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Operator: Good day, and thank you for standing by. Welcome to Pharming Group N.V. Third Quarter 2025 Results 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 first speaker today, Fabrice Chouraqui, Chief Executive Officer. Please go ahead. Fabrice Chouraqui: Thank you, operator, and good morning and good afternoon, everyone, and welcome to the Pharming's Q3 2025 Earnings Call. I'll be joined on this call today by Steve Toor, our Chief Commercial Officer; Anurag Relan, our Chief Medical Officer; and Kenneth Lynard, our new Chief Financial Officer. On this call, we will be making forward-looking statements that are based upon our current insights and plan. As you know, these may well differ from future results. As you saw in our press release earlier today, we delivered another very strong quarter. Total revenues grew by 30% in the third quarter of 2025 versus the same quarter last year, and operating profit jumped to $15.8 million, nearly 4x last year's result. Operating cash flow came at $32 million, putting our cash position almost back to where it was at the end of 2024 before the acquisition of Abliva. Our strong top line growth was fueled by the continued significant growth of our 2 commercial assets, RUCONEST and Joenja. RUCONEST grew 29% year-on-year, fueled by continued strength in new prescribers and in new patient enrollments, even amid the launch of a new oral on-demand therapy in July. This reflects RUCONEST's unique value proposition for severely affected HAE patients, which Steve will elaborate upon in a minute. Joenja third quarter revenue increased by 35% reflecting the 25% year-on-year growth in patients on treatment and our increasing success in finding new APDS patients. The drug continues its uptake in the 12-year plus APDS segment. And when looking ahead, we anticipate adding new sources of growth with the pediatric indication, the reclassification of the U.S. patients and our geographic expansion. The strong momentum for our 2 commercial assets support an upgrade to our full year 2025 revenue guidance to $360 million -- to $365 million, $375 million from the previous $335 million, $350 million, for which Kenneth will provide more details later in the call. Finally, the recently announced significant reduction in G&A headcount follows through on our plan to optimize capital deployment to high-growth initiatives to fully capitalize on our significant growth prospects. Before we review our commercial and financial results in greater detail, I'd like to highlight that our Q3 performance reflects our strong growth foundation. In just a few years, Pharming has transformed from a single asset company into a fast-growing biotech with 2 high-growth commercial products and a late-stage pipeline with 2 programs with over $1 billion sales potential each. As we've seen, RUCONEST continues to grow double digits after 10 years on the market. Its unique value for severe HAE patients and specific manufacturing process make it a reliable cash engine to fund our future growth. Joenja is just at the beginning of its life cycle with multiple growth catalysts. The recent data published in sales suggests significantly higher APDS prevalence and the expansion in larger PIDs and CVID could unlock a much larger market. KL1333 for primary mitochondrial disease is another $1 billion-plus opportunity with a positive futility analysis in the ongoing registrational study. So this combination of durable revenues, first-in-disease innovation and late-stage pipeline positions Pharming well for substantial value creation in the near and long term. With this portfolio and pipeline as the foundation, we can leverage our strong rare disease capabilities to build a leading global rare disease company and deliver on our vision. I'll now hand over to Steve, who will discuss our commercial progress during the quarter and elaborate on the continued strong growth of RUCONEST and Joenja. Stephen Toor: Thank you, Fabrice. Good morning, everybody. As Fabrice said, RUCONEST has delivered another very successful quarter with high double-digit growth of $82 million in revenue, which is up 29% on Q3 of last year. The strong growth is being driven by the continued increase in prescribers quarter-on-quarter. New prescribers are recognizing the value RUCONEST brings to patients suffering with moderate to severe HAE, and this underpins our consistent prescriber growth over the years. In fact, we've added an average of 22 new prescribers in the past 6 quarters, which leads directly to the high level of new patient enrollment and the vial volume increase over prior year, which is at 28% versus the first 9 months of 2024. Pharming's sustained success unabated by the recent launch of the oral product reflects RUCONEST's unique profile and strong differentiation in the acute on-demand HAE market. RUCONEST remains an important treatment option for moderate to severe patients who experience more frequent attacks, which explains the continued strong momentum and our confidence in the product's long-term growth prospects. As a reminder, RUCONEST is a highly effective product serving all patient types, type 1, type 2 and normal C1, specifically those patients suffering from frequent moderate to severe debilitating HAE attacks. They've also typically failed other single pathway-specific targeted acute therapies such as Icatibant, which have not been effective for them, often leading to the need to redose to stop their HAE attack. As the only recombinant C1 protein replacement therapy, RUCONEST uniquely addresses the root cause of HAE, providing strong differentiation versus single pathway targeted therapies. This differentiation is why RUCONEST is a cornerstone treatment for HAE attacks. You can see in the photographs on this slide an actual RUCONEST patient, and this is exactly the type of patient I mean, with a more severe course of disease attacking frequently and having to redose on other therapies along with her recovery as she resolves the attack. HEA patients with the disease profile I've described need RUCONEST on hand, which through its IV mode of action delivers a bolus of C1 straight in the vein, which is critical for them. As a result, by using RUCONEST, patients get complete resolution in a single dose for 97% of their attacks. Half of those patients actually get complete attack resolution in 4.5 hours with the vast majority within 24. That efficacy is both critical and reassuring, and that is direct feedback from the patients we serve. Switching gears to Joenja. As with RUCONEST, we've delivered another strong third quarter. We achieved high double-digit year-over-year revenue growth of plus 35%, generating $15.1 million in revenue for the quarter. The number of U.S. patients on paid therapy is up 25% versus Q3 2024. And importantly, we've identified 13 additional APDS patients in Q3 alone, which shows our ability to keep building the patient funnel in this ultra-rare disease. We're finding patients faster than we did in 2024 with a total number of APDS patients in the U.S. now at 270. Importantly, the resulting significant increase in patients versus 2024 on patients consistently high adherence to therapy is driving this strong revenue growth. The launch of Joenja in the U.K. is also going well, and this is an important first step as we execute our focused geographic expansion plans. Let's now review the next significant inflection point, which is the pediatric launch in the U.S. for patients aged 4 to 11. The FDA has granted priority review of our application to expand the label and assigned a PDUFA date or an approval date of January 31, 2026. Our preparations for launch after the expected approval in January are on track. As we approach the U.S. pediatric launch, the team has already identified 54 patients diagnosed with APDS aged 4 to 11. 1/3 of those patients are already on therapy through Pharming's early access program and with many others likely to go on therapy soon after launch. So this represents an important growth driver for Pharming, which starts in just a few months. I'd like to now hand over to Anurag, who will discuss our development programs and the forthcoming data presentations at the American College of Allergy, Asthma and Immunology later this week in Orlando. Anurag Relan: Thanks, Steve. In addition to the commercial successes in the quarter, we continue to advance our pipeline in the past 3 months. In APDS, as you mentioned, Steve, the FDA granted priority review for our sNDA for 4- to 11-year-old children, underscoring the seriousness of the disease and the potential to offer a new treatment option with leniolisib. We also have regulatory filings under review in Europe, Japan and Canada with approvals anticipated in 2026. We have 2 Phase II proof-of-concept studies for PIDs with immune dysregulation, and these are also on track for readouts in the second half of '26. And then our newest addition to the pipeline is also progressing nicely, KL1333 in a registrational study for primary mitochondrial disease, where enrollment and site activation are advancing, and we continue to expect to read out in late 2027. As you recall, there was an important publication in Cell in June. This work has implications for the variants of uncertain significance or VUS reclassification work, which is ongoing by the labs. The publication in Cell, however, also opens another potential avenue to expand the APDS population. Specifically, the paper found more than 100 new gain-of-function PI3K delta variants. What surprised the researchers was that these gain-of-function variants were much more commonly found in population databases, suggesting an APDS prevalence up to 100x higher than current estimates as well as a broader set of clinical symptoms. This raises a number of key questions to determine how these variants may cause disease, including which variants cause clinically meaningful gain of function, what symptoms and diseases do these variants cause and how do we find patients with these variants. We started a number of activities now to help answer these questions. First, we're convening a global KOL at [ AG Board ] this month to address how these variants can cause disease. In parallel, we're sponsoring work to build a predictive AI-driven model that could identify patients who could benefit from targeted PI3K delta inhibition with the goal then to be able to apply the model to large EMR databases. And given the significant findings, we can actually identify more gain of function variants with newer base editing technologies. Generating additional variants will be important not only to understand the broader prevalence, but also for the ongoing VUS resolution project. So much more to come on this exciting work. We also have new data being presented at the American College of Allergy, Asthma and Immunology. There are 5 posters on RUCONEST where we performed a reanalysis of our clinical trial data with recently used definitions of key endpoints. These data highlight the key symptom benefits in HAE patients experience with RUCONEST across a number of clinically relevant outcomes. In addition, an indirect treatment comparison with sebetralstat will be presented, providing additional evidence for the unique benefits that RUCONEST offers HAE patients. On the APDS side, we have posters describing the treatment burden of the disease on both patients and caregivers. We also have a number of posters on Joenja with real-world data highlighting key benefits, including a reduction in infections. Lastly, ahead of our expected pediatric approval, we have new data in this 4- to 11-year-old APDS population, showing important outcomes, especially on quality of life improvement seen in the study. I'll turn it over now to Kenneth, our newest member of the team, to review our financials. Kenneth Lynard: Thank you, Anurag. As the new CFO, I'm excited to have joined Pharming at such an exciting time and have the opportunity to provide more color on our strong financial performance and outlook. Q3 was an excellent quarter with revenues at $97.3 million, up 30% versus the same quarter last year. We saw double-digit revenue growth for both RUCONEST and Joenja. Gross profit grew by 33% to $90.2 million, mainly due to the higher revenues. And accordingly, we recorded a gross margin of 93% versus 91% same quarter in 2024. Our operating profit with a slight adjustment, as it's noted here on the slide, almost increased to 4x to $16.0 million compared to $4.1 million last year. That came from growth in revenues, the improved gross margin and well-managed operating costs. Cash and marketable securities increased from $130.8 million at the end of the second quarter to $168.9 million at the end of Q3. This increase was driven by significant cash flow from operating activities with $32 million. And as Fabrice mentioned, the total balance of cash and marketable securities is now back in line with the end of 2024 prior to the Abliva acquisition. Our year-to-date consolidated financial numbers for the first 9 months show continued strong execution of our strategy. Total revenues grew by 32% to $269.6 million due to strong double-digit revenue growth for both products and gross profit grew by 35%. Operating expenses increased by $29.2 million, excluding $20.4 million of Abliva-related acquisition expenses and our operating expenses were up by only 4%. Adjusted operating profit, excluding nonrecurring Abliva acquisition-related expenses compared -- was $29.7 million, which compared to a loss of $15.3 million for the first 9 months of 2024. Cash flow from operating activities was $44 million in the first 9 months of the year. Following the strong results for the first 9 months, we are raising our 2025 total revenue guidance to $365 million to $375 million, up from $335 million to $350 million. This implies full year revenue growth between 23% to 26%. The increase is due to continued strong performance and outlook for the remainder of the year. We continue to expect total operating expenses between $304 million to $308 million, this assumes constant foreign exchange rates for the remainder of the year, includes $10.2 million of nonrecurring Abliva acquisition-related transaction expenses and excludes approximately $7 million in onetime restructuring costs related to the implementation of our G&A reduction plan. We continue to expect that our available cash and future cash flows will cover the current pipeline and related prelaunch costs. Going forward, we'll further accelerate setting the foundation for strong financial discipline with investments into areas that matters the most to spark near- and long-term value creation. On a personal note, I came to Pharming given my deep belief in its mission to bring life-changing therapies to rare disease patients and so the strong potential to develop a leading global rare disease company. I see great opportunity to sharpen our focus on profitable growth, effectively allocate capital to maximize return on investments and improve transparency and predictability in our financial reporting. And with that, let me hand back now to Fabrice for closing remarks. Fabrice Chouraqui: Thank you, Kenneth. So in summary, we are really pleased to report yet another strong quarter, reinforcing the strength of our business for sustainable growth and long-term value creation. As you heard from Kenneth, as a result of this performance and our outlook for the remaining of the year, we are raising again our full year guidance. Looking ahead, RUCONEST is poised to continue to grow and to remain the cornerstone treatment for severe HAE patients, underpinning a strong revenue base. Joenja is well positioned to generate a significant portion of our revenues in the future given strong growth and the additional opportunities we are actively unlocking. Our high-value pipeline is advancing rapidly with a clear objective to deliver 2 potential blockbuster assets, creating a meaningful value creation catalyst for shareholders. And we are also taking decisive steps to enhance financial discipline, including optimizing G&A headcount to ensure efficient capital allocation and maximizing our return. I'd like to end this call by expressing my sincere gratitude to Steve Toor for his contribution to Pharming over the past 9 years. We look forward to his continued support as an adviser to the company, and we are very excited to welcome Leverne Marsh as our new Chief Commercial Officer to drive the next phase of commercial growth. Let me now open the line for questions. Operator: [Operator Instructions] First question comes from Jeff Jones of Oppenheimer. Jeffrey Jones: Congrats on a really strong quarter. Two questions from us. With respect to RUCONEST, can you speak to any impact you're seeing from the new oral that has come on to the market? Where do you see it being adopted? Do you anticipate any pressure on your patient base? And then for Joenja, you mentioned that 1/3 of the pediatric patients already identified are currently on therapy through early access. Any impact on revenue from these patients when the product is formally approved next year? Fabrice Chouraqui: Thank you so much, Jeff, for your question. So on RUCONEST, I mean, clearly, we don't see RUCONEST competing head-to-head with sebetralstat. And so that's why I cannot comment on how sebetralstat is doing. As I mentioned, I believe we have a highly distinctive value proposition that serves a different type of patients, more severe patients. And this is due to a unique mode of action that replace the missing, the deficient protein underlying the biology of the disease and a very specific mode of administration. As such, I believe that many more patients could benefit from RUCONEST, many more patients who are not yet well controlled on an on-demand treatment. And that's the vast majority of the RUCONEST patients. These are patients who have not been able to be controlled appropriately with other treatments and ultimately got the efficacy that they needed with a treatment with RUCONEST. When it comes to the pediatric, the question on Joenja and pediatric, as you rightly said, we have identified already 54 pediatric patients in the U.S. and about 1/3 of them are on our early access program. We expect to convert these patients, those patients who are already on the drug fairly quickly. And as such, which is typically what you see in rare disease, in ultra-rare disease, we expect somehow a bolus of patients to come on drug. This will then add to the patients that are already identified that we will strive hard to ensure that they can benefit from RUCONEST. And then will come additional patients, pediatric patients that we are committed to identifying. So the normal sequence where you have, first, patients who are on access program that will convert, second, patients who are already identified that will probably come on drug if the doctors decide so. And then new patients that you identify. So really, that sequence will probably happen next year. And given the number of patients that we have already identified, 54, it's a large number, we believe that pediatric, the expansion of the pediatric -- the label to the pediatric population will be a significant growth driver that will add to the current source of business in adults in the 12-year plus segment. Operator: Next, we have Lucy Codrington from Jefferies. Lucy-Emma Codrington-Bartlett: I've got a few, if I may. So just following then on RUCONEST, and apologies if I missed this at the beginning of the call, I was late joining. The plan to stop RUCONEST outside of the U.S., have you given a time frame on when that will become effective? And then just in terms of the competitive threat from Ekterly, given -- I'm totally understanding your -- the different positioning of the drugs. But how often are typically HAE patients seen by their specialist for them any -- if there were to be any switching for that to potentially become apparent? And then moving on to Joenja. In terms of the VUS opportunity, are you happy with the rate at which the -- this -- I mean, my understanding is we might start to see VUS patients in the second half. And I noticed that the guide no longer -- the kind of details with your outlook no longer kind of suggest that. So is that something that you think is now more likely to be pushed into 2026? And what is the process for VUSs outside of the U.S.? And then if I may, 2 more. Just in terms of the compliance rates on Joenja, I think before it's been roughly around 85%. Is that something you're still happy with? And then just in general, your rate of progress identifying patients, what do you think the anticipated peak could be within the U.S.? Sorry for so many. Fabrice Chouraqui: Thank you, Lucy. I'll try to cover all your questions. So I'll start with RUCONEST and your questions related to the delisting of RUCONEST in some countries in Europe. We plan to complete this by the first half, first quarter -- end of the first quarter, first half of next year. When it comes to -- and again, this is really driven by the fact that we don't see the commercialization of RUCONEST in these countries that's financially sustainable. Given the number of growth drivers that we have, we hope to be financially disciplined and ensure that we deploy our capital appropriately. Obviously, we are working with all stakeholders in those countries to ensure that those patients will be able to access the right treatment and if needed, ensure continuity of supply of RUCONEST through compassionate use access mechanism. When it comes to Ekterly, I mean, I said that clearly, for me, the RUCONEST and Ekterly are serving 2 different types of patients. And as such, I don't see a second threat for RUCONEST. I mean, RUCONEST is a drug that has a unique mode of action that replace the missing or deficient protein underlying the biology of the disease. RUCONEST has a very unique mode of administration that allow a very fast onset of action. And as such, it has a unique value proposition for more difficult-to-treat patients. That's why the vast majority of patients on RUCONEST are more severe patients, are patients that often have failed other treatments, are patients that need actually that level of efficacy, that speed of onset to really address their more frequent and more severe crisis. All right, moving to Joenja and your question about the U.S. as Anurag said, test labs are in ongoing conversations with the researchers, which published this paper in Cell. And we expect that over time about 20% of the U.S. patients to be reclassified as APDS. We have obviously to remain arm length, obviously, to what's happening and hope that the discussion will progress well and that we will see some patients being reclassified. Outside the U.S., the process will be the same. Test labs will have to, again, understand the data, incorporate the data, identify patients who are carriers of those newly identified variants. And if those test labs feel that those patients needs to be reclassified, then they'll call the doctors and then the doctors will probably reach out to the patients. The adherence rate is -- we don't see any change actually in the adherence rate for Joenja. It is actually remains extremely strong and around the magnitude that you have mentioned. When it comes to patient identification, you're right that we're very pleased to see that our efforts continue to pay off and that we have added 13 new APDS patients in Q3. We have identified 13 new APDS patients in the U.S. in Q3. That shows our capability to identify patients in this ultra-rare -- suffering from this ultra-rare disease. You asked about the peak. I mean, there are in the U.S., if you consider the prevalence, at least 500 patients suffering from APDS. On top of it, we've said that we expect that 20% of the U.S. patients actually could be reclassified as APDS, and that could increase the potential of this population by 50%. And then on top of that, Anurag mentioned the efforts that we are making to really leverage the work that has been published in sales and which suggests that APDS prevalence may be far higher. And that could be actually an upside. So again, I think there are some very concrete numbers I've shared with you. And on top of it, the potential upside, which we cannot quantify today. The authors suggested up to 100x. Again, this needs to be verified, and you can see that we have a very concrete and solid kind of action to be able to come back to you with more next year. I hope I addressed your question, Lucy. Operator: Next we have Sushila Hernandes from Van Lanschot Kempen. Unknown Analyst: This is [ Maridith ] for Sushila from Van Lanschot Kempen. I have 2 questions. First, given your more disciplined approach, what are your priorities for capital allocation? Can we expect another M&A transaction similar in size to Abliva? And second, how is your basket PID trial progressing? And when can we expect top line? Fabrice Chouraqui: Hi, thank you, Sushila. Thank you for calling out the disciplined capital allocation. That's true. And hopefully, it was very apparent. And with Kenneth joining, clearly, I'm extremely happy that given his track record, I'll be able to really embed that mindset, which is absolutely essential if you want to run a high-performing organization. I think as you see, we have a number of growth catalysts in our commercial portfolio in the short term. We also have a number of pipeline catalysts next year and the year to come. So when it comes to value inflection point, growth catalysts, we have a lot, and we are committed to showing that we can execute. Now it is true that we have higher ambitions, but there is no rush actually in doing any M&A. Obviously, given the strong growth platform, our ability to generate cash, the very strong capability platform that we have built over the years in clinical development, in supply chain, in commercial, in access, I believe we can be much more ambitious, and we should be looking at the continued expansion of our portfolio and our pipeline. And as such, we are continuously looking at potential opportunities to expand our portfolio and pipeline. So there is nothing planned. There is no rush. Anything that we would want to do will have to be value accretive for our stakeholders and shareholders. But clearly, this is something that we keep in mind. It is part of the work that we're doing. And if we find the right opportunity, obviously, we will engage with our shareholders. Anurag Relan: And I think you had asked also about the basket PID trial. And if you remember, this is a study with multiple genes that can drive the PI3K pathway, a Phase II proof-of-concept study. And this study is actually progressing very nicely. We continue to expect readout from the study in the second half of '26. So a very exciting program, along with the CVID program, both on track for second half '26 read out. Operator: Next we have Joe Pantginis from H.C. Wainwright. Unknown Analyst: This is Josh on for Joe. So I just wanted to ask a question about the new formulation. If you could give any more color on this new pediatric formulation for the 1- to 6-year-old group? And if there's any specific manufacturing hurdles that you may need to clear for this formulation? Anurag Relan: Josh, so we have indeed a new pediatric formulation for the youngest population, again, because this youngest population of children wouldn't be expected to be able to follow a tablet, which we currently have available for the older kids as well as the adolescents. For this youngest population, the formulation is granules. And so these granules, we've manufactured them, we've done PK work on them, and we're going through the -- we've actually completed the study with this 1- to 6-year-old population. So we expect to follow a similar process in terms of the regulatory path. And obviously, we've engaged with FDA, both with discussions on the formulation, but as well as on the study design. So I think all of it remains on track. Operator: Next, we have Natalia Webster from RBC. Natalia Webster: Firstly, I just wanted to ask around your revenue guidance uplift, just confirming how much of this comes from better-than-expected RUCONEST versus Joenja. And then in particular, for RUCONEST, how you're expecting that to develop into Q4 and 2026, given that you're not seeing much pressure from competition and also continue to see increases in prescribers and patients there? My second question is on Joenja and the international rollout. It seems that this is contributing around 11% this quarter. So curious to hear a bit more about how that's evolving and how you expect that mix to evolve over time? And then thirdly, just around the RUCONEST withdrawal from ex U.S. markets. Are you able to comment a bit on the savings you'll make from this and where you plan to redirect those resources? Fabrice Chouraqui: Thank you, Natalia. So when it comes to our revenue guidance, as Kenneth said, it was driven by the continued strength of our business that we've seen in Q3 and throughout the year in 2025. So obviously RUCONEST plays an important role because of the size of the drug, of the RUCONEST revenues in the total size of the revenues. But this upgrade is driven by both, obviously, the continued performance of RUCONEST and also the continued performance of Joenja. As Kenneth said, the new guidance suggests a growth for the year between 23% and 26%. We have not yet provided guidance for next year. But as we mentioned during the call, we expect RUCONEST to continue to grow as it's serving a differentiated population and has a unique value proposition for these more severe patients. And obviously, the acceleration of the growth of Joenja. Acceleration because until now we were able to source patients from only a unique source of business, the 12-year-old plus APDS patient population and that tomorrow we'll be able to unlock new source of business with the expected expansion of the label to the pediatric population that will add a significant number of patients. We have already identified 54 patients. That's a large number of patients. 