling AI/RUN. AI/RUN Transform represent our unified AI strategy that harmonizes our go-to-market notions with better activation across strategy and consulting, frameworks, and methodologies, talent and advanced tool sets. We have 2 key offerings: AI innovation business transformation and AI native engineering transformation. The first offering is focused on optimized expand run across AI industry solutions, AI horizontal solutions and AI product design and experience. The second offering is focused on mastering the SDLC advancing the Agentic delivery life cycle known as ADLC and preparing for product development life cycle known as PDLC. This encompasses AI-native delivery, AI-driven modernization and PDLC agentic solutions. We will be talking more about these offerings in the quarters to come. Our AI/RUN blueprint encompasses or AI frameworks and include our AI 360, AI factory, AI SDLC and AI adoption and education frameworks, which are agnostic and provide critical flexibility, which help EPAM deliver more enterprise-grade AI solutions at scale for our clients. Our AI/RUN talent, houses or verticalized industry teams, ontologies and accelerators, which includes strategic advisory, data models, process modeling and solution built with partners. Most importantly, this is the scaffolding we are using to define the forward skills of the future and the parts for upscaling people and organizations. And finally, our AI/RUN tools combines our best-in-breed IP assets, such as EPAM DIAL and AI/RUN platform with our strong AI, data and cloud ecosystem partner solutions and many available today on our partner marketplaces. You may have seen we also recently announced one of these tools, Agentic QA, which bridges the gap between automated and manual testing, enabling clients to move faster by reducing lead times and costs. What's impressive is that our Agentic QA is shown to be 10x more efficient than manual testing, driving a 50% reduction in manual efforts and a 30% reduction in testing costs covering 90% of the manual checks performed on standard releases while ensuring a high degree of quality and precision. Now turning to some client examples to illustrate some of our progress. This past quarter, we announced several collaborations with both new and existing clients which illustrate not only evolution of our client proposition, but also how EPAM is able to systematically address innovative needs while offering real volume. A few notable examples. Agentic customer service breakthroughs are real with [indiscernible] a major provider for telecommunications, cloud and Internet services in Germany. By deploying EPAM's AI/RUN transform Blueprint and leveraging Microsoft Azure, this client launched AI voice agents that handle over 100,000 calls weekly with the first agents going live under 3 months into production; two, our collaboration with Hugo Boss and our Empathy Lab studio is reimagining what means to be a sports fan in the age of spatial computing. This innovation is shaping the next generation of motorsport fandom to lifting the bar how luxury fashion, sports and technology intersects. We are blending our deep expertise in groundbreaking user experiences with gaming, fan engagement, advanced data and analytics and working with our clients to help package the 2025s TV award-winning solution for the AI native age. Three, finally, we are putting EPAM and NEORIS together in a way that goes beyond simple synergies. For a U.K.-headquartered global biopharmaceutical company, EPAM, with the addition of NEORIS recently became a global strategic supplier across a broad range of transformation pillars. A key joint win for us is in helping the client to build out a modern data and AI center of excellence, which spans across multiple programs and new locations, including Ibero-America. To close our operating momentum is strong. We are pleased with our performance throughout the year and continue to work on improving profitability. We are confident in the upward trajectory we have been working hard to build and sustain over the past several quarters and feel good about our Q4 positioning, which has improved over the past 90 days. We are focused on what's right in front of us and finishing 2025 strong, which we believe should set up a solid foundation to build upon in 2026 as we continue to work on expanding our organic constant currency growth rate. We are prioritizing client-centric, disciplined execution while bringing a new level intentionality on building verticalized and differentiated horizontal go-to-market offerings. Looking ahead, we see our investments in upskilling differentiated AI playbooks, IP partnerships and new lines of services such as Agentic business process outsourcing, helping us to further capture new demand. Jason, over to you. Jason Peterson: Thank you, FB, and good morning, everyone. In the third quarter, EPAM generated revenue of $1.394 billion a year-over-year increase of 19.4% on a reported basis, exceeding the high end of our Q3 revenue guidance. On an organic constant currency basis, revenues grew 7.1% compared to the third quarter of 2024. We delivered another consecutive quarter of very solid year-over-year organic constant currency growth, reflecting ongoing steady execution. Our growth in the quarter was driven by a continued shift to quality and accelerating momentum across our AI native, data, cloud and AI foundational initiatives. We're making early headway with the launch of our AI/RUN transform strategy, which complements our underlying growth momentum, positioning us well to continue to capture demand. Our outperformance in the quarter was broad-based. We also recently announced a new $1 billion share repurchase program. The underlying strength of our business and continued momentum coupled with our efficient free cash flow generation and a strong balance sheet enable us to take advantage of the current market dynamic while returning cash to shareholders. Moving to our Q3 vertical performance. Five of our 6 industry verticals posted year-over-year growth, with 4 of the 6 growing double digits. NEORIS and First Derivative continue to contribute substantially to our financial services and emerging verticals. Financial Services once again delivered very strong growth, up 32.7% year-over-year on a reported basis, with 6% organic growth in constant currency. Growth came from banking, asset management, and insurance clients. Software and Hi-Tech grew 19.1% year-over-year, driven by strong execution and broad improvement across large clients. Life Sciences and Healthcare increased 11.8% on a year-over-year basis. Revenue growth in the vertical continues to be driven primarily by clients in Life Sciences and MedTech. Consumer goods, retail and travel delivered 9.9% year-over-year growth, marking a notable rebound relative to prior quarters. The vertical also delivered solid sequential growth, which was driven by growth in consumer products and retail. Business Information & Media was steady and delivered flat year-over-year revenue performance. Our emerging verticals delivered another quarter of very strong year-over-year growth of 38.9% with NEORIS continuing to contribute to the vertical's performance. On an organic constant currency basis, growth was 15.1%, primarily driven by ongoing strength in energy and materials. From a geographic perspective, Americas, our largest region, representing 58% of our Q3 revenues, grew 16% year-over-year on a reported basis and 3.9% in organic constant currency. EMEA comprising 40% of our Q3 revenues increased 24.9% year-over-year and 11.8% in organic constant currency. And finally, APAC making up 2% of our revenues increased 17.7% year-over-year and 14.2% in organic constant currency. Lastly, in Q3, revenues from our top 20 clients grew 10.2% year-over-year while revenues from clients outside our top 20 increased 24.4%. Moving down the income statement. Our GAAP gross margin for the quarter was 29.5% compared to 34.6% in Q3 of last year. Non-GAAP gross margin for the quarter was 31% compared to 34.3% for the same period a year ago. As a reminder, the prior year period benefited from a cumulative catch-up related to the Poland R&D credit. The third quarter of 2025 includes a single quarter's benefit of $13.2 million. Additionally, for Q3 2025, we recognized higher variable compensation driven by expected stronger second half performance combined with ongoing lower profitability associated with recent acquisitions, both contributed to the lower gross margin level. GAAP SG&A was 16.8% of revenue compared to 17.7% in Q3 of last year. Non-GAAP SG&A in Q3 2025 came in at 14.1% of revenue compared to 14% in the same period last year. GAAP income from operations was $145 million or 10.4% of revenue in the quarter compared to $177 million or 15.2% of revenue in Q3 of last year. Non-GAAP income from operations was $222.8 million or 16% of revenue in the quarter compared to $222.9 million or 19.1% of revenue in Q3 of the previous year. Non-GAAP income from operations in Q3 2024 was similarly impacted by the Polish R&D credit. Our GAAP effective tax rate for the quarter came in at 25.6%, and our non-GAAP effective tax rate was 24.1%. Diluted earnings per share on a GAAP basis was $1.91. Our non-GAAP diluted EPS was $3.08 compared to $3.12 from Q3 of last year, reflecting a $0.04 decrease year-over-year. In Q3, there were approximately 55.8 million diluted weighted average shares outstanding. Turning to our cash flow and balance sheet. Cash flow from operations for Q3 was $295 million compared to $242 million in the same quarter of 2024. Although seasonality always has a positive impact from Q3 cash flow, cash flow from operations in the quarter exceeded the impact of typical seasonality and resulting in the highest level of quarterly cash flow from operations in EPAM's history. Free cash flow was $286 million compared to free cash flow of $237 million in the same quarter last year and also represented an all-time high. Cash and cash equivalents were just over $1.2 billion as of the end of the quarter. At the end of Q3, DSO was 75 days compared to 78 days for Q2 2025 and 74 days for the same quarter last year. Share repurchases in the third quarter were approximately 493,000 shares for $82 million at an average price of $167 per share. Moving on to operational metrics. We ended Q3 with more than 56,100 consultants, designers, engineers and architects, reflecting total growth of 17.5% and organic growth of 6.4% compared to Q3 2024. In the quarter, we added approximately 300 net delivery professionals. Our total headcount at quarter end was 62,350 employees. Utilization was 76.5% compared to 76.4% in Q3 of last year and 78.1% in Q2 2025. Now let's turn to guidance. Before moving to the specifics of our 2025 and Q4 outlook, I would like to provide some thoughts to help frame our guidance. Based on the strength of our Q3 and solid Q4 visibility, we are expecting a strong Q4 exit ending the year with higher organic constant currency growth rates than we forecasted just 90 days ago. At the same time, we are not expecting to see a significant release of excess client budgets and typical seasonality will also have an impact. Compared to Q3, Q4 is negatively impacted by a higher number of holidays, vacations and potential furloughs. As a reminder, we acquired NEORIS and First Derivative in Q4 2024 in November and December, respectively. As per our usual reporting practice, revenues from these acquisitions were moved from inorganic to organic in Q4 2025 as contemplated in our previous guidance. Based on a better-than-expected performance in the second half, coupled with improving visibility into Q4, we are raising the bottom end of the range for 2025 full year organic constant currency revenue growth and now expect the midpoint of the range to be 4.6%, an increase from the guidance we gave 90 days ago, which was 4% at the midpoint of the range. While driving top line revenue growth, we also remain focused on improving profitability. While there is more work to be done, we've been pleased with the results of our ongoing focus on improving account profitability, which is evident in our improved profitability outlook for Q4 and full year 2025. Lastly, we continue to work on improving utilization and we continue to reduce isolated pockets of bench while adding that headcount to support growth. Our guidance continues to assume that we will be able to deliver out of our Ukraine delivery centers at productivity levels similar to those achieved in 2024. Moving to our full year outlook. We now expect revenue to be in the range of $5.430 billion to $5.445 billion, reflecting a year-over-year growth of 15% at the midpoint, with inorganic continuing to contribute approximately 9.1% for 2025. Based on current spot rates, foreign exchange is now expected to have a positive impact on revenue growth of 1.3%. We expect year-over-year revenue growth on an organic constant currency basis to now be 4.6% at the midpoint. We expect GAAP income from operations to now be in the range of 9.4% to 9.7%, and non-GAAP income from operations to now be in the range of 15% to 15.3%. We expect our GAAP effective tax rate to now be 25%. Our non-GAAP effective tax rate, which excludes the impact of benefits and shortfalls related to stock-based compensation will continue to be 24%. Earnings per share, we expect the GAAP diluted EPS will now be in the range of $6.75 to $6.83 for the full year, and non-GAAP diluted EPS will now be in the range of $11.36 to $11.44 for the full year. We now expect weighted average share count of 56.2 million fully diluted shares outstanding. Moving to our Q4 2025 outlook. We expect revenue to be in the range of $1.380 billion to $1.395 billion, producing a year-over-year growth of 11.1% at the midpoint of the range. Our guidance reflects an inorganic contribution of 4.3% with a 2.4% positive FX impact during the quarter producing a 4.4% organic constant currency growth rate at the midpoint of the range. For the fourth quarter, we expect GAAP income from operations to be in the range of 10% to 11% and non-GAAP income from operations to be in the range of 15.5% to 16.5%. We expect our GAAP effective tax rate to be approximately 24% and our non-GAAP effective tax rate to be approximately 23%. Earnings per share, we expect GAAP diluted EPS to be in the range of $2.00 to $2.08 for the quarter and non-GAAP diluted EPS to be in the range of $3.10 to $3.18 for the quarter. We expect a weighted average share count of 55.1 million diluted shares outstanding. Finally, a few key assumptions that support our GAAP to non-GAAP measurements for Q4. Stock-based compensation expense is expected to be $44 million. Amortization of intangibles is expected to be approximately $18 million. The impact of foreign exchange is expected to be $1 million. Tax effective non-GAAP adjustments is expected to be around $16 million. We expect a tax shortfall related to stock-based compensation of around $1 million. Severance driven by our cost optimization program is expected to be around $10 million. And 1 more assumption outside of our GAAP to non-GAAP items, we now expect interest and other income to be $3 million for the remaining quarter. We remain focused on driving revenue growth and enhancing profitability. We are confident in our strong positioning as we enter Q4. We will continue to run EPAM efficiently, maintaining our focus on both growth and profitability throughout the remainder of the year. Thanks again to all our employees for their dedication and focus, on serving our clients and driving results for EPAM. Operator, let's open the call for questions. Operator: [Operator Instructions] And your first question comes from the line of Maggie Nolan with William Blair. Margaret Nolan: So I wanted to start with the push that you mentioned into Agentic BPO. Do you intend to enter that space with proprietary products? Or can you talk about maybe build versus buy decisions from clients for processes? And then just like the ability to automate this, how that may be or may not be any different from the robotic process automation wave that we saw several years ago that ended up being sort of difficult to accomplish given the variability of processes. Balazs Fejes: Good morning, Maggie. Thank you for the question. Actually, it's a really interesting subject. It's early days for us. As you know, we made 2 acquisitions in this space. First was First Derivative where we had a line of business which was in business services, that's where we really went after that acquisition with the pieces that we could automate with Agentic AI, the KYC and fin crime elements of their business. The second acquisition was LYNXUS which was this year, and it was a small BPO to really understand the space itself. So going back to what we are seeing. We are seeing our clients are keen to try out, but it's early days. We are using EPAM build platform itself, in order to really deliver the automation, but it's a very different than RPO in the past. What we try to do is we're trying to experiment on simple and more complex agentic flows, which requires high level of degree of engineering going beyond simple RPO or simple RPA capabilities. We don't know yet where the market will go. We don't know where it's leading. Right now, we are seeing a build momentum from the clients, which we are talking, but it's a very small sample which we're talking about. It's early days for us. Operator: Your next question comes from the line of Bryan Bergin with TD Cowen. Bryan Bergin: I wanted to ask about as we think on your 4Q exit rate considerations. And I think beyond that, as we move forward to '26, how we should be thinking about growth potential? And specifically, if you can kind of comment on the impact of bill days and furloughs and things like that as you go through 3Q and 4Q and then into 1Q as well as just any other important factors such as how growth in NEORIS and FD may affect your organic growth rate as you fold those in going forward? Jason Peterson: Yes. Bryan, this is Jason. So as I think most people know, there's a negative impact from a seasonality standpoint, if you look at sequential Q3 to Q4 and so that impact is kind of 3 things, which is one is fewer bill days, you've got more vacation. And then you also have a higher degree of furloughs. So all of those things produce some tens of millions of kind of headwind on sequential growth Q3 to Q4. When I look at the performance of our business throughout 2025, Q1 to Q2, Q2 to Q3 and Q3 to Q4, if you adjust for foreign exchange and you adjust for sequential factors, our sequential growth rate has actually been surprisingly consistent. The other thing I would add is you've got probably a little bit of headwind on foreign exchange sequentially Q3 to Q4. Just to sort of maybe answer a question that you hadn't asked, is that our guide at the midpoint of the range contemplates, I think I said 4.4% organic constant currency growth. If we operate at the high end of the range in Q4, we'd be at about 5% organic constant currency growth. Operator: Your next question comes from the line of Jason Kupferberg with Wells Fargo. Jason Kupferberg: So the organic constant currency in the quarter, obviously, the 7%, I think, kind of best-in-class now among the peer group. But just to kind of build on the last question, I guess, can you kind of break down the sources of what looks to be some deceleration in the Q4 on a year-over-year basis, you just walked us through the sequentials, Jason, I just want to make sure you kind of -- we have the puts and takes right there and then how we should just at least directionally be thinking about where the organic growth can go in '26 versus, call it, a 4.5% exit rate for this year. Jason Peterson: Okay. Still -- yes, so from a year-over-year standpoint, I think maybe the biggest difference is we see clients continue to make investments and move forward on programs. What we're not seeing is the release of excess budget at the end of the year, the way we saw in Q4 of last year. And so I think that is probably the biggest difference. Clients continue to invest, but there isn't a big kind of opening up the wallet at the end of the year. From a demand standpoint, it still feels broad-based and it still feels, again, like we're continuing to see growth in financial services, hi-tech and also kind of the emerging energy portion of the portfolio FD, have thoughts on 2026? We believe that organic growth rate will be higher than this year. We see the moment is driven by very much, as we mentioned, some of the AI fundamental build out, foundational build-outs. And we see the pipeline for 2026 building very, very nicely at this point of time. It's early days, but we see positive signals. Operator: Your next question comes from the line of Jonathan Lee with Guggenheim Partners. Jonathan Lee: And FB, welcome to the first, hopefully, many earnings calls as CEO. It's interesting to hear that clients are redirecting work from partners who failed to deliver effectively highlighting that you're winning share from peers. Can you help size that contribution and unpack your competitive advantage here versus your peers? And how do you expect to maintain that gap going forward? Balazs Fejes: Jonathan, thank you very much for the kind words. I don't think we can size it yet, right? I don't think we can size it how much work is actually redirecting to us. We are seeing that in major programs, competitors who failed to deliver now clients are interacting the work to us. And the reason why because it's actually delivering these solutions in enterprises, much more difficult than what it seems like YouTube short or a TikTok video. You need deep engineering skill set capabilities across the foundation elements on data, on data platforms on cloud or enterprise platform themselves or actually modernization in order to deliver on that. You also need to consider the cost, you need to -- and cost engineers are quite expensive. You need to consider risk element, actual reliability and performance. All of these requires deep engineering skill set. So how are we going to keep our advantage because we are investing in our people, we are investing in our engineering talent, investing into tooling methodologies and investing into the playbooks, and we actually trying it out and experimenting on ourselves. That's why we believe being the customer 0 and being the client zero base is so important for our future. Operator: [Operator Instructions] And your next question comes from the line of Jim Schneider with Goldman Sachs. James Schneider: In some of your public commentary and interviews recently, I think you've kind of struck a chord about focus on costs for the company. Can you maybe give us a sense about how that focus on cost is being manifest across the company and how that might materialize in terms of SG&A or other kind of cost savings or margins over time? Balazs Fejes: Thank you very much. So I think in the last recent months, I was talking about the focus on pyramids. We focus on actually balancing the pyramid. Throughout when we diversified our delivery engine, we actually went into certain geographies, went into certain locations, we were not able to really create the ideal pyramid structure. Now we're working on that and we're trying to rebalance the pyramid itself. Rebalancing the pyramid is actually allowing us to really focus on and bring down some of the cost. Second is as a CEO, I'm putting more emphasis on profitability on the deals, emphasis on the capabilities to actually deliver profitable projects, profitable growth, which is really manifesting for us selecting the right clients, being more picky and more selective on the deals what we make, which we can only do because our demand is changing and the demand is up for us and that's what you are seeing the effect of that. Jason Peterson: Yes. I think I'll add a piece on this as well. So as FB indicated, with that focus, we are seeing an improvement in account margin in the second half of the fiscal year. And I think probably what is most notable is throughout the year, we've been talking about a 15% midpoint of our profitability range. And at this time, we feel pretty strongly that we'll operate in the upper half of the 14.5% to 15.5% range. And as we talked about in my prepared remarks, is we expect to operate in the 15% to 15.3%. And that is a result of a number of things, including a better account margin as we work through the fiscal year. James Schneider: That's helpful. And then maybe as a follow-up, you gave many data points relative to your AI project traction and increasing size of deals in AI. Can you maybe give us or level set any kind of quantification in terms of the size of your average AI project today? And then where you hope it may go in, say, 2 years? Balazs Fejes: I think in our prepared remarks, we had kind of explained how the projects are evolving, moving from proof of concepts to medium- to large-scale engagements. So it's an evolving set. We have hundreds of engagements right now. And most engagements typically start on a small side of the, call it proof of concept. And as they're scaling up some of them get into the tens of millions of dollars range as we go forward. We do see most of our top 100 clients are actually engaging with large AI initiatives, which looks like -- so it doesn't mean that right now, we are executing large AI projects, but we have large AI initiatives. We are hoping to -- most of our revenue will be coming in the coming years from these initiatives, either because of AI transformation, either because introducing AI or creating the foundational events for the AI deployment, which is right now one of the main driver for our business. Operator: Your next question comes from the line of Jamie Friedman with Susquehanna. James Friedman: Some of your comments were considerably more technical than what some of us sort of accustomed to, and we appreciate that because that's where the industry is going. So we'll adjust. I wanted to ask specifically about agentic delivery, life cycle management. Yes, that one. So what -- in terms of like the vectors or phases that the customers need in order to proceed with agentic delivery, how would you describe the chronology of that aspect and the relative size of that one in delivery life cycle relative to some of the others that you mentioned. Balazs Fejes: Thank you for the question. So what we need to start considering is when clients were just delivering software products, they still have to master SDLC cycles. Most of our clients and most of the industry haven't really fully mastered the SDLC itself. When you start deploying agentic capabilities and trying to automate large scale of processes and works using agentic AI capabilities, you need to really follow an agentic development process, agentic life cycle. And it is also complex or even more complex than compared to SDLC. So it's not as simple as it looks in order to make it really work in the enterprise, right? So I know that everybody believes and keep believing that this is a simple step and adjusting development life cycle. It is complex of any SDLC life cycle, and you need to really master it. And this is going to -- we think it's going to be a bigger problem because you were going forward than mastering SDLC. The reason being is now you no longer just touching on certain elements of your software spec, but now you really need to consider how you automate processes, which you never automated before. You are going to step into automating previously very manually intensive components and automating those are very, very complicated and difficult and more prudent process itself. As you're migrating in this it's not just you need to upskill your teams who are doing it. And it's no longer just engineers who we're talking about. You need to also introduce the right tooling, the right processes across the enterprise. And if you want to really take -- get the benefit you need to also start considering not just the element of can I actually automate this process, but during automation, I really also want to achieve a certain ROI because if the automation results into a higher cost, then you kind of deliver on your promise. So we think this is a large shift. It is not going to be a very quick one. It really requires tremendous amount of work to make it happen. And companies will have to partner with organizations such as EPAM to actually do that in what we call an AI factory model where you are introduce a foundation, build a foundational component, build the right process in place, the right governance itself and then you go process by process and building the agentic automations. Operator: Your next question comes from the line of David Grossman with Stifel. David Grossman: Just kind of looking at a high level of the business and how it's been performing. It looks like the revenue per head is up for the first time in 3 quarters despite flat utilization. So maybe you could just talk a few minutes about what's going on under the covers here? Is it geographic mix, where you're delivering from? Is it perhaps growth outside the top 20, which has been very strong and historically a pretty good leading indicator of kind of new business activity and funnel. So maybe you could just illuminate what's happening there. Jason Peterson: David, good question. And one of the things about the revenue per head count number is that there is a lot of, I guess, what I'd have to call noise in it. And so utilization, as you pointed out, is one of the factors. Foreign exchange actually impacts as well. And so it is a number that I think most people will look at and try to sort of draw a conclusion from how much price uplift is the company getting if they increase revenue per head count. But I think there's more noise in it that I think people realize, okay. But as we look at our number and I subtract out some of these factors that I just referred to. What we're really seeing is we are getting somewhat better price than we've gotten in the past. Some of that is probably mix related. Again, I'd say more kind of customer mix. And as we talked about, it's consistent with the account margin improvement that I referred to earlier in the call. And so again, some of it is foreign exchange but some of that really is actual price driven. David Grossman: And when did the contract profitability, when -- is this the first quarter that it really inflected or has it been inflecting and just not visible. Jason Peterson: Yes. I think we've been working on it throughout the year. I think we've talked about it a fair bit last quarter. And so it's all the things that drive that, including pyramid. And again, the pyramid that they will probably have more of an impact on 2026. And I think it's just really beginning to probably show up in this discussion as we see both solid profitability in Q3. And what we're now expecting is much better profitability in Q4 than we originally anticipated 90 days ago. And so again, some of that is accounted to profitability improvement. And I think, as I said earlier, I was very convinced that we were going to operate it at about 15% this year. And now, as you heard me, we're talking about operating in the 15% to 15.3% range. Operator: The next question comes from the line of Bryan Keane with Citi. Bryan Keane: Congrats on the solid results. Jason, let me just follow up on that discussion. What does that mean for headcount growth going forward in this model and maybe even revenue per head going forward? How should we think about that as we get into the fourth quarter and into next year? And then my second question is just the organic growth of FD and NEORIS, maybe you can help us with that. Jason Peterson: Yes. So you would -- you'd expect us to see us add headcount in Q4. It will be similar to what we've been doing throughout the year, where we do have some pockets of excess bench that we continue to kind of reduce and we'll be making net additions globally. And so you'll see an increase in headcount in Q4. From an FD and NEORIS standpoint, as we are talking about very early in the year, the lead customer at NEORIS was impacted early by U.S. tariffs and kind of generally kind of political and economic instability in Mexico. And so we definitely see a decline in that customer on a year-over-year basis. And so it probably has a modestly negative impact on organic constant currency growth. But both of those businesses have kind of stabilized at this point, and we think there's a lot of strategic benefits. But again, particularly with that big customer from NEORIS, it has a modestly negative impact on organic constant currency growth in Q4. Bryan Keane: Okay. That's helpful. And then any comments on revenue per head on what that might look like going forward? Jason Peterson: So it's always -- utilization and foreign exchange really moves the needle on this one. So it's difficult for me to tell. What I will just do is comment on pricing. What we do think is that pricing is better at this time than it was last year at the same time. Maybe it hasn't improved a lot over the last 90 days, but it is a somewhat better pricing environment. And we are expecting modest price increases as we enter 2026. Again, maybe not at the level that we would have gotten 4 or 5 years ago, but in kind of the low single-digit kind of range, which is a better environment than certainly 2023 was, in 2024. Operator: The next comes from the line of Sean Kennedy with Mizuho. Sean Kennedy: Very nice results. Great to see the growth momentum in the business. So I have a follow-up on the AI projects. I appreciate it's still early, but how does the AI work differ from EPAM's non-AI projects? in terms of duration and profitability now? And how do you think that could evolve in the future? Also, are you seeing certain clients in terms of size and industry engage in AI projects more than others? Balazs Fejes: So I think -- the project, I don't think it's fundamentally different in AI. It requires a senior engineering discipline, engineering capability. It might have more skewed towards data or skewed towards data platform or the capability around AI. So it requires a little bit different engineering skill set, different understanding. On the other hand, it also requires a combination of the business domain understanding. And really you need to combine it because now you are starting automating processes which were not automated before. So building the platform is probably very similar to what we've done in the past. Preparing the foundation, cloud migration, data platform build-out, data engineering or building -- modernizing the back end. This is very, very typical for EPAM. But when you are really start automating new processes, that's where the main capabilities, select capabilities, understanding of how to automate that process and understanding the specific industry is very needed. Profitability wise, at this point, probably similar than others. But I think there is a clear potential for later for better profitability as you are potentially not just delivering the projects maybe on a material basis, but maybe you can explore alternative business models. And I'm hoping, of course, that with these kind of projects, we are able to charge probably higher rates to begin with. Operator: Your next question comes from the line of Darrin Peller with Wolfe Research. Paul Obrecht: This is Paul Obrecht on for Darrin. Jason, I appreciate all the color on headcount. Just curious, longer term, if you think the greater usage of AI will perhaps impact the need to hire in any way? And just to what degree as you increasingly embed AI internally? Is that perhaps allowing for lower delivery requirements? Jason Peterson: I'm going to turn that one over to FB. Balazs Fejes: So we continuously believe Darrin that although AI does create efficiency gains -- the demand increase will outstrip any kind of efficiency gains what we are seeing. So we believe that going forward basis, we continue to hire, we continue to grow. Organization will grow, we need to bring in maybe differently trained teams. And we also bringing on anticipating your next question, we're going to continue bringing in junior engineers because with the right training, with the right background, with the right education, we do believe that the balance pyramid is the best serving not just our clients, but also industry. Operator: Your next question comes from the line of James Faucette with Morgan Stanley. Antonio Jaramillo: It's Antonio on for James Faucette. I wanted to ask more on -- back to the like AI part of the equation. Just on your build versus buy strategy? I know that you had touched on that earlier, but I'm just trying to get a sense of like what is the growth of your GenAI like revenue? Jason Peterson: Yes, it's a little bit hard for me to tell exactly what you're looking for there, but what we continue to see is this strong sequential improvement in revenues for what we call the GenAI native. And so that continues to be kind of double digits sequentially. We saw again during this quarter. And then as FB has been talking about and maybe he wants to add some color is that we continue to see strong growth in the, what we call the foundational side, which is the cloud modernization and data and that piece of the business. Balazs Fejes: So we continue to see lots of demand coming in. As Jason mentioned, the AI native revenue is growing sequentially very strongly, up double digits. We are seeing our clients building more solutions and actually he taking advantage of AI software engineering feature or a capability and a functionality because the functionality close to it decreases, they're actually building more. So we believe that people going forward basis, they will build more than buy. It's actually the equation of or the percentages will start skewing towards build versus the buy side. So that's our thesis, and we are seeing evidence around that. Antonio Jaramillo: Got it. Got it. That's helpful. And then as a follow-up, I wanted to ask on the Software and Hi-Tech vertical. What are some of the key drivers for that growth? I know it's grown pretty nicely sequentially. Any like onetime factors there? Or is this just a broadening out of demand there? Jason Peterson: Yes. I mean we've had a few large customers that are growing nicely. We've got 1 client that particularly has a large kind of platform program that they've been investing in. You won't see the growth rates stay like that forever in that space, but we've been pleased with the ongoing revenue generation from the Hi-Tech portion. Operator: At this time, there are no further questions. I will now turn the call back over to FB for closing remarks. Balazs Fejes: Thank you very much for attending my first earnings call. Really, I would like to thank all the EPAM employees for delivering a successful quarter, and we talk next time in 90 days approximately. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Hello, and welcome to the Janus International Group Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Ms. Sara Macioch, Senior Director, Investor Relations of Janus. Thank you. You may begin, Ms. Macioch. Sara Macioch: Thank you, operator, and thank you all for joining our earnings conference call. I am joined today by our Chief Executive Officer, Ramey Jackson; and our Chief Financial Officer, Anselm Wong. We hope that you have seen in our earnings release issued this morning. We have also posted a presentation in support of this call, which can be found in the Investors section of our website at janusintl.com. Before we begin, I would like to remind you that today's call may include forward-looking statements. Any statement made describing our beliefs, plans, strategies, expectations, projections and assumptions are forward-looking statements. The company's actual results may differ from those anticipated by such forward-looking statements for a variety of reasons, including, but not limited to, tariffs, interest rates and other macroeconomic factors, many of which are beyond our control. Please see our recent filings with the Securities and Exchange Commission, which identify the principal risks and uncertainties that could affect our business, prospects and future results. We assume no obligation to update publicly any forward-looking statements and any forward-looking statement made by us during this call is based only on information currently available to us and speaks only as of the date when it is made. In addition, we will be discussing or providing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted EPS and net leverage. Please see our release and filings for a reconciliation of these non-GAAP measures to their most directly comparable GAAP measure. On today's call, Ramey will provide an overview of our business. Anselm will continue with a discussion of our financial results and 2025 guidance before Ramey share some closing thoughts, and we open up the call for your questions. At this point, I will turn the call over to Ramey. Ramey Jackson: Thank you, Sara, and good morning, everyone. We appreciate you all joining our call today. I'd like to highlight a few key themes as I begin my prepared remarks. First, our team continues to execute in an operating environment that remains challenging. Second, we have confidence in the long-term fundamentals of our end markets we serve, reinforced by the stability of our backlog and pipeline. And finally, we believe our flexible financial profile and solid cash generation underpin the resiliency of our business model and allow us to adapt to changing market conditions. For the third quarter of 2025, Janus delivered total revenue of $219.3 million down 4.7% from the third quarter of 2024. Adjusted EBITDA was $43.6 million, up 1.2% compared to the prior year. Anselm will expand further upon drivers of these results shortly. Moving along to a discussion of our sales channels. Total self-storage saw a revenue increase of 3.7% and on the New Construction side. This was driven by strength in our International segment, which more than offset continued softness in the North American market. The R3 sales channel benefited from strength in the door replacement and renovation activity. Our Commercial and Other sales channel decreased 20.1% primarily driven by declines in our TMC business due to project timing as well as weakness in the LTL trucking industry stemming from broader economic impacts. TMC accounted for approximately 70% of the decline in revenue in the quarter. As we have noted before, the TMC business can be somewhat lumpy and will ebb and flow throughout the year. Additionally, we continue to experience overall market softness for commercial sheet doors. Despite the revenue decline, we are still seeing growth in other areas of our commercial business including rolling steel and our multiyear effort to get specified for certain architectural requirements. We believe the more comprehensive suite of offerings we have worked to develop is helping to build upon our position in the commercial market. Adoption of our Noke Smart Entry system continues to progress with 439,000 installed units at quarter end, representing an increase of 35.9% year-over-year. The latest addition in our line of Noke Smart Entry products, Noke Ion has been well received by the industry. The smart locking solution is low voltage powered can be customized and enhanced features like LED lights and motion sensors and is designed and optimized for all Janus self-storage and commercial door products for both New Construction and retrofits. We're pleased with the performance of this business and in particular, the acceleration of interest from the large institutional customers. We continue to see opportunities for further expansion as operators explore avenues to effectively manage their costs, prevent theft and enhance tenant satisfaction. In the third quarter, Janus continued to invest in innovation and expand our offerings to drive long-term growth across our portfolio. Through our BETCO brand, we announced a comprehensive expansion of our metal decking product line. This new range of custom metal decking system provides design flexibility to meet the unique structural and architectural demands of self-storage development and redevelopment. We also launched a redesigned web portal for our Noke Smart Entry platform, marking another milestone in our ongoing commitment to delivering seamless enterprise-level experiences for self-storage owner operators to run their facilities in a more effective and efficient manner. From a financial standpoint, our strong business model and cash flow generation should allow us to be opportunistic with regard to our capital allocation priorities. During the quarter, we continued our share repurchase program and are consistently evaluating M&A opportunities, which remain our top capital allocation priority. Despite sustained high interest rates, we are encouraged by the fundamentals of our business and their capacity to drive long-term growth. The self-storage industry remains resilient and continued consolidation presents growth opportunities for our R3 business. With an aging installed base and in the face of liquidity constraints, we believe facility owners will be encouraged to focus their capital allocation on existing properties. With positive industry tailwinds, coupled with our significant scale and financial discipline, we believe we are well positioned to deliver long-term shareholder value. With that, I'll turn the call over to Anselm for a further review of our financial results and updates to our 2025 guidance. Anselm? Anselm Wong: Thank you, Ramey, and good morning, everyone. As Ramey shared, our team has continued to focus on execution in a tempered operating environment. For the third quarter, consolidated revenue of $219.3 million declined 4.7% as compared to the prior year quarter. In total, our self-storage business was up 3.7%. New Construction increased 5.5% and R3 was up 0.7% for the quarter. The growth in revenues for New Construction was driven by strength in our International segment which more than offset continued weakness in North America. The increase in R3 revenue was driven by increases in door replacement and renovation activity. In the third quarter, our International segment saw total revenues increased to $28.3 million, up $7 million or 32.9% compared to the prior year, driven primarily by growth in New Construction. For the quarter, revenue in our Commercial and Other segment declined by 20.1%. Approximately 70% of the decline in revenue was attributable to our TMC business due to project timing as well as overall weakness in the LTL trucking industry resulting from tariff and economic impact. As Ramey noted, the TMC business can fluctuate throughout the year depending on the timing of jobs that are completed. While we continue to see softness in the commercial sheet door market, we are encouraged by the strength we are seeing in both rolling steel and the carport and sheds business. On a consolidated basis, the impact of revenues for the quarter was roughly 60% price and 40% volume. Third quarter adjusted EBITDA of $43.6 million was up 1.2% compared to the third quarter of 2024. This resulted in an adjusted EBITDA margin of 19.9%, an increase of approximately 120 basis points from the prior year period. The increase in margins year-over-year is primarily attributable to the prior year being negatively impacted by adjustments to our provision for credit losses, which was partially offset by volume declines and the impact of geographic segment and sales channel mix. We continue to see the benefits from our previously announced cost reduction program. As a reminder, we expect to realize approximately $10 million to $12 million in annual pretax cost savings by the end of 2025. For the third quarter, we produced adjusted net income of $22.6 million, up 1.3% compared to the prior year period and adjusted EPS of $0.16. We generated cash from operating activities of $15 million and free cash flow of $8.3 million in the quarter. On a trailing 12-month basis, this represents a free cash flow conversion of adjusted net income of 171% and Capital expenditures in the quarter were $6.7 million. We ended the quarter with $256.2 million in total liquidity, including $178.9 million of cash and equivalents on the balance sheet. Our total outstanding long-term debt at quarter end was $554 million, and net leverage was 2.3x, within our target range of 2 to 3x. These liquidity levels provide us ample financial flexibility and allow us to execute on our capital allocation priority. During the quarter, we repurchased approximately 82,000 shares for $800,000 as part of our share repurchase program. With the additional $75 million share repurchase authorization approved by our Board of Directors earlier this year, the company had $80.5 million remaining on our share repurchase authorization at the end of the third quarter. Subsequent to quarter end, we are also pleased that S&P upgraded our credit rating from B+ to BB- with a stable outlook. This recognition reflects our resilient business model, balanced approach to capital allocation and consistent cash flow generation and profitability. Now going to our 2025 guidance. Based on our year-to-date results, current visibility into our backlog and end markets and business trends and conditions as of today, we are updating our full year 2025 guidance for revenues and adjusted EBITDA. We expect revenues to be in the range of $870 million to $880 million and adjusted EBITDA to be in the range of $164 million to $170 million, reflecting an adjusted EBITDA margin of 19.1% at the midpoint. While we anticipate revenues in the fourth quarter to be largely in line with the third quarter and the midpoint of the guide remains intact, we now anticipate EBITDA margins to come down from our original guidance, primarily driven by geographic and product mix. We continue to anticipate the free cash flow conversion of adjusted net income will be above the target range of 75% to 100% for 2025. Please refer to the presentation we have posted for additional details on our key planning assumptions for 2025. Thank you all for your time. I will now turn the call over to Ramey for his closing remarks. Ramey? Ramey Jackson: Thank you, Anselm. Our team has continued to focus on factors we can control in a dynamic environment. Supported by our balance sheet and cash flow foundation, we will continue to develop our innovative suite of solutions to further build upon our industry leadership position and invest for future growth. We believe we will be well positioned in our industry when an inflection point in the operating environment does occur. Looking ahead, we will continue to execute on our strategic plan as we look to drive long-term value creation for all of our stakeholders. In closing, I'd like to express my appreciation to our team, customers and our shareholders for your support. Thank you again for participating on today's call. Operator, we would now like to open up the lines for Q&A, please. Operator: [Operator Instructions] We'll take our first question today from Dan Moore with CJS Securities. Will Gildea: This is Will on for Dan. Just looking at the guidance -- looking at the guidance, revenue is unchanged, but EBIT is lower by 10% at the midpoint. So we're looking for something in the 19% margin range versus 21%. Can you add some more color and help us rank order or bucket the delta between mix, higher input costs, including tariffs and other factors? Anselm Wong: Sure. Biggest thing was really product mix and in the kind of segment mix, where the sales came from. If you actually noticed when we print the Q, you'll see that international sales were up meaningfully. So there's a lower margin versus kind of in our North America business. So the majority is there, tariffs is really not material and neither was input costs. Will Gildea: Very helpful. And then looking at your backlogs and quoting activity, particularly from your core REIT customers. What does it tell you regarding their plans and budgets for growth for both New Construction and R3 related spend as we look into 2026? Anselm Wong: At least what we are seeing right now, at least for the current time, the backlog in the pipeline looked pretty stable. I wouldn't say there's anything that's changed from last quarter where we saw was fairly stable. Operator: We'll take our next question from Jeff Hammond with KeyBanc. David Tarantino: This is David Tarantino on for Jeff. Starting with commercial, could you give us some more color on the weakness in TMC, how much is timing versus the softness in the end markets? And then maybe around the unchanged midpoint in the overall sales guide, how should we think about the assumptions between the end markets and what gives you the confidence that this is more down to timing and should improve moving forward? Anselm Wong: Yes. As we said about TMC, it's really -- there's 2 things there is that a lot of their projects are pretty large projects that get impacted by weather, get impact the decision by the customer. So it's really hard to predict kind of what quarters certain projects lean in because of those decision points. So a lot of it I would say was a push out of at least from a visibility point of a project that we're aware of. Second, I think if you know that the LTL market and the customer is there, it has been softer due to the reduced volume of transactions due to the tariffs. So we are seeing a little of that pushback in terms of opportunities there because of that. But in general, most of our TMC business is R&R. So at some point, you're going to have to do some of the repairs. So I think there's just some timing that we expect for some of the projects that are being pushed out. Ramey Jackson: Yes. Just to close, I mean it's -- we remain excited about the TMC business. It's a really good business and a good industry. So we're very optimistic about the growth profile of that business. David Tarantino: And is it fair to think within the change midpoint of the sales guide, maybe commercial is a little bit lower in self-storage higher? Is that -- am I thinking about that correctly? Anselm Wong: If you look -- if you do the implied you'll see it's a little lower for both of them just to get to the implied Q4. But I don't think commercial will be as bad as Q3 in terms of decline. David Tarantino: Okay. Great. And then maybe in self-storage, can you dig into what's driving the strength in international and maybe how we should expect that moving forward? And then maybe can you just give us some color on what you're seeing on the ground and North America and how that's played out relative to your guys' expectations? Ramey Jackson: Yes, I can start. Look, I mean, there are certain pockets internationally that are undergoing extreme growth mode. We kind of revised our go-to-market strategy moving forward, and it matters in terms of being in the countries that you serve. And so that's playing out, and we're excited about that. And in addition to that, around the international business, our Noke adoption is becoming more standard. So we're seeing a lot of acceleration as with door and hallway sales being standard with our Noke offering. And then on the self-storage piece of it in North America, no change from the past few quarters. The institutional operators are accelerating development. They're using this opportunity to gain market share. And then the noninstitutional are pretty much on the sidelines. But one positive thing that we are seeing with noninstitutional is they have a lot of construction ready sites. So they're at a good point to when the macro turns, they'll be able to accelerate development as well. And then on the R3 side, same thing. Consolidation matters, M&A matters to us in terms of R3 revenue from a rebranding perspective and then unit mix optimization, being able to rightsize the sites continue to drive R3. Operator: We'll take our next question from John Lovallo with UBS. Spencer Kaufman: This is Spencer Kaufman on for John. The first one, I think if we were kind of back out or back into the impact from TMC, I think it would be like an $11 million impact in the quarter. I guess, one, is that roughly what it was? And then two, are you expecting to sort of recover that in the fourth quarter? Or does this kind of get pushed into 2026? Anselm Wong: Yes, that's about the approximate value if you imply it. And it's going to be a push, as you expect because there's certain jobs we can only do in certain amounts in the quarter. So there's definitely a push into Q4 and then subsequently into 2026. Spencer Kaufman: Okay. Got it. And I think typically, sales in the first quarter are a little bit softer than the rest of the quarters, which usually leads to lower EBITDA margin sequentially. Is that how you guys are sort of thinking about 1Q at this point? Or are there any unusual items kind of similar to what happened in 4Q '24 to 1Q '25? Anselm Wong: Yes. We haven't disclosed anything yet, obviously, on 2026. So I think I'd say at this point, it's just we'll probably refer to our next quarter earnings call to really discuss that. Spencer Kaufman: Okay. Fair enough. If I could just squeeze 1 more in. Just on the tariff side, recognizing it's pretty small for you guys. I think that you haven't really changed the outlook for sort of the annualized impact of $6 million to $8 million on an unmitigated basis. But if I look in the slide deck, I think you guys may have admitted in the footnote this part about securing the alternative sourcing for components and that you anticipate the productivity and commercial actions will offset a lot of that exposure. I guess is there anything to read into it to why that's not in the slide deck anymore? Anselm Wong: No. We're still doing the same thing like we said. We're mitigating and looking at alternative sources. We've already done some of the actions to that. So I don't think it's implying anything. We're still on track for that. Operator: We'll take our next question from Phil Ng with Jefferies. Philip Ng: I appreciate all the color. I guess, first on your self-storage business in the U.S., appreciating TMCs lumpy in nature, but it sounds like a lot of the growth is coming from the international business. So when you guys had to unpack the North American self-storage business, is it kind of unfolding like what you expected, particularly in the back half of this year? Anselm Wong: Yes. It's probably -- the only thing I would say is that the R3, as we talked about, acceleration is not happening as fast as we would have liked. Obviously, we don't predict that timing. It was our best guess in terms of that piece. But I think the balance of it is kind of coming what we expect in New Construction, but it's just the R3 piece is a bit slower in terms of growing where we would have thought it would be. Philip Ng: And that's mostly in the institutional side of things or noninstitutional side? Where it's been a little more... Anselm Wong: Yes, institutional in large REITs. Philip Ng: Okay. All right. That's helpful. And in terms of the color that you shared earlier about how -- Ramey, you shared about how a lot of your noninstitutional customers have construction-ready sites. How quickly can they react? I mean I guess, what should we be monitoring that from the outside looking that would be indicative of perhaps things picking up? Is it rates coming down, liquidity and improving consumer confidence? Just kind of help us think through what are the nuggets that we should be looking from the outside? And if those things unfold, how quickly could that translate to your volumes? Ramey Jackson: Yes, that's hard to predict. Great question, by the way. But all of the above, I mean in terms of the macro, liquidity matters, interest rates, I mean, the 10-year treasury keeps bouncing around. But I think more than anything is the confidence is what we're hearing for a stronger tomorrow in the macro. But what we've seen, we've mentioned several times on these calls that activity in the pipeline remains very strong. And so that gives us optimism that our customers will be ready to dive in as quickly as possible. That's something that hasn't happened in previous downturns. Usually when things slow down, everything slows down. But that has not been the case in terms of the amount of work that we're doing on the design side of it and the quoting in the pipeline. So we're really optimistic that once things do turn that it will accelerate. And on the timing, it's hard to tell. What I do know is I would classify a lot of these sites are shovel-ready, so they have the property. It's just a matter of getting construction started. Philip Ng: So let's say if they decided to move today, just in terms of construction cycle when your products come in, is that 6 months out? Or are you pretty early in that construction cycle in terms of the process? Ramey Jackson: Yes. It really depends on the mix. I mean, a large part of our go-to-market strategy has been end-to-end building solutions. So it's not only the door and hallways. And so with that being said, the projects that we're actually doing the buildings on will start a lot quicker. But 3 to 6 months is probably a good number for that. Philip Ng: Okay. And I'll sneak one more in Ramey. From a raw materials standpoint, how are you guys set up? Because I believe you purchased all of your steel domestic. So you don't really have that steel tariff peaks, but steel prices are certainly still higher. You had a lot of costs hedged out for good parts of this year. So when you look at the '26, I suspect your cost is going to go up. Have you started bidding work at these elevated prices? And are you able to pass it through? Ramey Jackson: Yes. It's actually the opposite. I'll let Anselm speak to the... Anselm Wong: Yes. If you look at the -- if you look at the steel prices, I think there was that trend to go up. But then because there has not been the demand for it, it's actually held pretty low. So if you look at it right now, and obviously, you know how we buy steel is that we've already bought steel going into next year. It's been fairly stable, surprisingly in terms of where the steel price has been. So I wouldn't expect a large change at this point for the early parts of next year. Operator: We'll take our next question from Reuben Garner with Benchmark. Reuben Garner: So you've got the $10 million to $12 million in cost initiatives that you've had in place this year. How much of that has been realized so far? How much will carry into next year? And I guess, if we don't start to see some significant changes in demand, are there more things that you can do to reduce the cost structure? Or is this the kind of situation where you'd likely ride it out? And because you're optimistic about the long-term dynamics in the industry? Anselm Wong: No. I think if you look at the casting, we are on track already. You saw what we posted. We're about 70% of the savings already. So we should be in that range we talked about the 10% to 12% for the year. In terms of further costs, I think we're always looking. So Ramey and I are always pushing business to look at opportunities. So I would say there's definitely more opportunity there. We're already working on a few just in preparation if it does, the demand still stays low. So there's definitely more opportunity. Reuben Garner: Okay. And then it looked like your inventory picked up as a percentage of revenue I don't know if it's just a one-off. Was there anything unique there? Would we expect that to kind of go back down in the fourth quarter and beyond? Anselm Wong: Yes, definitely. If we buy the steel, our volume has been a bit lower than we would have expected. So you would expect the inventory to go up slightly due to compared to the original forecasted volume were there. So I think it's just a slight blip there we had to have -- the inventory was not at the volume that we expected. But our expectation we'll burn it off as we go through the rest of the year. Reuben Garner: Okay. And then last one for me. You mentioned Noke successes internationally. How do things stand domestically? I assume utilization rates have come in somewhat maybe a better time to make those kind of changes that would be necessary to move to the Noke system, at least now versus a couple of years ago? Any signs that an acceleration around the way. I know you've been waiting or looking for a larger institutional player to kind of make the move on that? What are the chances that that's around the corner? Ramey Jackson: Yes, that's a good question. We mentioned in our comments that the institutional activity has certainly picked up and I think it's really a testament to Ion. It's really proven itself in terms of design, performance, stability and a price point that the market is looking for. And then you've heard us talk about security. It's really a problem for the industry. And resolved a lot of the security issues. One of our larger clients has reported a 90% reduction in theft with that product line. So we continue to be optimistic and looking forward to driving additional use cases throughout the sector, but couldn't be happier. Reuben Garner: So just a quick follow-up. I mean is it likely at some point that there's like a step function higher, like where there's a large adoption? Ramey Jackson: Yes. Reuben Garner: Or do you think of more of -- okay, all right. So we're still -- so that's still in the cards. Operator: And we'll take our next question as a follow-up from Jeff Hammond with KeyBanc. David Tarantino: This is David again. Just a quick follow-up on the pricing trends. It was largely stable sequentially. So could you just give us some more color on how we should expect this to evolve moving forward? And maybe into next year just based on the actions you've already implemented to date? Anselm Wong: Yes. I think for related to this year, we expect something similar. But again, we haven't looked into make sure what the impact will be. Operator: And there are no further questions on the line at this time. I'll turn the program back to Ramey Jackson for any additional or closing remarks. Ramey Jackson: All right. Thank you all for joining us today. We appreciate your support of Janus and look forward to updating you on our progress. Have a great day. Operator: This does conclude today's program. Thank you all for your participation, and you may now disconnect.
Operator: Good morning, and welcome to the Dorian LPG Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Additionally, a live audio webcast of today's conference call is available on Dorian LPG's website, which is www.dorianlpg.com. I would now like to turn the conference over to Ted Young, Chief Financial Officer. Thank you. Mr. Young, please go ahead. Theodore Young: Thank you, Chelsea. Good morning, everyone, and thank you all for joining us for our second quarter 2026 results conference call. With me today are John Hadjipateras, Chairman, President and CEO of Dorian LPG Limited; John Lycouris, Head of Energy Transition; and Tim Hansen, Chief Commercial Officer. As a reminder, this conference call webcast and a replay of this call will be available through November 13, 2025. Many of our remarks today contain forward-looking statements based on current expectations. These statements may often be identified with words such as expect, anticipate, believe or similar indications of future expectations. Although we believe that such forward-looking statements are reasonable, we cannot assure you that any forward-looking statements will prove to be correct. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors as well as general economic conditions. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove to be incorrect, actual results may vary materially from those we express today. Additionally, let me refer you to our unaudited results for the period ended September 30, 2025 that were filed this morning on Form 10-Q. In addition, please refer to our previous filings on Form 10-K, where you'll find risk factors that could cause actual results to differ materially from these forward-looking statements. I also encourage you to review the investor highlights posted this morning as we go through our remarks. With that, I'll turn over the call to John Hadjipateras. John Hadjipateras: Thank you, Ted. Good morning, and thank you for joining Ted, John, Tim and me. My colleagues will provide you with detailed comments on our financial results, our market outlook and our emissions reduction and operational progress. First, I'd like to highlight the following. Our dividend declared today of $0.65 per share totaling $27.8 million reflects our commitment to returning capital to shareholders in a manner that is disciplined and aligned with market conditions. This will be our 17th dividend payment, bringing total dividends distributed to over $695 million and total capital of almost $925 million returned to shareholders. The VLGC market improved in the third calendar quarter. The Baltic Index on -- averaged [ 68,000 ] per day, up from 48,000 in the second quarter and 33,000 in the first quarter, more than doubling from the start of the year. The index peaked at just under 80,000 per day in mid-August and then eased back towards the mid-50s by the end of September. Global seaborne LPG liftings made a record high at 37.21 million tons, underpinned by record quarterly exports from North America and from Saudi Arabia. We believe that modern fuel-efficient VLGCs like ours are well positioned to benefit from the constructive freight environment. Tim will elaborate on the fundamentals driving the VLGC market and our outlook. On the operational side, we are almost done with 10 of our 12 dry dockings planned for 2025. This year, we had an unusually large number of dry docks and our -- as our ships reach their 5- and 7.5-year docking cycles. During the quarter, we also published our 2024 corporate responsibility report. John Lycouris will provide an update on the progress made in our docking program and ammonia retrofits. And Ted will now present our quarterly financial overview. Ted? Theodore Young: Thanks. Today, I'll focus on our unaudited second quarter results, capital allocation and our financial position and liquidity, the discussion of our second quarter results, you may wish -- you may find it useful to refer to the investor highlight slides posted this morning on our website. I remind you that my remarks will include a number of terms such as TCE, available days and adjusted EBITDA. Please refer to our filings for the definitions of these terms. Looking at our second quarter chartering results, we achieved TCE revenue per available day of $53,725, which reflected the strong rate environment. Interestingly, each month's TCE during the quarter was sequentially better than the prior months, again, underscoring the favorable market dynamics. We generated over $30 million in free cash flow to equity during the quarter. As our entire spot trading program is conducted through the Helios Pool, Helios' reported spot results are the best measure of our spot chartering performance. For the September 30 quarter, the Helios Pool earned a TCE of $53,500 per day for its spot and COA voyages. On Page 4 of our investor highlights material, you can see that we have 2 Dorian vessels on time charter within the pool, indicating spot exposure of about 90% for the 30 vessels in the Helios Pool. Turning to the quarter ending December 31, 2025, we currently estimate that we have fixed just over 75% of the fixable days in the quarter at a TCE of about $57,000 per day. The rate includes both spot fixtures and time charters in the Helios pool only. Given the difficulty in predicting loading rates, which has a huge effect on revenue recognition, dysport options in some charters and the complexity of some of our COAs, these estimates we quote during these calls and the rates actually realized can vary. Daily OpEx for the quarter was 9,474, excluding dry docking-related expenses, which was down over 6% from the prior quarter's 10,108. Virtually all major cost categories declined, which was certainly a good effort by our technical management team. Our time charter in expense for our TCN vessels came in at $13.7 million or slightly less than $30,000 per day. The quarter's TCN expense reflected the addition of the Crystal Asteria at the end of June, while the BW Tokyo entered on the last day of the quarter to minimal P&L effect. For the December quarter, we estimate TCE expense to be approximately $18 million, reflecting full quarter contribution from the Crystal Asteria in the BW Tokyo. Total G&A for the quarter was $12 million and cash G&A, that's G&A excluding noncash compensation expense, was about $7 million, reflecting our core G&A. We had noted last quarter that we expected an approximately $3 million increase in stock comp expense due to the share grants made during the quarter. That will not recur for the rest of the year. Our reported adjusted EBITDA for the quarter was $85.7 million. Total cash interest expense for the quarter was $7 million, of which we capitalized about $600,000. Our current debt cost is about 5.1%, reflecting the heavily hedged and fixed nature of our various pieces of debt. September 30, 2025, we reported $268.4 million of free cash, which was down about $10 million from the prior quarter, largely due to the payment of the new building installment in September. As John touched on and as we disclosed this morning, we will pay a $0.65 per share irregular dividend or roughly $28 million in total on or about December 2 to shareholders of record as of November 17. With a debt balance at quarter end of $530 million, our debt to total book capitalization stood at 33.2% and net debt to total cap at 16.4%. With an undrawn $50 million revolver and a $100 million accordion feature in our existing loan agreement, strong free cash balance and one debt-free vessel, we feel well capitalized for fleet growth and renewal or for whatever challenges may arise. During the prior quarter, we completed 3 dry dockings and anticipate 2 more dry dockings during November and December. That will complete the drydocking program for our 2015 built vessels. Also, in addition to the newbuilding payment we made in September, we will make an additional roughly $12 million payment during the quarter ending December 31, 2025. The irregular dividend declared last week brings to $16.95 per share in regular dividends that we have paid since September 2021. Again, some investors and analysts like to suggest that these dividends are no longer irregular. We underscore that they are indeed irregular and subject to the discretion of our Board. VLGC rates are not regular and neither is the geopolitical environment, as recent weeks have shown. And thus, we don't think our dividend policy should be either. Looking at our dividends in a more traditional context, our net income since June 30, 2021, that's the quarter immediately prior to our first irregular dividend, has been cumulatively about $700 million. While including the dividend to be paid next month, we have returned approximately $695 million in dividends in total to our shareholders and cumulatively, including share buybacks and our open market tender offer, over $925 million. We will continue to maintain a steady balance between dividends, deleveraging and fleet investment. With that, I'll pass it over to Tim Hansen. Tim Hansen: Thank you, Ted. Good day, everyone. The quarter ending September 30, 2025, saw an average freight market improvement compared to the quarter prior with less volatility. VLGC market fundamentals remained firm through the quarter with a high inventory build in the United States, keeping on Belvieu prices attractive for Far East importers and supporting the West to East arbitrage. U.S. monthly exports of LPG and VLGCs were in the 4.6 million to 5.1 million tons per month range, an improvement on the quarter prior. Middle East VLGC exports for the quarter also improved compared to the quarter prior, growing by about 200,000 metric tons for the third calendar quarter. The VLGC market fundamentals were impacted in the third calendar quarter by 2 factors, one was positive for freight and one negative. The very positive factor was a sudden spike in Panama congestion and a subsequent increase in auction fees to transit that was seen from the end of July to early August. Although the increased congestion added cost to the industry and complicated voyage spending, delays absorbed capacities from the market and prompted more VLGCs to ballast via the Cape of Good Hope to the U.S. Gulf, tightening vessel supply for the loading in September and October. Although a definite answer to why the Panama Canal saw sudden congestion remains elusive, several market commentators have suggested that front loading on container ships prior to the tariffs coming into effect. The factor pressuring the VLGC market was brought about by actions or reactions on repositioning vessels for those preparing for the U.S. port service fees effective on October 14. Around the start of September, VLGC owners and operators considering the risk of being deemed related to China by USTR Section 301 regulations with tonnage in ballast to the U.S. load ports began to discount freight to ensure lock in cargoes that would allow the vessel to load and sail from the U.S. before 14th of October. The discount offers put a downward pressure on the West to East freight market. Meantime, the same owners and operators also stopped ballasting more ships towards the U.S. Gulf and those vessels added VLGC supply to the Middle East and the increased supply imbalance the market in the East. If the second quarter tested the resilience of the LPG market fundamentals, the third quarter reaffirmed that it was not a one-off. Export from the United States continue to flow to a more diverse range of import countries, and Chinese importers were able to find some alternative to cover the reduced imports from the United States. The spike in Panama Canal congestion demonstrated the tight supply-demand balance for VLGCs when geopolitical factors are not complicating the picture. And when a geopolitical or external factor causes shocks, we have seen the VLGC players respond to this with agility. The quarter ending September 30, 2025 continued the improvement in freight from the quarter prior, with both East and West markets up about 28%. The delivery schedule of newbuilding remains limited for the rest of the year, and the agility of the VLGC markets demonstrate an ability to capture upsides that may appear going forward. Furthermore, although the disruptive factor of fees added freight positive inefficiencies to the market, the later that we post the fees together with the seeming relaxation in trade tensions between the U.S. and China, we believe, will be supportive for the fundamentals of the LPG and VLGC freight markets going forward. With that, I'll pass it over to John Lycouris. John Lycouris: Thank you, Tim. At Dorian LPG, we are committed to continually enhancing energy efficiency and promoting the sustainability of both our operations and our vessels. Our scrubber vessel savings for the second fiscal quarter of '26 amounted to $1,363,000 or about $1,140 per calendar day per vessel, net of all scrubber operating expenses. Overall savings were affected this quarter due to the dry docking of several vessels and the heightened market volatility stemming from global tariff announcements and geopolitical uncertainties. Fuel differentials between high-sulfur fuel oil and very low-sulfur fuel oil averaged $74 per metric ton, while the differential of LPG as fuel versus the very low-sulfur fuel oil stood at about $132 per metric ton, making LPG economically attractive for our dual-fuel vessels. We now operate 16 scrubber-fitted vessels and 5 dual-fuel LPG vessels. During the current quarter, 2 vessels are undergoing special survey and dry docking, including one that is also being upgraded for the carriage of ammonia cargoes. Since the beginning of the calendar year, 10 vessels were successfully completed with their special survey and dry docking, and this reflects our continued commitment to maintaining a modern, efficient and environmentally adaptable fleet. Our dry docking program for 2015-built vessels is now -- will be largely complete by the end of this calendar year. Driven by stronger market conditions in 2025, vessels in ballast generally operated at higher speeds compared to 2024. Despite the increase in speed, which typically has an adverse effect on CII ratings, the DLPG fleet remains well within compliance limits. The installation of energy-saving devices, the application of premium hull coatings and continuous performance monitoring, combined with operational enhancements, have significantly improved the emission profile of our fleet. Forecast extending through 2030 based on the IMO's revised CII reduction targets, indicate that our fleet is well positioned to maintain compliance and continue demonstrating strong environmental performance. CII is the Carbon Intensity Index, which assesses the operational efficiency of our vessels and their contribution to greenhouse gas emissions. At Dorian, we leverage advanced digital platforms and dashboards to drive performance and efficiency. Enhanced data validation and engine analytics support optimized operations and result in energy savings. The fleet remains fully compliant with evolving emission frameworks, including EU ETS, CII, EEXI and FuelEU Maritime. And our fleet performance team works closely with chartering to optimize fuel consumption during the voyages. The average fleet AER for the third quarter of 2025 was 9.3% lower than the IMO required target for 2025. AER is the annual efficiency ratio metric, which calculates the carbon intensity of our vessels operations. The 1-year postponement of the IMO's decision to implement the net zero framework does not change Dorian's commitment to invest in fuel efficiency, improve performance and decrease greenhouse gas emissions. This delay may heighten regulatory uncertainty and reinforce reliance on regional schemes, further fragmenting the global regulatory landscape. We are confident that our company and fleet are well equipped and fully prepared to meet any regulatory challenges ahead. And now I would like to pass it over to John Hadjipateras for his comments. John Hadjipateras: Thank you, John, and Tim and Ted. Chelsea, we can open for questions. If anyone has to ask any questions, we're here. Operator: [Operator Instructions] And our first question will come from Omar Nokta with Jefferies. Omar Nokta: Nice quarter, obviously, in terms of how much stronger your realized rate has come up, especially relative to the past maybe 4 or 5 quarters. But just wanted to get a sense, the overall rate of, say, 53,000, 54,000 was a bit lower than what we were thinking. And just wanted to ask, I know, Ted, you do a very good job of giving us sort of the bookings on the bookings to date each quarter. If I recall, you had gotten something over 60,000 for 70% of the quarter last time around. And just wanted to get a sense of what caused the final figure to be lower? Because it looked like VLGC spot rates remained fairly firm. Was it just simply an accounting treatment? Is it low to discharge the dry docks? Any color you're able to give would be helpful. John Hadjipateras: Yes. We'll do that. I'll let Ted expand on it, obviously. But it is -- really, the discrepancy was from timing and in terms of -- we obviously try to give you the best. And when we give the guidance, it is -- it reflects what we have booked. But there are often sort of timing discrepancies arising from more off-hire days sometimes, later loadings, slippage from one quarter into the next. Ted, you take it. Theodore Young: Okay. Yes. I mean, I think, Omar, obviously, we were we're aware of the delta versus guidance. And like John said, a bit of load to discharge accounting based on timing. Look, there's dysport options, as you know, in our sector. And so our guys, we book things based on what we know at the time. And if the charter changes his mind, that can change the -- what we realized during the quarter. And also, the dry docking days affect the -- clearly, not only the amount of revenue, but obviously drives that has an effect on the TCE rate as well. So we're -- like John said, we're always -- we try to give the best information. We didn't quite work out as well this quarter. But again, with the end of the dry docking program largely, we feel like the guidance that we just gave should be much more on target for the coming quarter or the current quarter. Omar Nokta: Okay. All right. So it sounds like a bit of a one-off with a few moving different factors last time around. So the 57,000, I think, that you gave us earlier that all else equal, that should be a fairly good barometer of what to expect for... Theodore Young: We believe so, Omar, yes. Omar Nokta: Okay. Great. And then maybe just a second question or a follow-up. We've been seeing here spot rates have really got a bit of momentum here. And it's maybe at a unique time, I guess, on the calendar. It seems like we're heading into the part of the seasonality where things start to come off and it put downward pressure on rates, and now we're seeing things pick up. Are you able to give kind of a perspective on what's behind this latest move? John Hadjipateras: Yes. Tim? Tim Hansen: Yes. I think there is a lot of wait-and-see here before U.S. and China met in Korea. So I think there was like an end or hold on fixing activity, where you saw the rates drop until recently and then it's kind of catching up. So people are really waiting for this to kind of at least have some direction what the trade disputes or agreements was going to be. And then, of course, also the postponement of the port fees have put like a relief to the market and gave people some room to work and some at least a horizon where they can take decisions going further forward. So on top of the -- coming into the winter, then this helped activity to kickstart again. Operator: [Operator Instructions] And at this time, there are no further questions in the queue. John Hadjipateras: Thank you, Chelsea. Thank you, everyone. And Omar, thanks for your questions, and we look forward to picking up again next quarter. Thank you. Bye-bye. Operator: Thank you, ladies and gentlemen. This concludes today's program, and we appreciate your participation. You may disconnect at any time.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Adecco Group Q3 Results 2025. [Operator Instructions] I would now like to turn the call over to Benita Barretto, Head of Investor Relations. Please go ahead. Benita Barretto: Good morning. Thank you for joining the Adecco Group's Q3 Results Conference Call. I'm Benita Barretto, the group's Head of Investor Relations. And with me are the Adecco Group CEO, Denis Machuel; and CFO, Coram Williams. Before we begin, please take note of the disclaimer on Slide 2. Today's presentation will reference both GAAP and non-GAAP financial results and operating metrics. This conference call will include forward-looking statements, which are based on current assumptions and as always, present opportunities as well as risks and uncertainties. With that, I will now hand over to Denny. Denis Machuel: Thank you, Benita, and a warm welcome to all of you who have joined the call today. So today, I want to share an important leadership update which also underscores the strength of our succession planning and our commitment to continuity. At the end of this year, Coram Williams will step down as Chief Financial Officer after 5 years of outstanding service. Coram has played an absolutely pivotal role in guiding the Adecco Group through a period of significant transformation and strengthening our financial foundations. His disciplined approach and strategic insight have been absolutely instrumental in achieving the strong Q3 results we announced today. We warmly thank Coram for his tremendous contribution and wish him every success as he takes on a CFO role in the automotive sector in Germany, a move that reflects his passion for this sector and also brings him closer to his family. And I'm pleased to announce that Valentina Ficaio will succeed Coram as CFO effective January 1, 2026. Valentina is a proven leader with deep knowledge of our business and strong financial and strategic acumen. She's been part of our global finance leadership team, most recently leading financial planning, controllership and strategy and has acted as Coram's deputy for the past 3.5 years. Her appointment follows a rigorous selection process and represents an internal promotion to the CFO role, which is a testament to the strength of our talent pipeline. This leadership transition is well planned, and we remain focused on delivering sustainable growth, improving margins and creating long-term shareholder value. Let's now turn to our results and starting with Slide 4 and an overview for the quarter. We gained significant market share this quarter with the group and Adecco, leading key competitors by 375 and 300 basis points, respectively. The group delivered EUR 5.8 billion in revenues, 3.4% higher year-on-year on an organic trading days adjusted basis. Revenue trends improved sequentially across all GBUs. Additionally, we observed a strong performance from Adecco U.S. with revenues increasing by 20% year-on-year. Gross profit reached EUR 1.1 billion with a gross margin of 19.2%, while this represents a modest year-on-year decrease of 10 basis points on an organic basis, it is a 30 basis point sequential improvement, fully matching our Q3 guidance. Gross margins benefited from reduced pressure in Akkodis Germany, where the turnaround plan is progressing well. EBITA excluding one-offs, was EUR 195 million with a 3.4% margin. Disciplined execution drove good operating leverage with productivity up 8% year-on-year and higher in all GBUs. Adjusted EPS was EUR 0.67. Cash conversion was very strong at 110%, and the group generated a solid operating cash flow of EUR 200 million, up EUR 79 million from the prior year period. In summary, the group delivered a strong performance this quarter and remains on track to achieve the 3% EBITA margin floor for the full year. Moving now to Slide 5. The group delivered a further increase in market share this Q3. In Q2, the group gained 205 basis points in market share and Adecco gained in 130 basis points. In Q3, the group gained 375 basis points of share and Adecco gained 300 basis points. We have seen a consistent improvement in flex volumes year-to-date across the Adecco GBU. In Q3, we were encouraged to see volumes move clearly into modest growth territory with a meaningful uptick in demand from the largest Adecco countries. Now as we move to Slide 6, you will see case studies that demonstrate our strong win momentum in the market. First, in the life sciences sector, Adecco and Akkodis were selected as the preferred suppliers for global solutions due to the group's global footprint and breadth of services. The client was impressed by our technology expertise, reporting quality, market insights, all of which are underpinned by strong data analytics. Second, Akkodis was selected as a Tier 1 supplier to a leading German aerospace company, our comprehensive suite of advanced system engineering solutions covering lending gear and system design and installation, supports the client's strategic need for innovation to improve operational efficiency and sustainability. Akkodis' global presence which maximizes responsiveness and cross-fertilization of ideas was key to be selected. Third, LHH's EZRA won a multiyear contract with a leading U.S. software provider for AI and human coaching services beating a major competitor. EZRA will coach over 27,000 employees, creating a measurable business impact. With that, I will now hand over to Coram for further details on the Q3 results. Coram Williams: Good morning, everyone, and thank you, Denis, for your kind words earlier. It's been an honor to be the CFO of the group over the last 5 years and a real pleasure to work with you and the talented teams that we have around the group. The Q3 results that we're announcing today show that the group is on a good path and affirm my decision to step back and pursue a new role in a sector I'm passionate about in my adopted home country. I'm really delighted that you and the Board have chosen Valentina as my successor. She's been a strong member of my team, a brilliant deputy and I have no doubt that she is the right person to drive the group forward. With that said, I'd like to now focus on the Q3 results. First, let's discuss GBU developments, beginning with Adecco on Slide 7. Adecco delivered EUR 4.7 billion in revenues, up 4.5% year-on-year on an organic trading days adjusted basis and up 2.8% sequentially. Flexible placement revenues increased by 4%. On an organic basis, outsourcing remained strong with revenues up 12%. Permanent placement revenues were 7% lower, while MSP Pontoon revenues rose 5%. By client type, revenue growth from SMEs was strong, up 5%. Gross margin was healthy, reflecting the client and solutions mix, particularly lower perm volumes. Pricing remains firm. Productivity improved by 5%, while selling FTEs decreased by 1%. The EBITA margin improved 50 basis points year-on-year to 3.9%, reflecting higher volumes and operating leverage, aided by G&A savings and agile capacity management. Adecco's dropdown ratio this quarter was north of 100%, a very strong outcome. Now let's move to Adecco at the segment level on Slide 8. In Adecco France, revenues were 2% lower year-on-year, improved sequentially and outperforming the market, driven by robust growth across large clients. Growth in autos, financial and professional services, food and beverage and the strategically important construction sector was strong. However, logistics presented some challenges. The EBITA margin of 4% was 80 basis points higher year-on-year with France benefiting from the execution of G&A savings plans. Adecco EMEA, excluding France, returned to growth, with revenues up 3% year-on-year and taking market share. Looking at the larger markets, revenues in Italy were flat, with strong activity in logistics and food and beverages offsetting weak autos demand. Iberia was strong, with revenues up 13%, reflecting strength in flex and outsourcing as well as double-digit growth from SMEs. Food and beverage, financial and professional services, manufacturing and autos were strong. In the U.K. and Ireland, revenues declined by 4% year-on-year. a resilient result given the challenging market environment. While soft demand in logistics and the public sector impacted performance, the business continues to demonstrate adaptability. Revenues in Germany and Austria were flat year-on-year, reflecting a solid outcome in a demanding market. The manufacturing and automotive sectors performed robustly, supporting overall stability. The segment's EBITA margin of 4.1% was 20 basis points higher year-on-year. The margin reflects client mix and good operating leverage with productivity up in all territories and support from G&A savings. Turning now to Slide 9. Adecco Americas delivered very strong revenue growth of 20% year-on-year. North America revenues increased by 20% year-on-year, improving sequentially and ahead of market trends. The result was driven by strength in Flex across all client segments, including double-digit growth from SMEs. In sector terms, consumer goods, autos, manufacturing and food and beverage were notably strong. This growth rate shows the continuing progress we're making with the turnaround of Adecco U.S. At the same time, we do have work to do on the business mix and cost to serve to restore margins further. In Latin America, revenues grew 21%, with all countries experiencing double-digit growth, driven by demand for flex and outsourcing across SMEs and large clients. By sector, financial and professional services, logistics and manufacturing were strong. The Americas EBITA margin of 2.5% increased 240 basis points year-on-year, reflecting higher volumes and operating leverage. Productivity improved, while the segment continues to optimize costs. Adecco APAC remains strong, with revenues up 9% year-on-year and ahead of the market, led by strong demand from SMEs. Revenues rose 8% in Japan, 18% in Asia and 14% in India. In Australia and New Zealand, revenues were 3% lower. In sector terms, financial and professional services, consumer goods, food and beverage and defense was strong. The EBITA margin of 4.7% reflects higher volumes, G&A savings and modest investment in capacity to capture future growth opportunities. Let's now focus on Akkodis on Slide 10. Akkodis' revenues were 3% lower year-on-year on an organic constant currency basis and sequentially improved. Consulting and Solutions revenues were 1% lower organically, improving by 4% sequentially. By segment, EMEA revenues were 3% lower. France returned to growth, with revenues up 1% and ahead of the market. Aerospace, defense and autos were strong. Revenues in Germany were 9% lower, driven by market headwinds in autos and despite good momentum in defense. Italy, Iberia and the U.K. performed well. North America revenues returned to growth, with revenues up 1%. The business has seen a modest improvement in tech staffing demand and delivered very strong growth in the Strategic, Consulting and Solutions segment, with revenues up 45%. APAC revenues were stable, with Japan and China up 2%. Revenues in Australia were 4% lower, reflecting a slow market backdrop. Akkodis' EBITA margin was 4.5%, 60 basis points lower year-on-year. Excluding Germany, the margin was 6.5%, and an improvement year-on-year, reflecting solid utilization rates and good cost discipline. Germany's turnaround is progressing well. Given the market context, the level of targeted savings has risen to approximately EUR 50 million. To date, an annualized savings run rate of approximately EUR 36 million has been achieved, driven primarily by adjusting consulting headcount, which improves bench utilization and G&A savings. Additional savings were expected in Q4. These actions will enable the unit to return to healthy run rate profitability by year-end. Let's move on to LHH on Slide 11. LHH executed well with revenues returning to growth, rising 4% in the third quarter on an organic constant currency basis. The EBITA margin reached 9%, up 240 basis points year-on-year, driven by higher volumes and strong operating leverage with a 25% increase in productivity. Turning to LHH's segment. Professional Recruitment Solutions revenues were 7% lower, with the unit taking share in tough recruitment markets. Recruitment Solutions revenues were 5% lower, primarily due to an 8% decline in permanent placement. Gross profit was 6% lower. Productivity remained flat and billing FTEs decreased by 6%. Our peer activities remain soft. Career transition performed very well, with revenues up 9%. U.S. revenues grew by 7% and revenues outside the U.S. increased by 11%. The pipeline remains healthy across all geographies, supporting future momentum. Revenues in coaching and skilling rose 40%. EZRA delivered outstanding growth with revenues increasing 59% to another record high. General Assembly returned to growth, with revenues up 48%, driven by strong momentum in its B2B business, which focuses on AI-related offerings. Let's turn now to Slide 12, which shows the group's gross margin drivers on a year-on-year basis. Gross margin was healthy at 19.2%, 10 basis points lower year-on-year on an organic basis. Currency translation had a negative impact of 10 basis points. Permanent placement has a 25 basis point negative impact with headwinds in both Adecco and LHH. Career transition had a positive impact of 10 basis points. Outsourcing, consulting and other services had a 10 basis point negative impact due to mix in outsourcing and ongoing pressure in Akkodis Germany. Additionally, training, upskilling and reskilling had a positive impact of 15 basis points driven by growth at EZRA and General Assembly. Let's look at Slide 13 and the group's EBITA bridge. At 3.4%, the EBITA margin, excluding one-offs, was 10 basis points higher year-on-year, driven by a 10 basis point negative impact from currency translation, a 10 basis point negative impact from organic gross margin development, a 40 basis point favorable impact from operating leverage and a 10 basis point negative impact from Akkodis Germany. In Q3, SG&A expenses, excluding one-offs, as a percentage of revenues, were 15.9%. And 30 basis points better year-on-year, reflecting cost discipline with G&A expenses up 3% of revenues and agile capacity management. Selling FTEs were 3% lower. Productivity in terms of direct contribution per selling FTE rose 8% with all GBUs improving year-on-year. Let's turn to Slide 14 and the group's cash flow and financing structure. The last 12 months cash conversion ratio was strong at 110%. DSO remains best in class at 53.6 days. The group delivered cash flow from operating activities of EUR 200 million in the quarter, a EUR 79 million increase versus the prior year period. The cash result reflects strong working capital management, partially offset by increased working capital absorption, resulting from improved revenue performance. CapEx was EUR 30 million, and free cash flow was EUR 170 million, an increase of EUR 88 million compared to the prior year period. The group benefits from a robust financial structure. We have strong liquidity, including an undrawn EUR 750 million revolving credit facility. 80% of debts have fixed interest rates and there are no financial covenants on any outstanding debt. The group also has low interest expenses with a net charge of EUR 13 million in Q3. At the end of Q3, net debt was EUR 2,705 million, EUR 220 million lower year-on-year. Since 2021, the group's capital structure has included a EUR 500 million hybrid bond, which rating agencies classify as 50% equity and 50% debt. Management is in the process of refinancing this hybrid bond, reaffirming its long-term role in the capital structure. In light of this planned refinancing, and to align with rating agency methodology, the group will now apply 50% equity treatment to the hybrid bond when reporting its leverage ratio. This adjustment does not impact the group's credit rating or the net debt calculation. It does, however, ensure consistency and transparency in how leverage is assessed across stakeholders. Applying this methodology, the group's end Q3 leverage ratio was 3 terms. On an underlying basis, strong cash generation and EBITDA improvement in Q3 has reduced the group's net debt-to-EBITDA ratio, excluding one-offs, by 0.3x sequentially. The group remains firmly committed to bringing the net debt-to-EBITDA ratio to 1.5x or below by the end of 2027, absent any major macroeconomic or geopolitical disruption. Our capital allocation policy is clear on options for excess capital once we achieve this target. Let's move to Slide 15 and the group's outlook. Based on Q4 volumes to date, the group expects revenue growth in Q4 to be in line with Q3's revenue growth year-on-year on an organic trading days adjusted basis. For Q4, the group expects gross margin and SG&A expenses, excluding one-offs, to be broadly stable sequentially. The group is focused on managing capacity with agility to balance share gain and productivity in mixed markets, in addition to securing G&A savings. The group is on track to deliver its full year EBITA margin commitment. And with that, I'll hand back to Denis. Denis Machuel: Thank you, Coram. And let me conclude with Slide 16 and few takeaways. In Q3, the group delivered a further increased market share with revenues improving sequentially across all GBUs. At the GBU level, we were encouraged by the strong growth in Adecco U.S., evidencing traction with the turnaround plan. Meanwhile, the Akkodis German turnaround is progressing well with the unit expected to return to healthy run rate profitability by year-end. In reaching a 3.4% EBITA margin this quarter, we demonstrated good operating leverage. Cash generation was solid. We thank our teams for yet another quarter of rigorous execution. We look forward to sharing the evolution of our strategy and detailed value creation plans at our Capital Markets Day on 26th of November in London. With this said, thank you for your attention, and let's open the lines for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Andy Grobler, BNP Paribas. Andrew Grobler: I've got a lot, but just a couple to start with, if that's all right. From a cost base perspective, a couple of things here. As you move into Q4, what are the incremental savings that you expect to drive? And does that include turning that about EUR 16 million loss in Akkodis Germany into a positive? And how should we think about that as the right base going into 2026 if you could chat through that, that would be really helpful. And also, just adding to that, does that guide include the currency headwinds that you'll see in the Q4? And then secondly, on cash flow, very strong performance through the quarter. Can you just talk through the drivers of that and whether you're seeing any pressure on payment terms? Has that been incremental through this year? Denis Machuel: I think I'll let Coram answer most of these questions. I'm just going to say a word on payment terms. Yes, definitely I think we have pressure from our clients on payment terms. We resist actively to this pressure. We are -- I think we are very focused with our teams managing these kind of negotiations. We see also our DSO remaining relatively solid. So I think we are able to -- thanks to the strong relationship that we have with our clients to resist to the maximum on the payment terms request from our clients. I mean for all the other questions, Coram. Coram Williams: Thank you, Denis. Thank you, Andy. Actually, let me start with cash, therefore and build on Denis' answer. I mean, yes, we do see pressure on payment terms, but our DSO is at 53.6 days. It is quite clearly best in class at the moment where our peers see their DSOs going in the wrong direction. So I think it's very clear that we are managing that and managing it very effectively. On the cash flow itself in Q3, I mean, we tried to unpick the drivers. Fundamentally, you have good working capital management, which includes the point I'm making about keeping DSO very stable, but also payables, where we've been managing those very tightly and have done for a number of quarters, which is partially offset by the working capital absorption that you see because of the growth that the business is delivering. And we know that's a feature of the way this operates. So when you put all of that together, then we're very pleased with the operating cash flow of EUR 200 million. It's up year-on-year, and it has obviously helped us deliver that rolling 12-month cash conversion of 110%. On the cost side, yes, the guide includes FX movements. If you step back and look at what we're saying, we're guiding to SG&A being broadly stable. Typically a seasonal movement between Q3 and Q4 actually increases SG&A little bit, usually between EUR 10 million to EUR 20 million. So you can see by saying that we will hold it stable, we are confident we will continue to deliver savings. Part of that comes from Akkodis, as you mentioned, we have real estate optimization, which will flow through, but we also have further savings in other parts of the business that we've been activating through the year. You saw the benefits, for example, on the margins in France. There are other territories where we continue to manage this. By the end, and I'm now just moving on to Akkodis Germany. The restructuring there is progressing well. We have EUR 36 million of run rate savings locked in. We've got clear plans for how we get to a run rate of EUR 50 million, and that will deliver healthy run rate profitability for that business by the end of the year. And I think it's important to make the point that we are not presupposing an improvement in the top line of that business in the short term. We're managing the restructuring to make sure that we see healthy profitability on the market conditions that we now see. Denis Machuel: And just maybe one last word. Andy, top line in Akkodis Germany is being stabilized. So I mean, we can go in details around what we do very actively in Germany on our turnaround plan, but there's also an element of stabilization of top line, of course. But thanks, Andy, for your questions. . Andrew Grobler: And just to add, Coram, best of luck with the new role. Coram Williams: Thank you, Andy. I appreciate it. Operator: Your next question comes from the line of Remi Grenu with Morgan Stanley. Remi Grenu: A few questions on my side, if I may. So just first taking a step back and looking at your outlook for stable growth on the same comp base. It feels like similarly to some of your competitors, you are assuming that the recovery of organic growth we've seen over the last few quarters is stalling a bit or kind of stabilizing. So what makes you slightly more cautious compared to the sequential improvement we've seen over the last few quarters. Just wanted to understand if there was anything there? And if so, what part of the business, which divisions do you think could improve, remain stable or deteriorate in Q4 just to have a bit of breakdown of that stable organic growth comment for Q4. The second question is on the U.S. organic growth. Obviously, I mean, very impressive. Can you just elaborate a little bit on this? What are