1/3 of whom are already on drug, which we'll be able to convert, I hope, and fast. And then obviously, having already identified patients, these patients are more likely to be put on drug, and we will continue our efforts to identify more patients. And then we have other growth opportunities that we have elaborated upon in detail, the U.S. and then the geo expansion. That was actually one of your points. I think the launch in the U.K. is going very well. So we are very encouraged to see this. I think that shows our ability to launch a drug like Joenja in other countries. We have selected 8 markets outside of the U.S. where we believe we can develop a significant business for Joenja. And so we will roll out this strategy. Obviously, we are -- we will be -- we will make sure that reimbursement authorities in these countries reimburse the drug at the right price. It's absolutely. So the goal is not to launch just for the sake of launching. We have access program in place to allow patients to benefit from the drug at the present time. Obviously we are not a philanthropic company, and we need to have our drug reimbursed, but it cannot be done at any cost, and we will be working actively on this. When it comes to the RUCONEST withdrawal, as I said, we have to be more disciplined in the way we allocate our capital. We felt -- clearly we felt that maintaining the commercialization of RUCONEST in these countries was not financially sustainable. We'll take great care to ensuring -- great attention to ensure that patients can continue to access the right treatment. In terms of financial implication, it's difficult to quantify. It's going to be minimal. I mean you know that actually the vast majority of revenues came from the U.S. So I don't expect meaningful impact whether on the top line and in the bottom line, this is actually combined with our financial discipline efforts to really manage our cost structure more tightly. Operator: Our last question comes from the line of Simon Scholes from First Berlin. Simon Scholes: I've just got 2 questions. So you recorded a gross margin of 92.7% in the third quarter, which I think compares with 90% in H1 and 89% in '24. I was just wondering how we should think about the gross margin in your existing markets going forward? So do you think this 93% is sustainable going forward? And then you also say in the presentation, I mean, you said you've got -- you've seen an increase in more severe frequent attack patients. Does that mean that these more severe frequent attack patients are actually increasing as a proportion of the overall number of patients? Fabrice Chouraqui: So I'll start with the latter, and I'll let Kenneth actually elaborate on the gross margin point. So it is true that RUCONEST is serving a quite distinctive population in the on-demand market, more severe patients. And by more severe patients, I mean, patients who are having more severe crisis, often life-threatening crisis and more frequent crisis. And so that's basically the bulk of the patients. And so as the sales of -- as the revenue of RUCONEST developed, we see that pattern being reinforced. So RUCONEST is a drug that is primarily used on more severe patients, patients who are having more severe crisis, more frequent crisis. And I don't think that, that will change. I think there will be other treatment options for other type of patients. And RUCONEST will be able to continue to serve those patients, leveraging, again, the reliability that is built among this patient category and with prescribers. And I think that also illustrates the fact that quarter after quarter, although 10 years on the market, we see more prescribers using the drug. When it comes to the gross margin, I'll let Kenneth elaborate. Kenneth Lynard: Yes, thank you. Thank you, Fabrice, and thanks for the question. It's obvious that we have a high gross margin and it's impacted also by the mix of sales and across different geographies. As you see, so to say, the Joenja share growing and faster growing than RUCONEST, we're having a benefit coming from that. So we don't want to kind of give specifics in terms of the forward-looking performance, but I think you have seen kind of a slight increase on a continuous basis as we start to build out the Joenja sales to a larger extent. So I think Q3's performance is very encouraging, but we are not at this point of time giving the specifics around forward-looking, but think about it in that context of the Joenja share growth. Operator: That concludes the Q&A session. I will now hand back to Fabrice for closing remarks. Fabrice Chouraqui: Thank you very much, operator. Thank you all for attending this call and for your continued interest in our company. With that, I'll close the call. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by. This is your conference operator. Welcome to the Intrepid Potash, Inc. Third Quarter 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead. Evan Mapes: Good morning, everyone. Thank you for joining us to discuss and review Intrepid's third quarter 2025 results. With me today is Intrepid's CEO, Kevin Crutchfield; and CFO, Matt Preston. During the Q&A session, our VP of Sales and Marketing, Zachry Adams will also be available. Please be advised that comments we'll make today include forward-looking statements as defined by U.S. securities laws. These are based upon information available to us today and are subject to risks and uncertainties that are more fully described in the reports we file with the SEC. These risks and uncertainties could cause Intrepid's actual results to be different from those currently anticipated, and we assume no obligation to update them. During today's call, we will also refer to certain non-GAAP financial and operational measures. Reconciliations to the most directly comparable GAAP measures are included in yesterday's press release and are available at intrepidpotash.com. I'll now turn the call over to our CEO, Kevin Crutchfield. Kevin Crutchfield: Thank you, Evan, and good morning, everyone. We appreciate your interest and attendance for today's earnings call. I'm pleased to report that Intrepid sustained its strong financial performance in the third quarter. This was highlighted by a net income of $3.7 million and adjusted EBITDA of $12 million, which compares to a net loss of $1.8 million and adjusted EBITDA of $10 million last year. Outside of the record pricing we saw in 2022, our year-to-date adjusted EBITDA of $45 million represents our best start since 2015. I'd like to take the time on our call to specifically recognize all of our employees and congratulate them on this excellent set of results, both for this quarter and year-to-date. Our strong results were primarily driven by 2 key factors: first, higher pricing in Potash and Trio as we realize the entirety of the first half increases in both segments in quarter 3. And second, our higher production over the past year has led to better unit economics. Both Potash and Trio improved our cost of goods sold per ton by low-single-digit percentages during the quarter and year-to-date our Potash cost of goods sold improved by 9% to $327 per ton, while in Trio, the same figure improved by 15% to $238 per ton. For Trio, specifically, our production has been consistently exceeding our expectations quarter after quarter, and we're confident we can continue to sustain these higher run rates, which should further improve our unit economics in 2026. Turning to market commentary. While sentiment in U.S. agriculture had softened over the past few months, there are some green shoots emerging. This was, of course, highlighted by last week's trade deal with China, which included soybean purchase commitments and yesterday's follow-through where they also confirmed they would remove retaliatory tariffs on certain U.S. farm goods including soybeans. While China soybean purchase commitments essentially put our exports back to historical levels, when those are combined with much higher recent domestic soybean crush, the total domestic soybean use has the potential to again reach recent historical highs. This, in turn, could also provide some relief for corn if we get lower planted acres next spring although corn exports have remained very strong regardless. In summary, the U.S. agriculture landscape is certainly looking better, which is also evidenced by corn and soybean futures, both now being up by 15% since August lows. For the broader Potash market, global supply and demand remains relatively balanced where demand in key international markets has been resilient throughout the year. Given the lack of significant additional potash supply until mid-2027, we think the market will continue to see pricing support for the foreseeable future. Furthermore, potash is currently trading at similar levels to where it was this time in 2023, offering good relative value compared to other fertilizers. Putting this together, we remain constructive on our sales volumes and pricing as we wrap up the year, and we'll continue to prioritize selling into our highest netback markets. Before passing the call on to Matt, I'll end my remarks with a couple of operational highlights. In potash, we're still working on the permitting and evaluation process for the AMAX Cavern at our HB facility and hope to have our permitting efforts wrapped up in the first quarter of 2026, which is consistent with the time line we outlined in the last earnings call. In Trio, as I alluded to earlier, our financial and operating performance continues to exceed expectations. This has largely been driven by the 2 new continuous miners we placed into service in the second half of '23 as well as the restart of our fine langbeinite recovery circuit. In addition, in January 2026, we expect to take delivery of another continuous miner, which will further improve our mining rates and continue our trend of year-over-year production increases. Accordingly, we now forecast our quarterly Trio production will be in the range of 70,000 to 75,000 tons for 2026, and our team is continuing to challenge itself to find even more tons through improved mining efficiencies and increased mill recoveries. Higher production should drive another year of record Trio sales volumes for Intrepid. And given that Trio pricing is close to parity with potash, this will also help to offset the modestly lower 2026 potash production guidance we gave on the last earnings call. Overall, Intrepid continues to deliver solid financial results and the recent improvements in U.S. ag markets is certainly a positive development. Looking ahead, we'll remain focused on strong operational execution, improving our margins and free cash flow through the cycle. As the only domestic producer of potash, we'll prioritize our investments into our core business to fully capitalize on our multi-decade reserve lives. So with that, I'll now turn the call over to Matt. So please go ahead. Matt Preston: Thank you, Kevin. Starting with our Potash segment. We delivered another quarter of solid results, primarily underpinned by improved pricing and higher sales volumes. Our Q3 average net realized sales price for potash totaled $381 per ton as we fully capture the approximately $60 per ton increase for sales into agriculture markets compared to the first quarter. Compared to the prior year, our higher sales volumes of 62,000 tons in the third quarter were driven by the increase in production over the past 12 months. As we noted on last quarter's call, during the third quarter, we did delay our production at HB with the goal of maximizing late season evaporation, which was the reason for our third quarter potash production decreasing to 41,000 tons. Despite the reduced production, we're still experiencing solid year in economics in potash particularly when you consider the other revenue streams of salt, magnesium chloride and brine that enhance our cash flows. In terms of segment gross margin, our Q3 figure of $6.3 million was approximately $2.2 million higher than last year. And year-to-date, our segment gross margin totaled $13.6 million, which compares to $13 million in the same prior year period. Due to the above average rain at HB in the summer of 2025, we expect our annual potash production next year to be in the range of 270,000 to 280,000 tons. Moving on to Trio. In the third quarter, we sold 36,000 tons at an average net realized sales price of $402 per ton. The strong pricing was driven by the continuation of supportive potash values and improved realization of low chloride pricing premiums in key markets and also reflects realization of first half price increases which totaled approximately $60 per ton since the start of the year. As for the lower Q3 Trio sales volumes, that was driven by 2 factors. First, our Trio demand was heavily weighted to the first half of 2025 and where we sold a record 181,000 tons and second, normal seasonality as customers focus exclusively on third quarter application needs. Last week, we announced the Trio fill program, where we reduced our reference pricing by $35 per ton for orders placed through the end of October, with pricing after the order period back up $25 to match levels seen during the spring season. We saw a very good subscription from our customers in the fill and expect to end the year with good sales momentum. Our East mine production rates and mill recoveries continue to exceed expectations in the quarter with Trio production of 70,000 tons, again driving solid unit economics. Trio's COGS per ton totaled $257 in Q3, which compares to $272 per ton last year and $235 per ton in the second quarter of 2025, with the sequential increase in Q3 attributable to a higher mix of premium Trio sales, which have a higher carrying cost relative to our other products. Overall, a combination of operational efficiencies, improving unit economics and higher pricing have driven a significant improvement in our Trio results. Our Q3 gross margin of $4.4 million was approximately $4 million higher than last year. And through the first 3 quarters, our gross margin totaled approximately $23 million, which compares to $1.6 million in the same prior year period. This is truly a step change in operating performance that we expect to not only maintain but continue to improve upon in 2026. For next year, we expect our Trio production to be in the range of 285,000 to 295,000 tons, which we expect will also drive a 5% to 7% improvement in our per unit costs and deliver another year of very solid margins. In Oilfield Solutions, lower water sales and oilfield activity reduced our gross margin in the quarter with water significantly lower, mostly due to last year's Q3 having the largest frac job in company history. Despite the dip in Q3, our year-to-date revenues and profitability on the South Ranch have mostly been consistent with recent historical performance. While not included in our segment results, I want to highlight another strategic sale of land on our South Ranch in the third quarter, where we sold approximately 95 fee acres for a gain of $2.2 million. These sales, while infrequent, highlight the strategic value of our ranch in New Mexico, and we will continue to pursue options to monetize our land position in the Delaware Basin. As for fourth quarter sales and pricing guidance, in Potash, we expect our sales volumes to be between 50,000 to 60,000 tons at an average net realized sales price in the range of $385 to $395 per ton. Compared to last year's fourth quarter, our Q4 volume should be roughly in line with pricing up approximately $45 per ton as our geographic advantage, diverse sales mix and limited sales into the corn belt are expected to insulate us from a potential slower start to the fall season. For Trio, we expect our fourth quarter sales volumes to be between 80,000 to 90,000 tons at an average net realized sales price in the range of $372 to $382 per ton. Compared to last year's fourth quarter, our Trio volumes are expected to be almost 60% higher after the very good subscription to the fill program with pricing up roughly $45 per ton, and we expect this sales momentum will again carry into the spring season. For our 2025 capital program, we expect our spend will be in the range of $30 million to $34 million. Our 2025 spend includes approximately $5 million related to the HB AMAX Cavern with the balance directed to other sustaining projects across our Potash and Trio operations. Overall, we're pleased with our year-to-date results and encouraged by the outlook. While we've had some pricing tailwinds this year in both Potash and Trio, much of the success has also been driven by the operational improvements we put into place, particularly at our East mine. Moreover, our debt-free balance sheet and cash position of roughly $74 million continues to put Intrepid in a position of strength and we're looking forward to a very strong finish to the year. Operator, we're now ready for the Q&A portion of the call. Operator: [Operator Instructions] The first question comes from Vincent Andrews with Morgan Stanley. Justin Pellegrino: This is Justin Pellegrino on for Vincent. I just wanted to touch on the AMAX Cavern and the permits. Can you give us an idea of what the CapEx would be associated with the injection well in the pipeline should those permits be obtained? And then within the overall capital allocation priorities for next year, I imagine this is impacting your decisions and how you're planning on going forward. But can you just give us an idea of where that falls within the potential for returning any other excess cash back to shareholders or any other projects that you might be taking on? Matt Preston: Yes. Thanks for the question, Justin. As we continue to evaluate the HB AMAX Cavern, if you recall, that capital will be spread out over a couple of years. Certainly disappointed that the cavern didn't have brine when we got the injection well or the extraction well, excuse me, drilled in the summer of '25. But as we evaluate it, I mean, the capital spend, it will really just kind of like I said, I mean, be over a couple of years. And kind of how that plays out is something we'll have a little more color on here as we get to the first part of the year. I mean, Kevin, I'll let you touch on the capital. Kevin Crutchfield: Yes. Yes, Justin. Thanks for your question on capital returns. I mean, I think the answer is consistent with the past. What we're really aimed at doing is continuing to reinvest in these core assets like we talked about before, to establish a position of resiliency, consistency, predictability, et cetera. So you've got repeatable results year-over-year-over-year. I think once we get to that point and are generating predictable steady free cash flows and cash flows, then that's when we can enter a period of what does a capital return policy begin to look like. And as we've said before, it's something that the Board registers very clearly and squarely with them, and it's something we talk about routinely. So I hate to give you the same answer, but it is the same answer. And we're kind of on the path as we begin to examine that going forward. Operator: Your next question comes from the line of Lucas Beaumont with UBS. Lucas Beaumont: So farmer economics has sort of been pressured in the U.S. There have been concerns around demand destruction kind of across some of the nutrients. So I just wanted get your view on sort of how your order book is looking for both Potash and Trio and if you're seeing any indications of that at all? Or it seems like a nonissue in terms of cost cutting from the growers so far? Zachry Adams: Lucas, this is Zachry. I appreciate the question. I think first on Trio, as Matt noted in his remarks, we saw a really good response to the fill program we released last week there. So order book looks really strong on that front, and we're really fully committed for fourth quarter at this point there. And then on the potash side, a similar story. Order book looks good. We're almost fully committed here for the fourth quarter versus our guidance values. And -- and the 1 thing I'll highlight is just the diversity of our potash mix between our feed sales, industrial and the geographies that we focus on. So that insulates us a bit if there is a slower start, as Matt said, to demand for fall in the Corn Belt, for example, and we feel good about where we're sitting today. Lucas Beaumont: Great. And I guess just as a follow-up then on the new well at AMAX. So I guess, could you maybe just give us a bit more detail around I guess, what the pathway forward would be. So if you get kind of -- if you get the permit in the first quarter, like when would you kind of look to sort of execute on that? And then what would sort of be the next steps if that's either successful or sort of not successful to then continue kind of moving the project forward? Matt Preston: Yes. I look to provide a little more color, Lucas. I mean depending on the permitting, we did the extraction well. It's about $5 million we spent on that. There's certainly a little more work to completely put that in service with pipeline. It'll only depend on timing of permitting and when we want to put the injection well in and what that time looks like to get that cavern full. When it comes to an injection well, it's about $5 million to $6 million for the well, a few million dollars for injection pipeline. But as far as exact timing of when that will spend and when that final completion capital around the extraction well will happen, that's something that I just will have more color on here as we get a little more clarity on permitting into the first part of 2026. Lucas Beaumont: Great. And then just, I guess, while the potash volumes are kind of going to be impacted and be a bit lower heading into '26 in the near term, when should we sort of start to see the negative kind of cost absorption there flowing through? I don't know if you can kind of give us a view on sort of what portion of your cost base there in potash, you sort of view as fixed versus durable maybe to kind of help with that as well. Matt Preston: Yes. I mean given the slightly lower production guide here in '26, we'll start to see, all else equal, some higher cost per ton here in the first quarter as we start to start harvesting the tons that were laid down in our ponds in the summer of '25. I think it's probably 5% to 7% increase for the full year cost per ton for potash compared to '25, which we're pleased is kind of offset by that improvement in our Trio segment. Lucas Beaumont: All right. And then I guess just in Trio, I mean you mentioned at the start that the pricing there has continued to be very attractive and they're sort of trading kind of in line with potash at the moment. How do you kind of see that dynamic that are playing out as we sort of move through 2026? Zachry Adams: Yes. Lucas, I think we continue to see strength on Trio, and it's really due to the components of that product. Obviously, kind of year-to-date, we've seen strength across the potassium markets. And not just on the potash side as well on the SOP side, too, where we're seeing a greater realization of that low chloride K value in the Trio. And then kind of pivoting over to the sulfate component of Trio, we did see a bit of a seasonal adjustment in the summer as expected. But just looking at sulfur values overall, they're starting to trend back up here in the fall, and we think that provides support going into Trio into 2026 as well. Lucas Beaumont: Great. And then just lastly on Oilfield Services, I mean, it's sort of in a tough water sales environment there that you called out with the low activity levels in the quarter. So how is kind of -- is the fourth quarter kind of tracking the same? And I guess, how should we kind of think about the outlook there for that business into '26, both on the sale side and I mean like you saw, you saw a fair bit of margin pressure there in the quarter as well, which I'm assuming the bulk of that is probably tied to the sales decline. But I mean, if there's anything else there to maybe roll out for us to kind of just help frame how we should think about the potential earnings if we're sort of running at a lower sort of sales level kind of going into next year? Matt Preston: Yes. I mean Q3 was certainly quite a bit lower, particularly when we compare it against last year's record frac. I mean, we're very exposed to kind of the drilling activity that's on our feed land there, and it's really kind of feast or famine with some of those bigger drilling jobs. As we look into Q4, we certainly expect it to be down a bit compared to what we saw in the first half of the year, where we were pretty consistent margins around $1.3 million and $1.6 million. So some improvement over Q3, but we see still a slower water environment here in the fourth quarter and likely into the first part of '26. Operator: Your final question comes from the line of Jason Ursaner with Bumbershoot Holdings. Jason Ursaner: Just for Kevin, it's been, I guess, nearly a role since your were -- nearly a year since you were announced in the CEO role. But I think you've been pretty clear on the priority in terms of consistency of earnings, sustainability. Just looking at the results, it does feel like a lot of that work to get back to structural profitability, at least the heavy lifting is kind of either done or kind of on the path. So I guess, in your mind, what else sort of -- what are the big steps that you're looking for to kind of get you there? Kevin Crutchfield: Well, I mean, the focus has been intense just around the core assets. And look, I'll tell you that while we're posting more consistent, more reliable results, we're still not pleased with where we are. We think there's more work to be done, and we're going to continue that work because what we'd like to do is continue to take costs out of the system move ourselves down the cost curve. Some of that comes from the removal of cost that you can avoid because some of that comes through tweaking the volumes. And I'd like to just specifically recognize the Trio team for the work that they're doing at our East mine, have been dramatic improvements there over the last year. And I think they'll continue to outperform going into next year. We've still got some work to do on the potash side. We had the AMAX disappointment and then the weather at the end of the year that kind of threw a little bit of a ranch into early part of next year, but we'd like to get that back on track and kind of get back over that magic 300,000 ton mark and even a little higher. So while we're pleased with what has been done, there still is more work to do to achieve that resilient, predictable, as you just said, structural reliability. So that continues to be job one. And once we feel reasonably satisfied that we've accomplished that, then we can start to think about where we go from here. So bottom line is pleased with progress to date, but we still have more work to do and look forward to reporting out on those results in the coming quarters. Jason Ursaner: And in terms of the capital allocation stuff, I mean, is it waiting to see it? Or is it kind of a linear thing where, I guess, or is it -- at what point you kind of feel like it's in the works sort of, I guess, is where I'm trying to go, is it just obviously sitting with a pretty big percentage of your market cap in cash. So the commentary on waiting for capital returns, just sort of how does that go together? Kevin Crutchfield: Yes, the nature of this business and a lot of businesses, you can make a capital investment and see the result in a week. Here, it can take a year or 2 before that stuff starts to play out, just given the long-dated nature of largely the evaporation seasons and our -- the impact that weather can have on us. But I would say that a lot of that's in flight. We still have more work to do, specifically around Carlsbad and Wendover and frankly, Moab as well, making sure that those assets are performing at what we believe to be sort of their entitled level of performance. So we've sort of done a couple of years of catch-up capital. I think next year will be another one of those years. And you'll start to see the benefits of those manifest themselves late next year and moving into 2027, I think. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Kevin Crutchfield for any closing remarks. Kevin Crutchfield: Again, I'd like to take just another moment to thank our team for their hard work and dedication this year and posting solid results year-to-date and look forward to continuing to work with them in the coming quarters. And thank you all for attending today's call, and we look forward to keeping you posted in the coming quarters. Everybody, have a good day. Thank you. . Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Thank you for standing by. My name is Van and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 Planet Fitness Earnings Call. [Operator Instructions] I would now like to turn the call over to Stacey Caravella, Vice President of Investor Relations. Please go ahead. Stacey Caravella: Thank you, operator and good morning, everyone. Speaking on today's call will be Planet Fitness' Chief Executive Officer, Colleen Keating; and Chief Financial Officer, Jay Stasz. They will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. Before I turn the call over to Colleen, I'd like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during this call. Our release can be found on our investor website along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Now I will turn the call over to Colleen. Colleen Keating: Thank you, Stacey and thank you, everyone, for joining us for the Planet Fitness third quarter earnings call. In the first 9 months of the year, we made considerable progress in executing our strategic imperatives and are feeling energized to capture even greater opportunities in the evolving fitness landscape. Our strong financial performance in the third quarter is indicative of that progress and allows us to raise elements of our 2025 outlook, which Jay will touch on in greater detail. As consumers increasingly prioritize their health and well-being, we are pleased to have ended the quarter with approximately 20.7 million members and 6.9% system-wide same club sales growth. We added 35 new clubs and ended the quarter with a global club count of 2,795. Our reach is unparalleled. At the same time, with population growth and deurbanization over the past several years, we see increased opportunities to bring our high-value offering to an ever-growing community of fitness-minded consumers in more geographies than ever before. In September, we announced record-breaking participation in our 2025 High School Summer Pass program with more than 3.7 million teens completing over 19 million free workouts in our clubs. Participation was up roughly 30% from last year, reflecting teens' desire to stay active and prioritize their well-being during a critical time when school is out. We believe that the marketing emphasis on our expanded product offering, including more strength equipment, is resonating with younger consumers. We also shifted our marketing approach this year by increasing the number of influencers we use to promote the Summer Pass and we prioritized platforms that drive participation such as TikTok. This year alone, we've invested nearly $170 million in waived membership dues. Historically, we've converted mid-single-digit percentages of the participants to paying members over time. To reach these highs in the fifth year of the program speaks volumes about Gen Z's commitment to their health and wellness. Key findings from this year's participants are particularly affirming with 93% of surveyed participants reporting that the program helped them create sustainable fitness routines and 78% feeling more confident. Let's now turn to the progress we've made on our 4 strategic imperatives during the third quarter. As a reminder, the 4 strategic imperatives are redefining our brand promise and communicating it through our marketing, enhancing our member experience, refining our product and optimizing our format and accelerating new club growth. I'll start with redefining our brand promise. In the third quarter, we continued with our "we are all strong on this planet" marketing campaign that highlights our best-in-class equipment, our welcoming atmosphere and the supportive community we offer. Our strong join trend has continued, and our member count at the end of Q3 was in line with our expectations. We also saw increased Black Card penetration in the quarter with 66.1% of our total membership now at the higher tier, a 300 basis point increase from the same quarter last year. Consumers continue to recognize the value of the Black Card with the smallest price gap between our 2 membership tiers since we launched the Black Card. As many of you know, we held off on increasing the price of our Black Card membership until we got on the other side of the Classic Card price increase anniversary. After thoughtful consideration, significant testing and data analysis, we've made the decision to raise the Black Card price to $29.99 after our peak join season in 2026. We're also continuing to test new Black Card amenities such as dry cold plunge and red light technology that would add even more value to our Black Card offering. We unveiled several of these potential new offerings to our franchisees last week at our annual franchisee meeting and they were met with great enthusiasm. We look forward to sharing our plans to modernize the Black Card Spa at our Investor Day next week. Finally, we're excited to announce that we'll be sponsoring New Year's Rockin' Eve next month in Times Square for our 11th consecutive year. This is a high visibility event that continues to put Planet Fitness on a global stage and keeps our brand top of mind for consumers as they think about prioritizing their health and fitness goals in the New Year. Now to member experience and format optimization. We know that establishing a relationship with our members is important to their engagement and retention. And utilization matters as people tend to be more loyal to brands that they use regularly. It's an indication of the value they find in their Planet Fitness membership, which is why we're pleased to see utilization rates continue to increase, a leading indicator of member stickiness. We're partnering with our franchisees to put the member at the core of everything we do, along with the team members in our clubs who play a critical role in personally welcoming every member. We see time and time again when club team members greet our members by name and provide personal recognition, it enhances the experience for both the member and the team member. Our goal is to create a deeper sense of loyalty and emotional connection to drive retention and ultimately, revenue. A recent consumer insights study showed that Planet Fitness outperformed several other fitness brands on feel welcomed. This is an important emotional equity when we consider that gymtimidation can be a barrier to gym membership and usage. We also saw strong positive associations for Planet Fitness with convenient location, value for money, price, easy access and machine variety and availability. These are strong associations for our brand. Member experience goes beyond a welcoming atmosphere. It includes providing members with the ideal equipment mix in a club with a format optimized layout so they can achieve their workouts their way. To this end, we gave franchisees who are developing or renovating clubs this year the opportunity to build a traditional layout or one of the new format optimized clubs and 95% elected to build one of the newer club formats. By the end of 2025, close to 80% of clubs system-wide will have some version of an optimized format. That's nearly 4 out of 5 clubs. We will share more about this next week at our Investor Day. And finally, our efforts to accelerate new club growth. We continue to refine our product offering and enhance operational efficiencies to maximize the economic value proposition for our franchisees while delivering the most relevant on-brand experience for today's members. That said, we're a top line-driven business and we are keenly focused on driving unit economics through top line growth. In August, our franchisees voted to shift 1 percentage point of the marketing funding from the local advertising fund to the national ad fund. This change will enable us to unlock new marketing opportunities to drive consideration and conversion, spend our dollars more efficiently and ultimately, fuel member growth. Our goal is to drive top line revenue as it is the key driver of unit economics. We do this through more effective marketing while enhancing the bottom line through greater marketing efficiency and the flow-through on incremental revenue in this high-margin business. We're grateful to our franchisees for this vote of confidence in our marketing leadership and strategy. Finally, we proudly received 2 notable honors recently. First, we were named to Fortune's 2025 100 Fastest-Growing Companies list. And second, we were recognized as #22 in this year's Franchise Times Top 400 as the top-rated fitness concept. These honors illustrate the strength of our brand and are a testimonial to the dedication of our esteemed team members and franchisees. Now I'll turn it over to Jay. Jay Stasz: Thanks, Colleen. We're very pleased to deliver another quarter of strong results. And as Colleen mentioned, we're raising our full year '25 outlook. Now to our third quarter results. All of my comments regarding our third quarter performance will be comparing Q3 of '25 to Q3 of last year, unless otherwise noted. We opened 35 new clubs compared to 21. Included in our openings are 5 locations where a franchisee acquired and converted regional gyms to Planet Fitness clubs. This is a strategy that we will use as another option to accelerate new club growth. These clubs, in many cases, open with a built-in membership base, giving franchisees a jump on top line ramp. We delivered system-wide same club sales growth of 6.9% in the third quarter. Franchisee same club sales increased 7.1% and corporate same club sales increased 6.0%. Approximately 80% of our Q3 comp increase was driven by rate growth, in line with our expectations with the balance driven by net membership growth. Black Card penetration was 66.1% at the end of the quarter, an increase of 300 basis points from the prior year and a sequential increase of approximately 30 basis points from Q2. Our Q3 ending member count of approximately 20.7 million members was in line with our expectations as the third quarter is typically not a quarter with significant membership change. Our join trends during the quarter were strong, including conversions to paying members from our High School Summer Pass program. Attrition rates, while elevated on a year-over-year basis, were not out of line with historical levels and we started to see moderation late in the quarter. For the third quarter, total revenue was $330.3 million compared to $292.2 million, an increase of 13%. The increase was driven by revenue growth across all 3 segments, including an 11% increase in franchise segment revenue and a 7.6% increase in our corporate-owned club segment. For the third quarter, the average royalty rate was 6.7%, flat to the prior year. Equipment segment revenue increased 27.8%. The increase was driven by higher revenue from equipment sales, including both new equipment and reequips. We completed 27 new club placements this quarter compared to 15 last year. For the quarter, replacement equipment accounted for 82% of total equipment revenue compared to 85% last year. Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee-owned clubs was $58.2 million, an increase of 27.3% compared to $45.7 million last year. Corporate club operation expense increased 11.4% to $79.8 million. The increase was driven by operating expenses from 30 new clubs opened since July 1 of '24, including 10 in Spain. SG&A for the quarter was $30.5 million compared to $32.6 million, while adjusted SG&A was $30 million or 9.1% of total revenue compared to $31.3 million or 10.7% of total revenue, a decrease of 4.2%. National advertising fund expense was $21.4 million compared to $19.7 million, an increase of 8.7%. Net income was $59.2 million, adjusted net income was $67 million and adjusted net income per diluted share was $0.80. Adjusted EBITDA was $140.8 million, an increase of 14.4% and adjusted EBITDA margin was 42.6% compared to $123.1 million with adjusted EBITDA margin of 42.1%. Now turning to the balance sheet. As of September 30 of '25, we had total cash, cash equivalents and marketable securities of $577.9 million compared to $529.5 million on December 31, '24, which included $56.4 million of restricted cash in each period. During the quarter, we used approximately $100 million of cash on hand to repurchase and retire approximately 950,000 shares of our stock. Moving on to our revised '25 outlook, which we provided in our press release this morning. With 2 months remaining in the calendar year, we are confident in our ability to open between 160 and 170 new clubs, which includes both franchise and corporate locations. We recognize that we have a lot of clubs to open during the fourth quarter but this is standard business practice and we've completed this number of openings in prior fourth quarters. We are also confident that we can complete the 130 to 140 equipment placements in new franchise clubs. Given our strong results in Q3 and the overall strength in the business, we are increasing our outlook for '25. We now expect the following: same club sales growth of approximately 6.5%, up from 6%; revenue to grow approximately 11%, up from 10%; adjusted EBITDA to grow approximately 12%, up from 10%; adjusted net income to increase in the 13% to 14% range, up from 8% to 9%; adjusted net income per diluted share to grow in the 16% to 17% range, up from 11% to 12% based on adjusted diluted weighted average shares outstanding of approximately 84.2 million shares, inclusive of the impact of the shares we have repurchased throughout the third quarter. We expect net interest expense of approximately $86 million and D&A to be approximately $155 million with CapEx to be up approximately 20%. In closing, we are excited by the momentum in the business and evidence that our strategic imperatives are producing results. We had a highly successful High School Summer Pass program as we continue to build loyalty with Gen Zs. And our franchisees are investing in opening, remodeling and adding strength equipment as they see the benefits of our work to reposition our brand and optimize our layouts, putting the member at the core of what we do. I will now turn the call back to the operator to open it up for Q&A. Operator: [Operator Instructions] And your next question -- or your first question comes from the line of John Heinbockel with Guggenheim Securities. John Heinbockel: Colleen, your thought on holistically this marketing split, right, between local and national. I know the 1% shift that adds maybe, I guess, $50 million to the national piece. How do you want to spend that? Where do you think that goes over time, right? And what's sort of the right level? I guess you would think as you get larger, right, maybe you end up spending closer to in total, 7% of sales as opposed to something higher. What's the thought on that? Colleen Keating: So I'll speak to the shift of the 1 percentage point from the local ad fund to the national ad fund. I won't get super granular for competitive reasons, of course, but this will enable us to augment some of the marketing that we're doing digitally, use AI and augment our CRM, digital content optimization and a number of other things that, again, will give us the opportunity to have greater reach with each of those marketing dollars. It will also enable us to buy media more efficiently on a national basis. So again, really get more mileage out of every dollar that we're spending. John Heinbockel: Okay. And maybe a follow-up. I know, right, you've got this 5,000 store or club target in the U.S. Just remind us how you thought about that in terms of density. And then when you think about -- as you referenced geographies, is there a bigger opportunity than you thought for smaller markets, less dense? And does that require to make the economics work or how much smaller of a club do you need to make that work? Colleen Keating: So there's a couple of questions in there and I'll start maybe with the first one on the opportunity and density. As you know, we are more dense on the East Coast, so Northeast, East Coast, Southeast, less dense Midwest, West. And at the same time, where there has been population growth, job growth, deurbanization, new home construction, which, again, demographically meets the demand coming from millennials as forming households. We think there's opportunity where we're less dense to increase our penetration. And we think that some of the demographic shifts that have occurred with that deurbanization and population growth over the last several years complement that very well. And we've had several studies done to opportunity size the domestic landscape that supports that growth. Generally speaking, those growth numbers are supported with 20,000 or traditional 20,000 square foot club. At the same time, I think we've talked before, we're developing prototypes that are a bit smaller than the 20,000 square foot club that will enable us to go into markets that maybe don't have quite the population density but might be underserved from a fitness standpoint today. Next question comes from the line of Sharon Zackfia with William Blair. Sharon Zackfia: I wanted to actually double-click maybe on the churn. There was a lot of chatter kind of within the quarter amongst investors that maybe the click-to-cancel churn was much more elevated than what you expected but it doesn't seem like that was the case. So I wanted to check on that. And you mentioned moderation. Are you kind of back to normal levels of churn? And should we expect member growth to sequentially resume again in the fourth quarter? Jay Stasz: Sharon, this is Jay and I'll respond to that to start. And we don't guide to the membership growth, so I'm not going to comment on that. But we're pleased, right, as we said, the 20.7 million members was right in line with our expectations. And in regards to attrition, the rates were elevated on a year-over-year basis. But when we take a multiyear view, they were not out of line with what we've seen historically. And to your point, we did see some moderation late in the quarter. So what we have in our outlook and what we've modeled is continued elevation on a year-over-year basis. And that's very consistent with the way we thought about it in -- on the last call for Q2 and now this call and that's what we've modeled. It's included in our outlook that we've guided. So we're pleased with what we're seeing in the underlying trends in the business. Sharon Zackfia: And Jay, can I just follow up? Is that continued elevation just the tail from click-to-cancel? Or is it something you're seeing that's more macro? Jay Stasz: No, we think it's driven by the click-to-cancel tail. Operator: Your next question comes from the line of Jonathan Komp with Baird. Jonathan Komp: I want to just follow up. Could you maybe talk a little more directly when you look at the guidance raise for the year, combined with the confidence to commit to the Black Card pricing after your peak period coming up? Could you maybe just talk about more directly what's driving your increasing confidence to announce both of those today? Jay Stasz: So I can start with those items. I think, look, from a guidance standpoint, we had good results in our third quarter. So obviously, that is nice to see and gives us confidence. When we think about some of the drivers in the increase for the year, we have obviously some nice momentum in our equipment business, right? The franchisees, they are leaning in on these new formats, not only with the new clubs but certainly reequips and adders as we call them. So we've got some nice trends there. From an SG&A standpoint, we called out on the call, obviously, we had a decrease in the quarter. And some of that was driven by a annual franchisee conference that we're -- we were lapping last year that was pushed into the fourth quarter this year. But taking that out, we are seeing nice trends on SG&A. And we're also carrying forward, obviously, the upside that we had on the sales in the third quarter, pushing that into the full year guide. So all of those components are resulting in the guidance that we gave. We think that's a nice trend, seeing some separation between revenue, getting some leverage and driving EBITDA growth. In terms of the Black Card price increase, so as we said, we've tested this, we've analyzed it and made the decision to go to $29.99. When we've tested that, obviously, we've had -- it's been accretive to the AUV. So we're not going to really comment on the impacts for next year. We'll get to that when we actually do the price increase. But historically, what we have seen when we've made a change on the Black Card price is that the acquisition rate on Black Card does decrease for a period of time but usually rebounds within the year so that the penetration of Black Card gets back to where it was. The wrinkle and the difference now is that we've had the Classic Card price increase. So that increase is an element that we haven't had historically. So we'll have to wait and see on that. But again, we would expect for that Black Card price increase to be accretive to AUV. Jonathan Komp: Okay. That's great. And then maybe just a follow-up, Colleen. I know there's quite a bit of -- quite a few positives in today's announcements but it's unique that you have an Investor Day coming up next week. So could you maybe just share at a high level, maybe what we should expect to hear or the plans that you hope to share going into next week directionally just to set the stage. Colleen Keating: Yes, sure. Happy to. We'll give you a bit more granular detail on the progress that we're making on our strategic imperatives. And we'll also give you a multiyear view of what you can expect from a growth trend standpoint. So you'll get some numbers beyond, obviously, just a single year. So some multiyear projections from us. Operator: Your next question comes from the line of Joe Altobello with Raymond James. Joseph Altobello: I guess first question on the competitive landscape. Curious if you're seeing any shifts at all, whether it be from low-priced, high-value competitors or even some of the more higher-priced competitors in the space. Colleen Keating: I'll start and just say for the quarter and year-to-date, we've been quite pleased with the join trends and the join volume. So again, as I've said before, I think our biggest competition is fear of walking in the front door. And our marketing is really resonating with consumers today, both the strength equipment and the ability to get strong at Planet Fitness but also conveying the sense of community at Planet Fitness. So again, feeling very good about the join trends. Joseph Altobello: Helpful. And maybe just to follow up on that, in terms of new store openings for next year, I know, obviously, there's not a ton of visibility at this point. But what does the availability of real estate look like? And could we see more acquisitions and conversions like you did this past quarter? Colleen Keating: So we're not obviously guiding next year yet. But what I will talk about a little bit is -- and I have before, the real estate landscape and the fact that this year, for the first time in several years, we're seeing negative absorption specifically of shopping center retail space. So enclosed malls have had negative absorption but shopping center retail space, the type of space that we're looking for, for a Planet Fitness, negative absorption for the first time in several years year-to-date this year. And also a moderation in rent escalation where rents were going up quite dramatically in this year, the first half of this year, both quarters, they were below the rate of inflation. So we think those are positive indicators. And of course, the retail bankruptcies that have been occurring, store closures and even seeing grocery stores demising space and going to a smaller footprint, all of that is -- those are positive indicators for increased availability of retail space for clubs. Operator: Your next question comes from the line of Randy Konik with Jefferies. Randal Konik: Colleen, back to you. I think the question was asked what you're going to share at the Analyst Day next week. You gave a brief answer. Maybe give us some perspective on -- based on the content you plan to share next week, some of the kind of key themes or takeaways you want us on the buy and sell side to kind of take away about the Planet story, Planet business model as we go to the -- ahead of the meeting next week. Colleen Keating: Absolutely. Happy to do that and thanks for the question. So I know that many are looking for kind of the puts and takes to an algorithm to help project our business. But I think, most importantly, we want to really convey the kind of the macro tailwinds for this industry. The -- I've said we're in the golden age of fitness and I believe that's very much true. The demand for the offering that we provide, people are more fitness-minded than ever before. There's an incredible addressable landscape for fitness-minded consumers and our ability to answer that call. So we'll get into some specifics on that next week. So really kind of secular tailwinds, macro. And then the other thing is we've been talking about building our Blue Ribbon team. And we've had a couple of great new leader additions and then had some of our seasoned team members take on expanded roles and want to give everyone an opportunity to meet and hear from them. So marketing, development, operations, including the international opportunity. And you'll hear from a number of our new team members, our team members with expanded roles next week as well. Randal Konik: And then finally, just on how you're thinking about the globalization of the brand. Give us some perspective on how you're thinking about kind of telling that story for us next week. Do you think about taking Spain and kind of pushing that each year into a new country or another couple of countries each year beyond that? Or do you think about potential acquisitions ever? Just how do you think about the globalization of the brand, i.e., Planet taking over the planet? Colleen Keating: Absolutely. So I'm going to save a couple of things for next week but we absolutely will talk about the global expansion opportunity and the success that we have -- the success that we've enjoyed in Spain, the strong performance of our brand there. It was -- we launched Spain really as a kind of proof of concept and it's been wildly successful. So we'll give you some very specific data on Spain on how we define that wildly successful. And then also talk about where we see additional opportunities for growth and what the cadence of global growth could look like as a component or as one of the building blocks to the kind of the multiyear outlook for unit growth. Operator: Your next question comes from the line of Rahul Krotthapalli with JPMorgan. Rahul Krotthapalli: Colleen, can you discuss your thoughts on the strategic brand partnerships with like either large retail or consumer brands, hotels, airlines, whatever you're free to talk about and given the efforts around ramping the marketing strategy and the strong membership base you have? And I have a follow-up. Colleen Keating: So we've launched a number of partnerships and brand partnerships already that have inured to the benefit of our members. And we've had year-to-date well over $7 million of perks