the drivers in terms of type of clients if you think the broad-based recovery or has it been driven by any specific contract win and on the market share gains in that country, why do you think is the case that your winning volumes away from your competitors? And then the last one would be just maybe a little bit of a teaser on end of November, then if you wanted to share with us a few of the topics you think could be important to address during the CMD? Denis Machuel: Thank you, Remi, I think I'm going to take the 3 questions. So on the outlook, actually, we're pragmatic. We're looking at our flex volumes data. And they are -- let's say, they are nicely up year-on-year. They continue to do so, but we have only a few weeks of data. So we are -- definitely, we see some momentum. We see an improving momentum in the HH and Akkodis, but we are -- we've always been -- I must say, we've always been relatively cautious. When we see it, we talk about it but I don't want to overpromise and create expectations. So we have volumes, as I said, nicely up, but it's not stored definitely. It's not stalling. It's improving nicely, but this is reasonable. So it's not -- it's -- I continue to be positive about what we have ahead of us. As far as the U.S., yes, actually, it's broad-based. It's also the result of our turnaround. It's -- and there's so much more to do. Let's be clear. And we are -- we're pleased with the growth. We were plus 10% in Q2. We are now plus 20%. We've returned the U.S. to be profitable, which is good. We are growing ahead of the market. So it's been systematic. It's been rigorous execution on how we improve branch profitability, how we see that the incentives that we've put in place in the branches that are boosting both flex and perm are delivering results. We're focusing on increasing the traction with the MSP business. We are really, really focused on cutting our cost to serve to preserve our competitiveness. We've moved into more centralized delivery, nearshore offshore delivery. We have adjust also our G&A costs. So and all that. It's a series of things that we've applied rigorously and systematically for now, almost 3 years, and it starts to deliver results, which is good. The sales growth is broad-based. We grow large accounts, plus 36% this year. We also grow SME plus 12%. So that means both drivers are executing nicely. We have a nice development of new accounts in branches. If I look at the number of new accounts that we had in Q2 versus -- in Q3 versus Q2, it's plus 19%. So we've also had a healthy development of new clients and branches, okay? But we're not there yet. Let's be clear. We start from a low base because we -- what we've been through some -- so encouraging, good, people deliver. So it's, as I said, it's encouraging, but I wouldn't call it impressive. It's good numbers. We've got to confirm over time but I'm confident in what we're delivering. Now as far as the CMD, well, we'll -- I think we are going to deep dive on some of the drivers that show that the proof points of the way the strategy is delivering results. So to give you more insights, more granularity in what the things that you do. And also, of course we're going to focus on some of the transformative actions that we are layering on top of the way we run the business. We also, of course, as you can imagine, have a deep dive on Akkodis because it's going to be on stage to explain his value creation plan and how confident he is to improve both the top line and the margins at Akkodis. So this is what we're going to talk about. Operator: Your next question comes from the line of Suhasini Varanasi of Goldman Sachs. Suhasini Varanasi: Just a few for me, please. On perm trends, the declines have been easing for a couple of quarters now. Can you maybe give some color on whether you're seeing things stabilizing at these low levels? The second one, just to clarify again on working capital, the strength that we've seen in Q3, was there any timing effect that helped, especially on the payable side that is potentially going to unwind in Q4? And the last one on Akkodis restructuring, how much more should we expect on restructuring costs in the next quarter, please? Denis Machuel: Thanks, Suhasini. I'll take the question on perm and also on working capital in Akkodis Germany.So on perm, yes, I mean we've been -- and it's an industry -- it's a global industry challenge, and we see it both in Adecco and LHH. Adecco is minus 7% on perm, LHH is minus 8%. So it's -- I wouldn't call it yet stabilized definitely. I think it reflects, fundamentally, it reflects the fact that there is little visibility for many of our clients and when you don't have visibility because of the -- let's be clear, the unpredictability of geopolitics and some of the tariffs and things like this, we -- clients do not dare to recruit permanently. When you recruit permanently, it's because you're confident on the things that you have ahead of you. And because even in markets like the U.S. where it's relatively easy to recruit and lay off, you don't do that if you don't have visibility. So I think an interesting point is we see this momentum on perm coming up, and that says something about the mindset of our clients. Though we have seen a little bit of pickup in September, particularly in the U.S. so that there are pockets here and there in the finance sector, particularly where we have seen a pickup. But it's still -- it's not massive. So I wouldn't call it a change in the trend. But of course, on the mid, long term, I'm confident that perm will come back because we will -- this is a market that we like. Companies, even with AI, they will need people and we need experts to recruit permanently. So that's -- this is a moment where we're a bit low on that business, but progressively, I believe it will recover but not now. Coram? Coram Williams: And I'll pick up on your other 2 questions. So on the working capital side. We had timing effect in Q3 '24, if you remember, which did work against us and then helped in Q4 '24, but there are no material timing effects in Q3 '25 that will unwind in Q4. This is a pretty clean set of numbers in cash terms in Q3. And I think to the point I made earlier, it's really all about tight working capital management. Payables, obviously, we mentioned, but also really ensuring that we manage that DSO in a best-in-class way. On the one-off costs, we're forecasting EUR 25 million in Q4. Almost all of that will be related to Akkodis Germany, and it's a sign of how rapidly we are moving on this restructuring plan so that we can make sure that we get that business back to healthy run rate profitability by the end of the year. Operator: Your next question comes from the line of Simon Van Oppen of Kepler Cheuvreux. Simon Van Oppen: I have a question on the gross margin contribution from your adjacent services. We saw that trading upskilling and reskilling was up only 1% organically, but drove a 15 basis point margin improvement and if I'm correct, then this segment has a gross margin of roughly 60% historically. Could you please elaborate how this segment is contributing to this improvement in gross margin? And has the gross margin in this segment moves up? Or where do you see the long-term potential for the gross margin of this segment? Coram Williams: Sure. I will pick that one up. It's really important to understand the underlying growth number that you've highlighted, Simon, because there is actually an exit in that number of something called the U.S. Akkodis Academy. It's relatively small in the context of the group, but it does impact the growth rate in this segment. And on an underlying basis, training, upskilling and reskilling is up 28%, which I think gives you a real sense of how strong the growth is in EZRA, in GA and in the other parts of our business, which contribute training services, et cetera. They do all -- and certainly, GA and EZRA have strong gross margins. This is very much a characteristic of this type of business. I think it gives you a real sense of how much value is created there. And because of the growth rates, because those businesses are becoming material in the context of the group top line they're having a material impact on the gross margin, and that's what's dropping through in Q3. I would expect those businesses to continue to contribute to positive gross margin. Denis Machuel: Yes. And then to your point, Coram, I think I'm very pleased with the momentum we see in GA. GA is having great pipeline and great development in how we can accompany our clients on their own AI evolution, there is a lot of appetite for the type of services that GA provides in terms of how we can -- how we focus on specialties roles that are impacted by AI, and we can embark our clients on the journey. And in EZRA, I mean we are -- there is a significant market potential, and we are scaling this platform. It's really a platform business that we are scaling now with a really high gross margin. So EZRA has become -- is extremely relevant in most of our client transformation, the cultural transformation, the AI transformation, so that's -- we have great expectations for the growth of that business moving forward with very, very healthy gross margins. Operator: Your next question comes from the line of Rory McKenzie of UBS. Rory Mckenzie: It's Rory here. First, I want to ask about the growth outlook for both career transition and the training businesses after a very strong quarter. Career transition, in particular, had been bumping up against high competitors for a while, and clearly, it's now jumped past of that. So is that new contracts ramping up or anything else one-off in there? And so should we expect similar growth in Q4 and into the start of next year? And then secondly, given the other announcements today, I feel like I have to ask Coram about trends in autos specifically. So maybe when you look at the Adecco GBU and the strength this quarter, can you just talk about the performance of the global verticals like autos, logistics, manufacturing, and given all the contract wins you're kind of talking about, are there any commonalities in sectors you think you've targeted well or doing well in? And what lessons can you draw from that? Denis Machuel: Thanks, Rory. So as far as the growth outlook, I think we have -- so we grew 9% this quarter in CT. We have a bit of a difference. U.S. is growing 7%. Rest of the World is growing 11%. So -- but it's still very high numbers. The pipeline is still quite healthy. And to your question, it's mostly new clients that we win. I mean we have a constant sales team on the field, remind you that we are the world leader by far. And we have an excellent reputation, the way we've also digitized our business the way we have now people on the platform, all the people that we accompany on platform with very efficient AI support, and that's a good thing. And as I said, in training and scaling, GA is growing 45% -- 48%, EZRA is growing 59%. So are we going to sustain the super high level, I cannot promise, but definitely strong double-digit growth for EZRA and GA. No problem. And I would say for the moment, given the pipeline that we have in CT, I think we can expect modest growth, maybe mid-single digits or low-single digit. But let's be clear, we are on very high levels, and we've sustained these very high levels of revenue for quite some time. And now I pass over to Coram to speak about autos. Coram Williams: Thank you, Denis. and you did make me smile, Rory. So thank you. But to be clear, I would have been happy to answer a question on autos at any point during our discussions. So a couple of points on this. Firstly, when we look at Adecco, the growth is very broad-based. We have a number of sectors, which are all up across multiple countries. And I think it's a sign of the momentum that we have, the share that we're taking and the way, as you know, that we have been managing the business with agility to really identify growth wherever we can. On autos, in Adecco represents about 8% of the Adecco GBU. It's up 10% year-on-year. And we see growth in France, Spain, U.S. and Germany. Germany is up 3%, which is encouraging for me, but partially offset by the one area, the one country where we do see a bit of pressure right now, which is Italy. I think the key to this is that cars are still being produced. There is obviously impact from all of the changes that are happening. But there are still models that are doing well. And our teams are very effective at identifying which manufacturers to partner with, which sites they should be targeting and in particular, therefore, which models have momentum and will require flexible labor. And I think that is really strongly demonstrated by that Adecco Germany plus 3% number. And obviously, the other side of the autos coin for us is Akkodis. That is down 7% year-on-year. Interestingly and I'll focus on the 2 big markets, France is up, and we've had some really strong successes with a number of French manufacturers, which I think demonstrates the strength of the offering. In the short term, there continues to be pressure in Germany, as the German OEMs are reconfiguring their product plans and looking to move more of their R&D work of -- outsourced and offshored. And that's what gives us confidence that longer term, the demand for the Akkodis services is there. And France is a really good proof point for that because that expertise is required . Denis Machuel: And in Japan, with the -- also Japanese carmakers, Akkodis is also growing nicely. So it's also a complement. And it's -- we said something about the that the problem is more focused on the German OEMs than the rest -- than the whole industry. Coram Williams: Now look, we manage these sectors, as you know, very forensically. But I think we're pleased with the progress that we see. And then the final comment I'll make is on logistics, which you flagged. That's around 9% of the Adecco GBU. It is down year-on-year, around 8%. That's almost a 1 basis point -- a 1 percentage point headwind to the group as a whole. This is the nature of this sector, so logistics partners manage demand very carefully. They go through periods where actually they increased the number of temps that they use. They go through periods where they reduce and they in-source. Actually, if we look at the decade, there are some of our countries which are growing in logistics, for example, Italy and Japan. And there are several countries where right now, we're declining slightly, such as France, Germany and Spain. But that very much is the nature of that sector, and we're well positioned and it will be healthy in the medium to longer term. And my final point, please remember the broad-based nature of what's happening in Adecco. It's really important. Operator: Your next question comes from the line of Michael Foeth of Vontobel. Michael Foeth: I just have a follow-up on the training, reskilling and upskilling business. You said it's up 28% when you exclude the inorganic effect there. But still coaching skilling LHH is up 40% and EZRA up -- or G&A up 48%. So what's actually dragging the whole thing down. So I'm missing some part of that business. That would be the first one. The second question is regarding U.S. You said manufacturing is a driver. I was just wondering which type of manufacturing activities you're talking about and whether that's a trend that we should expect to continue in light of the whole repatriating manufacturing to the U.S. And then finally, if you can make a comment on the Akkodis defense exposure and how that's working? Denis Machuel: So I think Coram will take the first question, and I'll take the other 2. Coram Williams: Yes. And very quickly on this one because I think we are very pleased with 28% underlying growth. And I think there is real strength in EZRA and GA and this offering as a whole. There are 2 pieces which are bringing that growth rate down from the 40% to 50% that you see in EZRA and GA. There is some more traditional coaching business which is effectively being substituted by EZRA. That's an opportunity for us long term because the digital nature of EZRA's coaching platform actually expands the addressable market. And as we've talked about before, there is still a small piece of B2C business in general assembly, which we are sunsetting and in the short term, brings the growth rate down. So those are the 2 other pieces. But I think you'll agree the 28% underlying growth is a strong number. Denis Machuel: And as far as the manufacturing is concerned, we're growing -- in the U.S., we're growing 11% on overall manufacturing, I would say, in the U.S., which is good. It's broad-based. I mean there is a lot of -- from the sort of mid-sized manufacturer that can serve a variety of industries to the larger piece. We exclude, if you want, in that category, we exclude the manufacturing that are purely sector-related like automotive or aerospace or others. So far, we've seen -- it's a series of quarters where we've seen manufacturing relatively solid in the U.S. Is it related to ensuring I am not fully sure, we have seen some announcements, but before you build a new factory, or before you change your production strategy, it takes a bit of time. Probably over time, given the promises that we've heard from so many companies to increase their investments in the U.S., this will be supportive of our manufacturing business. I would say it's probably a bit early to link it to reshoring. It's just like we have, as I said, we have our salespeople really, really on the field, close to our clients and making sure that we fill every job requisition that we receive. That's the point. It's -- the motto that we've had for several years now is I don't care whether the economy is good or bad, our markets are fragmented, if you are close to your clients, you can win share. And if you deliver faster than your competitor, then you gain share. And that's how we win. Now on the Akkodis defense, yes, we see momentum. It's -- the overall -- the aerospace and defense sector overall is growing 11% year-on-year. It's supported both by the aerospace dynamic and also with the pickup in defense, we say, I see it across the board, it's not yet -- I mean, the full investment that has been announced, for example, in Germany is not fully in place, but we see a pickup. And let's be clear, we are a key Tier 1 supplier for engineering services to all the major players, particularly in Europe and that puts us in a very good place. They also want to consolidate their Tier 1 list and we are in a very, very good place to continue to grow there. Michael Foeth: Okay. Perfect. And thanks, Coram, for the very transparent and clear communication over the years and all the best. Operator: Your next question comes from the line of Will Kirkness of Bernstein. William Kirkness: I just had 2 questions, please. Just on Akkodis, in terms of the U.S. and France, is there anything to do on cost there? Or is that just a case of waiting for end markets to get better to continue to improve? And then the second question was just a clarification on the 1.5x leverage target by the end of '27. And how we think about that with the new hybrid definition. So whether that -- when we start to think about return of surplus capital, just which calculation we use related to the hybrid? Denis Machuel: I'll take the first one and then Coram will be super happy to talk about the second one. The -- yes, so U.S. and France, I mean, we are -- first of all, we are laser-focused on our cost base to ensure our competitiveness. We are also accelerating and Jo will talk about that at the CMD, accelerating our offshoring capacity to make sure that we provide the best possible service to our clients. There's a big need from our clients to -- for us to grow offshoring. So that's good. We are -- so we are super focused on the cost base. France is back to growth, right, 1%, which is good. And the U.S., I mean, we have a great, great dynamic with -- in Consulting & Solutions. We grew 45%. And the tech staffing is improving. So it's sequentially, okay? So if you go back to North America in Akkodis was minus 9% in Q1, minus 4% in Q2 and now plus 1% year-on-year. So it is improving. We are still working on our cost base, it's too high. We are accelerating, particularly on the tech staffing, we're accelerating the way we use offshore to recruit faster and at more competitive costs. So this is what we're doing. I think I'm positive on both markets. Coram Williams: Let me pick up on the net debt-to-EBITDA question. Just to reiterate why we're doing this. We introduced the hybrid in 2021 as part of our capital structure. Obviously, the rating agencies from day 1 have given us the equity credit on 50% of it. We are in the process of refinancing, which very much reinforces the long-term nature of this instrument in our capital structure. And therefore, it is the moment to align our reporting with rating agency methodology, it makes sense to do it. It is common practice, many companies do this. And as you can see in the press release, we've been very transparent in terms of the numbers, both before and after the change on the leverage ratio. The target remains at or below 1.5x net debt to EBITDA. And it's important to remember it is at or below and we are leaving it there for 2 reasons. One, it reflects our commitment to the investment grade credit rating. And obviously, that credit rating is assessed and calculated, including the hybrid, so it makes sense. And as we know, for a business of this size and this nature, the 1.5x is a good point where you reach efficiency on cost of capital. So we will leave the target where it is. We've been transparent in the move on the reporting change and we are very committed to achieving that target. Operator: Your next question comes from the line of James Rowland Clark of Barclays. James Clark: So just on the very strong North American performance, which is obviously well ahead of market growth rates at the moment. Does this sort of normalize back to market growth rates in the second half of next year or even lower on the tough comps? And I guess, could you just express your confidence that you could outperform the market on a sustainable basis there beyond that? Just on the CFO change, I'd just like to know whether this maybe there's an opportunity for any slight changes to how to think about the financial guidance or use of capital in the future? And then finally, are you confident you can hold on to the broader cost savings, the structural cost savings in the business to deliver ahead of the market organically next year? Denis Machuel: Thank you, James. So yes, I think the -- on North America, as I said, I mean, I don't think we'll grow 20% every quarter for the years to come. But yes, the objective is to always be ahead of the market. So are we going to normalize a little bit of growth, probably. Do we want to be ahead of the market? Yes, that's the objective. You know that the incentives of our executives and people are linked to doing better than the competition. So definitely, we will do -- we will push hard to always be ahead of the market. Sometimes we get there, sometimes we don't, but that's the absolute focus of our teams, and it's not only North America, it's everywhere. As far as the CFO change, I mean we'll go in depth on this -- the financial strategy and the guidance in the Capital Markets Day, but you can expect continuity because this is what we've been told. I think we -- sorry, what we have been saying, you've understood that this was a very smooth transition. It was well prepared. And so that's the idea. It's all about the continuity. And yes, I mean the structural cost savings we will continue to be laser-focused on cost, both to achieve and to secure our gross margins. So cost to serve is an absolute obsession because this is how we deliver our competitiveness. That's why and Christophe will talk about that in the CMD, that's why we've accelerated our talent supply chain delivery because that works. And of course, we are absolutely laser focused on the G&A and as you could see, we delivered on our promise to deliver the full savings, EUR 174 million net of inflation and we've kept that line really strictly. So moving forward, our G&A will be less than 3.5% of revenue, that's the sort of the line we've set and we'll stick to it. Operator: There are no further questions at this time. And with that, I will turn the call back to Denis Machuel, CEO, for closing remarks. Please go ahead. Denis Machuel: Thank you very much. And again, thanks again to all of you for having attended this call where we think we presented strong quarterly results and these results, they evidence further the strength of our execution. So we believe we are leading a recovery in our key markets. That's encouraging. While there is still a lot to do, all our turnaround plans are delivering according to our expectations. So that's encouraging for the future. We are on track, as you understood, to meet our margin commitment for the full year, and that was very important for us. And so we are looking forward to seeing you at the CMD in London. I mentioned what we're going to talk about. And it's going to be also the opportunity for you to say goodbye to Coram and also to meet Valentina, they will be both on stage, as you can imagine, and also see with your eyes how we are living through a very smooth transition that we ensure full continuity. So as you could hear, I'm confident in the future we're building a very strong group and we'll talk a lot about that in the CMD. See you there. Thank you so much. Have a great day. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and thank you for standing by. My name is Kelvin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Adecco Group Q3 Results 2025. [Operator Instructions] I would now like to turn the call over to Benita Barretto, Head of Investor Relations. Please go ahead. Benita Barretto: Good morning. Thank you for joining the Adecco Group's Q3 Results Conference Call. I'm Benita Barretto, the group's Head of Investor Relations. And with me are the Adecco Group CEO, Denis Machuel; and CFO, Coram Williams. Before we begin, please take note of the disclaimer on Slide 2. Today's presentation will reference both GAAP and non-GAAP financial results and operating metrics. This conference call will include forward-looking statements, which are based on current assumptions and as always, present opportunities as well as risks and uncertainties. With that, I will now hand over to Denny. Denis Machuel: Thank you, Benita, and a warm welcome to all of you who have joined the call today. So today, I want to share an important leadership update which also underscores the strength of our succession planning and our commitment to continuity. At the end of this year, Coram Williams will step down as Chief Financial Officer after 5 years of outstanding service. Coram has played an absolutely pivotal role in guiding the Adecco Group through a period of significant transformation and strengthening our financial foundations. His disciplined approach and strategic insight have been absolutely instrumental in achieving the strong Q3 results we announced today. We warmly thank Coram for his tremendous contribution and wish him every success as he takes on a CFO role in the automotive sector in Germany, a move that reflects his passion for this sector and also brings him closer to his family. And I'm pleased to announce that Valentina Ficaio will succeed Coram as CFO effective January 1, 2026. Valentina is a proven leader with deep knowledge of our business and strong financial and strategic acumen. She's been part of our global finance leadership team, most recently leading financial planning, controllership and strategy and has acted as Coram's deputy for the past 3.5 years. Her appointment follows a rigorous selection process and represents an internal promotion to the CFO role, which is a testament to the strength of our talent pipeline. This leadership transition is well planned, and we remain focused on delivering sustainable growth, improving margins and creating long-term shareholder value. Let's now turn to our results and starting with Slide 4 and an overview for the quarter. We gained significant market share this quarter with the group and Adecco, leading key competitors by 375 and 300 basis points, respectively. The group delivered EUR 5.8 billion in revenues, 3.4% higher year-on-year on an organic trading days adjusted basis. Revenue trends improved sequentially across all GBUs. Additionally, we observed a strong performance from Adecco U.S. with revenues increasing by 20% year-on-year. Gross profit reached EUR 1.1 billion with a gross margin of 19.2%, while this represents a modest year-on-year decrease of 10 basis points on an organic basis, it is a 30 basis point sequential improvement, fully matching our Q3 guidance. Gross margins benefited from reduced pressure in Akkodis Germany, where the turnaround plan is progressing well. EBITA excluding one-offs, was EUR 195 million with a 3.4% margin. Disciplined execution drove good operating leverage with productivity up 8% year-on-year and higher in all GBUs. Adjusted EPS was EUR 0.67. Cash conversion was very strong at 110%, and the group generated a solid operating cash flow of EUR 200 million, up EUR 79 million from the prior year period. In summary, the group delivered a strong performance this quarter and remains on track to achieve the 3% EBITA margin floor for the full year. Moving now to Slide 5. The group delivered a further increase in market share this Q3. In Q2, the group gained 205 basis points in market share and Adecco gained in 130 basis points. In Q3, the group gained 375 basis points of share and Adecco gained 300 basis points. We have seen a consistent improvement in flex volumes year-to-date across the Adecco GBU. In Q3, we were encouraged to see volumes move clearly into modest growth territory with a meaningful uptick in demand from the largest Adecco countries. Now as we move to Slide 6, you will see case studies that demonstrate our strong win momentum in the market. First, in the life sciences sector, Adecco and Akkodis were selected as the preferred suppliers for global solutions due to the group's global footprint and breadth of services. The client was impressed by our technology expertise, reporting quality, market insights, all of which are underpinned by strong data analytics. Second, Akkodis was selected as a Tier 1 supplier to a leading German aerospace company, our comprehensive suite of advanced system engineering solutions covering lending gear and system design and installation, supports the client's strategic need for innovation to improve operational efficiency and sustainability. Akkodis' global presence which maximizes responsiveness and cross-fertilization of ideas was key to be selected. Third, LHH's EZRA won a multiyear contract with a leading U.S. software provider for AI and human coaching services beating a major competitor. EZRA will coach over 27,000 employees, creating a measurable business impact. With that, I will now hand over to Coram for further details on the Q3 results. Coram Williams: Good morning, everyone, and thank you, Denis, for your kind words earlier. It's been an honor to be the CFO of the group over the last 5 years and a real pleasure to work with you and the talented teams that we have around the group. The Q3 results that we're announcing today show that the group is on a good path and affirm my decision to step back and pursue a new role in a sector I'm passionate about in my adopted home country. I'm really delighted that you and the Board have chosen Valentina as my successor. She's been a strong member of my team, a brilliant deputy and I have no doubt that she is the right person to drive the group forward. With that said, I'd like to now focus on the Q3 results. First, let's discuss GBU developments, beginning with Adecco on Slide 7. Adecco delivered EUR 4.7 billion in revenues, up 4.5% year-on-year on an organic trading days adjusted basis and up 2.8% sequentially. Flexible placement revenues increased by 4%. On an organic basis, outsourcing remained strong with revenues up 12%. Permanent placement revenues were 7% lower, while MSP Pontoon revenues rose 5%. By client type, revenue growth from SMEs was strong, up 5%. Gross margin was healthy, reflecting the client and solutions mix, particularly lower perm volumes. Pricing remains firm. Productivity improved by 5%, while selling FTEs decreased by 1%. The EBITA margin improved 50 basis points year-on-year to 3.9%, reflecting higher volumes and operating leverage, aided by G&A savings and agile capacity management. Adecco's dropdown ratio this quarter was north of 100%, a very strong outcome. Now let's move to Adecco at the segment level on Slide 8. In Adecco France, revenues were 2% lower year-on-year, improved sequentially and outperforming the market, driven by robust growth across large clients. Growth in autos, financial and professional services, food and beverage and the strategically important construction sector was strong. However, logistics presented some challenges. The EBITA margin of 4% was 80 basis points higher year-on-year with France benefiting from the execution of G&A savings plans. Adecco EMEA, excluding France, returned to growth, with revenues up 3% year-on-year and taking market share. Looking at the larger markets, revenues in Italy were flat, with strong activity in logistics and food and beverages offsetting weak autos demand. Iberia was strong, with revenues up 13%, reflecting strength in flex and outsourcing as well as double-digit growth from SMEs. Food and beverage, financial and professional services, manufacturing and autos were strong. In the U.K. and Ireland, revenues declined by 4% year-on-year. a resilient result given the challenging market environment. While soft demand in logistics and the public sector impacted performance, the business continues to demonstrate adaptability. Revenues in Germany and Austria were flat year-on-year, reflecting a solid outcome in a demanding market. The manufacturing and automotive sectors performed robustly, supporting overall stability. The segment's EBITA margin of 4.1% was 20 basis points higher year-on-year. The margin reflects client mix and good operating leverage with productivity up in all territories and support from G&A savings. Turning now to Slide 9. Adecco Americas delivered very strong revenue growth of 20% year-on-year. North America revenues increased by 20% year-on-year, improving sequentially and ahead of market trends. The result was driven by strength in Flex across all client segments, including double-digit growth from SMEs. In sector terms, consumer goods, autos, manufacturing and food and beverage were notably strong. This growth rate shows the continuing progress we're making with the turnaround of Adecco U.S. At the same time, we do have work to do on the business mix and cost to serve to restore margins further. In Latin America, revenues grew 21%, with all countries experiencing double-digit growth, driven by demand for flex and outsourcing across SMEs and large clients. By sector, financial and professional services, logistics and manufacturing were strong. The Americas EBITA margin of 2.5% increased 240 basis points year-on-year, reflecting higher volumes and operating leverage. Productivity improved, while the segment continues to optimize costs. Adecco APAC remains strong, with revenues up 9% year-on-year and ahead of the market, led by strong demand from SMEs. Revenues rose 8% in Japan, 18% in Asia and 14% in India. In Australia and New Zealand, revenues were 3% lower. In sector terms, financial and professional services, consumer goods, food and beverage and defense was strong. The EBITA margin of 4.7% reflects higher volumes, G&A savings and modest investment in capacity to capture future growth opportunities. Let's now focus on Akkodis on Slide 10. Akkodis' revenues were 3% lower year-on-year on an organic constant currency basis and sequentially improved. Consulting and Solutions revenues were 1% lower organically, improving by 4% sequentially. By segment, EMEA revenues were 3% lower. France returned to growth, with revenues up 1% and ahead of the market. Aerospace, defense and autos were strong. Revenues in Germany were 9% lower, driven by market headwinds in autos and despite good momentum in defense. Italy, Iberia and the U.K. performed well. North America revenues returned to growth, with revenues up 1%. The business has seen a modest improvement in tech staffing demand and delivered very strong growth in the Strategic, Consulting and Solutions segment, with revenues up 45%. APAC revenues were stable, with Japan and China up 2%. Revenues in Australia were 4% lower, reflecting a slow market backdrop. Akkodis' EBITA margin was 4.5%, 60 basis points lower year-on-year. Excluding Germany, the margin was 6.5%, and an improvement year-on-year, reflecting solid utilization rates and good cost discipline. Germany's turnaround is progressing well. Given the market context, the level of targeted savings has risen to approximately EUR 50 million. To date, an annualized savings run rate of approximately EUR 36 million has been achieved, driven primarily by adjusting consulting headcount, which improves bench utilization and G&A savings. Additional savings were expected in Q4. These actions will enable the unit to return to healthy run rate profitability by year-end. Let's move on to LHH on Slide 11. LHH executed well with revenues returning to growth, rising 4% in the third quarter on an organic constant currency basis. The EBITA margin reached 9%, up 240 basis points year-on-year, driven by higher volumes and strong operating leverage with a 25% increase in productivity. Turning to LHH's segment. Professional Recruitment Solutions revenues were 7% lower, with the unit taking share in tough recruitment markets. Recruitment Solutions revenues were 5% lower, primarily due to an 8% decline in permanent placement. Gross profit was 6% lower. Productivity remained flat and billing FTEs decreased by 6%. Our peer activities remain soft. Career transition performed very well, with revenues up 9%. U.S. revenues grew by 7% and revenues outside the U.S. increased by 11%. The pipeline remains healthy across all geographies, supporting future momentum. Revenues in coaching and skilling rose 40%. EZRA delivered outstanding growth with revenues increasing 59% to another record high. General Assembly returned to growth, with revenues up 48%, driven by strong momentum in its B2B business, which focuses on AI-related offerings. Let's turn now to Slide 12, which shows the group's gross margin drivers on a year-on-year basis. Gross margin was healthy at 19.2%, 10 basis points lower year-on-year on an organic basis. Currency translation had a negative impact of 10 basis points. Permanent placement has a 25 basis point negative impact with headwinds in both Adecco and LHH. Career transition had a positive impact of 10 basis points. Outsourcing, consulting and other services had a 10 basis point negative impact due to mix in outsourcing and ongoing pressure in Akkodis Germany. Additionally, training, upskilling and reskilling had a positive impact of 15 basis points driven by growth at EZRA and General Assembly. Let's look at Slide 13 and the group's EBITA bridge. At 3.4%, the EBITA margin, excluding one-offs, was 10 basis points higher year-on-year, driven by a 10 basis point negative impact from currency translation, a 10 basis point negative impact from organic gross margin development, a 40 basis point favorable impact from operating leverage and a 10 basis point negative impact from Akkodis Germany. In Q3, SG&A expenses, excluding one-offs, as a percentage of revenues, were 15.9%. And 30 basis points better year-on-year, reflecting cost discipline with G&A expenses up 3% of revenues and agile capacity management. Selling FTEs were 3% lower. Productivity in terms of direct contribution per selling FTE rose 8% with all GBUs improving year-on-year. Let's turn to Slide 14 and the group's cash flow and financing structure. The last 12 months cash conversion ratio was strong at 110%. DSO remains best in class at 53.6 days. The group delivered cash flow from operating activities of EUR 200 million in the quarter, a EUR 79 million increase versus the prior year period. The cash result reflects strong working capital management, partially offset by increased working capital absorption, resulting from improved revenue performance. CapEx was EUR 30 million, and free cash flow was EUR 170 million, an increase of EUR 88 million compared to the prior year period. The group benefits from a robust financial structure. We have strong liquidity, including an undrawn EUR 750 million revolving credit facility. 80% of debts have fixed interest rates and there are no financial covenants on any outstanding debt. The group also has low interest expenses with a net charge of EUR 13 million in Q3. At the end of Q3, net debt was EUR 2,705 million, EUR 220 million lower year-on-year. Since 2021, the group's capital structure has included a EUR 500 million hybrid bond, which rating agencies classify as 50% equity and 50% debt. Management is in the process of refinancing this hybrid bond, reaffirming its long-term role in the capital structure. In light of this planned refinancing, and to align with rating agency methodology, the group will now apply 50% equity treatment to the hybrid bond when reporting its leverage ratio. This adjustment does not impact the group's credit rating or the net debt calculation. It does, however, ensure consistency and transparency in how leverage is assessed across stakeholders. Applying this methodology, the group's end Q3 leverage ratio was 3 terms. On an underlying basis, strong cash generation and EBITDA improvement in Q3 has reduced the group's net debt-to-EBITDA ratio, excluding one-offs, by 0.3x sequentially. The group remains firmly committed to bringing the net debt-to-EBITDA ratio to 1.5x or below by the end of 2027, absent any major macroeconomic or geopolitical disruption. Our capital allocation policy is clear on options for excess capital once we achieve this target. Let's move to Slide 15 and the group's outlook. Based on Q4 volumes to date, the group expects revenue growth in Q4 to be in line with Q3's revenue growth year-on-year on an organic trading days adjusted basis. For Q4, the group expects gross margin and SG&A expenses, excluding one-offs, to be broadly stable sequentially. The group is focused on managing capacity with agility to balance share gain and productivity in mixed markets, in addition to securing G&A savings. The group is on track to deliver its full year EBITA margin commitment. And with that, I'll hand back to Denis. Denis Machuel: Thank you, Coram. And let me conclude with Slide 16 and few takeaways. In Q3, the group delivered a further increased market share with revenues improving sequentially across all GBUs. At the GBU level, we were encouraged by the strong growth in Adecco U.S., evidencing traction with the turnaround plan. Meanwhile, the Akkodis German turnaround is progressing well with the unit expected to return to healthy run rate profitability by year-end. In reaching a 3.4% EBITA margin this quarter, we demonstrated good operating leverage. Cash generation was solid. We thank our teams for yet another quarter of rigorous execution. We look forward to sharing the evolution of our strategy and detailed value creation plans at our Capital Markets Day on 26th of November in London. With this said, thank you for your attention, and let's open the lines for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Andy Grobler, BNP Paribas. Andrew Grobler: I've got a lot, but just a couple to start with, if that's all right. From a cost base perspective, a couple of things here. As you move into Q4, what are the incremental savings that you expect to drive? And does that include turning that about EUR 16 million loss in Akkodis Germany into a positive? And how should we think about that as the right base going into 2026 if you could chat through that, that would be really helpful. And also, just adding to that, does that guide include the currency headwinds that you'll see in the Q4? And then secondly, on cash flow, very strong performance through the quarter. Can you just talk through the drivers of that and whether you're seeing any pressure on payment terms? Has that been incremental through this year? Denis Machuel: I think I'll let Coram answer most of these questions. I'm just going to say a word on payment terms. Yes, definitely I think we have pressure from our clients on payment terms. We resist actively to this pressure. We are -- I think we are very focused with our teams managing these kind of negotiations. We see also our DSO remaining relatively solid. So I think we are able to -- thanks to the strong relationship that we have with our clients to resist to the maximum on the payment terms request from our clients. I mean for all the other questions, Coram. Coram Williams: Thank you, Denis. Thank you, Andy. Actually, let me start with cash, therefore and build on Denis' answer. I mean, yes, we do see pressure on payment terms, but our DSO is at 53.6 days. It is quite clearly best in class at the moment where our peers see their DSOs going in the wrong direction. So I think it's very clear that we are managing that and managing it very effectively. On the cash flow itself in Q3, I mean, we tried to unpick the drivers. Fundamentally, you have good working capital management, which includes the point I'm making about keeping DSO very stable, but also payables, where we've been managing those very tightly and have done for a number of quarters, which is partially offset by the working capital absorption that you see because of the growth that the business is delivering. And we know that's a feature of the way this operates. So when you put all of that together, then we're very pleased with the operating cash flow of EUR 200 million. It's up year-on-year, and it has obviously helped us deliver that rolling 12-month cash conversion of 110%. On the cost side, yes, the guide includes FX movements. If you step back and look at what we're saying, we're guiding to SG&A being broadly stable. Typically a seasonal movement between Q3 and Q4 actually increases SG&A little bit, usually between EUR 10 million to EUR 20 million. So you can see by saying that we will hold it stable, we are confident we will continue to deliver savings. Part of that comes from Akkodis, as you mentioned, we have real estate optimization, which will flow through, but we also have further savings in other parts of the business that we've been activating through the year. You saw the benefits, for example, on the margins in France. There are other territories where we continue to manage this. By the end, and I'm now just moving on to Akkodis Germany. The restructuring there is progressing well. We have EUR 36 million of run rate savings locked in. We've got clear plans for how we get to a run rate of EUR 50 million, and that will deliver healthy run rate profitability for that business by the end of the year. And I think it's important to make the point that we are not presupposing an improvement in the top line of that business in the short term. We're managing the restructuring to make sure that we see healthy profitability on the market conditions that we now see. Denis Machuel: And just maybe one last word. Andy, top line in Akkodis Germany is being stabilized. So I mean, we can go in details around what we do very actively in Germany on our turnaround plan, but there's also an element of stabilization of top line, of course. But thanks, Andy, for your questions. . Andrew Grobler: And just to add, Coram, best of luck with the new role. Coram Williams: Thank you, Andy. I appreciate it. Operator: Your next question comes from the line of Remi Grenu with Morgan Stanley. Remi Grenu: A few questions on my side, if I may. So just first taking a step back and looking at your outlook for stable growth on the same comp base. It feels like similarly to some of your competitors, you are assuming that the recovery of organic growth we've seen over the last few quarters is stalling a bit or kind of stabilizing. So what makes you slightly more cautious compared to the sequential improvement we've seen over the last few quarters. Just wanted to understand if there was anything there? And if so, what part of the business, which divisions do you think could improve, remain stable or deteriorate in Q4 just to have a bit of breakdown of that stable organic growth comment for Q4. The second question is on the U.S. organic growth. Obviously, I mean, very impressive. Can you just elaborate a little bit on this? What are the drivers in terms of type of clients if you think the broad-based recovery or has it been driven by any specific contract win and on the market share gains in that country, why do you think is the case that your winning volumes away from your competitors? And then the last one would be just maybe a little bit of a teaser on end of November, then if you wanted to share with us a few of the topics you think could be important to address during the CMD? Denis Machuel: Thank you, Remi, I think I'm going to take the 3 questions. So on the outlook, actually, we're pragmatic. We're looking at our flex volumes data. And they are -- let's say, they are nicely up year-on-year. They continue to do so, but we have only a few weeks of data. So we are -- definitely, we see some momentum. We see an improving momentum in the HH and Akkodis, but we are -- we've always been -- I must say, we've always been relatively cautious. When we see it, we talk about it but I don't want to overpromise and create expectations. So we have volumes, as I said, nicely up, but it's not stored definitely. It's not stalling. It's improving nicely, but this is reasonable. So it's not -- it's -- I continue to be positive about what we have ahead of us. As far as the U.S., yes, actually, it's broad-based. It's also the result of our turnaround. It's -- and there's so much more to do. Let's be clear. And we are -- we're pleased with the growth. We were plus 10% in Q2. We are now plus 20%. We've returned the U.S. to be profitable, which is good. We are growing ahead of the market. So it's been systematic. It's been rigorous execution on how we improve branch profitability, how we see that the incentives that we've put in place in the branches that are boosting both flex and perm are delivering results. We're focusing on increasing the traction with the MSP business. We are really, really focused on cutting our cost to serve to preserve our competitiveness. We've moved into more centralized delivery, nearshore offshore delivery. We have adjust also our G&A costs. So and all that. It's a series of things that we've applied rigorously and systematically for now, almost 3 years, and it starts to deliver results, which is good. The sales growth is broad-based. We grow large accounts, plus 36% this year. We also grow SME plus 12%. So that means both drivers are executing nicely. We have a nice development of new accounts in branches. If I look at the number of new accounts that we had in Q2 versus -- in Q3 versus Q2, it's plus 19%. So we've also had a healthy development of new clients and branches, okay? But we're not there yet. Let's be clear. We start from a low base because we -- what we've been through some -- so encouraging, good, people deliver. So it's, as I said, it's encouraging, but I wouldn't call it impressive. It's good numbers. We've got to confirm over time but I'm confident in what we're delivering. Now as far as the CMD, well, we'll -- I think we are going to deep dive on some of the drivers that show that the proof points of the way the strategy is delivering results. So to give you more insights, more granularity in what the things that you do. And also, of course we're going to focus on some of the transformative actions that we are layering on top of the way we run the business. We also, of course, as you can imagine, have a deep dive on Akkodis because it's going to be on stage to explain his value creation plan and how confident he is to improve both the top line and the margins at Akkodis. So this is what we're going to talk about. Operator: Your next question comes from the line of Suhasini Varanasi of Goldman Sachs. Suhasini Varanasi: Just a few for me, please. On perm trends, the declines have been easing for a couple of quarters now. Can you maybe give some color on whether you're seeing things stabilizing at these low levels? The second one, just to clarify again on working capital, the strength that we've seen in Q3, was there any timing effect that helped, especially on the payable side that is potentially going to unwind in Q4? And the last one on Akkodis restructuring, how much more should we expect on restructuring costs in the next quarter, please? Denis Machuel: Thanks, Suhasini. I'll take the question on perm and also on working capital in Akkodis Germany.So on perm, yes, I mean we've been -- and it's an industry -- it's a global industry challenge, and we see it both in Adecco and LHH. Adecco is minus 7% on perm, LHH is minus 8%. So it's -- I wouldn't call it yet stabilized definitely. I think it reflects, fundamentally, it reflects the fact that there is little visibility for many of our clients and when you don't have visibility because of the -- let's be clear, the unpredictability of geopolitics and some of the tariffs and things like this, we -- clients do not dare to recruit permanently. When you recruit permanently, it's because you're confident on the things that you have ahead of you. And because even in markets like the U.S. where it's relatively easy to recruit and lay off, you don't do that if you don't have visibility. So I think an interesting point is we see this momentum on perm coming up, and that says something about the mindset of our clients. Though we have seen a little bit of pickup in September, particularly in the U.S. so that there are pockets here and there in the finance sector, particularly where we have seen a pickup. But it's still -- it's not massive. So I wouldn't call it a change in the trend. But of course, on the mid, long term, I'm confident that perm will come back because we will -- this is a market that we like. Companies, even with AI, they will need people and we need experts to recruit permanently. So that's -- this is a moment where we're a bit low on that business, but progressively, I believe it will recover but not now. Coram? Coram Williams: And I'll pick up on your other 2 questions. So on the working capital side. We had timing effect in Q3 '24, if you remember, which did work against us and then helped in Q4 '24, but there are no material timing effects in Q3 '25 that will unwind in Q4. This is a pretty clean set of numbers in cash terms in Q3. And I think to the point I made earlier, it's really all about tight working capital management. Payables, obviously, we mentioned, but also really ensuring that we manage that DSO in a best-in-class way. On the one-off costs, we're forecasting EUR 25 million in Q4. Almost all of that will be related to Akkodis Germany, and it's a sign of how rapidly we are moving on this restructuring plan so that we can make sure that we get that business back to healthy run rate profitability by the end of the year. Operator: Your next question comes from the line of Simon Van Oppen of Kepler Cheuvreux. Simon Van Oppen: I have a question on the gross margin contribution from your adjacent services. We saw that trading upskilling and reskilling was up only 1% organically, but drove a 15 basis point margin improvement and if I'm correct, then this segment has a gross margin of roughly 60% historically. Could you please elaborate how this segment is contributing to this improvement in gross margin? And has the gross margin in this segment moves up? Or where do you see the long-term potential for the gross margin of this segment? Coram Williams: Sure. I will pick that one up. It's really important to understand the underlying growth number that you've highlighted, Simon, because there is actually an exit in that number of something called the U.S. Akkodis Academy. It's relatively small in the context of the group, but it does impact the growth rate in this segment. And on an underlying basis, training, upskilling and reskilling is up 28%, which I think gives you a real sense of how strong the growth is in EZRA, in GA and in the other parts of our business, which contribute training services, et cetera. They do all -- and certainly, GA and EZRA have strong gross margins. This is very much a characteristic of this type of business. I think it gives you a real sense of how much value is created there. And because of the growth rates, because those businesses are becoming material in the context of the group top line they're having a material impact on the gross margin, and that's what's dropping through in Q3. I would expect those businesses to continue to contribute to positive gross margin. Denis Machuel: Yes. And then to your point, Coram, I think I'm very pleased with the momentum we see in GA. GA is having great pipeline and great development in how we can accompany our clients on their own AI evolution, there is a lot of appetite for the type of services that GA provides in terms of how we can -- how we focus on specialties roles that are impacted by AI, and we can embark our clients on the journey. And in EZRA, I mean we are -- there is a significant market potential, and we are scaling this platform. It's really a platform business that we are scaling now with a really high gross margin. So EZRA has become -- is extremely relevant in most of our client transformation, the cultural transformation, the AI transformation, so that's -- we have great expectations for the growth of that business moving forward with very, very healthy gross margins. Operator: Your next question comes from the line of Rory McKenzie of UBS. Rory Mckenzie: It's Rory here. First, I want to ask about the growth outlook for both career transition and the training businesses after a very strong quarter. Career transition, in particular, had been bumping up against high competitors for a while, and clearly, it's now jumped past of that. So is that new contracts ramping up or anything else one-off in there? And so should we expect similar growth in Q4 and into the start of next year? And then secondly, given the other announcements today, I feel like I have to ask Coram about trends in autos specifically. So maybe when you look at the Adecco GBU and the strength this quarter, can you just talk about the performance of the global verticals like autos, logistics, manufacturing, and given all the contract wins you're kind of talking about, are there any commonalities in sectors you think you've targeted well or doing well in? And what lessons can you draw from that? Denis Machuel: Thanks, Rory. So as far as the growth outlook, I think we have -- so we grew 9% this quarter in CT. We have a bit of a difference. U.S. is growing 7%. Rest of the World is growing 11%. So -- but it's still very high numbers. The pipeline is still quite healthy. And to your question, it's mostly new clients that we win. I mean we have a constant sales team on the field, remind you that we are the world leader by far. And we have an excellent reputation, the way we've also digitized our business the way we have now people on the platform, all the people that we accompany on platform with very efficient AI support, and that's a good thing. And as I said, in training and scaling, GA is growing 45% -- 48%, EZRA is growing 59%. So are we going to sustain the super high level, I cannot promise, but definitely strong double-digit growth for EZRA and GA. No problem. And I would say for the moment, given the pipeline that we have in CT, I think we can expect modest growth, maybe mid-single digits or low-single digit. But let's be clear, we are on very high levels, and we've sustained these very high levels of revenue for quite some time. And now I pass over to Coram to speak about autos. Coram Williams: Thank you, Denis. and you did make me smile, Rory. So thank you. But to be clear, I would have been happy to answer a question on autos at any point during our discussions. So a couple of points on this. Firstly, when we look at Adecco, the growth is very broad-based. We have a number of sectors, which are all up across multiple countries. And I think it's a sign of the momentum that we have, the share that we're taking and the way, as you know, that we have been managing the business with agility to really identify growth wherever we can. On autos, in Adecco represents about 8% of the Adecco GBU. It's up 10% year-on-year. And we see growth in France, Spain, U.S. and Germany. Germany is up 3%, which is encouraging for me, but partially offset by the one area, the one country where we do see a bit of pressure right now, which is Italy. I think the key to this is that cars are still being produced. There is obviously impact from all of the changes that are happening. But there are still models that are doing well. And our teams are very effective at identifying which manufacturers to partner with, which sites they should be targeting and in particular, therefore, which models have momentum and will require flexible labor. And I think that is really strongly demonstrated by that Adecco Germany plus 3% number. And obviously, the other side of the autos coin for us is Akkodis. That is down 7% year-on-year. Interestingly and I'll focus on the 2 big markets, France is up, and we've had some really strong successes with a number of French manufacturers, which I think demonstrates the strength of the offering. In the short term, there continues to be pressure in Germany, as the German OEMs are reconfiguring their product plans and looking to move more of their R&D work of -- outsourced and offshored. And that's what gives us confidence that longer term, the demand for the Akkodis services is there. And France is a really good proof point for that because that expertise is required . Denis Machuel: And in Japan, with the -- also Japanese carmakers, Akkodis is also growing nicely. So it's also a complement. And it's -- we said something about the that the problem is more focused on the German OEMs than the rest -- than the whole industry. Coram Williams: Now look, we manage these sectors, as you know, very forensically. But I think we're pleased with the progress that we see. And then the final comment I'll make is on logistics, which you flagged. That's around 9% of the Adecco GBU. It is down year-on-year, around 8%. That's almost a 1 basis point -- a 1 percentage point headwind to the group as a whole. This is the nature of this sector, so logistics partners manage demand very carefully. They go through periods where actually they increased the number of temps that they use. They go through periods where they reduce and they in-source. Actually, if we look at the decade, there are some of our countries which are growing in logistics, for example, Italy and Japan. And there are several countries where right now, we're declining slightly, such as France, Germany and Spain. But that very much is the nature of that sector, and we're well positioned and it will be healthy in the medium to longer term. And my final point, please remember the broad-based nature of what's happening in Adecco. It's really important. Operator: Your next question comes from the line of Michael Foeth of Vontobel. Michael Foeth: I just have a follow-up on the training, reskilling and upskilling business. You said it's up 28% when you exclude the inorganic effect there. But still coaching skilling LHH is up 40% and EZRA up -- or G&A up 48%. So what's actually dragging the whole thing down. So I'm missing some part of that business. That would be the first one. The second question is regarding U.S. You said manufacturing is a driver. I was just wondering which type of manufacturing activities you're talking about and whether that's a trend that we should expect to continue in light of the whole repatriating manufacturing to the U.S. And then finally, if you can make a comment on the Akkodis defense exposure and how that's working? Denis Machuel: So I think Coram will take the first question, and I'll take the other 2. Coram Williams: Yes. And very quickly on this one because I think we are very pleased with 28% underlying growth. And I think there is real strength in EZRA and GA and this offering as a whole. There are 2 pieces which are bringing that growth rate down from the 40% to 50% that you see in EZRA and GA. There is some more traditional coaching business which is effectively being substituted by EZRA. That's an opportunity for us long term because the digital nature of EZRA's coaching platform actually expands the addressable market. And as we've talked about before, there is still a small piece of B2C business in general assembly, which we are sunsetting and in the short term, brings the growth rate down. So those are the 2 other pieces. But I think you'll agree the 28% underlying growth is a strong number. Denis Machuel: And as far as the manufacturing is concerned, we're growing -- in the U.S., we're growing 11% on overall manufacturing, I would say, in the U.S., which is good. It's broad-based. I mean there is a lot of -- from the sort of mid-sized manufacturer that can serve a variety of industries to the larger piece. We exclude, if you want, in that category, we exclude the manufacturing that are purely sector-related like automotive or aerospace or others. So far, we've seen -- it's a series of quarters where we've seen manufacturing relatively solid in the U.S. Is it related to ensuring I am not fully sure, we have seen some announcements, but before you build a new factory, or before you change your production strategy, it takes a bit of time. Probably over time, given the promises that we've heard from so many companies to increase their investments in the U.S., this will be supportive of our manufacturing business. I would say it's probably a bit early to link it to reshoring. It's just like we have, as I said, we have our salespeople really, really on the field, close to our clients and making sure that we fill every job requisition that we receive. That's the point. It's -- the motto that we've had for several years now is I don't care whether the economy is good or bad, our markets are fragmented, if you are close to your clients, you can win share. And if you deliver faster than your competitor, then you gain share. And that's how we win. Now on the Akkodis defense, yes, we see momentum. It's -- the overall -- the aerospace and defense sector overall is growing 11% year-on-year. It's supported both by the aerospace dynamic and also with the pickup in defense, we say, I see it across the board, it's not yet -- I mean, the full investment that has been announced, for example, in Germany is not fully in place, but we see a pickup. And let's be clear, we are a key Tier 1 supplier for engineering services to all the major players, particularly in Europe and that puts us in a very good place. They also want to consolidate their Tier 1 list and we are in a very, very good place to continue to grow there. Michael Foeth: Okay. Perfect. And thanks, Coram, for the very transparent and clear communication over the years and all the best. Operator: Your next question comes from the line of Will Kirkness of Bernstein. William Kirkness: I just had 2 questions, please. Just on Akkodis, in terms of the U.S. and France, is there anything to do on cost there? Or is that just a case of waiting for end markets to get better to continue to improve? And then the second question was just a clarification on the 1.5x leverage target by the end of '27. And how we think about that with the new hybrid definition. So whether that -- when we start to think about return of surplus capital, just which calculation we use related to the hybrid? Denis Machuel: I'll take the first one and then Coram will be super happy to talk about the second one. The -- yes, so U.S. and France, I mean, we are -- first of all, we are laser-focused on our cost base to ensure our competitiveness. We are also accelerating and Jo will talk about that at the CMD, accelerating our offshoring capacity to make sure that we provide the best possible service to our clients. There's a big need from our clients to -- for us to grow offshoring. So that's good. We are -- so we are super focused on the cost base. France is back to growth, right, 1%, which is good. And the U.S., I mean, we have a great, great dynamic with -- in Consulting & Solutions. We grew 45%. And the tech staffing is improving. So it's sequentially, okay? So if you go back to North America in Akkodis was minus 9% in Q1, minus 4% in Q2 and now plus 1% year-on-year. So it is improving. We are still working on our cost base, it's too high. We are accelerating, particularly on the tech staffing, we're accelerating the way we use offshore to recruit faster and at more competitive costs. So this is what we're doing. I think I'm positive on both markets. Coram Williams: Let me pick up on the net debt-to-EBITDA question. Just to reiterate why we're doing this. We introduced the hybrid in 2021 as part of our capital structure. Obviously, the rating agencies from day 1 have given us the equity credit on 50% of it. We are in the process of refinancing, which very much reinforces the long-term nature of this instrument in our capital structure. And therefore, it is the moment to align our reporting with rating agency methodology, it makes sense to do it. It is common practice, many companies do this. And as you can see in the press release, we've been very transparent in terms of the numbers, both before and after the change on the leverage ratio. The target remains at or below 1.5x net debt to EBITDA. And it's important to remember it is at or below and we are leaving it there for 2 reasons. One, it reflects our commitment to the investment grade credit rating. And obviously, that credit rating is assessed and calculated, including the hybrid, so it makes sense. And as we know, for a business of this size and this nature, the 1.5x is a good point where you reach efficiency on cost of capital. So we will leave the target where it is. We've been transparent in the move on the reporting change and we are very committed to achieving that target. Operator: Your next question comes from the line of James Rowland Clark of Barclays. James Clark: So just on the very strong North American performance, which is obviously well ahead of market growth rates at the moment. Does this sort of normalize back to market growth rates in the second half of next year or even lower on the tough comps? And I guess, could you just express your confidence that you could outperform the market on a sustainable basis there beyond that? Just on the CFO change, I'd just like to know whether this maybe there's an opportunity for any slight changes to how to think about the financial guidance or use of capital in the future? And then finally, are you confident you can hold on to the broader cost savings, the structural cost savings in the business to deliver ahead of the market organically next year? Denis Machuel: Thank you, James. So yes, I think the -- on North America, as I said, I mean, I don't think we'll grow 20% every quarter for the years to come. But yes, the objective is to always be ahead of the market. So are we going to normalize a little bit of growth, probably. Do we want to be ahead of the market? Yes, that's the objective. You know that the incentives of our executives and people are linked to doing better than the competition. So definitely, we will do -- we will push hard to always be ahead of the market. Sometimes we get there, sometimes we don't, but that's the absolute focus of our teams, and it's not only North America, it's everywhere. As far as the CFO change, I mean we'll go in depth on this -- the financial strategy and the guidance in the Capital Markets Day, but you can expect continuity because this is what we've been told. I think we -- sorry, what we have been saying, you've understood that this was a very smooth transition. It was well prepared. And so that's the idea. It's all about the continuity. And yes, I mean the structural cost savings we will continue to be laser-focused on cost, both to achieve and to secure our gross margins. So cost to serve is an absolute obsession because this is how we deliver our competitiveness. That's why and Christophe will talk about that in the CMD, that's why we've accelerated our talent supply chain delivery because that works. And of course, we are absolutely laser focused on the G&A and as you could see, we delivered on our promise to deliver the full savings, EUR 174 million net of inflation and we've kept that line really strictly. So moving forward, our G&A will be less than 3.5% of revenue, that's the sort of the line we've set