redemptions for our consumers. And that -- those redemption rates have been on a growth curve over the last 5 years because we're focusing on expanding that offering for our members. We do see additional opportunities for brand partnerships and we have some that we're cultivating today. Again, for competitive reasons, I won't speak to specific brands until we're ready to go to market with the partnership. But you're right that, that's something that we've been focused on. We've seen good utilization from our members where we've had partnerships in the past, again, with a new high watermark this year in redemption. And more opportunity. One of the things that Brian Povinelli brings from his prior experience is one of the absolute leading membership and loyalty programs in the hospitality space, rebranding that and relaunching that after a merger. So he's got a lot of experience with that and has brought perspective. So you'll see more of that to come. Rahul Krotthapalli: Perfect. And just on -- tacking on to the membership retention. You guys have lot of data, 20.7 million members. Can you give a preview under the hood on how you plan on utilizing AI and other technology tools you would like to invest in to improve membership retention and utilization? Colleen Keating: Yes. So from an AI perspective, I touched on it a little bit in marketing at a pretty high level. So think about AI-enabled CRM, think about AI-enabled marketing with digital content. So serving up content that is more targeted to a consumer. But again, I won't get into a ton of granular detail just for competitive reasons. And then I think you'll see it embedded in our app. We've talked about kind of the revitalization of our app, our app being one of the most downloaded, if not the most downloaded fitness app on the App Store and the opportunity to leverage AI to more personalize the experience for our members when they're utilizing the app and can enhance the in-club experience and out-of-club experience. Operator: Your next question comes from the line of Chris O'Cull with Stifel. Christopher O'Cull: Colleen, I know the company has been testing additional services in the Black spa -- Black Card Spa area like red light therapy and spray tanning, among others. But what are you learning about the value of those services to members? Colleen Keating: We're measuring utilization and also surveying our members for feedback. And as you know, we rolled out NPS earlier this year across the company, which is giving us immediate real-time feedback and the ability to capture more consumer data. So we also shared the potential Black Card amenities with our franchisees last week at our franchisee huddle and the franchisees were quite enthusiastic. We had a number of the vendors that were there and they were saying -- our franchisees were asking when can I get this? So we want to do the right amount of testing to make sure that we're really optimizing the Black Card Spa offering. At the same time, that data will help inform where we go to market with some new offerings to continue to invigorate the Black Card Spa. Christopher O'Cull: Great. And then I believe last year, you had some incremental marketing investment in the fourth quarter. So I was just hoping, could you maybe share or elaborate on how you plan to lap that this year? I'm assuming it may be safe to assume that year-over-year spend will at least be in line with the total spend last year. Colleen Keating: So keep in mind that as our revenue grows, so too does the marketing fund. So a big part of the marketing fund is influenced by the capture or the percentage capture on the growing revenue. At the same time, without being specific about Q4 kind of promo intentions, what I will say is we've -- we used to think about Q1 as the join quarter and what we've come to realize is that they're all join quarters and we know that we can put marketing to work in all quarters of the year and have favorable benefits. Operator: Your next question comes from the line of Max Rakhlenko with TD Cowen. Maksim Rakhlenko: Great job, everyone. Very nice quarter. So first, you recently ran a perk, which was a discount on a workout planning app. I'm not sure if that was new or not. But with an increase in popularity in many of these digital personal training or workout planning apps, are there bigger opportunities to embed this sort of technology into the Black Card membership? There was previously a push in the personal training and something that some of your HVLP peers are doing. So just curious, is leveraging technology an opportunity to both unlock revenues as well as provide a better member experience? Colleen Keating: So certainly and I touched on this a little bit when Rahul asked about AI, use of AI and we do see an opportunity to use AI or leverage AI to more personalize the experience for our members. And one of the ways we could use it is in personalizing workout plans for our members as well. So all of that is on the AI road map as well as the app revitalization road map. Maksim Rakhlenko: Got it. That's helpful. And then can you just unpack the implied 4Q comps guide for us as there are some puts and takes and how we should think about that versus 3Q's 6.9% and just comments around sort of better churn, especially exiting the quarter, just how we should think about mix and member rate as well. Jay Stasz: Yes, Max, this is Jay. And the way we're thinking about it and we don't want to get too granular but it should be relatively consistent quarter-over-quarter. Obviously, the big driver there is as we anniversary the Classic Card price increase that we did last -- at the end of June last year, right? As we've said, we do get a rate benefit from that but it diminishes over the tenure of our membership. So that rate benefit is decreasing, which is driving the decrease in the comp comparing Q3 to Q4. Operator: Your next question comes from the line of Logan Reich with RBC Capital Markets. Logan Reich: Congrats on a strong quarter. My question was on the High School Summer Pass. I mean, up 30% is a really impressive number and you guys talked about the strength of equipment and the marketing. I guess my question was more on the conversion rate to paying members that's in the mid-single digits. Just any more color you guys can give on that just on the timing of when those high school pass users convert, kind of the shape of that? And any sense on if that number could potentially be higher than historical levels, just given participation is up a lot. Just curious if that translates to upside to your conversion rate as well? Colleen Keating: Sure. I'll start. So we'll report on conversion at the end of the fourth quarter because we continue to convert through September, October, even a little bit in November because they are able to utilize the pass through the end of August and then we see this kind of surge in conversion in September, October, a bit into the fourth quarter as well. So we'll give you more data on that at the end of Q4. And when I think about the number of paid members converted out of summer pass, obviously, it's a bigger denominator. So even at a similar conversion rate, the numerator is going to be larger. But what we're seeing so far is fairly similar conversion percentage and really encouraged by the overall strength of the program. Operator: Your next question comes from the line of Brian McNamara with Canaccord Genuity. Madison Callinan: This is Madison Callinan. I'm on for Brian. First, are we now behind the lion's share of expected click-to-cancel impact? And do you expect any positive impact on rejoins next year as a result? Jay Stasz: Yes. So we're not giving guidance outside of this quarter right now. Of course, we'll be meeting next week and giving long-term targets and more color there. And from an attrition standpoint, as we said, right, consistent is that we have seen elevation in the attrition rate year-over-year. When we look at it at a multiyear lens, it is more consistent with what we've seen historically. We have modeled the elevated attrition rate into Q4 and that is included in our outlook. Colleen Keating: Yes. Can I also just add, one of the things that we have seen and we saw it in the test environment, a couple of test environments previously. One thing that has proven true is that where we are now able to say one click to cancel or cancel any time in the join flow, we are seeing it give us a lift in the join conversion. Madison Callinan: And then I know that you touched earlier on rate. But with 80% Q2 comp driven by rate and a Black Card increase coming next year, when should we expect volume to return to be the primary driver of comp growth again as it has been historically? And would you expect Black Card penetration to return to its historical 60% penetration levels after that price increase goes into effect? Jay Stasz: We'll talk more about that next week. And certainly, from a Black Card standpoint, we'll get into specifics on that more when we do the price increase. Operator: Your next question comes from the line of JP Wollam with ROTH Capital Partners. John-Paul Wollam: If we could just start first on kind of franchisee returns. A lot has been done in the last few years with the new growth model to really improve those franchisee IRRs. So I'm just wondering, are there maybe 1 or 2 data points you can share about kind of just some accelerating license sales or maybe interest in new licenses that you can share? Jay Stasz: I'll start. Yes. I mean we're not probably going to talk about ADA or license sales or franchise agreement sales. But what I can speak to the IRRs and how we think about it. We track, certainly our more recent club openings post the new growth model post the Classic Card price increase and we're tracking those from a top line basis to see if we're hitting kind of our internal hurdle rate for the IRRs, which obviously are shared with ourselves and the franchisees' lens. So we're pleased to report that those are tracking right in line. So we're seeing the lift as we would expect from those initiatives. And that's a top line lens. Obviously, part of the new growth model was giving some more flexibility on the CapEx reequipped timing schedules. So that's positive as well. And I think to your point, with Chip now here as the CDO, he continues the effort to value engineer the club build-out costs and we spoke about that to the franchisee group last week at our huddle. We've also, as part of our fit for strategy structure, established a formal procurement team under the finance org, under my org. And we've started some initiatives there where we think we can save the franchisees' money. Colleen Keating: Yes, I'll chime in on that, too. I think a couple of things. One data point I'd point to is franchisee same club sales growth coming out of the quarter at 7.1%. The franchisees are definitely feeling the strength of the join volume, the marketing landing. And then I think a couple of other proof points that we have talked about, real estate availability having been a bit of a headwind on development and I talked a little bit about earlier about that easing. I think another proof point is, we've had a franchisee last year and this year buy a couple of few conversion clubs and several conversion clubs. And those were conversions that enabled them to bring additional clubs into the system quickly. And that's a strong signal that franchisees are excited to continue to grow with us. I think the third is that in every case where we've had portfolios transact, certainly, in my tenure here, in every case, we've had incumbent franchisees at the table wanting to buy additional territory or additional clubs when they become available. So that -- I think that's another proof point of franchisee confidence in the system. At the same time, we're not letting up on enhancing franchisee economics, all of the things that Jay talked about and the things we're doing in build cost and trying to bring build costs down for our franchisees while also protecting the member experience. John-Paul Wollam: Perfect. And then just one quick follow-up and I think fairly straightforward. But I assume most of the unit openings coming in the fourth quarter are largely through a lot of maybe permitting and municipal processes. And I would assume it's largely all on a local basis. But anything in terms of the government shutdown that would be a potential risk to unit openings in the fourth quarter? Colleen Keating: We've not heard about government -- the government -- the federal government shutdown having any impact on openings. And you're right, a lot of permitting is done early in the build cycle. And then, of course, there's -- there are municipal inspections late in the build cycle like final COs and sign-offs. And those are done at the local municipal level, not at a federal level. Operator: Your next question comes from the line of Arpine Kocharyan with UBS. Arpine Kocharyan: Could you talk to the general trends you saw in terms of gross adds for the quarter? What you saw in Q3 and what you're seeing into Q4 as we see churn kind of normalize a bit here? And you saw slightly lower membership in Q3 versus Q2, which is, I think, in line with what you saw last year quarter-to-quarter. But last year, you were going through the price increase on Classic Cards. So maybe if you could talk to the gross adds versus underlying attrition trends in the quarter? And then I have a quick follow-up. Jay Stasz: Yes. And I -- you broke up for the back part of that question. So I heard the part about the gross joins. Could you repeat the back half of your question, please? Arpine Kocharyan: Yes. Just your membership is slightly lower in Q3 versus Q2, which is, I think, in line with what you saw last year quarter-over-quarter. But last year, you were going through the price increase on Classic Cards. So maybe if you could talk to the sort of gross adds versus underlying attrition trends in the quarter that you saw would be helpful. Jay Stasz: Yes. Well, I can start. And right, we don't speak to the gross joins or cancels. But I mean, we did see strong join trends and we commented that on the prepared remarks. Those join trends were offset by the elevated attrition rate that we talked about. And the attrition rate was elevated year-over-year. Again, when we look on a multiyear basis, it is more consistent with what we've seen historically. And the third quarter, generally speaking, is not a high net add quarter, right? It could be flat or slightly down. We've seen that before. That's what we experienced this quarter and it was in line with our expectations. And again, we think those trends will continue going forward on both fronts, right? We have nice trends in the strong join side and we do -- and we've modeled continued elevated attrition on a year-over-year basis. And both of those are included in our outlook for the year. Colleen Keating: And I think also important to note that as we've said in the past, where we rolled out click-to-cancel previously, after about-ish about 12 weeks, we started to see it moderate. Given when we rolled out click-to-cancel in Q2, we were within that expected elevated attrition window in the beginning of Q3. And as Jay indicated, we started to see that -- we start to see that moderate. And then we've also continued to have very strong rejoin rates. So in the mid-30s again from a rejoin rate standpoint throughout the quarter. And our marketing is very effectively driving join volume and we're also retargeting lapsed members and that's helping to drive the strong rejoin rate. Arpine Kocharyan: That's super helpful. And then just a really quick follow-up. Maybe just a bit of a bigger picture question. It seems like some of the demographic shifts you're seeing is younger customer that is maybe using the clubs more at a higher frequency, which should be good for structural retention, I would say, in longer term but maybe more wear and tear for the equipment. Does that mean more frequent replacement of that equipment longer term? And what implications that has for franchisee returns? Colleen Keating: Do you want to start? Jay Stasz: Well, yes, I'll start. I mean part of the strength of this brand is the quality of our equipment and the way we maintain it. So it is high-grade durable equipment and we would not expect any changes to the replacement timing because of wear and tear. Colleen Keating: I think the fact that we pushed out the reequip schedules by a year with the new growth model last year and the fact that also strength equipment does have a longer life than cardio, the utilization of strength actually is a piece of equipment that has a longer life. So there's no expectation that we're going to pull forward reequip schedules for our franchisees. And yet at the same time, we know that the consistency of our replacement cycles and the quality of our equipment is something that our members appreciate at Planet Fitness. Operator: Your next question comes from the line of Marni Lysaght with Macquarie. Marni Lysaght: I think recent more topical matters such as churn, et cetera, have been well covered in prior questions. But my question is mainly concern -- or just in terms of like your outlook for rollout, can you kind of give us a bit of color or maybe it's more of an appropriate topic to discuss next week at the Analyst Day. But just about when you're competing for space and you talked earlier about prototypes for smaller formats, how do we think about franchise groups and yourself looking at those sites and who you may be competing with for that space? Colleen Keating: Yes. I think one of the things that our real estate team is doing in partnership with our franchisees is getting ahead of space availability and talking with the large landlords and brokers to make sure that we articulate the value proposition of putting Planet Fitness in a center, particularly we skew heavy female. We contribute to traffic to the center because we don't have classes, we're not taking up significant amounts of parking at a given time and we also contribute traffic to a center during off-peak times because most retail centers are getting heavy traffic on the weekend and our heaviest traffic is weekday, in the early part of the week. So it's really about making sure that we highlight why Planet Fitness is a prospective great tenant and also the resiliency of our business, the durability of our cash flows, the fact that we came through COVID with a number of temporary club closures for municipal reasons but not one club permanently closing for financial reasons. And compare that to the retail closures and retail bankruptcies, we should be a very attractive tenant. So it's really about promoting the value of having Planet Fitness in the center. Marni Lysaght: Understood. Another question I have is just more about like the split of how you think about rate growth. So I think you said back at the prior results, 70-30 for the back half of this year to be driven by rates and volume. And you previously alluded to like a 50-50 split, just given the nuances here about your members coming in line with your internal expectations and some of the other dynamics at the moment, what's the correct way to be thinking about that? Jay Stasz: Yes. So we'll guide into that for future periods, we'll talk -- we won't guide into it but we'll talk about it next week from -- as we kind of lay out the growth algorithm. And really, what we talked about given the dynamics this year was kind of a 75-25 or an 80-20 split. This quarter landed right in line with our expectations and we don't think that's going to change dramatically in Q4. Colleen Keating: Yes. I will say, historically, when we've taken Black Card pricing in the past, we have seen a little diminution on the Black Card penetration but not on the join volume. So taking Black Card pricing in the past was not a headwind to join volume. It was just a little bit of a diminution on the Black Card penetration, the mix. Operator: [Audio Gap] further questions. I will now turn the call back over to Colleen Keating for closing remarks. Colleen Keating: Well, first, I'd like to thank our team members and our franchisees for delivering such a strong -- such a solid quarter. I'm very encouraged by the momentum that we're carrying through into the fourth quarter to complete a strong 2025. We look forward to providing more insight into our long-term growth opportunity at our Investor Day next Thursday. Thank you, everyone. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Lundin Mining Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jack Lundin, President and CEO of Lundin Mining. Please go ahead. Jack O. Lundin: Welcome to our third quarter 2025 conference call. The financial results press release and presentation are on our website where you can also find a replay of this call. All figures today are in U.S. dollars unless stated otherwise. After the presentation, we will open the floor to questions. Today's webinar will include forward-looking statements that involve risks and uncertainties. Please review the cautionary notes on Slide 2 and the disclaimer in our MD&A. With me today is our Chief Operating Officer, Juan Andres Morel; and our Chief Financial Officer, Teitur Poulsen, to discuss our Q3 operating and financial results. Touching on the highlights from the quarter. Consistent operational performance continues to drive solid financial results, which I'll briefly summarize on the next slide, and Juan Andres and Teitur will provide additional details shortly. We've tightened our production guidance ranges, increased copper guidance and reduced cost guidance, reflecting the strength and stability of our operations. We continue to advance the Vicuña opportunity during the quarter given the positive momentum and many working fronts that are progressing well against the baseline plan, we felt it was the right moment to further strengthen the management team. Effective tomorrow, Ron Hochstein will be leaving Lundin Gold to join Dave Dicaire in the rest of the Vicuña Corp. team, where he will support as Chief Executive Officer of the joint venture. Ron joined a group of familiar former colleagues, many of whom were involved on the successful project phase of the Fruta del Norte gold mine in Southern Ecuador, currently owned and operated by Lundin Gold. Together, the team will look to build on a successful track record by bringing the Vicuña project towards the sanction decision and ultimately, development and operations. Our operational success goes hand-in-hand with our safety performance. In the first 9 months of the year, we're pleased to report no major injuries across any of our operations and the total recordable injury frequency rate of 0.29, the lowest in the company's last 10 years. This achievement underscores our commitment to risk management and the effectiveness of our proactive improvements to critical controls. Lastly, as we outlined at our Capital Markets Day in June, we're advancing several near and midterm growth opportunities across each of our three Latin American operations. One key initiative relates to the Caserones cathode growth opportunity, and I'll provide an update on that towards the end of today's presentation. On the next slide, we're pleased to announce that the third quarter was the best quarter year-to-date by most metrics. We're seeing the benefits of a simplified portfolio, full potential initiatives and disciplined planning and the execution of our plans are paying off now. Copper production for the quarter totaled 87,400 tons, primarily driven by a strong performance at Caserones from higher copper grades and elevated cathode production. As a result, we have increased annual copper guidance by approximately 11,500 tons in the midpoint. The new guidance range is 319,000 to 337,000 tons of copper, improving by about 3.5% when you compare the midpoint. Gold production was in line with the last quarter at 38,000 ounces, and year-to-date, we are tracking to achieve our full year guidance. During the quarter, we produced copper at a consolidated cash cost of $1.61 per pound, benefiting from stronger gold prices and cost reduction efforts at our assets through our full potential programs. We have since lowered cost guidance to $1.85 to $2 a pound and tightened our production ranges on several of our assets as we enter the final quarter of the year. We will provide details on guidance improvements later in this presentation. And on the operational financial performance, we delivered over $1 billion in revenue in Q3, making it one of the strongest quarters in the company's 30-year history. And we generated approximately $490 million in adjusted EBITDA and $383 million in adjusted operating cash flow. We also declared our 38th regular quarterly dividend, highlighting our commitment to financial discipline and shareholder returns. There were no share buybacks in the quarter. Year-to-date, we've purchased or repurchased 12.6 million shares for approximately USD 104 million at an average price of CAD 11.70 per share. With about $45 million remaining under our $150 million buyback program, subject to market conditions, we intend to complete the buybacks before the end of this year. However, any shares that are not purchased will be turned into a special dividend, ensuring we deliver on our $220 million total annual return target. I would now like to invite Juan Andres, our Chief Operating Officer, to discuss our production results for the quarter. Juan Morel: Thank you, Jack, and good morning, everyone. Our assets continue to perform well, and the focus on increasing our operational discipline is correlating to strong safety and production results. As mentioned earlier, we increased copper guidance, and I will discuss that later on. Copper production for the company was 87,400 tons for the quarter and 244,200 tons year-to-date, which puts us in a comfortable position to meet our increased guidance range for the year of 319,000 to 337,000 tons of copper. Gold production for the quarter totaled 37,800 ounces and 107,700 ounces year-to-date. The company is positioned well going into the end of the year and tracking to production guidance on a consolidated basis for copper, gold and nickel for 2025. At Candelaria, copper production for the quarter totaled 37,000 tons, along with 19,900 ounces of gold. Candelaria continues to be extremely consistent this year, softer ore from Phase 11 led to higher throughput in the mill, which processed 8.1 million tons of ore during the period. This is the highest throughput in a quarter in the last 5 years and the second highest quarter for throughput since we have owned the asset. Year-to-date, Candelaria has produced 111,000 tons of copper and 61,500 ounces of gold, which puts Candelaria well on track to meet guidance for the year. We anticipate production levels in the fourth quarter at Candelaria to be in line with Q3. At Caserones, copper production reached 35,300 tons in Q3, one of the strongest quarters since we have owned the asset. Year-to-date, it has produced 93,300 tons. As mentioned last quarter, the asset is second half weighted. Head grades have improved in the second half of the year and should continue through Q4, putting Caserones on track to meet guidance. Cathode production continued to outperform expectations, but in line with what we announced in June during our Capital Markets Day. A total of 6,300 tons of copper of cathodes was produced in the quarter driven by increased material placed on the leach pads and improved irrigation practices. We have updated the hydrometallurgical model for the dump leach and anticipate cathode production for the full year to be approximately 24,000 tons, which is higher than what we have planned at the beginning of the year. This strong capital production has led us to increase overall guidance for Caserones and tighten the range. The new copper guidance is forecast to be 127,000 to 133,000 tons for the full year at Caserones. In the quarter, Chapada produced 12,600 tons of copper and 17,900 ounces of gold. Production at Chapada continues to be weighted toward the second half of the year, and fourth quarter production should be in line with Q3. At Eagle Mine, nickel production was 2,700 tons and copper production was 2,400 tons for the quarter. Mill throughput was strong at 183,000 tons, which was the highest quarterly throughput in the last 2 years. Eagle is tracking to guidance and is expected to be within 9,000 and 11,000 tons of nickel and within 9,000 and 10,000 tons of copper for the year. Year-to-date, operations have been performing well. Strong capital production and throughput at Caserones has led to a guidance increase for approximately 