and we'll stick to it. Operator: There are no further questions at this time. And with that, I will turn the call back to Denis Machuel, CEO, for closing remarks. Please go ahead. Denis Machuel: Thank you very much. And again, thanks again to all of you for having attended this call where we think we presented strong quarterly results and these results, they evidence further the strength of our execution. So we believe we are leading a recovery in our key markets. That's encouraging. While there is still a lot to do, all our turnaround plans are delivering according to our expectations. So that's encouraging for the future. We are on track, as you understood, to meet our margin commitment for the full year, and that was very important for us. And so we are looking forward to seeing you at the CMD in London. I mentioned what we're going to talk about. And it's going to be also the opportunity for you to say goodbye to Coram and also to meet Valentina, they will be both on stage, as you can imagine, and also see with your eyes how we are living through a very smooth transition that we ensure full continuity. So as you could hear, I'm confident in the future we're building a very strong group and we'll talk a lot about that in the CMD. See you there. Thank you so much. Have a great day. Operator: Ladies and gentlemen, this concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the LifeStance Health Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Monica Prokocki. Please go ahead. Monica Prokocki: Thank you, operator. Good morning, everyone, and welcome to LifeStance Health's Third Quarter 2025 Earnings Conference Call. I'm Monica Prokocki, Vice President of Finance and Investor Relations. Joining me today are Dave Bourdon, Chief Executive Officer and Ryan McGroarty, Chief Financial Officer. We issued the earnings release and presentation before the market opened this morning. Both are available on the Investor Relations section of our website, investor.lifestance.com. In addition, a replay will be available following the call. Before turning over to management for their prepared remarks, please direct your attention to the disclaimers about forward-looking statements included in the earnings press release and SEC filings. Today's remarks contain forward-looking statements, including statements about our financial performance outlook, business model and strategy. Those statements involve risks, uncertainties, and other factors, as noted in our periodic filings with the SEC that could cause actual results to differ materially. Please note that we report results using non-GAAP financial measures, which we believe provide additional information for investors to help facilitate comparison of current and past performance. A reconciliation to the most directly comparable GAAP measures is included in the earnings press release tables and presentation appendix. Unless otherwise noted, all results are compared to the comparable period in the prior year. At this time, I'll turn the call over to Dave Bourdon, CEO of LifeStance. Dave? David Bourdon: Thanks, Monica, and thank you all for joining us today. I'm incredibly proud of the LifeStance team for the exceptional results we delivered in the third quarter. For the past 3 years, we have met or exceeded our guided metrics, a testament to our consistency, execution and the resilience of our commercial pay hybrid model. Offering both in-person and virtual care continues to be a key differentiator, especially in a fluid landscape that favors providers like LifeStance who can deliver high-quality care in both settings. Additionally, given our focus on commercial insurance, we have minimal exposure to government pay, largely insulating us from legislative shifts and stroke of the pen risks. Our business model positions us well in a dynamic health care environment. Now turning to our quarterly results. This was a quarter of records for LifeStance. First, the team delivered remarkable organic visit growth of 17%, providing increased access for patients. This was driven by both record organic clinician net adds and clinician productivity improvement. This growth reflects the strong demand for our services and the effectiveness of our model. Additionally, we achieved adjusted EBITDA of $40 million and margins of 11% in the quarter. Both are the highest since we went public in 2021. Given the outperformance in the third quarter, we are once again raising full year guidance for adjusted EBITDA. From an operational perspective, our record organic net clinician growth in the quarter has resulted in a team of now roughly 8,000 clinicians, validating that our value proposition continues to resonate strongly in the market. At the same time, we are continuously looking to improve that value proposition as our clinicians' unwavering commitment to delivering high-quality patient care remains the cornerstone of our success. Earlier this year, we outlined several initiatives designed to better fill the time clinicians give us to see patients. I'm pleased to report that these efforts are paying off. In the third quarter, we achieved the largest improvement of quarterly organic productivity in our company's history. For example, one of the initiatives is our Cash Incentive Program launched in May, which has been highly effective in rewarding clinicians for improving access and quality. We also saw strong patient acquisition and improved retention, which was partially driven by the new engagement platform, which fosters deeper connections with patients. Additionally, we have implemented a tech platform to assist our phone scheduling team. This has delivered a meaningful improvement in conversion of phone calls to booked appointments, which also results in a higher number of new patients. By providing live guidance and summary AI, our team members are able to automate documentation, capture critical insights and focus on more meaningful patient interactions. The result is stronger conversion rates, higher patient satisfaction and greater workforce efficiency. Through multiple initiatives we've implemented this year, we have been responsive to clinician feedback to better optimize their schedules while at the same time, expanding access to high-quality mental health care for our patients. This milestone of meaningfully improved productivity underscores the strength of our operational strategy and our commitment to operational and clinical excellence. We also recently announced our partnership with Calm, a leading evidence-based mental health company. This collaboration allows Calm Health members to be seamlessly referred to LifeStance when higher acuity care is needed and is an example of new referral partners giving us access to patients we may not see through our existing channels. For patients, this will streamline access to trusted, personalized support through both virtual and in-person care. Together, we're expanding access to mental health care and empowering individuals to take proactive steps towards wellness. As we look ahead to 2026 and beyond, we will continue to advance operational and clinical excellence to further differentiate ourselves in the marketplace. In addition, we remain focused on deepening strategic partnerships with payers, health systems and partners from other channels like Calm, while also building on our position to be the employer of choice for clinicians. By combining disciplined execution with innovation and care delivery, we aim to strengthen our leadership in outpatient mental health and create lasting value for patients, providers and shareholders. With that, I'll turn it over to Ryan to provide additional commentary on our financial performance and outlook. Ryan?  Ryan McGroarty: Thanks, Dave. I am pleased with the team's operational and financial performance in the third quarter. We delivered strong growth across revenue, visit volume and clinician count. Revenue grew 16% year-over-year to $364 million. This outperformance was driven by visit volumes. Visit volumes of 2.3 million increased 17% year-over-year. This outperformance was primarily driven by better-than-expected clinician productivity as well as net clinician adds. Our visits per average clinician increased 5% year-over-year. This was achieved while at the same time adding a record 288 organic clinicians, an 11% increase year-over-year, bringing our total to 7,996 clinicians. Total revenue per visit of $158 was flat year-over-year as expected.  Turning to profitability. Center margin of $117 million increased 16% year-over-year and was 32% as a percentage of revenue. The outperformance in the quarter was driven by the revenue beat. Adjusted EBITDA of $40 million in the quarter exceeded our expectations. This 31% year-over-year increase resulted in our adjusted EBITDA as a percentage of revenue of 11.1%. As Dave mentioned, the adjusted EBITDA margins we achieved this quarter were the highest in our history as a public company. The outperformance in the quarter was primarily attributable to favorable center margin.  Additionally, we delivered meaningful operating leverage on the G&A line for the second consecutive quarter with our adjusted General & Administrative Expenses increasing only 10% in the quarter versus 16% revenue growth. After making strategic investments in 2023 and 2024, we said we would drive operating leverage on the G&A line, and that's exactly what we're delivering. These results validate our disciplined approach and position us well to continue expanding margins while achieving sustainable growth. We also finished with positive net income of $1.1 million in the quarter. This is the second quarter this year and in our history as a public company that we achieved positive net income. We view this as a key profitability metric for our business, and our progress this year increases our confidence in delivering positive net income and earnings per share for the full year in 2026.  Turning to liquidity. In the third quarter, free cash flow remained solid at positive $17 million. We exited the quarter with a strong cash position of $204 million and net long-term debt of $269 million. This cash balance, which is roughly double of our position from last year, is the result of the strength of our operating cash flows this quarter and year-to-date. We have additional capacity from an undrawn revolver of $100 million. DSO for the quarter improved once again and is now down to 31 days, an improvement of 3 days sequentially and 16 days year-over-year. This DSO is the lowest since we went public, and we remain confident in our ability to deliver strong positive free cash flow for the full year. We are pleased with our leverage ratios and continue to delever with net and gross leverage of 0.6x and 2x, respectively. We have significant financial flexibility to run the business and fully execute on our strategy, including potential acquisitions.  In terms of our outlook for the full year, we are maintaining the midpoint of our revenue range of $1.41 billion to $1.43 billion. We are raising our center margin range by $2 million at the midpoint to $448 million to $462 million and raising our adjusted EBITDA guidance range by $4 million at the midpoint to $146 million to $152 million. This puts us on track for approximately 1 point of margin expansion year-over-year and double-digit margins for the full year. As previously communicated, our annual guidance assumes year-over-year revenue growth driven primarily by higher visit volumes, with total revenue per visit being roughly flat. For the fourth quarter, we expect revenue of $368 million to $388 million, center margin of $113 million to $127 million and adjusted EBITDA of $37 million to $43 million. We expect the step-up in revenue quarter-over-quarter to be driven primarily by continued growth in our clinician base and modest sequential rate improvement. We are pleased with the productivity gains delivered in the third quarter, and we expect to maintain those elevated productivity levels in the fourth quarter. These factors position us to deliver another strong quarter of revenue growth to close out the year. Based on the adjusted EBITDA outperformance so far this year, we have flexibility through the remainder of the year to make additional investments to better position us to achieve our 2026 growth objectives. Additionally, we continue to expect stock-based compensation of approximately $70 million to $85 million. We now expect to open 20 to 25 new centers in 2025, modestly lower than our previous range of 25 to 30 due to shifts in timing. Looking ahead to 2026, we continue to anticipate mid-teens revenue growth. We expect this to be driven by low double-digit visit volume increases and low to mid-single-digit rate improvements. We plan to drive volume growth with continued clinician expansion balanced with year-over-year productivity improvements, supported by strong demand for mental health care. At the same time, while our full year guidance implies exceeding our initial expectations for 2025 margin expansion, we expect continued expansion in 2026 and beyond. These will be driven by the operational efficiencies we have been introducing as we enter a new chapter of tech enablement such as leveraging AI and digital solutions to automate processes, improve accuracy and support our clinicians. These initiatives, combined with disciplined execution and technology-driven operating leverage will strengthen our financial profile and support sustainable profitable growth. With that, I'll turn it back to Dave for his closing comments. David Bourdon: In closing, this was another outstanding quarter for LifeStance. While we are pleased with what we've accomplished, we feel the best is yet to come. Our progress this year and the incredible dedication of each of our clinicians and team members serve to reinforce our confidence in the future as we focus on expanding access to high-quality, affordable mental health care. Operator, we'll now take questions. Operator: [Operator Instructions] Your first question comes from the line of Craig Hettenbach with Morgan Stanley. Craig Hettenbach: I wanted to touch on clinician productivity, the context of 17% growth in visits versus 11% clinician adds. And just how you're thinking about the durability of that in terms of being able to continue to see leverage there? David Bourdon: Craig, this is Dave. I'll take that one. So first of all, we feel great about the productivity improvement that we saw in the quarter. As we mentioned in the prepared remarks, it was a record increase for us. And we achieved that while also having really strong net clinician adds in the quarter. And that just shows that we're able to balance both productivity and the net clinician adds and drive what you noted, the 17% visit growth. And that's a testament to our value prop as well. And as we think about the initiatives that drove that, I mentioned a few on the call, it was the Cash Incentive Program that incentivizes access and quality, the Patient Engagement platform and then some new things around tech and AI that we're implementing that's driving new patient volumes. All of those are durable. They're not onetime in nature. We feel really good about those continuing. And we still have additional initiatives like our Care Matching Enhancements and things like that, that will be coming online in the fourth quarter and as we step into next year. Craig Hettenbach: And then just as a follow-up on operating leverage, consistent with how you've been talking about the business the last couple of years in terms of that increase in investment in the business, and then you'll see that in G&A. So encouraging to see it kind of come through. Can you maybe just expand a little bit more on kind of productivity on the AI side of things, understanding it's kind of early days, but just how much of a lever that adds on the operating leverage front? David Bourdon: Yes, Craig, I'll take this one as well. I wouldn't dimension it with specifics. It is definitely part of the story as when we think about getting to margins of 15% to 20% in the out years, the expansion of operating leverage that's a big part of that story. We are a heavily manual business when you think about the work we do behind the scenes to support our clinicians and even what our clinicians do is very manual. So there's a lot of opportunity for us to be able to implement technology, digital AI-type tools and we do expect those to, again, to be a big part of the story of driving that operating leverage. Operator: Your next question comes from the line of Lisa Gill with JPMorgan. Lisa Gill: I just want to dig in a little bit on the revenue per visit, which increased more than we anticipated. I think previously, you talked about it being roughly flattish. Dave, I think I just heard you talk about when we think about '26 being flattish. Can you talk about what you saw in the quarter on the revenue per visit? Is it a higher acuity? Is there any change from a managed care contracting or anything else we need to keep in mind when we think about that? Ryan McGroarty: This is Ryan. So I'll be happy to address that question. So when you think of TRPV like for the quarter, it was relatively flat, as you mentioned, and kind of sequentially stepped up like $1.3 overall. And so this was in line with our expectations. When you kind of look ahead, so this, obviously, we had the unique payer situation this year. So as you kind of look ahead, so from a full year perspective, we expect TRPV to be flat overall for the full year. And then when we get into '26, we start to see the low to mid-single-digit rate increases as we get back to a more normalized kind of environment. So, we're really encouraged with the dialogue and the discussions that we're having with the payers right now. So again, so as you kind of go out into the next year, you get to that low to mid-single digits. Lisa Gill: That's very helpful. And then just as a follow-up, the comments around potential acquisitions. I'm just curious around what you see out in the marketplace today. Are valuations reasonable? Is it you're looking for geographic coverage, you're looking for adding up clinicians? How do I think about your strategy on the acquisition side? David Bourdon: Lisa, it's Dave. I'll take that one. So, first of all, I appreciate where your question is coming from, which is we're excited about the free cash flow generation that we have and the strength of the balance sheet, which gives us a lot of flexibility to be able to deploy capital to enable the business. And M&A is certainly a part of that. And we right now have a really good pipeline of opportunities for potential acquisitions that we're working through. The valuations for the ones that make our cut are what we feel is appropriate. We're being very thoughtful and disciplined. And to where you were going, the primary purpose of these acquisitions is for geographic expansion. So, establishing beachheads in new MSAs or states, things like that. That's our focus area. But again, we feel really good about M&A being complementary to our organic growth. Organic growth is still going to be the primary driver in the coming years. And I think we'll have more to share in the coming quarters around M&A. Operator: Your next question comes from the line of Ryan Daniels with William Blair. Matthew Mardula: This is Matthew Mardula on for Ryan Daniels. So I want to focus more on the clinician retention side of the productivity initiatives. And you've mentioned previously that a key objective of your productivity initiatives is improving clinician retention. Can you share how much of an impact these initiatives are having on retention? And then looking out in the future, how much these initiatives could kind of provide an improvement for clinician retention? David Bourdon: Matthew, this is Dave. I'll take that one. So as we mentioned, we had a really strong performance in the quarter with net adds of 288 clinicians. That was driven by stable retention and the strength of recruiting of adding new clinicians. So that's a similar story to what we've talked about in previous quarters with retention being what we call is like stubbornly stable. At the same time, we're continuing to focus on enhancing the clinician experience and the value proposition for them. We talked about a number of initiatives, both last quarter as well as even in our prepared remarks. So that continues to be a big focus area for us. And as we think about the future, we still believe that we can move the needle on clinician retention. And I'd say what gives me hope is when I look at our various regional businesses across the country, we have a region that is running at about 87% retention. So we've talked about that North Star being in the mid to high 80s. We can actually see that happening in one of our regions. We just got to get the other ones up to that similar level. Matthew Mardula: Great. And then regarding the Specialty Services, how has those offerings progressed throughout the year and the quarter? And how should we think about its progression into 2026? And lastly, how has the reception been from centers both in terms of adoption and overall engagement? David Bourdon: Yes. Matthew, it's Dave. I'll take that one as well. So, first of all, just to ground, Specialty Services is about $50 million of our revenue. So, from an annual perspective. So that's, it's meaningful, but it's still not a major portion of our business. We're excited about this as an opportunity to increase services to our patients and to improved care. The focus right now has been neuro-psych testing and services around treatment-resistant depression, so primarily Spravato and TMS. And we have been rolling those out in phases, and that will continue actually for the coming years. The receptivity has been really great. The clinicians like it because it's more services that they can provide to be able to deliver better care for their patients and the patients obviously like it. It's one-stop shopping. And we expect these services to grow at a much higher rate than our core business in the coming years. And when we get to maturity, these will have higher margins than our standard psychiatry and therapy services. Operator: Your next question comes from the line of Brian Tanquilut with Jefferies. Brian Tanquilut: Ryan, maybe first question, as I think about the revenue guidance, obviously, you had a good Q3 here. The organic adds on clinicians in theory, would drive productivity gains to carry over into the quarter. Just curious, what are the moving pieces that factored into maintaining the revenue guide? I know you cut the new clinic openings guidance, but just curious what you can share with us on that. Ryan McGroarty: Perfect, Brian. Yes, this is Ryan. So I'll be happy to take that question as well. So overall, just starting off, we're super pleased with the outperformance in the quarter as it relates to revenue, which was largely driven, as you mentioned, just in terms of productivity. And again, like if you take a step back, we're also very pleased that we're able to raise our full year EBITDA guide by the $4 million. So, to go back to our Q2 call, we talked a lot about the step-up in second half over first half from an overall revenue perspective of approximately $60 million. So that step-up still holds. Essentially, all we've really done is just rebalance between the quarters versus anything else. And so, when you look at the fourth quarter in isolation, it's still really attractive when you look at the year-over-year growth of 16%, and it's a nice sequential step-up from Q3 as well of about $14 million.  And so, we really feel good about the team's progress in Q3 around productivities. And as Dave mentioned in his prepared remarks, the ability to not only get productivity but have net clinician adds at such a high point bodes well as we kind of move into the fourth quarter this year.  Brian Tanquilut: Got it. And then, Dave, maybe I know you alluded to your partnership with Calm. If you can just share with us how that works? And what are you expecting in terms of growth contribution or also the profile of the patients that Calm brings to LifeStance?  David Bourdon: Yes, Brian. So, we're really excited about the partnership with Calm. And this is great for patients and their customers. And it's an example of a different kind of referral partner for us than what we normally get through our existing channels. And we're uniquely positioned for these kinds of new partnerships with our large-scale and hybrid model.  And in regard to the types of patients, we actually think this will have a different profile, like a younger demographic than what we typically get through our partnerships with health systems and primary care practices and things like that.  Operator: Your next question comes from the line of Richard Close with Canaccord Genuity Corp.  Richard Close: Congratulations on a great quarter there. Just curious your thoughts with respect to behavioral health has been called out over the last several quarters, I guess, by Managed Care. And I'm just curious your perspective, if you think this is a risk to LifeStance or why not? And then maybe also confidence in that rate commentary for 2026.  David Bourdon: Richard, it's Dave. I'll take that. So, agree, you've had multiple payers in recent quarters that have mentioned higher mental health utilization. And it really varies by payer and by service line. So, for example, a lot of the commentary has been directed towards Medicaid and towards the autism, the AVA services. We have very little exposure to both of those business lines. And so, it's not as relevant for us as it is to some of our competitors that are in the space.  And then you always have to take a step back and think about there's still a significant unmet need in society today for mental health services. So that's going to continue to drive higher utilization as we come into the next few years as well as another trend that benefits LifeStance is the move from cash pay to insurance as it becomes more of an affordability issue for individuals and still wanting to be able to get care.  So those are probably some of my big points that go to the recent commentary around the higher trends. As far as rates, the one thing that I'd always highlight is that payers continue to focus on access for their employer clients and members. They're still getting a lot of pressure for them around access.  And then what we're starting to see is a few thought-leading payers that are focusing on quality. And we expect that the market will gradually shift towards quality and outcomes, and we welcome that change, and we think we're positioned really well for the market to go in that direction.  Richard Close: Okay. And as a follow-up, obviously, great adds, clinician adds in the quarter. What are you hearing from the clinicians in terms of why they're choosing LifeStance? Any changes that you're seeing in the marketplace? Just curious there.  David Bourdon: Yes. It's Dave. I'll take that one as well. I wouldn't point to anything new in regards to the recruiting and retention dynamics. It's still a very competitive marketplace for mental health clinicians. And our value proposition continues to resonate. We're not for everyone. We're looking for a certain profile of clinicians. But within that profile, we certainly are doing very well from both a retention and a recruiting perspective.  Operator: Your next question comes from the line of Kevin Caliendo with UBS Investment Bank.  Kevin Caliendo: My first one, just looking at the implied guidance for 4Q, the gross profit and adjusted EBITDA margins are down a little bit sequentially. Normally, 4Q is a better quarter in terms of margin. I'm just wondering, you mentioned investments. Is there anything in particular there that's prompting that change or anything to call out?  Ryan McGroarty: Yes, Kevin, this is Ryan. So, to your question, so you got it right. So, there is a little bit of a step down in margins going from Q4 from Q3. And overall, the way to think about that is an increase in G&A. And so, we as a team are looking at items and pulling forward some of the investment that helps get off to a strong start in 2026. Just in terms of execution of our plan and going back to the delivery of mid-teens revenue growth.  So, an example of that, Kevin, would be accelerating our Business Development team, right? So, folks that we want to get on board to be able to kind of work out in the local MSA and the local community just to make sure that the LifeStance brand is out there with the community partners. So that's just an example. So, it provides some flexibility just in terms of some of the investments that are positive from a return perspective, kind of getting a jump start on those from '26.  Kevin Caliendo: And the obvious logical follow-up question is you're pulling forward some spending, you're getting the productivity improvements that you said you're going to get and delivered on. You got better payer rates next year. When we think about the impact to margin next year, you said you expect the margin to expand, but should we think about expansion being greater than what we saw in '25? Is there any kind of color you can provide us in terms of an outline of where you think margins can be next year?  Ryan McGroarty: So, really looking forward to providing more specific '26 guidance in our 4Q call. Overall, I kind of go back to some of the points that we've made is really like the momentum that we have going into '26 and then anchoring back to the mid-teens as it relates from a revenue perspective in terms of what the revenue growth is. When you look at it from an operating leverage perspective, we've had really nice momentum on that. We look forward to continuing to expand out the leverage, but we'll get more specific with guidance as we get into the conversation for the 4Q call.  Operator: Your next question comes from David Larsen with BTIG.  David Larsen: Congratulations on the good quarter. Can you expand, maybe on your comments around business development and in terms of filling the top of the funnel and patient volumes? And can you maybe touch on, number one, the Managed Care piece; number two, getting referrals in from other providers in the area? And then number three, any sort of digital selling efforts that might be going on? It's my understanding that Google has sort of maybe changed some algorithms recently.  David Bourdon: This is Dave. I'll take your question. So first of all, as I mentioned earlier, there's really strong patient demand in the marketplace for mental health services. And it's that unmet need that is out there, and we have this demand supply imbalance. And so again, we feel very good about our model. And then you put on top of that, what we're trying to provide is high-quality care that's affordable. And so that's people being able to use their insurance versus cash pay, which also adds some additional patient opportunity for us.  So we continue to feel very good about the fourth quarter, and as we step into next year in regards to patient supply or new patient supply. As far as the channels, our primary channel of how we get new patients is through referral partners that are medical practices. And we continue to strengthen that, as Ryan mentioned, in that, that's what we call the business development team. These are the feet on the street. They're out there working with those medical practices to be able to provide a referral channel for their patients.  And we continue to enhance that year-over-year to continue to drive higher volumes. And we certainly do a little bit of the paid search. And I'll remind you that we spend less than 2% of revenue on marketing and acquiring of new patients. So again, the bulk of our patients are coming organic or through the referral partners. And again, we expect that to continue into 2026.  David Larsen: And then do you participate in like risk or ACOs or any sort of value-based care arrangements? It's obviously an important part of Primary Care in Medicare for the new physician fee schedule for '26. Just any thoughts around that?  David Bourdon: We do not. So we do not take risk today. And we have very limited exposure to government as a payer, right? That's about 5% of our total revenue for all government channels in regards to them being a payer. So we have very limited exposure to that segment.  Operator: And your last question comes from Steve Dechert with KeyBanc Capital Markets. Steven Dechert: I just want to ask another one around the guidance. What does the high end of your 4Q revenue guidance imply in terms of visit volumes and TRPV? And then could you provide a little bit more color on the 2026 strategic investments you mentioned earlier to meet your revenue goals?  Ryan McGroarty: Yes. So Steve, I appreciate the question. This is Ryan. So the first piece, we don't provide specific guidance to that, just in terms of the range and kind of how to think through the numbers. As it relates to the 2026 investment, so we continue to make investments. So we mentioned the business development. So all health care is local. And so being able to be out there with the key referral partners, as Dave mentioned earlier. And then a whole host of just investments that drive efficiency, so continue to be able to drive operating leverage.  So again, we're pleased with the momentum that we have overall just in terms of being able to drive leverage. And so the investments that we make will continue to have that orientation as well.  Operator: And with no further questions in queue, I'd like to turn the call back over to Dave Bourdon, CEO, for any closing remarks.  David Bourdon: Thank you, operator. I'd like to thank our over 10,000 mission-driven teammates who make sure that our patients get the quality care that they need and deserve. I continue to be inspired by the passion and the commitment that you all bring every day. Have a great day, everyone.  Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Galapagos Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your host today, Dr. Glenn Schulman, Head of Investor Relations. Please go ahead. Glenn Schulman: Thank you all for joining us today as we report Galapagos' 9-month 2025 financial results. Last evening, we issued a press release outlining these results. This release, along with today's webcast presentation, can be found on the Galapagos investor website. Before we begin, I would like to remind everyone that we will be making forward-looking statements. These forward-looking statements include remarks concerning future developments of our company and our pipeline and possible changes in the industry and competitive environment. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. Actual results may differ materially from those indicated by these statements and are accurate only as of the date of this recording, November 6, 2025. Galapagos is not under any obligation to update statements regarding the future or to conform to these statements in relation to actual results unless required by law. You are cautioned not to place any undue reliance on these statements. Joining us on today's call from the executive team are Henry Gosebruch, Chief Executive Officer; Aaron Cox, Chief Financial Officer; Sooin Kwon, Chief Business Officer; and Dan Grossman, Chief Strategy Officer of the company, all of whom will be available during the Q&A session. With all of that, let me now turn the call over to Henry Gosebruch, CEO of Galapagos. Henry Gosebruch: Thank you, Glenn, and thank you all for joining us today. It has been a very active time here at Galapagos as we have worked tirelessly toward advancing the transformation of our company. This transformation has been ongoing for several years, and I firmly believe we have a bright future ahead of us. Earlier this year, we announced our decision to separate the company into two entities with Galapagos advancing its cell therapy programs and the planned launch of a SpinCo that would focus on business development and be funded with approximately EUR 2.45 billion in existing cash. However, in May, it became apparent that the spin-off could not be executed as planned, and the Board took swift and decisive action towards a different path to realize value, and I was honored to be named CEO. The Board gave me a clear mandate to analyze strategic alternatives for our existing businesses, including cell therapy. In addition, I was asked to further refine the strategy for deploying our cash resources into transformative business development and rebuilding our pipeline. We moved quickly, brought on advisers and commenced a thorough strategic review and sale process to identify potential buyers or investors with the expertise and resources to take the cell therapy business forward. We were highly motivated to identify a buyer or investor who could not only support the ongoing investment requirements in the business but also honor the efforts of our employees, who have put their blood, sweat and tears into the cell therapy business over the past several years. However, after a 5-month process, there were no viable proposals presented that would reasonably support the business going forward. We offered to divest the business for minimal upfront consideration and, where appropriate, we even offered to provide capital support to potential buyers. But no party was able to provide committed financing to enable a viable acquisition of the business. One key reason is that several hundreds of millions of euros would be required for any such deal given the significant ongoing investment requirements not only in the business but also to stand behind the obligations to our employees. After this comprehensive review of strategic alternatives and given these ongoing investment requirements, coupled with evolving market dynamics and taking into account the interest of all relevant stakeholders, the Board unanimously agreed to form an intention to wind down the cell therapy business. Given the impact on our employees and ongoing operations, this was a difficult decision. But I firmly believe it was the right decision given our circumstances. Now that the strategic review process has concluded, we are actively consulting with the works councils in Belgium and the Netherlands to seek their advice in order to implement this wind down. During this ongoing consultation process regarding the intended wind down, we would consider any viable proposals to acquire all or a part of the cell therapy activities if such a proposal emerges during the wind-down process. In parallel to all this activity, we have assembled what I believe to be a world-class team focused on executing our business development strategy. Our deal funnel has been building steadily, and I'm confident that we can identify and execute on opportunities that can bring exciting new opportunities to Galapagos in our pipeline. I will share more detail on our strategy in today's presentation. As part of our ongoing transformation, we have also welcomed four new Board members over the past 6 months. I am delighted to be working with Jane, Dawn, Neil and Devang on the Board going forward. And I would like to again thank Peter, Simon, Elisabeth, Susanne and Andy for all their valuable contributions during their time on our Board. As I mentioned, our intention to wind down the cell therapy business is subject to the conclusion of consultations with work councils in Belgium and the Netherlands, which is standard practice in Europe. During this period, Galapagos will continue to operate the business. If the wind down is ultimately implemented, we anticipate that up to approximately 365 employees would be impacted across our offices in Europe, the U.S. and China. Also, we would plan to close Galapagos sites in Leiden, Basel, Princeton, Pittsburgh and Shanghai. In this scenario, we would effectively proceed with a full exit of our cell therapy activities and we would expect to incur the costs detailed on the slide, which will be discussed in more detail during Aaron's review of financials later on this call. We are deeply grateful to our dedicated employees, investigators, patients, shareholders and partners for their continued commitment and support. We will stand behind our obligations as an employer to treat our employees fairly throughout all of this. The remaining Galapagos organization will be repositioned for long-term growth through transformational business development and would maintain a dedicated presence at our headquarters in Mechelen, Belgium. We hope to complete the works council process quickly as we aim to provide more clarity to our employees and stakeholders as soon as possible. Although it is difficult to predict the exact duration of this process, we currently expect it to be concluded in the first quarter of 2026. I wanted to spend a few minutes on the last remaining legacy R&D program, our TYK2 program. Our development team has done an excellent job progressing the Phase III enabling studies, and we expect to see data from two studies by early '26, ahead of our original expectations. The studies are now fully enrolled and the remaining spend related to this program is moderating. GLPG3667 is a differentiated oral TYK2 inhibitor currently in two Phase III enabling studies for SLE and dermatomyositis. At the recent ACR conference, we presented new in vitro pharmacological data suggesting additional differentiation of 3667 from two other TYK2 inhibitors. 3667 demonstrated inhibition of the interferon-alpha and IL-23 pathways with no measurable impact on TYK2 independent pathways. Additionally, 3667 showed no inhibition of IL-10. These findings support our belief in the program's potential, and we are looking forward to reporting data from the two fully enrolled trials in early 2026, which will guide us towards the next steps to maximize value for this program. Now let's review the other assets we have at Galapagos. Our significant scientific successes over our 25-plus year history have enabled Galapagos to attract significant capital. And today, we have the benefit of a significant cash balance as well as a portfolio of other attractive assets that can drive additional shareholder value. Our cash balance of approximately EUR 3 billion represents approximately EUR 46 per share. This cash balance generates significant interest income. Through the first 9 months of this year alone, we received approximately EUR 77 million. In addition, we are receiving an attractive stream of royalties and earn-outs from Gilead and Alfasigma on their sales of Jyseleca, the JAK program developed here at Galapagos. The income related to Jyseleca has been approximately EUR 15 million to EUR 20 million annually and is expected to continue into the mid-2030s with potential upside. In addition, we expect to receive tax receivables of approximately EUR 20 million to EUR 35 million per year over the next 3 years with additional opportunities for credits beyond that. We also have stakes in multiple private biotech companies such as Third Arc, Frontier and Onco3R, plus other private companies that haven't been disclosed. Last but certainly not least, we own our building in Leiden. It's a fabulous building, easily the nicest lab and office building I've ever worked in, a state-of-the-art building in which we invested over EUR 70 million for construction and build-out. It opened in 2022 and it's a great asset. As you look at this portfolio in total, I believe we could see the potential for several hundreds of millions of additional value on top of our cash balance from this portfolio. Let's go back to the ongoing transformation of the company. I am incredibly pleased that we have been able to attract new leadership talent to the company that, in my opinion, represents the team with the best business development expertise in our industry. This team has been through hundreds of M&A and business development transactions as principals and advisers. I won't go into their individual and very impressive bios, but they are summarized on the slide. Aside from their bios, having worked closely with each of them, they are not only uniquely talented, but they are wonderful leaders with strong values and all are excited to be part of our transformation and drive significant value for patients and shareholders going forward. I am very proud to work with this talented group every day as we execute our mission and vision. In addition to our executive talent, we have also assembled a fantastic group of outside advisers that have joined our Strategic Advisory Board. These four individuals have brought numerous drugs to patients, and we are collaborating closely with them as we prioritize the many potential BD transactions in front of us and diligence individual opportunities. Let's jump into our business development strategy. Let me start with what Galapagos brings to the table as we pursue business development. We see several key strengths that provide us a unique advantage. First, we have built the team to execute creative BD deals. Second, we have significant capital to invest in promising programs and science. Third, we can be incredibly flexible in our approach as we are not constrained by an existing pipeline. For example, we can enable external teams or companies to pursue their programs with our capital. Finally, we have a unique partnership with Gilead that I believe also represents a unique asset for us that I will discuss some more in a minute. We will be financially disciplined and focused on value creation while pursuing programs we believe can make a clear difference for patients. We've identified some key focus areas for our activities. First off, we will focus on what we believe have been meaningfully clinically derisked and differentiated opportunities. We are looking for opportunities that can substantially enhance the standard of care in a disease and have clear patient impact. We will initially prioritize areas where there is a strategic synergy with Gilead. Next slide, please. Now let me turn to our existing partnership with Gilead. We've been getting a lot of questions on why we believe it's in our best interest to work with Gilead on business development opportunities. So we wanted to address that here. Let's start with the obvious. Gilead owns 25% of Galapagos and has an existing collaboration agreement, the OLCA as we call it, that allows Gilead to opt into U.S. rights of proof-of-concept assets at Galapagos at relatively favorable terms. These terms were originally envisioned for programs that came out of our original discovery platform, but they also apply to business development opportunities we would bring into the company at this stage. For most assets we might consider bringing in, Gilead's option to acquire U.S. rights for $150 million upfront would likely represent too much value leakage to make a deal attractive for us. However, Gilead has expressed a willingness to renegotiate these terms, and we share a joint perspective that by working together, we can create win-win deal opportunities that create more value than each of us could drive individually. What does that look like? Gilead has expressed a willingness to contribute capital to our BD activities and they are also bringing their capabilities to the table, such as their technical due diligence team. By working with them, we might be able to find unique value creation opportunities where, on a combined basis, we might be able to unlock more value in a portfolio than a single party would be able to. And finally, Gilead's commercial expertise will bring additional credibility to our efforts. Our partnership also allows for creative deals that could drive structural and financial benefits that Gilead may not be able to achieve on their own. I've known some of the key leaders at Gilead for many years, and I'm quite pleased with the close collaborative working relationship we have strengthened over the past several months. In conclusion, I am confident we can find win-win opportunities that will create value for Galapagos shareholders and Gilead. Let's explore how working with Gilead may open opportunities that would otherwise not be available to us. There are many deal structures possible. However, we thought it would be helpful to share just three illustrative examples. Starting on the left side, we can partner with Gilead to jointly acquire or license an opportunity. For example, these deals could potentially involve us acquiring public stock. In the middle, there could be opportunities where we at Galapagos may see value in one asset and Gilead may see value in another asset at the same company, thus enhancing our ability to structure a value-creating deal for a multi-asset company. And finally, on the right, our cash balance makes us a very attractive merger partner, recognizing we would, of course, require receiving fair value for our portfolio of assets in any business combination. So how do we operationalize our strategy? We will be flexible on ideas but financial discipline will be key, and we will balance intrinsic risk of each opportunity with overall portfolio risk. Said in another way, if we dedicate a large portion of our capital to one opportunity, we must have very high confidence in that opportunity to create value. For any significant transaction, we believe we can renegotiate our existing agreement with Gilead to enable win-win deals for both. Of course, nothing prevents us from doing transactions on our own to the extent that they could drive value over the long term. However, I hope I've been clear why we believe working with Gilead can broaden our set of opportunities and create shareholder value. As we execute on our strategy, we believe we can work to eliminate our current trading discount and open our deal aperture even more. Now let me address a few other important topics. As I mentioned earlier during this call, the transformation of Galapagos is well underway. Looking ahead and if the intention to wind down is ultimately implemented, Galapagos would be a much leaner and strategically focused organization. We will maintain our headquarters in Belgium, leveraging the experience and talented teams in place there across a number of functions. Many investors have asked us whether we will return capital to shareholders. While our goal is ultimately to drive value for our shareholders, it's important to recognize that any return of capital would require alignment with Gilead given their 25% ownership and the terms of our existing partnership agreement with them. In addition, even as permitted, Belgium law imposes certain limitations on capital returns to shareholders. Given we do not have any distributable profits available at the current time, the ability to distribute would require a resolution at an EGM with at least 50% of shares present at the meeting and at least 75% approval. So again, while this could be an interesting alternative down the road, for now, we are focused on using our capital for business development opportunities. With that overview, I would now like to turn the call over to Aaron Cox, our CFO, to review our 9 months financial results. Aaron? Aaron Cox: Thanks, Henry, and hello, everyone. In the press release issued last night, we detailed our 9-month financial results through the quarter ended September 30. Total operating loss from continuing operations for the first 9 months of 2025 amounted to EUR 462.2 million compared to an operating loss of EUR 125.6 million for the first 9 months of 2024. This operating loss was negatively impacted by an impairment on the cell therapy business of EUR 204.8 million as a result of the strategic alternatives process for the cell therapy business. Additionally, there was also a EUR 135.5 million impact related to the strategic reorganization announced in January 2025. This EUR 135.5 million is comprised of severance costs of EUR 47.5 million, costs for early termination of collaborations of EUR 45.5 million, impairment on fixed assets related to small molecules activities of EUR 9.5 million, deal costs of EUR 21.4 million, accelerated noncash cost recognition of subscription rights plans related to good levers of EUR 9.8 million and other operating expenses of EUR 1.8 million. Net other financial income for the first 9 months of 2025 amounted to EUR 30.4 million compared to net other financial income of EUR 71.7 million for the first 9 months of 2024. Interest income amounted to EUR 31.4 million for the first 9 months of 2025 compared to EUR 70.6 million of interest income for the first 9 months of 2024 due to a decrease in the interest rates and a shift from investments in term deposits generating financial income to investments in money market funds generating fair value adjustments. Notably, fair value gains and interest income derived from cash, cash equivalents and current financial investments excluding any currency exchange rate impact amounted to EUR 77.2 million for the first 9 months of 2025. Financial investments, cash and cash equivalents totaled EUR 3.05 billion on September 30, 2025 as compared to EUR 3.32 billion on December 31, 2024. Our cash and cash equivalents and current financial investments included $2.16 billion held in U.S. dollars versus $726.9 million on December 31, 2024. These U.S. dollars were translated to euros at an exchange rate of 1.174. As we announced with our first half 2025 results, we continue to hold approximately 60% of our cash in U.S. dollars and 40% in euros. As I mentioned, cash and investments as of 9/30/2025 was EUR 3.05 billion, representing EUR 46 per share. Looking forward, we anticipate ending 2025 with approximately EUR 2.975 billion to EUR 3.05 billion in cash, cash equivalents and financial investments excluding any business development activities and currency fluctuations. As the intention to wind down is confirmed and implemented, following the Works Council processes, we would expect to incur the following cash impacts related to our cell therapy business: EUR 100 million to EUR 125 million of operating cash impact from Q4 2025 through 2026 with EUR 50 million to EUR 75 million of this being in 2026 and EUR 150 million to EUR 200 million of onetime restructuring cash costs in 2026. Lastly, as the intention of wind down is implemented and completed, we would expect to be cash flow neutral to positive by the end of 2026 excluding any business development activities and currency fluctuations. Now let me turn it back to Henry to wrap up. Henry Gosebruch: Thanks, Aaron. In summary, it has been a transformative time at Galapagos. We are committed to building a novel therapeutic pipeline that can have meaningful impact for patients. We will provide updates related to discussions with the Belgium and Dutch works councils as appropriate. As I mentioned, our deal funnel has been building steadily and we will remain disciplined and will only execute on any opportunity in front of us if we believe we can create value. We are confident we have the team in place to execute and look forward to the future with optimism and purpose. So with that, thank you all for your attention, and we will now open it up for your questions. Operator? Operator: [Operator Instructions] We will now take the first question from the line of Faisal Khurshid from Leerink Partners. Faisal Khurshid: Really phenomenal presentation today. I just wanted to ask, maybe for Aaron or for Henry, when you say that you expect to achieve cash flow neutral to positive status by year-end '26, can you talk a little bit about what the assumptions are that go into that? Aaron Cox: Sure. Sure, this is Aaron. We will -- the assumptions that go into it are primarily related to interest income, one. So we made some assumptions on interest rates based on the forward curve and our cash balance. It doesn't assume any BD activity. Obviously, if we use cash for BD activity or take on additional burn with any BD activity, that could impact that forecast. We also have income, as we outlined on Slide 7, related to Jyseleca. We have tax credits coming in related to tax refunds from Belgium and other countries in the region. And we also assume that we are through the works council process and we've implemented and completed the wind down. Faisal Khurshid: Got it. That's helpful. And then for Henry or for Dan, you guys mentioned that you have -- that the deal funnel is currently building. To the extent that you're able to speak to it, could you talk to us a little bit about what kinds of opportunities are in the deal funnel, what those look like and your kind of level of optimism around that? Henry Gosebruch: Yes. No, thanks. It's Henry. I'll start and I'll turn it over to Dan. I mean, as we outlined in the prepared remarks we're focused on opportunities that are clinically derisked. So we're looking at mid- to late-stage opportunities. Again, that can be M&A, partnerships. We're looking at many different structures. But it's clear that there is a lot of capital required in biotech still. And while perhaps the access to capital has improved slightly, there are still many companies that would benefit from capital from us, partnerships, et cetera. So with that, maybe I'll ask Dan to put a little bit more color on it. Dan Grossman: Thanks for the question. This is Dan. I would just add the therapeutic area overlay, which I think is an important one. We're in the fortunate position really not having too many legacy attachments of being able to consider opportunities across a wide range of therapeutic areas. But as Henry indicated, for the early deals, we think it's a high priority to the extent we can to collaborate with Gilead, to go in with Gilead on deals. And that brings us to look for assets or at least deals that have some anchor asset that is mutually value-creating for both of us but also strategically aligned with Gilead's direction. That brings us to the therapeutic areas of oncology and immunology or inflammatory disease. Faisal Khurshid: Got it. Okay. And then just one last one for me, if I can. Just kind of maybe combining like the two questions in a way. Henry, can you speak to us about the kind of like relative balance between kind of being conservative and you not going for a deal and kind of getting to the status of being cash flow positive versus doing BD? Like how do you kind of balance those two priorities in a way? Henry Gosebruch: I think they're both really key focus areas. I mean, we have to get through the works council process that we outlined as quickly as we can and then leverage again the broad set of assets we have today and outlined, so the cash balance that generates interest, the good growing and attractive royalty stream, we're getting the tax benefit. So that sets the base. But look, the intent is to ultimately use our cash balance to find opportunities that create a positive return and incremental return on that cash balance. And as we've outlined, we have EUR 46 per share in cash and we're trading obviously at a much, much lower number. So to the extent we can put that cash to work and create a return on that cash, I think there's tremendous upside in our story here. And so that's what we're focused on. Operator: We will now take the next question from the line of Brian Abrahams from RBC Capital Markets. Brian Abrahams: I'm curious if you could talk about what your expectations would be for Gilead to contribute to the deal process really in terms of their expertise. Would this be kind of expertise in identifying a transaction? Or might you expect commitment to providing resources or expertise on development prior to a formal opt-in? And then just secondarily, really quickly. In the past, I think you've talked about virology as another area that might be of interest. You didn't mention it today. Just wondering if we should assume that, that's not as high a priority as oncology and immunology and inflam? Henry Gosebruch: Yes. Brian, it's Henry. Thanks for the question. So on the first part, I'd say, again, I'm incredibly pleased with the relationship that we've strengthened with Gilead. And on several of the opportunities that we've looked at, they have contributed really along the lines of what you've talked about both their diligence expertise in looking at those opportunities. They've offered capital both upfront and, in some cases, if there's a portfolio of assets, to take some of these assets and develop them at Gilead, leveraging their infrastructure. So it can really take many forms. I think the bigger point is that I think they're coming to the table, as are we, with a very constructive sort of win-win attitude. And that can take many different forms. So we don't have to limit ourselves to that current partnership agreement where we would do the deal and then they would opt into certain opportunities. It can be really a much broader situation. And again, we're quite pleased with their commitment in our working relationship. And I'll ask Dan maybe to talk about the therapeutic area and the question on virology. Dan Grossman: Yes, that's fair. Thanks, Henry, and thanks also for the question. Before that, I'll reiterate Henry's point. I mean, we will make our own decisions about deals that we do. We will do our own careful diligence on key aspects of any asset we consider bringing in. In terms of the question about virology, I would say you're correct that it is of lower priority. I wouldn't say we would necessarily rule it out, but this is an area of enormous strength for Gilead. And frankly, our funnel is very, very nicely filling with oncology and I&I already. Operator: We will now take the next question from the line of Phil Nadeau from TD Cowen. Philip Nadeau: Just one question on the Gilead relationship. We understand the strengths of working with Gilead due to their expertise and the commitments you have through the OLCA agreement. But it seems like one potential drawback would be speed in collaborating and getting to a decision point. In the past, we've seen big organizations take a long time to sometimes make decisions. So how is that contemplated in your strategy? Are there ways that you can assure that Gilead is ready when you need them and the two of you even collaborating can be competitively fast? Henry Gosebruch: Yes. Phil, it's Henry. Look, good observation. And we have to be fair, yes, that does create some complexity. So that is a fair comment. But I think it goes back to having a very collaborative relationship. Gilead is represented on our Board so they see some of the activity we're doing. And again, as I said, I'm very pleased with the ongoing dialogue we have. And so the more we can do in terms of working together and doing joint work ahead of making a formal approach to a company, as an example, or tabling an offer term sheet, if we can in a way sort of prewire some of what it would look like in terms of us and Gilead, then it really shouldn't impact the process ultimately with a potential partner or target. But yes, we do have to acknowledge there's some additional complexity. I guess the last thing I'd say is, look, we've built the team here that has been through many, many very, very complex BD transactions. So it's nothing that anybody here hasn't done in prior context. And I think on a combined basis, I feel we have just a phenomenal team to work through that complexity. Operator: We will now take the next question from the line of Jason Gerberry from Bank of America Securities. Chi Meng Fong: This is Chi on for Jason. There's obviously a lot of focus on bolstering the pipeline from external means. But my question is actually on the internal existing pipeline. Can you talk about the potential plans for 3667 upon completion of the two Phase III enabling studies in lupus and dermatomyositis? Are you leaning towards divesting the asset in favor of BD activities? And how might the different data scenarios help inform that decision? And I'm also wondering, do you have any refined thoughts on the strategy for dermatomyositis given the brepocitinib top line results from the VALOR study in the DM? Henry Gosebruch: Yes. It's Henry. Thanks for the question, Chi. So the company prior to us arriving had started a process talking to potential partners about 3667. Just recognizing that if that asset has the type of data in Phase II that would enable a comprehensive Phase III program, that would take expertise and resources that we currently don't have. And so in that context, a partnering process was started earlier in the year. Given we're so close to data now with data expected early next year, that process is currently not active, but I think it's something we would come back to. So to answer your question, I think we would look at the data very carefully and then we would think through what are the capabilities required if there's a path forward and who is best positioned to maximize the value. And that may well not be us. That may well be one of the players with established infrastructure, and that's sort of how we would how we look at that. As to your specific question on dermatomyositis, I mean, of course, we're paying close attention to the TYK2 landscape and the other landscape in I&I that impacts these diseases. And we'll look at what the target product profile is and what the bars we need to meet in these Phase II studies. So the team is all over that. But all of that will go into a decision sometime early next year in terms of the next steps for 3667. Operator: We will now take the next question from the line of Sean McCutcheon from Raymond James. Unknown Analyst: This is [ Yang ] for Sean. We have a question on the cell therapy wind down process. Could you please walk us through the timeline for the wind down and the continued efforts in this process? And also, do you think you may get some additional interest getting the update on the incoming ASH? Henry Gosebruch: Yes. No, thank you for the question. So again, I recognize that for many American investors or analysts, you may not be as familiar with the way the process works in Europe. But in Europe, the Board can really only form an intention to wind down and that intention is subject to consultation with works council. So you're essentially explaining to works council what the rationale is, why it's the best decision for the company. And that process usually takes several months. As we said in our prepared remarks, it's hard to predict exactly how long that takes, but we expect that to be concluded in Q1. So that's what we can say about that. During the process, we are open to receiving viable proposals. But as we said in the prepared remarks, at this point, nobody has come to the table with committed financing. As I said, it would take several hundreds of millions of euros of committed financing to not only take the business forward but stand behind with a pretty sizable employee obligations. And we, of course, are going to treat our employees very fairly in all of this. So again, if an offer does emerge during this process, we're quite open to considering it. But again, we hope to have resolution here in Q1. And we'll, of course, keep the market posted as we make progress in these consultations with works council. So I hope that answers your question. Operator: We will now take the next question from the line of Jacob Mekhael from KBC Securities. Jacob Mekhael: I have one on the topic of BD. You mentioned that you will after derisked programs with proof-of-concept. So I'm just curious, how will you ensure that you obtain such programs in a cost-effective way? And perhaps, are you prepared to pay a bit more in order to get access to the best programs and targets? Henry Gosebruch: Yes. It's Henry. Let me start on that question. We're going to be quite financially disciplined. So at the end of the day, it's really about do we see an opportunity that we think allows us to create value from here. Again, that may well involve partnering with Gilead on the basis we outlined where, on a combined basis, maybe we can see that incremental value that would be hard to realize for other parties. So at the end of the day, yes, when you are ultimately the party that does the transaction, generally speaking, you're going to pay more than everybody else. Otherwise, you won't be able to do the deal. But again, I'm quite confident given the environment and given how our deal funnel is building, we'll find those opportunities. But we're going to be quite disciplined. So if it takes another quarter or 2 or 3 to find the right deal, it will take another quarter or 2 or 3. We're not going to rush into anything, I think. Well, of course, I recognize shareholders and analysts want some clarity of what the deal is and what the pipeline looks going forward. We're not going to compromise on the financial criteria that we'll use to analyze the deal. Does that answer your question? Jacob Mekhael: Yes, very clear. Maybe just a follow-up on that. Given that any deal that you would take over, you'd need to continue developing it until approval either by yourself or in collaboration with Gilead, can you share anything on how much capacity for deal making does that leave you with? Henry Gosebruch: Yes. No, it's a good comment. So look, our roughly EUR 3.1 billion is really a phenomenal starting point plus, again, these other assets that are helping us get to positive cash flow on top of that. But yes, of course, we need to reserve some capacity for what might be a Phase IIb or Phase III spend for any asset we bring in. So that is absolutely part of the deal modeling we're doing. And that's the comments we made earlier. Again, if we dedicate a large portion of that capital into one opportunity, we really have to be quite confident that, that opportunity will create value. If we spread the risk over several opportunities, maybe we could have a slightly different perspective. But the ongoing development requirements are absolutely something that we're quite focused on. And there, again, this is where the partnership with Gilead could come in, where we might be able to split some of those ongoing requirements and on a joint basis come up with a mutually value-creating structure. Operator: We will now take the next question from the line of Sebastiaan van der Schoot from Van Lanschot Kempen. Sebastiaan van der Schoot: Really clear on the strategy. I just had one question for our side. Can you provide some clarity on whether potential transactions, whether they would also bring in R&D capabilities? Or is that something that you don't want to take on with newer transactions? Henry Gosebruch: Yes. Sebastiaan, it's Henry. That's a very good question. Again, one of the, I think, very attractive features we have here at Galapagos is that we can be flexible on what that looks like. So it could be that, yes, with an acquisition, there might come a very capable team. In fact, it might be very attractive for certain teams just to join us at Galapagos and essentially stay intact and continue to work on their asset. But it might also be that our capital just enables an external party to continue to do the work and we won't have that capability at the company, but we essentially fund that existing capability at a third party. So honestly, we're not focused on one over the other. I think it's whatever is right for any opportunity, whatever is the best way to create value. Now I will say we do have the TYK2 development team still in place. So that does give us a starting point if we wanted to build it further from there. But again, it really depends on the opportunity, and we want to be open to whatever creates the most value going forward. Sebastiaan van der Schoot: Got it. And then I'm just wondering whether -- if you compare it to the past, whether Gilead's involvement in the setting process for potential transactions has increased compared to before. Maybe you can comment on that. Henry Gosebruch: Well, look, I don't want to really talk about the past. I'm really more focused on how we're moving forward and how we create value from here. And I think to this question and also the question that I think Phil asked a little bit earlier, I do think it's important that we coordinate with Gilead on these joint opportunities. And yes, that involves talking to them, meeting them, understand mutually how we can create value on certain transactions. So again, I can't talk about the past. I can only talk about the future. And as I think we've been clear on, we don't have to go through Gilead. We don't have to work on everything with Gilead. But we think for opportunities that are jointly aligned, that can create more value for our shareholders than doing it on our own. And I think our approach will be to continue to work with them very collaboratively. Again, I'm quite pleased with how that's going. They're coming really with a kind of a can-do attitude and we plan on continuing that approach. Operator: [Operator Instructions] We will now take the next question from the line of Delphine Le Louet from Bernstein. Delphine Le Louet: Hello, can you hear me well? Henry Gosebruch: Yes, we can hear you fine. Delphine Le Louet: Perfect. I was wondering, and a bit of a follow-up regarding the Gilead partnership, regarding their investment which was so far mostly philanthropic. I was wondering how long the collaboration would last for or will take place for now? Is it something like a 5-year agreement that you have in mind? Or is it shorter, 3-year time? And I was also wondering, what is the underlying KPI? Is it an ROI number? Is it a number of assets? Is it a progress in the pipeline? Can you be more specific on that, please? Henry Gosebruch: Okay. We heard a little bit of background noise. So I think you asked what's the length of the Gilead agreement. Is that the question? Delphine Le Louet: In a way, because Gilead is obviously a preferred partner so far and will help you in the selection. But obviously, I'm asking, will that long for 3, 5 years? Or what is the underlying KPI? Is it an ROI number? Is it a number of asset? Is it progress in the pipeline? What is the underlying you should have in mind? Henry Gosebruch: Okay. Yes. I'm sorry, there was a lot of background noise, but let me attempt to answer your question. So what we're talking about is what we call the OLCA agreement. So that is that broad collaboration agreement that was signed roughly 6, 6.5 years ago. That was a 10-year agreement. So that has another, call it, 3.5 years running. And it is that agreement that provides Gilead's -- yes, sorry, we're getting a lot of background noise. But again, to stick with the answer, that agreement has another about 3.5 years running. And so it is really that period that we are focused on that goes back to the original deal 6.5 years ago. And in terms of KPIs, again, that agreement was entered with a view towards Gilead having the ability of opting into programs that came out of the Galapagos research platform. Now of course, with time moving on, this is no longer the current situation today. So now it's really more about business development that we would be doing and working with Gilead in this period, as we've outlined, to jointly complete transactions that will create value for them but very importantly, of course, for our company as well. Does that answer your question? Delphine Le Louet: All right. Yes, yes, definitely. Operator: Thank you. There are no further questions at this time. I would like to turn back over to Glenn Schulman for closing remarks. Glenn Schulman: Thanks, Sandra, and thanks, everyone, for your time today and your attention. As the team discussed, there's indeed a bright future as we continue to undergo these transformations at Galapagos. For your awareness, I wanted to mention that our corporate events calendar is provided here in the deck and also posted on our investor website. With respect to upcoming investor conferences, the team will be hosting a fireside chat in 2 weeks at the Jefferies London Conference on Wednesday, November 19. And looking ahead to 2026 already, the team will be attending the Annual JPMorgan Conference in San Francisco and the TD Cowen Conference in next March up in Boston. Please feel free to reach out to your respective bank reps to request a meeting with the team, or you can reach out to me directly to find the time to catch up. Thanks, everyone, and have a great day.