10,000 tons. As mentioned, the new guidance range for Caserones is now 127,000 to 133,000 tons. With increased confidence going into the end of the year, we have tightened the guidance ranges for Candelaria and Eagle. The new copper guidance range for Candelaria is 143,000 to 149,000 tons and for Eagle is 9,000 to 10,000 tons of copper. Consolidated copper production guidance range is now 319,000 to 337,000 tons of copper an improvement of approximately 11,500 tons to the midpoint of the guidance. Consolidated gold production guidance is now 135,000 to 146,000, representing a tightening of the range for improved confidence at Candelaria and Chapada. Overall, we're in a good position entering the fourth quarter. With improved guidance and consistency from our operations, we are tracking to reach the midpoint for our guidance for all metals. I would now like to turn the call over to Teitur to provide a summary on our financial results. Thank you for your attention. Teitur Poulsen: Thank you, Andres, and good morning, everybody. I'm very pleased to be able to present a strong financial quarter for the company. The company's financial performance was supported by strong operational results, as Andres has just now presented, coupled with favorable copper and gold prices. These factors enabled the company to achieve another quarter of strong financial performance. The revenue for the quarter came in at $1 billion with our revenue remaining heavily weighted towards copper, which accounted for 79% of the revenue mix. Gold and nickel contributed 13% and 3%, respectively. With the price of gold hitting all-time highs, we have seen our gold revenue contribution climb by about 2 to 3 percentage points. During the quarter, our Chilean mines, Candelaria and Caserones generated 74% of the company's revenue. In combination with Chapada in Brazil, operations in South America represented 95% of total revenue. Looking at volumes sold inventory levels of concentrate and realized pricing. During the period, we sold approximately 79,000 tons of copper at a realized price of $4.61 per pound, which is slightly better pricing than the average LME spot price for copper during the period. As disclosed in our pre-release in October, we incurred a shipment delay of approximately 20,000 tons of copper concentrate at Caserones due to weather-related impacts at the port of Punta Totoralillo. This has resulted in company carrying higher than normal inventory levels at the end of Q3. This elevated level of inventory is expected to unwind during Q4, and thus having the revenue and cost of goods sold associated with this inventory to be recorded in the fourth quarter, 2025. Traditional pricing impact in the third quarter was positive by $11 million, primarily driven by gold ounces that settled in the quarter. The realized gold price during the quarter was just below $3,900 per ounce. At the end of the quarter, 78,000 tons of copper were provisionally priced at $4.65 per pound and 34,000 ounces of gold were provisionally priced at $3,800 per ounce and remain open for final pricing adjustments in Q4. Turning to Slide 14. Production costs totaled $490 million for the quarter, consistent with the past few quarters. At Candelaria, total costs were higher compared to previous quarters due to higher mining costs and higher ore milled during the period and due to reclassifying certain stripping costs from sustaining CapEx to production costs. Cash costs have continued to benefit from strong gold prices and remain in the $1.90 range. For the full year, we reiterated the cash cost guidance of $1.80 to $2 per pound for Candelaria. Caserones costs for the third quarter are lower than normal due to inventory build relating to the deferred shipment of concentrate into the fourth quarter, representing approximately $20 million in costs associated with this delay. Costs in the third quarter also benefited from certain one-off credit notes from certain suppliers and due to a new and more cost-effective equipment maintenance contract. Total costs were in line with expectation of $158 million for the quarter when adjusted for the above-mentioned items. Cash cost at Caserones were $1.86 per pound and benefited from better TCRC terms, stronger cathode production and byproduct credits as well as lower contract costs as mentioned earlier. We expect cash costs in the fourth quarter to continue to benefit from strong cathode production and byproduct pricing and have lowered our guidance range for Caserones to between $1.15 to -- sorry, $2.15 to $2.25 per pound, representing an approximate $0.30 per pound decrease. Chapada's total cost for the third quarter amounted to $96 million, reflecting higher mill throughput during the quarter and volumes sold. C1 costs continued to decrease compared to prior period and came in at $0.50 per pound for the quarter, primarily due to higher byproduct credits from gold prices. We are reducing the full year cost guidance range again to $0.90 to $1 per pound from the previous guidance range of $1.10 to $1.30 per pound. On a consolidated basis, our C1 cost for the quarter was $1.61 per pound, well below our full year guidance range of $1.95 to $2.15 per pound. Based on the adjustments mentioned above, we are, as previously mentioned, reducing our consolidated cash cost guidance range to $1.85 to $2 per pound for the full year. Total capital expenditure, including both sustaining and expansionary investment was $160 million for the quarter and $485 million for the 9 months of the year. Full year guidance for the total capital expenditure has been revised down by $45 million to $750 million due to a deferral of projects at Candelaria and Caserones, as well as reclassifying some of the capitalized stripping costs at Candelaria to production costs. For sustaining capital, we expect spending to increase going into the fourth quarter to reflect the roughly $170 million that remains to meet guidance for the full year. At Vicuna, capital expenditure during the quarter was $51 million and year-to-date, $126 million and is tracking to guidance of $250 million for the full year. Q3 expenditure was primarily focused on field activities for water program, drilling, trade-off studies, engineering, cost estimation and permitting and preparation for the integrated technical study in the first quarter 2026. Our key financial metrics for the third quarter are presented on Slide 16. Adjusted EBITDA for the quarter was $490 million, with a 49% margin. Adjusted operating cash flow for the quarter totaled $383 million and for the first 9 months totaled just below $1 billion, including cash tax payments of close to $300 million. The company achieved solid free cash flow from operations of $169 million despite the impact of $113 million working capital build during the quarter. Adjusted earnings amounted to $255 million for the quarter, which translates to an adjusted EPS of $0.18, an improvement of 64% from last quarter. Turning to cash generation during the third quarter. We entered the quarter with around $279 million in cash and a net debt position of $135 million. We generated adjusted operating cash flow of $383 million after cash tax payments of $86 million and incurred a working capital build of $113 million. The sustaining capital investment amounted to $109 million, which resulted in free cash flow from operations for the quarter of $169 million. We had total shareholder and NCI distributions of $43 million during the quarter, of which $17 million related to the payment of regular dividends. After debt, leasing and interest payments as well as the deferred payment of $10 million relating to our Caserones acquisition, we ended the quarter with cash of around $290 million and a net debt position of $108 million, excluding lease liabilities. By the end of the year, we expect to be essentially net debt free. We continue to advance the process to increase our revolving credit facility as part of our strategy to fund future growth plans. We have a number of interested banks, both existing lenders and potential new lenders and have been progressing term sheets and expect the process to conclude towards year-end or in the early part of next year. So overall, a very good quarter that aligns with the financial outlook that we provided at our June Capital Markets Day. So, I will now turn the call back to Jack for some final remarks. Jack O. Lundin: Thank you, Teitur. I'll take a few moments to discuss one of our near-term growth initiatives, which we outlined at our Capital Markets Day back in June. Cathode production at Caserones continues to improve. We delivered another strong quarter and are on track to produce approximately 24,000 tons of cathodes this year compared to an original plan of approximately 16,000 tons. Total cathode plant capacity is roughly 35,000 tons. As we discussed in June, our goal is to capture an additional 7,000 to 10,000 tons of cathode production from a baseline of 15,000 tons which was the average annual production over the 2 years prior to us acquiring Caserones. Over the past 8 to 12 months, we've implemented several key operational improvements. Firstly, we enhanced leaching practices, including better dump leach coverage and higher irrigation rates. Secondly, we have increased oxide material placement on the dumps supported by improved geological understanding and tighter waste control in the open pit. These actions are now translating into higher cathode output as the benefits flow through with leach cycle residence times. As mentioned by Juan Andres, we also recently completed an update to our hydrogeological leaching model, improving our ability to predict leaching kinetics and incorporate recent operational gains. Based on these improvements, we see potential for future annual cathode production to increase further, which we are now analyzing. On the next slide, before reaching the closing remarks, I would like to outline a few upcoming catalysts to look out for. We're in the final stages of completing our reapplication and see a potential window to submit before the end of the year. In the first quarter of 2026, we expect to complete the integrated technical report for the large-scale fully integrated development and operations plan for the Vicuna project. This milestone will outline a clear path for Lundin Mining to become a top 10 global producer once in full scale operation at Vicuna. In parallel, and as Teitur mentioned, we're advancing our financing strategy to support these growth plans. We've initiated the process to increase our revolving credit facility and continue to see strong interest from our existing banking partners as well as future lenders. We expect this process to conclude towards the end of this year or early part of next year, as Teitur mentioned. At Chapada, the Saúva project represents a compelling near mine growth opportunity with the potential to add 15,000 to 20,000 tonnes of copper and 50,000 to 60,000 ounces of gold annually, production increases of approximately 50% and 100%, respectively, for the Chapada operation. And the study includes expanding grinding capacity to process higher grade ore from Saúva through the Chapada mill. Permitting and technical work are underway with the pre-feasibility study targeted for completion by the end of this year. We look forward to providing further updates as this exciting project continues to advance. Touching on the conclusions now. We delivered our best quarter year-to-date, producing 87,353 tonnes of copper at a C1 cash cost of $1.61 per pound. Strong operations and higher gold prices enabled us to raise production guidance and lower consolidated cash costs. The copper guidance midpoint increased by 11,500 tons to 319,000 to 337,000 tons of copper driven by stronger cathode production at Caserones and improvements in the leaching circuit at Caserones. Cash cost guidance at Caserones and Chapada dropped lowering the consolidated midpoint by $0.125 to $1.85 to $2 a pound. We generated $383 million in adjusted operating cash flow, strengthening our balance sheet with the company expected to essentially be net debt free by year-end. We continue to be in strong financial standing as we look to advance our growth initiatives at Lundin Mining. Looking ahead, our priorities remain focused to continue to deliver on strong safety performance which directly supports our operational excellence programs, advancing near-term growth and preparing Vicuna for potential sanctioning in 2026. The company enters Q4 well positioned with key catalysts over the next 4 to 6 months, including, as mentioned, a RIGI application in the near term and an integrated technical report for Vicuna. All-in-all, a very solid quarter, and we remain poised to deliver a strong overall 2025. Operator, I'd like to now open up the call for questions. Thank you. Operator: [Operator Instructions] The first question will be coming from the line of Orest Wowkodaw of Scotiabank. Orest Wowkodaw: Congratulations on the strong quarter. I'm just curious with the integrated technical report for Vicuna District, I guess, only a couple of months now from completion. Just curious if there's been any thought to any potential scope changes on what Phase 1 or Phase 2 could look like and whether we should still be anticipating, call it, around 175,000 ton a day operation for -- that would reflect Jose under Phase I? Or -- I'm just trying to understand if any of the goalposts have been locked in at this point or whether the project scope is still under discussion? Jack O. Lundin: Orest, thanks for the question. I would say that, broadly speaking, the scope for Phase 1 has not changed significantly since we last gave an update on Jose Maria, which is considered to be Phase 1 for the Vicuna project. We're working through this integrated technical report, which will have a lower level of definition as you get into the later phases. But I would say our level of confidence, especially for Phase 1 continues to grow with that -- those numbers that you mentioned there. So, the oxides, we're looking at opportunities, continuously looking at areas where we can improve costs and drive value. And I think as this technical report comes together and we put all the phases together and look at various trade-offs like that will show in Q1 when the report is published, but Phase 1 specifically, we continue to refine and derisk on scope that was -- that we've been speaking about for the last number of quarters here. So, we're on track and no significant changes should be expected from Phase 1 particularly. Orest Wowkodaw: Okay. And just as a follow-up on the time line, just given already in November, do you have a sense of when in Q1, we could anticipate that? Jack O. Lundin: I can't pinpoint an exact date for you, Orest. But I would say in the towards the latter part of Q1. That will be coming out with the results. And then, there's going to be a period between when we come out with the results and when we actually publish a technical report. But obviously, the team is working very hard on trying to get everything together. So that, some part in the second half of Q1, we'll be able to publish the results followed by the report coming out within 45 days of when the results get published. Operator: The next question will be coming from the line of Lawson Winder of Bank of America Securities. Lawson Winder: Very nice quarterly results, and thank you for today's update. If I could also ask about the integrated Vicuna plan and just get a sense for one aspect that Filo had previously proposed, which was this idea of a precious metals-focused initial starter pit. I mean, for a smaller company like Filo, it made a lot of sense. For a larger company like Lundin, perhaps it's just not enough capital or cash flow to really move the needle. But I mean, that would be in a much lower gold price than I would make a comment like that, I think in the current gold price, I mean, is there any thoughts potentially doing some sort of precious metals-focused starter pit with Filo in conjunction with the Phase I at that you just spoke about? Jack O. Lundin: Right now, we're still considering kind of going ahead with the base plan that we've outlined Phase 1 being Jose Maria. Of course, with commodity prices going higher, we see if there's opportunities to maximize value based on that -- based on market conditions. But right now, Lawson, I would say Phase 1 still is very much contemplating Jose Maria and then Phase 2 being the oxides of Filo, which includes base and precious metals. So, to summarize, no, we're not considering changing the scope right now. Lawson Winder: Okay. Perfect. And then, just thinking about some of the opportunities that lie ahead, including the success you've had at Caserones, this update we're looking for in early 2026 on Sauva. The current 2026 CapEx plan that you've laid out, is there a risk that ex Vicuna, that could change materially from what you currently have in the market? Teitur Poulsen: It's Teitur, here. But on CapEx, we have not guided any CapEx for the company in 2026. What we did say at the Capital Markets Day that we had around about $155 million, I believe it was for the Sauva expansion, and that number remains intact. Lawson Winder: And then as we think about Caserones, I mean, could you expect something material or I guess the way to think about it then is, can you expect something materially higher from what you guys are on track to spend this year? Teitur Poulsen: No, I don't think so. I mean, we will come up with our usual annual guidance in January, and all that will be disclosed, but I would not expect any significant deviations on current trends. No. Jack O. Lundin: And that increase in cathode production that we outlined in the presentation doesn't come at any real additional capital requirements, which is why it's such a robust opportunity. And really, the team has been -- behind it has been just working on optimizing the leaching circuit. So, as Teitur said, we wouldn't expect to come out with any materially increased capital numbers for Caserones specifically. Operator: [Operator Instructions] And our next question will be coming from the line of Daniel Major of UBS. Daniel Major: Congrats on a good quarter. Just first question on the oxide production profile at Caserones is 25,000 ton run rate this year. Is that a reasonable assumption to bake into the subsequent couple of years? And can you remind us what was embedded in the 130,000, 140,000 guidance? I've got about 15,000 tons previously. So is there upside to that '26 previous guide number? Juan Morel: Daniel, this is Juan Andres. Thank you for the question. Yes. I think the answer to your question is yes. Looking forward we're looking at sustaining that level of production from the cathode plant. So, 24,000, 25,000 tons per day, at least for the next, let's say, 3, 4 years is a good, good assumption. Daniel Major: Okay. And then, just a question on -- follow-up on the CapEx, sorry, if I'm getting some of the numbers mixed up here. But is it fair to assume the sustaining CapEx for the group, excluding any spend at Vicuna would be a similar kind of run rate, so like $400 million or so? And then on top of that, you're assuming in late FID of Vicuna late in the year, probably a similar run rate of spend at the Vicuna. So, are we looking at a similar sort of $650 million, $700 million range. Is that reasonable for CapEx for next year, excluding any other FIDs? Teitur Poulsen: Yes. I mean, we -- as I said, we will come up with further detailed guidance in January. But this year, we guided $530 million in sustaining CapEx for the full year, and we've now guided that down to $410 million. I think it's important to say that, that saving is -- or that reduction is not really a saving. It's more a deferral of projects from 2025 into 2026. Also remember, our CapEx guidance is based on cash payments, not incurred activity. But I think that run rate from about the current of 2025 run rate we have, it should be roughly what we expect to see going forward. Jack O. Lundin: Just to clarify, $530 million down to $510 million. Teitur Poulsen: Sustaining CapEx, excluding growth CapEx. Jack O. Lundin: Okay. Yes. And for Vicuna, like we're going through the 2026 budget now with the Vicuna team. And similarly, we would be updating kind of the guidance range on that. But hopefully, we'll be in a position where we can continue to ramp up with activities prior to a sanction decision. So, it wouldn't be like -- you could expect that provided progress continues on the trend that it is, that it would be higher than -- higher next year than it is this year. Daniel Major: Okay. That's clear. And then, maybe just a final one. This reasonably sizable working capital build in the quarter, $112 million or something, which puts you not up quite a bit in terms of working capital year-to-date. Would you expect that to reverse in the fourth quarter? Teitur Poulsen: Yes, I would expect that. It's always hard to predict the exact timing of year-end shipments, et cetera. But if everything goes according to plan, we should see an unwind of that in the fourth quarter, yes. Operator: [Operator Instructions] And our next question is coming from the line of Dalton Baretto of Canaccord. Dalton Baretto: Congrats on a great quarter and also a great choice appointing Ron as CEO of Vicuna. I wanted to ask about some of these cross-border negotiations that are still ongoing. Jack, can you sort of remind us what elements are under discussion? What the status is? And what's going to be assumed in the technical report when it comes out? Jack O. Lundin: Thanks, Dalton. Yes, I fully agree. It's great to officially bring Ron over to Vicuna, starting effectively tomorrow once Lundin Gold gets through their quarterly results. So the -- there's a binational treaty that exists today between Chile and Argentina. I think it was established in 1997. There is on that treaty of Vicuna protocol that exists during this current exploration phase that the project is in. So, we're able to kind of move from one side of the border to the other freely. And at the moment, what we would be looking at doing is specifically when we get to Phase 4, and we're mining from Filo sulfides and getting to full scale, that would require the binational treaty to turn into kind of an exploitation arrangement. And at that time, we would be contemplating significant pieces of infrastructure like desalinated water line, potentially concentrate slurry line and really integrating all of the infrastructure together during that final phase of the project. But initially, what we're looking at doing is building Jose Maria, 100% within Argentina and then trucking the concentrate out. And so, we don't need to have that significant uplift in that treaty. But we have time. There is engagement between both the Chilean and Argentinian authorities to elevate this national treaty into exploitation phase, but that's not required during the initial years of production through Jose Maria. Dalton Baretto: Got it. So, no concerns around moving the concentrate out through Chile, no concerns around bringing water up or any of that kind of stuff? Jack O. Lundin: I think it's early days that we're working on that plan and that scope, and we have time to ensure that we do it the right way. So far, our baseline schedule is intact. And I think dialogue is strong, and we just need to continue building on that momentum. So overall, I think we're feeling very positive about all phases, and we'll just continue to derisk as we bring the project forward towards integrated study and eventual sanction. Dalton Baretto: Got it. And then, once the study comes out and you put a pin in it, what are sort of the next remaining steps before an FID? Jack O. Lundin: So, I think having fiscal stability, having the integrated technical report released and published, having our financing plan so that Lundin Mining can ensure that we can fund our 50% portion of Phase 1. And then, there's various permits that we're still working through and government agreements in the provincial level at San Juan that we would need to receive. We're updating our environmental impact assessment as well. So, there's a number of kind of items on the checklist that we would be required to fulfill before going to the shareholders being BHP and Lundin Mining for a sanction decision. But we're progressing well on all of those fronts. Dalton Baretto: So this could be a sort of a back half of next year type thing? Jack O. Lundin: If we continue to progress on the plan that we currently are on, then it's not out of the question to have a sanction decision coming at the back half of next year. Of course, a lot of work to be done between now and then, and we're working to make sure that we get all of our ducks in a row to achieve that. So, that's the hope. Dalton Baretto: That's great. And maybe just one last one. This is more of a confirmation thing than anything else. What you're applying for under RIGI, it's is all the phases, right? Jack O. Lundin: That's a great question. So, because we have Jose Maria and Filo del Sol together now under Vicuna Corp within the same SPV, the projects are integrated together and they're looked at as one large-scale project. However, for us, it's important to get fiscal stability and approvals and permits for Phase 1 as we have much more definition around Phase I, but the intention would be achieving fiscal stability on the entire Vicuna project, which includes both Jose and Filo and potential future discoveries in the region. As we know, it's a very prospective area, and we definitely feel like we'll be finding more minerals as we continue to spend more time in the area. Operator: Thank you. And there are no more questions in the queue. At this time, this does conclude today's conference call. You may all disconnect.
Operator: Thank you for standing by. My name is Lauren Cannon, and I will be your conference operator today. Welcome to the Canadian Tire Corporation Earnings Call. [Operator Instructions] Now I will pass along to Karen Keyes, Head of Investor Relations for Canadian Tire Corporation. Karen? Karen Keyes: Thank you, Lauren. Good morning, everyone. Welcome to Canadian Tire Corporation's Third Quarter 2025 Results Conference Call. With me today are Greg Hicks, President and CEO; Executive Vice President and CFO, Darren Myers; and T.J. Flood, Executive Vice President and Chief Operating Officer. Before we begin, I'd like to remind you that today's discussion contains information that may constitute forward-looking information within the meaning of applicable securities laws, including management's current expectations regarding future events and the company's True North strategy. Although the company believes that the forward-looking information in today's discussion is based on information, estimates and assumptions that are reasonable, such information is necessarily subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied in such forward-looking information. For information on these material risks, uncertainties, factors and assumptions, please see the company's MD&A, which is available on our website and filed on SEDAR+. The company does not undertake to update any forward-looking information, whether written or oral, except as is required by applicable laws. I would also highlight that our discussion today will focus on the normalized results of the business on a continuing operations basis. Remember that the sale of Helly Hansen completed on May 31, with the business being treated as a discontinued operation in our results up to that date. After our remarks today, the team will be happy to take your questions. We'll try to get in as many questions as possible, but ask that you limit your time to one question plus a follow-up before cycling back into the queue. And we welcome you to contact Investor Relations if we don't get through all of your questions today. I will now turn the call over to Greg. Greg Hicks: Thank you, Karen, and good morning, everyone. In Q3, we performed very well while continuing to make True North investments across both our retail and our financial services businesses. We achieved strong top line and underlying retail performance across our business. Our loyalty engagement increased with over 7 million members shopping our banners in the quarter, an increase of 3%. Sales also grew across our major banners with CTR and SportChek driving revenue gains. These results were supported by our team's very strong margin management. And ultimately, diluted earnings per share grew nearly 7%. There is no question that the consumer demand landscape remains dynamic, yet Canadian shoppers continue to demonstrate admirable resilience. We are cautiously optimistic, recognizing the macroeconomic backdrop remains uncertain and unpredictable with ongoing trade negotiations and government actions that will shape the Canadian economy for years to come. We are actively monitoring these trends and developments, ensuring we remain agile and responsive. And like the entire retail industry, we are watching the Canada Post labor dispute closely and with disappointment that it comes at a time when consumers are craving value. With one of Canada's best loved flyers, this is a headwind that we are working to manage, and we are hopeful this situation stabilizes swiftly and sustainably. With the launch of True North, we've talked at length about the importance of CTC performing and transforming in parallel. That was evident in Q3 as we charted strong results while advancing our transformation. We've done the work to organize and set our teams up for success, both at the corporate and store level. In September, we held our annual Canadian Tire Dealer Convention, and there is no question that the dealers are aligned with where we're going strategically. In Q3, we also completed our internal restructuring as planned. With our new organizational structure now complete, we are set to accelerate the next phase of our journey, which includes harnessing technology and AI to drive the business forward and deliver operating leverage. We're moving the entire enterprise to take more streamlined approaches based on data-informed go-to-market strategies and great retail execution. As we continue to roll out this new approach, the impact will be evident in our retail forward strategic cornerstone. You can expect us to show up as an even better retailer through a mix of both tested and new tactics. We'll leverage the alignment of the dealers, our restructured teams, our high-low pricing and our omnichannel customer experience to capture market share. For instance, throughout 2025, our e-commerce growth continues to outpace bricks and mortar as we invest in great digital customer experiences. Awareness of our comprehensive range of omnichannel offerings and services like in-store pickup of online orders, ship to home and same-day delivery across all our banners continues to increase, helping us grow. The awareness is critical in both busy urban markets and non-VECTOM markets, which represent around 70% of our sales. And with the majority of our transactions starting online, we continue to explore a variety of enhancements, including leveraging new AI tools to improve search performance and to identify the Triangle offers Canadians need, building on enterprise-level customer data. As we've done over the last many months, through True North, we are also continuing to refine our promotional and digital engagement, adapting to changing customer behaviors and reducing our reliance on traditional channels. Likewise, as you saw in our Q3 results, our AI pricing tool, DAVID, is helping us analytically engineer promotional programs and optimize regular pricing to provide customers the value they crave, all while managing our margins. In our conversations with globally scaled advisers and partners, DAVID has been called out as one of the leading North American examples of how retailers are using generative AI at scale. DAVID builds on our unique first-party data, which remains a key differentiator in our modernization efforts and our deployment of AI. Our data is a sustained competitive advantage that also delivers considerable value to our customers. Our Triangle Rewards program is another cornerstone of our strategy. And by partnering with other strong Canadian brands, we are driving the scale of both the Triangle brand and the valuable first-party customer data it generates. Case in point, our first partnership with Petro-Canada has been very successful, growing to nearly 520,000 linked members and over $100 million of incremental sales. In the quarter, 10% of Triangle members were active at Petro-Canada. In Q3, we announced our newest loyalty partnership with Tim Hortons, which, in addition to being the nation's largest quick-serve restaurant chain is a brand loved by Canadians coast-to-coast. This partnership feels like a natural fit. And given their positive response to our announcement, we know that Canadians agree. At the same time, we continue preparing internally to launch our RBC and WestJet loyalty partnerships. With our RBC partnership now in the soft launch phase, customers can now link their Triangle Rewards and RBC payment card to accelerate their earn. This soft launch period will provide us important learnings as we prepare for a full launch with RBC in early 2026 as well as WestJet and Tims, both planned for later next year. With new partnerships like these, Triangle is expanding from a loyalty program into a powerful Canadian network, offering value to the millions of Canadians who engage with these programs every day. You can expect us to make the most of these iconic Canadian partnerships, the natural customer engagement and the associated brand awareness in 2026 and beyond. And with that, I'll hand it over to Darren to take you through our Q3 results. Darren Myers: Thank you, Greg, and good morning, everyone. Our third quarter performance reflects continued strong retail execution, delivering improved profitability and higher return on invested capital. At the same time, we continue to build momentum in our True North transformation, making strategic investments to support long-term growth. Retail revenue remained robust and retail sales came in at a strong margin rate, resulting in meaningful retail IBT performance, up 19% year-over-year. At the bank, customer risk metrics were generally in line with our expectations. As described last quarter, we are making investments to strengthen and grow the business, which contributed to lower IBT. Lower leverage, reduced finance costs and continued progress against our share repurchase program contributed to the 6.5% year-over-year increase in normalized earnings per share. Let me now take you through some of the highlights of the quarter. Retail revenue, excluding Petroleum, was up close to 6%, driven by CTR dealer restocking ahead of Q4 and solid sales growth across our banners. Consolidated comparable sales grew 1.8%, led by a strong performance at SportChek. Loyalty penetration was up 117 basis points to 55.2%. At CTR, comparable sales grew 1.2%, driven by trips and units per transaction, both which trended higher this quarter. We experienced weaker sales in essential categories and a decline in the Living division as a result of slower sales of summer climate control products, combined with less flyer distribution towards the end of the quarter due to the Canada Post strike action. Sales were up 2% to 3% in our other 4 CTR divisions. Automotive delivered a 21st consecutive quarter of growth with auto maintenance continuing to be a strong performer in Q3. Regionally, growth was strongest in Ontario and Quebec, while Alberta was down slightly after a strong performance last year. While CTR comparable sales are trailing revenue on a year-to-date basis due to strong and earlier dealer replenishment, both have been robust with CTR year-to-date revenue up 7% and comparable sales up 4%. As you know, CTR revenue growth and sales growth tend to converge over time given our dealer model. SportChek had another great quarter. Comparable sales were up 4.2% with strong performance in back-to-school and back-to-hockey. SportChek's sharpened focus on winning with athletes and being a destination for sport continue to drive stronger sales of hard goods, including golf and hockey as well as athletic clothing and footwear. At Mark's, comparable sales were up 2.5%, supported by the continued success of our new Bigger, Better, Bolder stores. During Q3, we opened our 12th BBB store, including the first in the province of Quebec as we continue to expand our presence in Quebec and Ontario. From a category perspective, an earlier start to fall in several provinces contributed to increased sales of casual wear categories like sweaters and jeans and workwear sales were also up. Turning to margin now. Our retail gross margin came in strong with solid execution, favorable mix and margin rate increases across all banners. We continue to build capabilities around promo and pricing through our margin nerve center and our AI platform, DAVID, that are helping us manage a dynamic environment. Better product margins across the businesses and less foreign exchange headwind than we anticipated contributed to an excellent result on margin. Excluding Petroleum, retail gross margin dollars were up nearly 8% and the margin rate improved by 57 basis points year-over-year. Our retail SG&A was up 6% year-over-year as expected. Around half of the increase was a result of increased strategic investments supporting our True North transformation, primarily in IT. Our SG&A also included variable costs to support our growth and business as usual inflationary pressures. Initial restructuring savings and higher vacancies were a small positive contributor this quarter. With our restructuring largely complete, we expect to realize a full quarter of benefit in the fourth quarter. Bringing it all together, we delivered strong operational results in our retail business. Normalized retail EBITDA increased almost 4% to $484 million as revenue and margin strength more than offset our investments in the business. Cash generation from operations was more moderate this quarter, reflecting working capital and investments ahead of our largest quarter. Corporate inventory was up 5% as we exited Q3 with increases primarily driven by SportChek and Mark's. At CTR, dealer inventory was up 7% to support Q4 growth. Moving to Financial Services. Customer spend remained robust, and we continue to deepen engagement with cardholders. Receivables grew 2.3%, primarily driven by higher average account balances. We continue to leverage loyalty issuances as a tool to engage cardholders and drive retail sales with eCTM issuance up close to 8% over the last 12 months. Increased cardholder acquisition contributed to a modest increase in active accounts during the quarter. CTFS IBT declined $26 million year-over-year, primarily reflecting higher SG&A as expected, driven by infrastructure and growth investments. Additionally, gross margin dollars decreased 3%, driven by increased write-offs this quarter. As we noted last quarter, SG&A levels are expected to remain elevated into 2026 as we continue to invest in the business. Risk metrics remained relatively stable and were in line with expectations with PD 2+ at 3.5% and the net write-off rate at 7.2%, both up approximately 10 basis points quarter-on-quarter. We continue to closely monitor the environment and are prepared to act should we see meaningful change. With no increase in the allowance and an increase in the ending receivables balance to $7.7 billion, the allowance rate ended at 12.1%, remaining within our targeted range of 11.5% to 13.5%. Before I wrap up and hand the call back to Greg, let me provide color on what we're seeing so far in Q4 and on our capital allocation priorities for 2026. While September was cool in parts, this was followed by an unfavorably warm October in most of the country, which contributed to flat to modest sales growth in the early part of Q4. Earlier restocking, including in key winter categories where CTR dealers ended lean last year, contributed to CTR revenue outpacing sales in Q3. Being in stock combined with continued customer resilience and an extra week this year should position us for sales growth in Q4. However, sales over the next few months will be dependent on how winter comes to us this year and how quickly Canada Post stabilizes. Strong margin management has led to a year-to-date retail gross margin rate above our North Star margin. Based on typical Q4 performance, we are positioned to overachieve our North Star this year. Of course, keep in mind that mix and other factors can drive variability quarter-to-quarter. Overall, we are pleased with our retail fundamentals, and we remain watchful of the trends so we can proactively adjust should the external environment change. Finally, let me close by outlining our 2026 capital allocation priorities. We are pleased with the position of our balance sheet following the sale of our Helly Hansen business. Our approach to capital allocation continues to be balanced, investing in the business for long-term value while also giving back to our shareholders. Our True North strategy is providing greater clarity on investment priorities with a continued emphasis on refreshing and enhancing the store digital experience, rolling out loyalty partnerships, harnessing AI and advancing our technology and processes to drive scale and operational efficiency. We expect to spend operating capital in the range of $500 million to $500 million (sic) [ $550 million ] in 2026, in line with our long-term historical run rate. These investments shaped by our True North priorities are purposefully designed to improve our long-term financial performance. We also continue to deliver returns to shareholders. As of last week, we had completed the $400 million of repurchases under our 2025 share repurchase intention. Today, we announced that we plan to repurchase up to $400 million more by the end of 2026. Finally, in March, the dividend will increase to $7.20 per share, which will be our 16th consecutive year of dividend increase. As I reflect on the last 6 months since I have joined, I'm pleased with our progress and energized by the opportunity in front of us to deliver improved results. We are building new discipline around planning, performance management and capital allocation, and we'll continue to evaluate the returns that we are getting from our investments. Importantly, our teams are embracing the need for change. And for that, I want to thank them. We look forward to updating you on our progress at our Q4 results in February. And with that, I will hand the call back to Greg. Greg Hicks: Thanks, Darren. I'll conclude today by thanking our team. Our people continue to reinforce our purpose through actions that demonstrate we are truly here to make life in Canada better, not just for our customers, but also our communities. For example, in Q3, the SportChek and Jumpstart teams partnered to help community sport organizations replenish their outdated equipment and in turn, offer more programs to more participants. And just last month, we expanded our partnership with the Downie Wenjack fund through our commitment to revitalize the Blanket fund by providing at least $1 million each year for indigenous-led initiatives. This holiday season will mark our debut stewarding the Hudson's Bay stripes with products, including the iconic Point Blanket hitting stores on December 5. Step-by-step, we have taken great care with this brand, and we believe wholeheartedly that our curated stripes holiday capsule collection is a sign of that stewardship. We picked holiday favorite items, working with original vendors to maintain quality and craftsmanship, and we expect this initial run of products to fly off-store shelves. Our meaningful product presence will roll out in the back half of 2026, and our hope is to continue stories that belong to all Canadians, honoring our history while driving into the future. And Canadians are taking notice. Last week, the 2025 Canadian Harris Poll study showed that our already strong reputation with Canadians is improving with notable gains in categories like vision and growth. Like our fellow Canadians, we remain confident that we are taking the right actions to prosper over the longer term. Last but not least, I would be remiss if I didn't acknowledge what an exciting few weeks it's been in the world of sports. First, I want to congratulate Martha Billes on her induction into Canada's Sports Hall of Fame. Martha received Canada's highest sporting honor, the Order of Sport for her work advancing sport nationwide through Jumpstart. And second, I must extend my congratulations to the Toronto Blue Jays on their incredible World Series run. What a thrill that was for the city of Toronto and all of Canada. Not only did this Jay's team demonstrate the power sport has to bring a nation together, but their success fueled sales of Fan Gear, which has been a nice tailwind for us as we comp last year's strong and early winter sales. And with that, we can open the call to questions. Operator: [Operator Instructions] Our first question comes from the line of Irene Nattel with RBC Capital Markets. Irene Nattel: Wondering how you and we should be thinking about Q4. And you've given us your 2026 capital allocation, NCIB levels stable despite your strong balance sheet. So wondering about your assumptions and how you're thinking about 2026 and what underpins that -- those decisions. Darren Myers: Yes. I think I'd go back to what Greg said in prepared remarks, which is we are cautiously optimistic. I mean if we look at this quarter, we saw trips up, we saw baskets up. We saw lots of positives. We're executing good retail fundamentals. And we are still planning for growth, and we're positioned for growth. That said, as I mentioned, for Q4, we are mindful of two things. One is just how weather is going to show up as well as just stabilization of Canada Post. As we think about next year, again, we are positioned and planning for growth. But as we look at in a cautiously optimistic mindset, we are really watching the consumer closely. So there are lots of dynamics going on right now. We still feel good about the business, but we're watching things closely. Irene Nattel: That's really helpful. And just as a follow-up, as you sort of -- with all your data, when you look at -- and clearly, you did very well in Q3. As you look at consumer spending, as you look at CTFS, are you seeing red flags? Are you seeing changes? What are you seeing there? Greg Hicks: Irene, it's Greg. I'd say more of the same and in line with previous commentary in terms of the state of the consumer. I think we continue to see similar characteristics in terms of spend regionally. Alberta was down, but that was a weather comp issue. No major shifts in terms of spend by household income. We're seeing membership spend growth at all income levels, and we're actually seeing some real resilience with low-income apartment dwellers. We continue to monitor communities hit hardest by tariffs at both sales and credit card metric levels, and there's nothing really to call out there either. It's pretty stable. And then I think when you translate that into the performance for us in the quarter, I think it's similar to year-to-date trends. It's minimal GDP growth, but we're growing. And to Darren's point, there's no question that the consumer demand landscape remains dynamic. There are absolutely puts and takes at the macro. But Canadian shoppers just continue to demonstrate admirable resilience. And again, just to follow up, bridge the two questions, I totally agree with Darren. We're cautiously optimistic. We're planning in a very similar way right now to the way we thought about planning this year at this time last year, but know that there's still a good amount of uncertainty, but I think the teams are demonstrating their ability to work through that. Operator: Our next question comes from the line of Chris Li with Desjardins. Christopher Li: First, I wanted just to clarify with respect to the CTR same-store sales, did I hear you correctly that through the quarter, it kind of slowed through the quarter mainly because of the Canada Post strike. And then right now in October, it's kind of flattish. Did I hear that correctly? Thomas Flood: Yes, Chris, it's TJ. Maybe I'll jump in on that. Yes, I think -- I mean first of all, we finished the quarter at -- with a growth rate of 1.3%. September definitely did slow down a little bit for us, but we felt good with respect to the quarter was that our traffic was actually up and our units per basket were up. We had a slight decline in AUR at CTR, mostly driven by air conditioner sales. We were comping a massive heat wave in Alberta year-over-year. But yes, September definitely was impacted by the Canada Post disruption. Operationally, it's obviously a major challenge for us when we get such late notice of disruption of our flyer delivery. So that hurt us a little bit. And then as we get into October, that's -- I think you characterized it right, and Darren said it, we're seeing kind of flat to slightly up performance in CTR. And we continue to monitor closely how the sales are progressing. We've certainly positioned ourselves for growth under the right circumstances when the weather shows up. We like the composition of our inventory. We like the newness in our assortment. We really like the trajectory of the discretionary side of things, and we think that's a little bit attributable to more Canadians being in Canada. If you look at Q3, travel -- auto travel products were up, gardening was up, outdoor furniture was up. And we think that's a function also of the newness in our assortment. You may recall coming out of COVID, we had high inventory levels, and we had kind of older assortment. So we're feeling good about our assortment. So we're -- we feel like we've positioned ourselves as well as we can going into the quarter, and we're cautiously optimistic as we look forward. Christopher Li: Okay. That's very helpful. Are you able to at all quantify the impact of the Canada Post strike on sales? Darren Myers: Yes, we're not going to do that today, Chris. Christopher Li: Okay. No problem. And Darren, maybe just a follow-up for you. Just when I look out to next year in terms of retail SG&A expenses, if we assume, let's say, that the top line, the revenue environment is sort of normal, like, call it, low single digits and considering you have $100 million of savings benefits coming your way next year, in that sort of setup, do you think there is a potential for some SG&A leverage in 2026? Darren Myers: Well, the way I would think about it, we're not going to give guidance on the specific number, but we are going to have the run rate savings, which we talked about, which was $100 million. I think you'll see stability in our investing in the business. So we won't see the same uptick. And then, of course, you'll have regular inflation that -- and variable costs that support the growth. So I'll let you kind of put those numbers together. But those are the kind of three main components to think through as you model next year. Operator: Our next question comes from the line of Vishal Shreedhar with National Bank Financial. Vishal Shreedhar: With respect to the gross margin rate, I think you indicated that you'd be above your North Star rate. So is that something we should expect going forward as well in 2026? Or should we anticipate the gross margin rate to subsequently decline back to that 35% rate? I ask in the context of Canadian Tire has generally been marginally above that 35% for the last few years. Darren Myers: Yes, Vishal, I don't want to get again ahead of ourselves and provide -- we're not providing guidance for 2026. But what I would say as we think about that North Star, we obviously are trending well, and we feel good about this year overachieving that if all things line up in the fourth quarter. And then we -- that momentum and the capabilities we're building and DAVID -- and rolling out DAVID to SportChek and to Mark's, we see lots of opportunity. Of course, the other side of that is you have to look at the consumer environment and see how -- making sure we're stimulating demand. So we're not going to predict what next year's rate is going to be. We haven't changed our North Star, but we feel good about where we are right now. Vishal Shreedhar: Okay. And I wanted to take a few steps back and just look at Tire's positioning in the retail market. There's lots of change and wanted to get your thoughts on high-low retailing in a world where e-commerce and price discovery -- e-commerce is growing rapidly, price discovery is easier than ever. Can you give me thoughts on high-low into the future? Is that a sustainable approach? Do you feel good about it? And how should we think about Tire evolving as all these tools continue to advance rapidly? Greg Hicks: Well, maybe I'll take that, Vishal. It's Greg. I mean we're -- I mean we feel good about our price positioning in the marketplace. We track all indicators relative to our competition around value. Value is much more than price. As you know, we constantly have work underway with squads and/or just retail fundamental practices to try and improve -- continuously improve on those factors that drive the value equation in retail. Canadians love a good deal. And we -- as we said in the prepared remarks, like the flyer and the high-low incentives that are presented within that flyer, our best way right now with the highest degree of household penetration and distribution to get our value messaging to our customer. And so we -- and we think we're really good at. We can stimulate demand and manage a margin profile that is, I think, good for us and our investors to your -- to the first part of your question. But the world is evolving, and we're moving with pace with AI, and the industry is moving with pace around AI, especially Agentic AI. And so we're going to continue to evolve and modernize the way we need to and the way we've evolved for decades. But at this point in time, we see there's no major strategic pivot on the high-low side of our business. Operator: Our next question comes from the line of John Zamparo with Scotiabank. John Zamparo: I want to ask about the gross margin, and I was hoping you could unpack the drivers here a bit more. You listed a few different sources of the improvement year-over-year. Can you rank them in order of magnitude? I'm really trying to get a sense of how much of the improvement is organic or recurring? Thomas Flood: John, it's TJ. I'll take that one. I think as we've said numerous times, I think it's important to point out that our margin rates can be choppy quarter-to-quarter. We're coming off a quarter where we were a little bit below last year in Q2, and we had a very strong quarter in Q3. What I would say is a lot bounced our way. We were up about 57 basis points year-over-year, as Darren articulated. The first thing was we saw improved margin rates across all banners. So that was really good news. We didn't see any material effect in terms of banner mix on our margin rates. We did see a little bit of impact from a product standpoint, product mix standpoint. What I mean by that is something like our Automotive division growing faster than our Living division helped us a little bit. So we're feeling good about that. And then we got a little bit of currency help, too, with the timing and -- of inventory delivery as well as the businesses that are firing a little bit better, gave us a little bit of currency relief. But I think one of the things I wanted to point out is that we continue to build capabilities around promo and regular pricing through our margin nerve center and our pricing AI platform that we've been talking about on the call so far, DAVID. And this is really helping us manage in a very dynamic cost environment, and it helps us as a high-low retailer because DAVID stands for Data AI Value Incrementality Driver, and we use it to help run our high-low business, and it optimizes reg pricing as well as promotional pricing. And it was a pretty significant development that was required to implement it. We had significant data ingestion and feature engineering to build it. We had to establish new forecast models to estimate elasticity, unit demand, sales and margin impact of changes. We had to establish a purpose-built optimizers, which leverage rules-based inputs for each of our reg and promotional program development. And then we've had to develop flexible user interfaces that allows our buyers to override where required. And an AI implementation of this significance requires a lot of change in people and process to integrate the capabilities so we can unlock the value both financially and strategically. So we're really, really proud of that, and we're feeling like the teams have adopted it very well. And we continue to add feature sets to it as we go forward. And as Greg pointed out, I think it was Greg, might have been Darren, we currently just have it in CTR, but we're about to roll it out in SportChek and Mark's going forward. So we're very excited about that. And I think that had a big contribution to our margin performance year-to-date. So -- and then we continue to plow forward with other