Operator: Good morning, ladies and gentlemen, and welcome to the Centrus Energy Third Quarter 2025 Earnings Call. [Operator Instructions] Please note that this event is being recorded. I will now hand you over to Neal Nagarajan. Neal Nagarajan: Good morning. Welcome, and thank you to all of our callers as well as those listening to our webcast. Today's call will cover the results of the third quarter 2025 ended September 30. Today, we have Amir Vexler, President and Chief Executive Officer; and Todd Tinelli, Chief Financial Officer. This conference call follows our earnings news release issued yesterday. We filed a report for the third quarter on Form 10-Q earlier today. All of our news releases and SEC filings, including our 10-K, 10-Qs and 8-Ks, are available on our website. A replay of this call will also be available later this morning on the Centrus website. I would like to remind everyone that certain information we may discuss on this call today may be considered forward-looking information that involves risks and uncertainty, including assumptions about the future performance of Centrus. Our actual results may differ materially from those in our forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in our forward-looking statements is contained in our filings with the SEC, including our annual report on Form 10-K and quarterly reports on Form 10-Q. Finally, the forward-looking information provided today is time-sensitive and accurate only as of today, November 6, 2025, unless otherwise noted. This call is the property of Centrus Energy. Any transcription, redistribution, retransmission or rebroadcast of the call in any form without the expressed written consent of Centrus is strictly prohibited. Thank you for your participation. And I'll now turn the call over to Amir. Amir Vexler: Thank you, Neal, and thank you to everyone on the call today. We made significant progress this quarter in strengthening Centrus to capitalize on our forthcoming growth opportunities while continuing to successfully operate our broker trader business. This includes hiring Todd Tinelli to succeed our former Chief Financial Officer, Kevin Harrill. I would like to again thank Kevin for his work to help improve and bring Centrus forward. Todd brings a wealth of knowledge and expertise to Centrus, including more than 20 years of experience in the energy industry. He has been part of a number of large industrial expansions and capital raises, precisely and not coincidentally the tasks we're facing now. I welcome Todd to the team. Our progress to date includes our internally focused operational preparations, the growing momentum and discussion we are having with potential future customers and increasingly strong signals we see from the marketplace. All of these have strengthened our outlook and culminated in, one, our event in Ohio announcing our hiring plans ahead of our planned expansion; and two, today's capital raise announcement. But first, let me turn to the quarter results. As many of you know, there can be a significant amount of variability quarter-to-quarter due to the nature of our business. And as such, we believe our annual results are more indicative of our progress. In the third quarter, we achieved $74.9 million in revenue, a gross loss of $4.3 million, and operating loss of $16.6 million and a net income of $3.9 million. 2025 year-to-date net income was $60 million compared to $19.5 million during the same period last year. Todd will discuss the results and their respective drivers in more depth shortly. Turning to our broker trader segment. During the quarter, Centrus received waivers from the Department of Energy to continue to import LEU for all currently committed deliveries to U.S. customers in years 2026 and 2027. This announcement provides greater clarity and helps to derisk that side of our business. Now turning to our future commercial enrichment business. As a reminder to our listeners, our proposed public-private partnership model envisions Centrus potentially securing funding from a number of sources. On the public side, this includes potential task order awards under our LEU enrichment contract or under our HALEU enrichment and deconversion contract, which altogether represent opportunities to obtain a portion of the $3.4 billion appropriated by Congress or potential national security awards. As we have previously stated, we hope to capitalize on any potential public funding made available by the DOE as it will create the lowest cost of capital structure. As the only U.S.-owned company with a proven technology, we feel we make a strong case. The private capital would then come in multiple forms, including partnerships for our balance sheet. Furthermore, we also have other business models that address a variety of funding scenarios. Ahead of the DOE's LEU and HALEU awards, we continue to pursue our readiness initiative to strengthen our investment case and to prepare ahead of our industrial expansion. First, in the quarter, we closed an oversubscribed and upsized convertible senior note transaction on favorable terms, increasing our unrestricted cash balance to over $1.6 billion, in line with our strategy to optimize our capital structure and strengthen our position ahead of government announcement. Second, we continue to execute on our supply chain readiness program announced last November that is laying the groundwork for future large-scale deployment of our technology. Our September Ohio jobs announcement is another concurrent preparation step. Third, we continue to successfully operate our HALEU cascade under our contract with the DOE and reached a milestone of 2 full years of continuous uranium enrichment this past October. Our technology has been proven with over 3.9 million machine hours. It can meet the full range of America's commercial and national security enrichment requirements, including, but not limited to, LEU, LEU + and HALEU. Fourth, we are seeing growing momentum in our engagements with key stakeholders, including potential external investors. In August, we signed an agreement with KHNP, the third largest operator of nuclear assets in the world and POSCO International for a potential investment in Centrus' enrichment capacity. The key development is an example of how private sector capital could support our potential expansion. There is a large and growing opportunity set for these types of partnerships that could come from foreign countries and utilities to SMR developers and hyperscalers, all of which are looking to secure fuel for their respective ambitions. Our strong progress and these developments have led us to our 2 most recent announcements. First, at our September event alongside Governor DeWine, Senator Jon Husted and Congressman Taylor of Ohio, we announced our plan to hire on a large scale ahead of our plant expansion. These are important jobs to an economically depressed area that holds significant talent and is but one example of the value that comes from investing in an American company that is creating American jobs. Second, this morning, we announced we are launching a $1 billion at-the-market program. Given the market signal and our progress, we believe now it is an appropriate time to raise these funds in this form ahead of our proposed build-out. With that, I will turn the call over to Todd to walk through the numbers. Todd? Todd Tinelli: Thank you, Amir, for that welcome, and thank you to everyone on today's call. First, I'd like to thank Amir for that kind welcome. My first 100 days on the job have been exciting and have reinforced my strong belief in Centrus platform and substantial upside potential. I have been impressed with its unique world-class technical capabilities, the operations and its assets already in place, a strong position in the market with high barriers to entry and the talented workforce. Looking ahead, I will be focused on appropriately position our balance sheet and potential partnership network to sufficiently capitalize the company for our future needs and implementing best practices across our operations to support our potentially large expansion. Let me first walk through our results, which were in line for our internal projections and reflected the typical quarter-over-quarter shift in contractual mix that can transpire based on our customer orders and deliveries. Total revenue for the third quarter was $74.9 million, an increase of $17.2 million or 30% versus the same quarter last year. The LEU segment generated $44.8 million in the third quarter, an increase of 29% or $10 million compared to the same quarter last year, driven by an increase in the volume of uranium sold, partially offset by a decrease in the average price of SWU sold. The technical solutions segment delivered revenue of $30.1 million in the third quarter, an increase of $7.2 million or 31% over Q3 2024 results, driven by the sale of LEU to the DOE. Centrus generated a third quarter gross loss of $4.3 million compared to a gross profit of $8.9 million in the same period last year. The LEU segment cost of sales increased $23.0 million to $52.6 million in the quarter, primarily driven by an increase of volumes of uranium sold, partially offset by a decrease in the average cost of SWU sold. Cost of sales in the CTS segment grew $7.4 million to $26.6 million in the quarter, primarily attributed to the $8.5 million in cost increases under the HALEU operations contract. Centrus generated net income of $3.9 million in Q3 compared to a net loss of $5 million in the same period last year. Excluding nonrecurring costs associated with the CFO transaction, Q3 2025 net income was $4.6 million. 2025 year-to-date net income was $60 million compared to $19.5 million during the same period last year. As of September 30, 2025, the total company backlog stood at $3.9 billion and extends to 2040. The LEU segment backlog is approximately $3 billion. This includes future SWU and uranium deliveries primarily under medium- and long-term contracts with fixed commitments as well as the $2.3 billion in contingent LEU sales commitments. With $2.1 billion of the total under definitive agreements and $0.2 billion of the total subject to entering into definitive agreements. Our technical solutions segment backlog is approximately $0.9 billion as of September 30, 2025, which includes funded amounts, unfunded amounts and unexercised options. The options relate to the company HALEU operation contract. Turning to our capitalization. In the third quarter, we issued $805 million of 0% convertible senior notes for a total net proceeds of $782.4 million. The proceeds from the offering deliver added liquidity to execute our strategic plans and help derisk our business. Furthermore, as announced today, we filed a shelf registration and simultaneously brought down $1 billion to be used in an at-the-market offering. We believe that having a shelf in place is part of good business practices and that using equity to raise capital at this time is a prudent solution given our strong valuation and lower cost of capital associated with it. We will be using the proceeds from the ATM for general corporate purposes. The issuance of the 0% convertible notes as well as today's announced ATM program are in line with our capital plans to appropriately and prudently raise funds ahead of our planned industrial build-out and government funding decisions. With that, I will turn the call back to Amir. Amir Vexler: Thanks, Todd. Before ending the call, I'd like to quickly summarize the points that have led to our growing confidence in our most recent announcements. First, U.S. utilities are set to expand nuclear capacity. The Nuclear Energy Institute recently identified over 8 gigawatts of expected additional generation from the existing fleet, including plant restarts and power upgrades. And recall that Westinghouse recently pledged to build 10 new large reactors in the United States and the federal government recently announced $80 billion investment related to the project. The combination of just these 2 events could equate to a need for an additional roughly 2.5 million SWU per year. Second, we continue to see an acceleration in new market demand for nuclear power. For example, the projected power requirements for data centers are driving major investment in nuclear by technology giants, including Amazon, Google, Microsoft and Meta as well as non-hyperscaler owned and operated data centers like REITs, and continue to come to market. Third, the SMR market continues to mature. The Tennessee Valley Authority, for example, recently announced a deal for a 6-gigawatt deployment from one SMR design. The Department of Energy, meanwhile, has launched the reactor pilot program that aims to demonstrate criticality in at least 3 test reactors by July 4, 2026. And just last month, the U.S. Army launched the Janus Program aimed at deploying microreactors in 9 bases over the next few years. All of these will drive the demand for more enriched uranium and have strengthened our outlook. Last month, the published spot price for LEU SWU soared to $220, near historic levels. The demand for U.S.-owned enrichment capacity has never been stronger. I would like to close by thanking our growing list of investors, analysts and listeners without whom none of this would be possible. We look forward to updating you on our progress on our next earnings call. With that, we are happy to take questions. Operator? Operator: [Operator Instructions] Our first question comes from Ryan of B. Riley Securities. Ryan Pfingst: Amir, you mentioned the national security opportunity. We saw the BWXT award in September. And then a few weeks later on SAM, the NNSA's notice of intent sole-source contract with ACO for unobligated LEU enrichment. Could you just talk a little bit about Centrus' opportunity there and what that entails? Amir Vexler: Sure, and good morning to you, Ryan. So as you pointed out, the NNSA recently published a notice of intent to sole source and award ACO for AC100 deployment for unobligated LEU enrichment. I am not sure that I can add anything beyond what the NNSA announced. It is an intent to a sole-source award. But I will add just color maybe to it from my perspective in that if you recall, we have repeatedly stated that our strategy is to serve 3 market segments that are important and all 3 of them are growing, the LEU existing market, behavior market and obviously, the national security market. And so we definitely look forward to hear further communication from the NNSA regarding this notice. And as always, we stand ready to support the NNSA and the nation on a critical national security mission. So what I would read into this is that things are moving forward, it looks. It looks like the things that we were aiming for are materializing. But as I said, not much to add beyond what the NNSA had announced. Operator: The next question comes from Rob Brown of Lake Street Capital Markets. Robert Brown: I just wanted to get if you get a little more color on your readiness efforts at Piketon. How do you sort of foresee that playing out? And what are the decision gates you're looking at in the next sort of 12 months? Amir Vexler: Okay, thank you for that question. We -- as you pointed out correctly, and as we have announced in previous calls, the readiness efforts for a plant build-out are taking shape, and they're taking shape fast. We have already announced investment, which we're in the middle of spending as part of that preparedness. We are launching things like studies of our production cycle time analysis, first time -- first article manufacturing, things of the sorts that you would need to have lined up for rapid manufacturing deployment, all in anticipation of a planned build-out. So yes, there's a few more things that need to fall into place in terms of the public part of it. And I will turn your attention to the Ohio's jobs announcement that we made just recently, where we are in the midst of hiring a lot of folks. We are in the midst of building up our strength and skills. And all of this is in anticipation of ensuring that we are able to execute and are able to go as fast as we can when we announce our build-out. Operator: The next question comes from Joseph Reagor of ROTH Capital. Joseph Reagor: Now that you guys have the waivers for '26 and '27, and there's been these extra announcements about investments in nuclear facilities restarts and new facilities. Has there been any shift in political commentary out of Washington about the Jan 1, 2028 deadline for Russian imports? Any realization that's an unreasonable date? And then if not, what do you guys -- how do you guys think about the late 2020s and early 2030s as far as a the business model until you guys ramp up production? Amir Vexler: Actually, this is a really good question from a macro perspective, from a market fundamentals perspective. So the first part of your question, there's nothing really that I know that I can report officially or unofficially that I've heard about reconsidering anything has to do with Russia. If you remember, that was done legislatively, and that was tied to an investment here in the U.S. to establish domestic supply chain, which is exciting news. The reason why I think the question is critical is because what's building excitement for our case is not a day goes by that there's no new announcements of new builds, whether it's the $80 billion announcement from Westinghouse, Cameco and the U.S. government or as I mentioned earlier, some of the microreactor announcements. I mean, heck I even heard we're planning to put a reactor on the moon by NASA. So all of this is adding to the demand for enrichment. Demand for enrichment in the Western world could be supplied only by a finite number of companies that are currently serving the market. And obviously, Centrus is the new entrant into the market. I call into question as to -- I think this points to the fact also that there has to be ability by these companies to produce centrifuges and to be able to satisfy that market demand. And to me, this is a reinforcement to our business model. This is a reinforcement to where we're marching with some of our investment decisions to be made here soon and the investment decisions that we already made. All of this is reinforcing the -- just the macros that we've been preaching and saying that there will be a significant increase in demand for nuclear enrichment -- nuclear fuel enrichment. And so we're kind of seeing that materialize. And I think you're asking that question. I cannot -- I'm unable to quantify it. I'm unable to say whether there is any back talk in the government about anything that has to do with Russia. But all I know is that we're laser-focused on ensuring that we are able to maximize enrichment capability and enrichment production as much as we can here in the United States. I mean that's our task. And if the market is growing and the market is looking stronger and stronger day by day, that just further reinforces our case. Joseph Reagor: Okay. On the second part of the question about if they don't extend the deadline, what do you guys think about the late 2020s, '28, '29 and maybe 2030 as far as the business? Amir Vexler: Yes. You're asking me to speculate. I would not be able to answer that. I do think -- I do believe that there is going to be an extremely tight market in the years that you're mentioning for the reasons that I mentioned earlier is that a lot of stuff is coming online. Russia has been really banned out. So these are going to be tight years. We're going to work as hard as we can to make sure there's enough capacity. But these are the years that I've put a question mark on as well. Operator: Our next question comes from Nick Amicucci of Evercore ISI. Nicholas Amicucci: Just following on that, Amir. I just wanted to get a sense that we saw kind of a pretty significant uptick in SWU prices during the quarter, up to $220 per SWU. So just could we kind of parse out kind of the dynamics that we're seeing? Because obviously, Russia is kind of, for lack of a better term, rushing to kind of get their fair share of the U.S. market and so supplying SWU on the market. So if we kind of peel back the onion a little bit, is that could we argue that, that's almost even a depressed kind of price at $220 and where that can be going? Amir Vexler: Yes. Really good question. And my personal view on things is, as I always mentioned, the only way the price is going to go down is when there is excess capacity in the market. I do not see a line of sight to that based on what we're seeing, we're seeing the demand side of the equation growing so much faster than any new capacity coming online, at least announced new capacity. So you tied it really nicely in your question and sort of reaffirming what I'm saying. This is not just my sentiment. This is the market sentiment. We're seeing SWU prices almost at an all-time highs here. And do I think they will continue to go up? I mean, my answer to the previous question was there is going to be tightness in a few years. And really all it takes is indication of Western capacity inability to meet that demand. And I think you will see that the prices take a much sharper turn than we've seen before. That -- at least that's how I look at it. Again, the way for them to come down is there has to be active capacity on the market. And we're just not seeing that. We're seeing the complete opposite of that, and that's why we're seeing the prices go up. Nicholas Amicucci: Great. And then if I could just try and parse through some of the NNSA sole-source opportunity a little bit. If we think about that and inevitably kind of the government support that we've seen in the -- and yes, the continued government support and administrative support for kind of rectifying the domestic nuclear fuel supply chain. Is there any kind of levers that even from a national or a federal security perspective that could be pulled just to expedite kind of the time to build the first cascade, just trying to truncate that a little bit? Amir Vexler: Yes. No, really good question. You're talking about synergies of commercial and sort of potential national security commitments. I mean there's a lot of things that could be done. I'm really hesitant to go deeper into speculating that just because what we've seen at this point is a notice of intent to sole source. If we're fortunate enough to get through sort of the rest of the process with the NNSA, I think it would be a more merited discussion at that point. But absolutely, there is a lot of levers and a lot of things that could be done in the name of synergies in terms of build-outs. Operator: Our next question comes from Jed Dorsheimer of William Blair. Jonathan Dorsheimer: I guess, Amir, if we look at the $3.4 billion grant and we look at the -- we're past the 120 days since the task orders. Is the timing of this distribution being affected by the government shutdown? And then I have a second part of that question. Amir Vexler: Officially, I do not know. I honestly have no idea. I suspect maybe the answer is yes, but I don't know anything officially. Jonathan Dorsheimer: Got it. That's helpful. And then if I look at the -- it seems like there's -- this is not a technology risk issue. It's really just one of capital and capital is going to determine what the cost basis looks like. Could you maybe just discuss any nongovernment private sector discussions that you guys might be engaged in? Obviously, not the details, but I'm assuming -- I just find it hard to believe that the trillions of CapEx being deployed, many of which I can think of one data center in particular, that has at least 7 gigawatts of their capacity tied to nuclear that they're not aware of the supply chain gap in terms of fueling. And so where I'm getting -- what I'm getting at is when we look at the utilities, when we look at the private sector that's investing behind the meter, why there wouldn't be -- there's not more around a potential offtake to stand up, which would render maybe some of the government money much smaller in the grand scheme of things? Amir Vexler: Yes good question, Jed. So I think you are pointing out correctly to what we've been saying for a while now that we are looking to maximize the public-private partnership from every source we can, obviously, the public part of it. But also the private. The private does not solely depend on Centrus' ability to raise some capital, but it also relies on external investors as well. As we have announced earlier, we have an MOU with KHNP and POSCO, where we are in discussions now, hopefully moving towards a commitment. But that really is kind of symptomatic of what we're seeing in the market. I think the market, as you said, particularly the companies that would come to rely or would come to rely on nuclear power in general, are starting to realize that, hey, it really is important to turn our attention now to fuel. And so we do have discussions with numerous parties. We've already publicly announced the KHNP and POSCO, but we also have discussions with other interested parties like hyperscalers. We're not at the point of announcing anything or naming anybody, but I will, though, put some energy behind what you said. We are seeing very encouraging signs out there that people now are turning their attention to fuel, and they realize that investment has to be -- it has to be made in the fuel. I mean these are the signals that have led us to make some of the announcements in the Ohio jobs, as I mentioned earlier. And obviously, today's capital raise fits very well into the confidence that we're getting from these discussions and these signals. Operator: Our next question comes from Vikram Bagri of Citi. Vikram Bagri: Amir, you've highlighted strong fundamentals in your closing remarks and responses to questions so far. Clearly, the landscape is very supportive of domestic enrichment. I was wondering what signals would you look for to announce further expansion beyond the planned 3.5 million SWU capacity, perhaps doubling it? And how much time it will take to get there? And then finally, it seems you have a bullish view on SWU pricing. I was wondering what SWU pricing is required to incentivize more expansions? And what SWU pricing are you underwriting in your own expansion? Amir Vexler: Good questions, and thank you for that. So to your first question about expansion, the way I see the natural events unfolding is we have to get to a base case type capacity in our facility, which we're planning towards. Once we start moving towards that, it is my anticipation that we were going to get a lot more than signals from the market. We're going to get enhanced commitments and additional commitments from others that we have not gotten them from. Basically, what I'm saying is there is a large population out there that is perhaps sitting it out for now and waiting to see how things progress and how we will execute, how others will execute, how the market will unfold. So I fully expect that once planned execution is underway, we're going to get more interest and more commitment for further expansion. That really is the signal that we'll be looking for, and it would be more than the signal we'll be looking for commitments. To your question about SWU pricing and what is an advantageous or hurdle SWU pricing, obviously, I will not be able to name that because that will point to our cost structure and things that we normally would not want anybody to know. It's very proprietary and sensitive information to us. But I will say to you, though, that the SWU pricing that we're seeing right now is not bad. I mean this is the SWU pricing that has people that have technology, that are able to utilize technology, that are able to launch their technology into production. It's not a disadvantageous SWU pricing that we're seeing right now. Operator: The next question comes from Bill Peterson of JPMorgan. Unknown Analyst: This is Nehima on for Bill. I was curious, are strategic investors looking for you to further derisk the balance sheet yourself before committing to funding? Or are they perhaps waiting for the government or national security type funding to come through before those conversations progress further? Todd Tinelli: This is Todd, the CFO. I think there's a variety of different areas that the balance sheet can go, obviously, with public and private investment. One of the things that is our objective is to put us in a position that really we're not reliant on one source of capital to come in to fund our proposed or planned expansion. So obviously, when we're looking at private investments that come in, there is offtake arrangements. There's a variety of different scenarios that could take place. But our first objective is to well capitalize the balance sheet and have a capital structure that allows Centrus to be well positioned for the future. Operator: The next question comes from Jeff Grampp of Northland Capital Markets. Jeffrey Grampp: Maybe just kind of building off of the last question. I wanted to touch on the recent release regarding the potential Korean investment. And maybe more broadly, like how do you guys think about taking third-party private capital investment to help fund any build-out of the enrichment? What are the kind of trade-offs you guys may consider as you think about taking third-party investment? Amir Vexler: That's a good question. I'll try to answer it without revealing things that are nondisclosed in a nondisclosure agreement with any of the parties. Obviously, if an investor invests, they expect something in return. And it's a process of negotiations to ensure that we can find a win-win solution. When you're in an environment where you're hitting record SWU prices and the prospects appear that they will continue to go up and the prospects are that the market will continue to have tightness in supply, that helps make a very strong case for an investor that comes in. So I know I'm not really giving you a lot of details, but all this to say is that we have numerous models that we're working through. And whatever decision we make, we certainly are grounded in delivering shareholder value and maximizing it from our perspective. Operator: The next question comes from Eric Stine of Craig-Hallum Capital Group. Unknown Analyst: This is Luke on for Eric. So have your views on your targeted enrichment mix between LEU and HALEU in the market changed at all given the progress being made by some of the advanced reactor developers? Do you see more robust HALEU demand in the near term becoming more realistic in your view? Amir Vexler: Right. Good question. So the ultimate decision of the planned expansion in terms of how much HALEU, how much LEU would be 100% driven by customer demand and customer commitments. And however they weigh that mix. I will say that during my time in the company, which is almost 2 years now, particularly in the last year, we have seen HALEU going from sort of like an MOU type, let's agree to some point in the future where we can talk about a contract, very noncommittal to we're seeing companies now, hey, we're ready to make a commitment type conversations. So we're seeing HALEU evolve very quickly and rapidly, especially through some of these expansion plans that you're hearing from microreactors and other small modular reactors. I mean, ultimately, if somebody starts buying these reactors as is happening right now in the market, they would be able to make commitments for fuel. So all this to say that there's a lot of momentum behind HALEU now. We're -- but the ultimate decision is going to be what that commitment breakdown looks like between HALEU and LEU. Operator: The next question comes from Sameer Joshi of H.C. Wright. Sameer Joshi: And Todd, congrats on the new role. Looking forward to interact with you. I just have one question on the improved SWU pricing environment. Are you able to contract these? Like has the backlog increased from the new SWU prices? And when should we see -- I know these are longer term -- mid- to long-term contracts, so we may not see it in revenues soon. But when if you have signed contracts, when should we see those prices? Amir Vexler: I want to reassure our investors and shareholders that locking in commitments and growing that commitment backlog is a big priority for us, both in HALEU and LEU and the 3 segments that we have been discussing. That is a key important focus for us. Obviously, we don't disclose details around our contracts. And I will point out to you, though, that a lot of these conversations and the results of these conversations are very nonlinear. So we could be working on something for a while and release something large and then not hear anything or see anything for a little while. So it's not necessarily a steady stream, but like I said, it could present itself in a nonlinear fashion. But the only thing I can leave you with without violating any, again, nondisclosures that we have is that it is still a major focus area for us and a priority for the company. Operator: Ladies and gentlemen, we have now reached the end of the Q&A session. I will now hand you over to Neal Nagarajan for closing remarks. Neal Nagarajan: Thank you, Judith. This will conclude our investor call for the third quarter of 2025. As always, I want to extend a thank you to our listeners and our analysts who have called in, and we look forward to speaking with you again next quarter. Operator: Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.