capabilities as well. Our Triangle membership base allows us to focus investments at the individual level and our own brand stable helps strengthen our margin rates as well. So we're feeling very good about how we've been performing, and we feel like we've built a lot of capabilities to help manage in a what I would describe as a very dynamic cost backdrop as we sit right now. Darren Myers: Yes. And just to add on it, as TJ said at the beginning, just -- things can be choppy. So I don't want people to get too ahead of our skis, but we're certainly pleased with what we've built and where we are right now. John Zamparo: Understood. I appreciate that color. That leads to my follow-up, which is also on your AI efforts. And I wondered, do you eventually foresee using AI externally. In other words, on a customer-facing basis rather than only internal. I assume you've spent some time talking about this. We've seen retail banners in the U.S. start to offer this. I wonder how you see this playing out at Canadian Tire. Greg Hicks: John, it's Greg. Absolutely. And I think in my previous response, I said we're moving at pace on AI. I've yet to experience the pace of change in the industry that we're seeing right now with AI in my career. And we have many use cases in deployment. Some of them are fairly mature and some of them scale like the one that TJ just talked about. But from a customer experience point of view, we think Agentic AI is the breakthrough. We think it's the breakthrough for scaling, and we are absolutely racing towards it in True North. And I think the real potential of Agentic AI is -- and this does apply to the back office as well, but it's not to automate the steps of a workflow, but to eliminate the workflow itself. And it requires a set of foundations that is absolutely a part of the incremental tech investment this year. We're building for multi-agent AI orchestration, and that requires the right standards and protocols. And we're building them with a scaled partner in Microsoft. And so in all, True North really has us working to evolve to be a tech-enabled retailer, not just a retailer that uses tech. And our operating model, as we've talked about, is evolving, and we're working hard to embrace the potential that AI can bring, especially in the customer experience. And then organizationally, from a change management standpoint, we're moving to a place where business leaders identify problems they need to solve, not IT platforms that we need to buy. And it sounds simple, but it's a profound change. And that's why the operating model change in True North is so important. Operator: Our next question comes from the line of Mark Petrie with CIBC. Mark Petrie: I want to come back just to the topic of dealer sentiment. Obviously, consumers are sort of cautious, albeit trends are stable, but revenues have been outpacing sales and pretty notably in Q3. How would you characterize sort of inventory levels today? I know dealers were light on winter. Was that addressed in Q3? Or do you expect that to continue in Q4? And what kind of feedback are you just generally getting from dealers with regards to the selling environment? Thomas Flood: Mark, it's TJ. I'll take that one, and I'll unpack our inventory position a little bit to hopefully provide a bit of context. With the customer, as Greg articulated, remaining resilient and a lot of new product newness in our assortment, as you articulated, we're seeing really positive demand from dealers. Their inventory is up 7% as we go into Q4, and they bought to position themselves strongly for Q4 and the winter season. There was some timing impact for sure in our Q3 revenue, and we estimate about half of the growth that was shipped out in Q3 would have been shipped out in Q4 last year. So there was a timing impact. But certainly, they have been very bullish on the Christmas business, and they have been very bullish on the revenue -- on the shipment side to restock their shelves coming off of a very strong late winter last year. And like us, back to your sentiment, they've been planning for modest growth this year, and they've been buying to support it, which has obviously helped kind of spur our year-to-date up 4% in POS. And from a dealer perspective, obviously, kind of seasonal performance is a big driver of dealer inventory levels in our business. And Q3 marks the end of the spring/summer season. So I did want to highlight that the dealers have slightly elevated inventory levels for spring/summer business, and that's in large part to the performance of climate control categories like air conditioners. So they're a little bit heavy on those categories coming out of Q3. But the winter season is just getting started, and we'll report back in Q1 on our Q1 call on how those categories look from a retail standpoint. So the situation is dynamic with consumer demand right now. I would say the dealers continue to support and buy for growth, but they're watching it closely, just like we are. And probably the last thing, I would say is, as you know, in the long run, kind of revenue growth to dealers usually gets in lockstep with POS growth. So I'll leave it at that. But they have continued to buy for growth, and they're cautiously optimistic as we would be. Mark Petrie: Okay. That's very helpful. And I also wanted to follow up on retail gross margin. Just looking at it a little bit different, but picking up differently and picking up on your comments about stimulating demand. Do you view the stronger than or above North Star gross margin rate as a win because you're able to drop more dollars to the bottom line? Or do you feel like maybe you left some sales on the table and you could have taken some more share with a bit more promo investment and still achieved your target? Thomas Flood: Yes, Mark, it's TJ. I can take that, too. I think what you just articulated is the balance we're always trying to strike, right? We're trying to manage our margin rates and make sure that we're inspiring consumer demand because at the end of the day, the more margin dollars we generate, the healthier our business is. We've been a bit choppy this year quarter-to-quarter on margin rates, but we feel really good about how it stacks up when you look at it over the long term. And we feel like we're tracking really well towards our North Star. But that's what we'll continue to do. We'll continue to try to inspire demand as best we can and manage our margin rates all the while. So that's what we're doing. Greg Hicks: And Mark, maybe if I just add, that's why over the years, you've heard us talk about trying to get more fidelity and understanding around market share. And we think that the market share reporting has come a long way. We've integrated market share reporting into a file of our performance management reporting, including Board oversight. And we took share in the quarter. So that teeter-totter balancing act that, that TJ is talking about, if we're taking share and dropping more margin to the bottom line, that's the happy state. So when we look to Q3 across the businesses, but in CTR, I think was where your question was coming from. We took share in the quarter, and we're able to appreciate margins. So we feel like we got the balance right in the quarter. Operator: [Operator Instructions] Our next question comes from the line of Emily Foo with BMO Capital Markets. Emily Foo: Okay. Just wanted to go back to the flyer disruptions. Are there any contingencies or actions that you're taking to mitigate for Q4? And if so, like have those actions begun? Thomas Flood: Yes, Emily, it's TJ. Maybe I'll take that one. As Greg articulated in his upfront remarks, we have the most beloved and most red flyer in the country. And when less consumers receive it, it certainly becomes friction that we'd rather not have to face. But we have taken the learnings that we had from last December. So this isn't our first disruption with Canada Post. And we've reinvested and deployed marketing plans to help mitigate the impact and -- because it's actually been of a longer duration so far than what we experienced last year. The teams have been able to source local distribution alternatives to get our flyer in as many households as possible. But relative to Canada Post, it is -- these actions are limited and don't have the same efficacy as Canada Post, especially when we have to act as quickly as we had to. But what I'd say is we've built so many great capabilities over the past several years in digital marketing, our digital flyer, our app and our Triangle membership program, which has insulated ourselves a lot from the downside of flyers not arriving at as many homes as is normal practice. So it would have been a much bigger impact for us a few years ago. But as Greg said, we're in an environment where consumers are craving value, we're really looking forward to more stability and sustainable stability from Canada Post as we go forward here. Emily Foo: And also, with respect to DAVID, how many quarters would you say that it's been a significant contributor to your margins? Thomas Flood: Yes. I'd say we -- I would probably say we're into our third or fourth quarter of kind of implementation. It was a rollout. So I'd go back to probably Q4 -- late Q4 of last year when we would have started developing value from it and then certainly throughout this year, but on a rolling basis, and it's getting to the point of pretty scaled implementation at this point at CTR. And as I said, we are going to be rolling it out to SportChek and Mark's in the future here. Operator: This concludes the question-and-answer session. I would now like to turn it back to Greg for closing remarks. Greg Hicks: Thanks, Lauren, and thank you, everybody, for your questions and for joining us today. We look forward to speaking with you when we announce our Q4 and 2025 full year results in February. Bye for now. Operator: This will conclude today's call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for participating in the Third Quarter 2025 Earnings Conference Call of Melco Resorts & Entertainment Limited. [Operator Instructions] Today's conference is being recorded. I would now like to turn the call over to Ms. Jeanny Kim, Senior Vice President, Group Treasurer of Melco Resorts & Entertainment Limited. Please go ahead. Jeanny Kim: Thank you, operator, and thank you all for joining us today for our third quarter 2025 earnings call. On the call are Lawrence Ho, Geoff Davis, Evan Winkler; and our Property Presidents in Macau, Manila and Cyprus. Before we get started, please note that today's discussion may contain forward-looking statements made under the safe harbor provision of federal securities laws. Our actual results could differ from our anticipated results. In addition, we may discuss non-GAAP measures. A definition and reconciliation of each of these measures to the most comparable GAAP financial measures are included in the earnings release. Finally, please note that our supplementary earnings slides are posted on our Investor Relations website. With that, I'll turn the call over to Mr. Lawrence Ho. Yau Ho: Thank you, Jeanny, and thank you all for joining us today. Our properties in Macau delivered solid growth in the third quarter of 2025, with property EBITDA growing by 21% year-over-year despite the negative impact of approximately $12 million due to the typhoon in September. Our momentum in Macau is continuing, and we did not see a slowdown in October following the holidays. In fact, our Macau GGR grew over 30% year-over-year post Golden Week, and COD recorded its highest monthly mass tables GGR ever in October. We continue to introduce new initiatives to enhance the quality of engagement with our customers across all segments of our customer base. In July, we opened the Signature Clubhouse at City of Dreams for our premium mass customers, which includes private gaming salons, hair services, a Formula One simulator and other exclusive amenities to provide a differentiated experience. In September, we reopened a gaming area featuring 15 gaming tables at City of Dreams near the Grand Hyatt across from MGM Cotai and Wynn Palace and just steps away from the Macau Light Rail Station. This new area has been designed to appeal to walk-in crowd with lower table minimums, and we have seen this area well utilized with a steady flow of new patrons. As we had announced previously, we closed Grand Dragon Casino and one of our Mochas in September. The 15 tables from Grand Dragon were allocated to the new gaming space at COD and 90 gaming machines from the Mocha closure were shifted to Studio City. We will close 2 more Mochas before end of the year, and the gaming machines will be reallocated across our 3 properties in Macau. We have started the renovation of the Countdown Hotel, which we currently expect to open in the third quarter of 2026. After completion, this hotel will bring a one-of-a-kind experience to Macau and the region. We plan to simultaneously upgrade retail and food and beverage in this precinct of COD and continue to elevate the quality of our product offerings. At Studio City, we unveiled a newly expanded high-limit gaming area along with 4 new private gaming salons at Epic Tower to provide an even more refined experience for our premium mass customers. In October, we relaunched the new iRAD hospital at Studio City, designed to further enhance Macau's tourism infrastructure with top-tier health care and wellness services. In the Philippines, property EBITDA grew 45% quarter-over-quarter, and we have seen good momentum in October. City of Dreams Mediterranean and the satellite casinos in Cyprus had their best quarter yet, with property EBITDA growing 53% year-over-year to $23 million. Despite the escalation of hostilities in the region at the beginning of the quarter, we're now in the shoulder season, but the property is coming into its own and showing solid year-over-year growth so far. In Sri Lanka, we opened City of Dreams Sri Lanka on August 1 as the first integrated resort in Sri Lanka and in South Asia. It is early days as we solidify our footing and continue to ramp up our operations there. With that, I turn the call over to Geoff. Geoffrey Davis: Thank you, Lawrence. Our group-wide adjusted property EBITDA for the third quarter of 2025 grew 18% year-over-year to approximately $380 million. Adjusted for VIP hold, our property EBITDA was approximately $355 million. Favorable win rates at COD Macau and COD Manila had positive impacts on our property EBITDA by approximately $23 million and $2 million, respectively. We continue to remain focused on operational discipline and our OpEx in Macau remained stable this quarter at approximately $3 million per day, excluding House of Dancing Water and the Residency concerts. OpEx for House of Dancing Water was approximately $100,000 per day, as previously mentioned. Our Macau property EBITDA margin held steady at approximately 29% in the third quarter of 2025, which reflects our disciplined approach on costs as we drive sustained business growth. Turning to our balance sheet. Our liquidity position remains robust. We had available liquidity of $2.6 billion with consolidated cash on hand of approximately $1.6 billion as of the end of the third quarter of 2025. Melco, excluding its operations at Studio City, the Philippines, Cyprus and Sri Lanka, accounted for approximately $1.05 billion of the consolidated cash on hand. There was a quarter-over-quarter increase in Melco's cash balance of approximately $360 million, which was largely due to the timing of the $500 million in bonds that we issued in September. As of the end of September, we had approximately $358 million of the bond proceeds remaining, net of $142 million, which had been used to settle a tender offer on the senior notes due 2026. In October, the remaining proceeds of the new bond were utilized to early redeem all of the outstanding senior notes due 2026, which had not been tendered. Following this exercise, the group does not have any material amount of debt maturing in 2026. We continue to reduce debt in the third quarter with a total of $180 million being repaid, $70 million at Melco and $110 million at Studio City. We repaid a further $180 million at Melco in October and November. In October, we also canceled $18.5 million of the approximately 32 million ADSs that were repurchased earlier this year at an average price of $5.10 per ADS. As we normally do, we'll give you some guidance on nonoperating line items for the upcoming fourth quarter of 2025. Total depreciation and amortization expense is expected to be approximately $135 million to $140 million. Corporate expense is expected to come in at approximately $25 million to $30 million and consolidated net interest expense is expected to be approximately $115 million to $120 million. This includes finance liability interest of around $6 million relating to fees payable in relation to the Macau gaming concession and the Cyprus gaming license and finance lease interest of approximately $5 million relating to City of Dreams Manila. That concludes our prepared remarks. Operator, back to you for the Q&A. Operator: [Operator Instructions] Your first question comes from George Choi with Citi. George Choi: So you guys have introduced new side just like everyone else does in Macau to your operations over the last year or so. Would you say that they contributed positively to your recent EBITDA growth? And would you be raising your theoretical hold rate anytime soon? And that's my first question. My second question is a housekeeping one. Would you please remind me the CapEx required for the renovation of the Countdown Hotel? Yau Ho: Sorry, George, it's Lawrence. So your first question was on the fee hold rate for VIP? George Choi: Or perhaps mass hold rate trends that you are looking for? Geoffrey Davis: Sure. So again, the only one that we sort of publish something on and we adjust to is obviously on the rolling business, where we have a target of 3%. Based on what we're looking at from a data standpoint, and again, we continue to watch it, that number sitting here today is still a good number in terms of that business constituency and in terms of sort of the betting mix of those players. And I understand this varies some market by market. So there's some noise in the market about other markets raising that up substantially. But yet today, we haven't yet seen a strong enough basis for us to adjust, but we're continuing to look at it. In terms of our mass business, obviously, as we've added more, it's been a positive uplift. I don't know that it's dramatic because we've gone from sort of the widely adopted on the Banker 6 to the 7s bets. We are seeing a lift up, but I'm not sure that, that's a massive driver as we sit here today. But obviously, it is improving as we're giving more options to our players in terms of our overall percentages. And on the CapEx question for the countdown, that's about $125 million. Operator: Our next question comes from the line of Luis Ricardo Chinchilla Vargas. Luis Chinchilla: I wanted to start asking about the operating environment in terms of promotions. Have you guys seen any uptick or anything meaningful on that front? Yau Ho: Well, Macau is always going to be very dynamic. And every day, you're looking at how to compete. But I think I can say that I'm very proud of the team because throughout 2025, we've really held the line on reinvestment -- and even this quarter, we keep track of the share shift on a daily basis, a weekly basis, and we're seeing some of that. But I think we've really held the line throughout 2025, and we will continue to observe it. And maybe I'll let Evan elaborate a bit more, but I think the environment is certainly, I would say, is competitive but stable. Evan Winkler: I think that's fair. Again, you've probably seen some statements by some competitors talking about being more or less aggressive on certain programs. We sort of look by program, by player segment and are evaluating constantly in terms of what we're doing. In Q3, while we're always tweaking and trying to optimize, we didn't see a big shift upward. Again, there's probably, if you look program by program areas that we're going to look to tweak up and others that we're going to look to tweak down. We'll continue to monitor and respond to the competitive environment. But I think Lauren said it well. It's very competitive. But at least right now, it's not irrationally competitive. Luis Chinchilla: Fantastic. That's great color. For my second question, I was hoping if you guys could give us some CapEx guidance for next year, even though it might be early and you guys are still finalizing the budget. Evan Winkler: You're right. We're in the midst of reviewing and finalizing and approving that budget. But as a placeholder for now, I think $400 million for 2026 is a good number. Operator: Our next question comes from the line of John DeCree with CBRE Capital Advisors. John DeCree: Lawrence, I apologize if I missed any prepared remarks, I dialed in a couple of minutes late. But did you provide any color on Golden Week? And if so I could get it offline, not make you repeat yourself, but interested in kind of what you guys see kind of pre and post around the seasonality in the shoulder periods, maybe relative to what you'd expect several years ago? Or how strong are the peaks? And how consistent is visitation on property kind of leading up into Golden Week, which I think could typically be a little slower? And then have you seen any signs of slowdown after? Yau Ho: John, I think on Golden Week, the whole market was a bit disappointed because we were unlucky with -- there was a typhoon on, I think, day 4 and then mid-autumn festival was effectively day 6. And for mid-autumn festival, most people go back to their families and stuff. And so I think the whole market was quite disappointed by the first 7 days. But throughout October, the last 21 days of October were extremely strong. And so I think the traffic that went -- that skipped Golden Week or left early for Golden Week clearly came back. And so I think all in all, post-COVID, October was the best month. And I think for us as well, I think we've continued to on a year-on-year basis, kept up with the pace of growth in the market. So we're quite pleased. I don't know. Maybe Evan has more. Evan Winkler: No, I think Lawrence is spot on. We -- coming out of Golden Week, I think we all felt like it was a little soft, and we were a little unlucky on the calendar, and we were definitely unlucky on the weather. And then you normally get more of a dropoff and it just sort of continued to stay strong and there was good tails going through October. So sitting here now, we look back and we're like actually October feels very good. I mean we feel really good. But we didn't feel great immediately coming out of Golden Week, it was soft. But unusually, and as Lawrence said, I can't tell you if all the people who put off trips came back. We can't give you the precise causality of it, but we had a very, very strong period following it, much stronger than we would normally expect. John DeCree: Awesome everyone. And maybe a quick one for Geoff on kind of OpEx per day. I know kind of maintaining cost discipline has been core to the story. You have given us a little cover in the past. Any change in kind of OpEx per day assumptions that you could see or could share or kind of steady as it goes? Evan Winkler: Maybe I'll take that. Geoff can add any color he wants. But -- so we have a few things going on in Q4. We've got the China National Games where there's a fairly big level of support that we're going to be providing that's going to hit the P&L. You have the 10th anniversary of Studio City, and we actually have some pretty exciting promotional activity around that. So those are kind of one-offs that will be significant drivers in Q4. We also are entering a period where seasonally, we tend to do a bit more promotion. And then also as the concerts or the residencies have dropped off, which are normally excluded, we are having some backfill activity to make sure that we have strong activation. And so the net of all those is we're going to probably spike up here in Q3. We're probably going to be more like in the 3-ish range. And we may, again, depending on some promotional and other activity that we're looking at, drift a little bit higher, but that should be coming down in the subsequent quarters. I think probably premature to talk about how much, but we are going to see an uptick here in Q4 based on those things. Operator: Our next question comes from the line of Joe Stauff with Susquehanna. Joseph Stauff: A couple of follow-ups just on that OpEx per day response that you had given. 3.3 all in, including the onetimes is the right way to interpret that comment, correct? Evan Winkler: That is the baseline, again, as we're looking at some promotional activity, it's not going to be lower than that. There are some things we're contemplating that could drift a little bit higher. But yes, that's including the onetimes. For Q4 -- normal run rate. Joseph Stauff: Got it. I wanted to -- Q4, Understood. Understood. I wanted to zoom out COD has been just a significant improvement in turnaround here over the past 1.5 years. And just kind of zooming out and thinking about the strategic initiatives and investments you've made, wondering if you could just maybe like rank what you think to be the most important investments and strategic initiatives that you've taken and made at COD to really kind of create this impressive turnaround in results, especially year-to-date. Evan Winkler: Well, we're all looking around each other. That's sort of one that was unexpected. But I'll give you my take and then maybe Lawrence or Tim or others will chime in. I'm not sure it's one individual thing. I think over the last 18 months, Lawrence has set a mandate that to some degree, we need to kind of get our swagger and market leadership back at COD on product, service and what we're doing. And so we've really done a breakdown on the business from soup to nuts at every position on every way that we provide service, looking at the customer experience and then also sort of tying together what the customers experience on property. And so I don't have one big thing to point you to. It's literally been hundreds of items, and they're not on the call, but we have mid-level executives across the board that have contributed in big ways and small ways. So I've been really happy and proud on how many different people have contributed in different ways, but it's been a lot of small steps and then you kind of look back and you've climbed a pretty long way. But I don't know that there's one thing that's been the silver bullet. Joseph Stauff: No, I appreciate that. I know there are a lot of things going on. But just curious of how you think about it. There's always the market dynamic versus, say, the company-specific, say, initiatives. And so that's the question. Yau Ho: No. I think let me add to that as well. I think during COVID, we were barely surviving, right? So and City of Dreams was always our flagship, where Morpheus new lifestyle. -- and where we have the most Michelin to our restaurants. And I think for a while during COVID, we just weren't living up to the brand, the brand promise and the brand proposition. And I think with the new team coming on board and Tim in the leadership, I think we've revisited -- like Evan said, we've revisited literally every single thing from like the tiniest amenities to much bigger attractions. And so I think we're -- finally, post-COVID, we've come out of that funk and we're -- we've rediscovered the swagger. Joseph Stauff: Okay. Just one quick one. Any update maybe on the process for strategic options for your Filipino asset? Any updates or reference points you can give us? Geoffrey Davis: Sure. This is Geoff. We are approaching the end of the process with our advisers and should have a definitive assessment of our alternatives by the end of this year. There's always -- this has always been an opportunistic exercise that's been driven by the potential for a one-off debt reduction event, not any specific desire to exit the Manila market. So we have and will continue to be very valuation-driven on this exercise, and we'll continue to be disciplined in our approach to assessing the offers that we have for this business. But we hope to be back by year-end with a definitive answer. Operator: Our next question comes from the line of Praveen Choudhary with Morgan Stanley. Praveen Choudhary: I think the Macau market obviously is doing very well since May of this year. Q2 results, GGR being up 13%, October being up 16%. I guess investors are asking literally 2 questions. So I just wanted to ask you those 2 questions and see how you want to respond to it. One is obviously the margin, which has been talked about where the competitive dynamics remains intense. And the reinvestment cost is generally pretty high, which is why the margin could have been very high, but it's not. So any thoughts there that it is the bottom of that margin or peak of the reinvestment intensity. But the second question I had was on premium-driven business, meaning a very small number of people is driving a big chunk of the mass revenue and thus the profit for the Macau business. And that is similar to, let's say, VIP driven back in the days, which deserves lower multiple and so on. So the fact that grind mass has been missing or at least been less available than we would like, is there anything you can talk about? Or are you seeing any early signs of that changing? That will be great. Sorry for the long-winded question. Yau Ho: Praveen, it's Lawrence. So maybe why don't I start and I'll hand it off to Evan and see if Geoff wants to chime in as well. I think clearly, when the VIP and the junket business went away, we had all hoped that margins would just rocket just go sky high. And unfortunately, that hasn't happened. And I think it's well documented what some of our competitors have done. And so I think as I mentioned earlier on in the Q&A, I'm very proud of the team because we've really held the line on reinvestment so far for the entirety of 2025. So theoretically, if all 6 concessionaires can kind of get their act together, there should be margin expansion, given that the market is growing. And so on one hand, I think as mentioned -- as Evan mentioned earlier, I think we're past peak competitiveness in terms of the intensity in the market. But at the same time, I think everybody is still thinking of ways to try to steal business and grab share. And I would say as well, I think every time I read a sell-side research, everybody just talks about market share. So I don't blame some of our competitors for constantly focusing on that rather than being more focused on EBITDA. So again, I think it's as rational as it has been in the last maybe 12, 18 months. But again, I'm seeing with our competitors and also sell-side research analysts to maybe place less emphasis on weekly, monthly market shares as well so that we don't feel like they are pressure to chase market. I don't know, maybe Evan, you want to add. Evan Winkler: I guess, Praveen, on the 2 that you asked from a margin standpoint, I agree, obviously, with Lawrence, that there should be room to accrete upward. I'm not sure sitting here in the competitive market today that I bank on that one way or another. We could always be surprised. But look, right now, the market remains competitive. I think the dream for everyone is if everyone competed in a very rational way on product and service, that there should be upside within this market that I hope we realize. And also, I think I have a hope that as we continue to get more and more mass business into the market and you get sort of just a better supply-demand dynamic in terms of what's available that, that will continue to improve. When the junket business left, there's a lot of product and service that they were using that didn't get used, and that's sort of been backfilled by people going after that premium mass business. So you're seeing the effects of that from competition. So I think margins are stable, but I don't know that there's a near-term catalyst that will do that, but I think the overall long-term trend is healthy. In terms of the premium-driven business, I'm not 100% sure if that was going after premium direct business where, yes, that business tends to be fairly clumpy driven by pretty large players. We are seeing more players from more geographies around the world. So while that is the nature of that business, it feels pretty healthy. In terms of -- if you meant premium mass, yes, we're always going after those premium players, and we're not really going after a grind, grind mass, but we are, again, seeing new players coming into the market. So I don't know that, that's -- I wouldn't sort of signal that out as not healthy. I do think that we are getting a healthy drive on the mass business overall. We don't tend to be kind of a grind mass player. So I probably have less insight into that market demographic. But in terms of players coming into our system, I think we feel good about market growth. Praveen Choudhary: That is very helpful. Can I just have a last follow-up question on Sri Lanka. It's early days. I totally appreciate that. But when you entered that market, you had a view that it will be a return accretive market and eventually, it will generate a certain kind of EBITDA. Is there anything you picked up in terms of either it's been too difficult or regulatory issues or visitation being weaker or you need to tweak business models slightly or you need to provide something? Anything you can share about that market? That will be very helpful. Yau Ho: Praveen, I think it's super early days. It's only been open for 3 months. And for us, it is a whole new market because it's mainly targeted at the Indian market. So there's a lot for us to learn along the way. I think we're very optimistic about the country and the tourism growth in that market. And I would say that we're learning every day, and there are new programs that we haven't really seen before. And anyway, I'm sure we'll have more to report in subsequent quarters. Evan Winkler: No, no. I would just say, look, initially, when you go into a market that already has some incumbents, it's a little bit of a steel share market where you have incumbents protecting the existing customer base. we're lowering them with a better product and service, but you have promotional activity. And so we're kind of in the early days of that. I think our long-term strategy is we want to expand that market and change the kind of customer that's going into that market who expects more premium product. But that's not going to be done in a month or 2. That's going to be done here over subsequent quarters. So as Lawrence said, we're early days. We're focused on getting that very valuable high-end guest, and that's going to be a journey from here to there. Operator: Our next follow-up question comes from the line of George Choi with Citi. George Choi: So you guys have made significant progress on deleveraging. And if there's any positive results from this COD Manila strategic review, your gearing is going to go down further, right? So I'm just wondering if you have any new thoughts on your cash allocation strategy. Geoffrey Davis: Thanks, George. As you know, in the post-COVID period, we've been very laser-focused on debt reduction, and we've had some meaningful success in paying down some of the debt that we incurred during the 3 challenging years of COVID. However, going into next year, we plan to take a more balanced approach using our free cash. And while debt reduction will continue to be a primary mandate, we aim to potentially recommence the quarterly dividend by the end of next year. Operator: There are no further questions at this time. I now hand back to Ms. Jeanny Kim for closing remarks. Jeanny Kim: Thank you, and thank you all for joining us again today. We will look forward to speaking to you next quarter. Thank you. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good morning, and thank you all for attending the SharkNinja's Third Quarter 2025 Earnings Call. My name is Brika, and I will be your moderator for today. [Operator Instructions] I would now like to pass the conference over to your host, James Lamb, Senior Vice President of Investor Relations and Treasury. Thank you. You may proceed, James. James Lamb: Good morning, and welcome to SharkNinja's Third Quarter 2025 Earnings Conference Call. Earlier today, we issued our Q3 earnings release, which is available on the company's website at ir.sharkninja.com. A replay of today's webcast will also be available on the site shortly after the call. Before we begin, let me remind you that today's discussion will include forward-looking statements based on our current perspective of the business environment. These statements involve risks and uncertainties, and actual results may differ materially. For more details, please refer to our earnings release and the company's most recent SEC filings, which outline factors that could impact these statements. The company assumes no obligation to update or revise forward-looking statements in the future. Additionally, during the call, we will reference non-GAAP financial measures, which we believe provide valuable insight into the underlying growth trends of our business. You can find a full reconciliation of these measures to their most directly comparable GAAP measures in the earnings release. Joining me today are our Chief Executive Officer, Mark Barrocas; and Chief Financial Officer, Adam Quigley. Mark will start by providing a business update, followed by Adam, who will review our Q3 financial results and share our outlook for 2025. Mark will then offer some closing remarks before we open the call to questions. [Operator Instructions] I would now like to turn the call over to Mark. Mark Adam Barrocas: Thank you, James. Good morning, everyone, and thank you for joining us today. During a year of massive upheaval across our ecosystem, supply chain disruptions, consumer uncertainty, industry headwinds and other challenges, SharkNinja has continued to triumph. At our core, we're a company of problem solvers. We thrive on tackling problems head on to deliver innovative and groundbreaking solutions time and time again. As 2025 has unfolded, the monumental series of challenges has gotten the better of many companies. I believe SharkNinja, on the other hand, is a true outlier. We've steadily and meaningfully taken market share across categories and geographies. We've continued delivering disruptive innovation at breakneck speed, and we've done it all with best-in-class profitability and impressive execution. In short, SharkNinja has been exemplary. The third quarter is a testament to all these factors with outstanding results across the board. Net sales grew over 14% year-over-year, our tenth quarter in a row of double-digit top line growth, all of which is organic. Adjusted gross margins expanded more than 90 basis points year-over-year to surpass 50%, and adjusted EBITDA grew nearly 21% year-over-year. We also delivered our second quarter in a row of leverage of adjusted operating expense as a percentage of net sales. These are truly outstanding numbers, and one might ask just how we're able to deliver them. I think they are the byproduct of 2 essential aspects of our culture, 2 things that drive everything we do: Our mission of positively impacting people's lives every day and every home around the world and the existential need to be the absolute best at whatever we do, not just like everyone else, but the best. Our performance this quarter and for the last 17 years proves that this is a winning formula. Let's deep dive into sales, where SharkNinja continues to materially outpace the competition. Our point-of-sale trends in Q3 demonstrate enviable momentum over a broad base of products and categories. While our data indicates the total U.S. market that we participate in declined slightly year-over-year, excluding SharkNinja's performance, our own POS grew in the low double digits. The outperformance expanded in the last 4 weeks exiting the quarter with our POS reaching mid-teens growth as the market weakened further, again, excluding SharkNinja. We're also seeing tremendous success internationally, where net sales growth in Q3 accelerated to almost 26% year-over-year compared to just over 20% year-over-year in the second quarter. Our top line strength reflects expanding relationships with consumers and retailers. Recent innovative product launches are generating exceptional consumer engagement across reviews, social media and elsewhere. The trusted relationship that SharkNinja has earned with consumers remains our priority. I believe it's why we've maintained our pace of innovation despite a difficult environment. It's why we keep a maniacal focus on consumer satisfaction, and it's why we continue to expand the places consumers can shop for our products. These elements help ensure SharkNinja is driving extraordinary value to the consumer. I believe as we earn more trust, we build lifetime value and brand loyalty. This advantage means that as we enter new categories, consumers are all ears about what's new with SharkNinja. On the retailer side, our global relationship status continues to strengthen. The commercial team and I spent time during Q3 with the top leaders at our largest and most important partners across the globe. The feedback was incredibly encouraging and remarkably consistent. SharkNinja is a brand unlike anyone else in our marketplace: Fast-moving, uniquely innovative and steadfastly committed to marketing and demand generation. I think this is a rare combination of attributes for any company, but exceptionally so given the extreme difficulties so many have faced in 2025. Our differentiation has earned us an important seat at the table. You're seeing this already in the lead up to holiday 2025 with meaningful traction in orders. Even with some shipments moving out of Q3 into Q4 as we anticipated, September was a record month for SharkNinja. As we head through the remainder of the year and into 2026, we could not be more excited about SharkNinja's position with our wholesale partners. This enthusiasm extends to our direct-to-consumer business as well. In October, we launched a completely redesigned sharkninja.com, consolidating 3 outdated domains into one streamlined destination. Our new platform is a massive upgrade. It should enable us to engage the consumer in powerful new ways and provide a more seamless e-commerce experience. Now we can instantly showcase the value of SharkNinja as the innovation powerhouse behind 2 multibillion-dollar brands. Over time, we believe this can be an important driver of traffic, conversion and cross-selling activity. We're also partnering with major retailers to enhance the SharkNinja experience on their online properties through new creative, enhanced imagery and by leveraging some of our celebrity ambassador content. We will continue to roll out modernized DTC sites across Latin America and EMEA in the first half of 2026 with the goal of learning and optimizing as we get into the second half. Making great products is one thing, but creating widespread viral demand for them is another. SharkNinja employs a very sophisticated approach of doing this in multiple ways, leveraging global brand ambassadors, micro ambassadors, influencers and experiential events. At the top of the pyramid, our roster of global brand ambassadors continues to expand with 2 tremendous new additions to highlight. We are thrilled to welcome comic sensation Kevin Hart and NFL icon Tom Brady to the SharkNinja family. Kevin and Tom each bring their own unique and authentic connection to fans and audiences worldwide. I encourage you to watch the first installment of Kevin and David Beckham, a long-time global brand ambassador, as neighbors in a new digital series we're creating and be sure to check out the new Tom Brady Roast featuring him using our new Ninja Crispi Pro Air Fryer. We have a lot more exciting content to debut in the coming months from our celebrity partners, so stay tuned. We're also rapidly expanding our influencer network globally, driving more localized content across key markets in Latin America, Europe and the Middle East. We now have SharkNinja content creators in these markets developing content every single day. The considerable scope of expertise that we're building should be durable and not easily replicable by others. We believe our investments into effective localized content can strengthen our social media marketing advantage worldwide. The same playbook that we've developed successfully in North America is now coming to the rest of the world. This evolution is another proof point of SharkNinja continuing to evolve into a true global business. I will now turn to our 3-pillar growth strategy, starting with our first growth pillar; expanding into new and adjacent categories. We're now officially in 38 subcategories with the Q3 launch of Ninja Fireside360, our revolutionary outdoor heater and fire pit combination. This product exemplifies how we utilize consumer insights to solve problems with innovation. Fireside360 combines the benefits of traditional heaters and fire pits while eliminating common drawbacks like poor heat distribution and cleanup hassles. The initial consumer response has been excellent, and we're excited to expand further into the outdoor lifestyle space. Turning to Beauty. We've delivered significant new product momentum during the second half of 2025. Shark Glam epitomizes our engineering-first approach to solving real consumer problems. It's the first multi-styler that combines ceramic heat and powerful airflow to deliver salon quality results for even the most challenging hair types. The Shark Glossi leverages the same breakthrough technology in a versatile brush product appealing to a broader consumer base at a more accessible price point. Together, these launches showcase our ability to evolve individual products into comprehensive franchises with hair care as the latest example. We now offer a vast ecosystem of products across multiple use cases and price points, reinforcing our position as an innovation leader transforming the beauty space. Earlier this year, in the U.S., we entered the skin care market with the Shark CryoGlow. In under 12 months, Shark CryoGlow is the #1 skin care facial device in the U.S. and Shark Beauty is the #1 skin care facial devices brand in the U.S., both according to Circana. Acting quickly on the heels of this runaway success, we've just launched our next revolutionary innovation in skin care, the Shark FacialPro Glow with DePuffi. We anticipate this hydrofuel device will redefine the at-home facial experience to deliver spa level results in 10 minutes, combining cleansing, moisturizing and depuffing technology. FacialPro Glow has been an enormous success so far with 25,000 people on the waitlist and a complete sellout of Amazon in 3 hours. Our ambition is to be the runaway leader in beauty technology, and we believe cutting-edge products like the Shark CryoGlow and Shark FacialPro Glow pave the way for that success. Taking a step back, what other company launches products as wide-ranging as an outdoor heater fire pit combo and a facial extracting and sculpting device in a single quarter? This is the magic of SharkNinja. We relentlessly pursue the next great breakthroughs across an infinite number of consumer problems to solve. We remain fully committed to delivering on our 2025 innovation road map with 25 new products as promised. This is a tall task considering all the supply disruptions earlier this year. But we believe we enter next year with meaningful momentum as new products ramp and our exciting 2026 launches roll out. Now let's turn to our second growth pillar, growing share in existing categories. I mentioned earlier how profoundly we outperformed the market we served in Q3, and the same pattern has been evident all year. Year-to-date, our internal data supports clear market share gains across all 4 of our category groupings: Cleaning, cooking, food preparation and beauty and home environment. The cleaning business was a particular standout in Q3 with growth across all subcategories. Our Robotics division continues to gain traction, while our extraction products also performed well. Extraction represents a great example of one of the hallmarks of SharkNinja, the drive to deliver demonstrably superior product than what we believe the market is currently offering. As Shark grew into a powerhouse within the vacuum and floor care markets, retailers asked us for years to enter extraction. We resisted it first because initially, it wasn't clear how we could solve the consumers' problems in a better, more innovative way. We kept at it and introduced our Shark StainStriker platform to great success. In just a few years, we've gone from 0% share to a meaningful position in the extraction market. In Q3, we took another leap forward with the introduction of the Shark StainForce. This revolutionary cordless stain elimination system addresses what we call stainxiety, the stress consumers feel when faced with tough stains or spill emergencies. The product became a viral sensation on social media with plenty of user-generated content. Best of all, authentic consumer enthusiasm is translating directly into strong sales performance, reinforcing the power of our consumer-centric product development approach. Another social media standout is the Ninja BlendBOSS, our first-ever tumbler blender that's redefining portable wellness with an ultra-powerful motor and 100% leakproof design. The innovative on-the-go solution demonstrates the potency of our integrated marketing approach and the launch post went viral. We've seen millions of impressions across TikTok, Instagram, YouTube and Facebook, driving exceptionally strong sales in the first few weeks. I think Ninja BlendBOSS is breathing new life into a category that's been dormant, similar to what we spoke about last quarter with fans, and it represents another step in our expansion beyond traditional kitchen appliances to meet consumers' active lifestyles. This kind of organic consumer engagement reflects the genuine excitement our innovations generate in the marketplace. Lastly, I want to highlight the Ninja Crispi Pro launch, that further extends our leadership in the glass system air fryer category. Ninja Crispi Pro represents the latest building block in our next-generation air frying franchise with expanded XL capacity and enhanced functionality. We have additional breakthrough Crispi products coming in 2026 that I believe will keep one of our largest categories refreshed and vibrant for consumers. A common thread unites all 3 of the products I just highlighted. They represent disruptive innovation within some of our core existing businesses. The Shark StainForce delivers the best stain fighting in the category with no cords and no setup. The Ninja BlendBOSS completely rethinks the way the consumer can utilize a single-serve blending platform as a fashionable, unique and on-the-go product. The Ninja Crispi meaningfully expands the kinds of meals our revolutionary glass system air fryer can handle. In each case, we believe we're delivering compelling newness to help accelerate the replacement cycle across these core franchises. I think innovating within the base is the key to a healthy and thriving set of existing categories. It's a vital component of our growth algorithm, and we focus on it constantly. Our third growth pillar, international expansion, delivers exceptional results in Q3. I'm particularly excited about our U.K. business, which saw a dramatic reacceleration to 27% year-over-year net sales growth compared to roughly 6% in the prior quarter. Our diversified portfolio of products in the U.K. is resonating with consumers in both new and existing categories. The air fryer headwind we've observed throughout 2025 in the U.K. has started to diminish, offset by strength across espresso, beauty, fans, floor care, robotics, frozen treats and more. Mexico continues to perform exceptionally well, and we believe we're building significant momentum heading into 2026. Our business is firing on all cylinders. Consumer demand is outstanding with extraordinary point-of-sale metrics since the transition to a direct model. Retailers are responding in kind by expanding the number of categories they buy through SharkNinja. This flywheel is supported by the dedicated resources we have deployed across sales, marketing and operations. Our success in Mexico is creating a halo effect across other Latin America markets. Our investments in Spanish language media are paying off in multiple countries, driving strong consumer engagement and stellar POS trends. In Q3, we experienced broad-based triple-digit growth in Latin America overall. These trends drive confidence in our expectations for a robust holiday forecast across the region. Moving to EMEA. We continue to strengthen and build out our business in Germany and France. These are large definable markets where SharkNinja still has significant market share opportunity. Recent meetings with our key retail partners reinforce their excitement to expand shelf placements across more categories throughout Europe. I believe the power of our 3-pillar growth strategy cannot be overstated. This balanced approach across new categories, existing category share gains and international expansion has enabled us to deliver 10 consecutive quarters of double-digit growth. Our diversification across products, distribution channels and geographies should only fortify our position as we move forward. While many view SharkNinja as a product and marketing company, we're fundamentally a company intently focused on execution and delivering results consistently across all areas of our business. Given our strong performance and expectations for Q4, we're excited to raise our full year guidance ranges once again while narrowing them as we enter the final quarter. We're particularly enthusiastic about the holiday season, where our innovative product portfolio and strong retailer relationships have historically positioned us well. To wrap up, I'm incredibly proud about how we've navigated 2025 during a prolonged period of turbulence around us. We have performed admirably across the dimensions we prioritize, extraordinary sales growth with contributions across geographies, gross margin expansion despite significant tariff headwinds and leverage on operating expense without sacrificing on innovation, marketing or reinvestment in the business. I think this performance in such a challenging environment demonstrates how resilient and unique SharkNinja is. It's also a testament to the talented group of leaders who have relentlessly worked to drive such strong performance. Results like these don't just happen without coordinated excellence across supply chain, operations, commercial, product development, customer service and more. The breadth of our execution is a critical factor in the success of SharkNinja from new joiners up to our most tenured executives. And I'd like to formally welcome the newest member of this executive leadership team, Adam Quigley. Adam and I have worked together for more than a decade, and I've witnessed firsthand his exceptional financial acumen and strategic thinking ability. He succeeded throughout his SharkNinja tenure from a manager role when we were under $1.5 billion in revenue to our SVP of Global Planning and Analysis. His responsibilities have spanned some of the most complex challenges: The sale of the business in 2017, listing on the Hong Kong Exchange in 2019, navigating through the COVID-19 pandemic and architecting our tariff mitigation strategy, among others. I believe Adam's deep understanding of our business model and proven track record make him the ideal leader for our finance organization during this exciting growth phase. I'm thrilled to announce our Board of Directors has officially confirmed him to be SharkNinja's new Chief Financial Officer. And now Adam will walk you through our third quarter financial updated and 2025 outlook. Adam Quigley: Thank you, Mark, for the kind introduction, and good morning, everyone. I'm honored to step into the CFO role and join you on the earnings call. I approach this opportunity the same way I have every step of my journey at SharkNinja over the last 11 years, relentlessly focused on enabling the business to thrive while working side-by-side with Mark and the rest of the executive team. My vision is to continue building our finance function as a strategic partner that helps propel SharkNinja's continued growth and success. With that, let's review the quarter that yielded record earnings per share for our investors. Net sales in Q3 increased 14.3% year-over-year to $1.63 billion. Looking at our performance by geography, domestic net sales increased 9.5% year-over-year to just over $1.1 billion. International net sales were $530 million, up 25.8% year-over-year as reported and 21.6% in constant currency. As Mark mentioned earlier, our U.K. net sales were incredibly strong in the third quarter, up 26.7% year-over-year to $237 million. Mexico was also a standout performer in the quarter, while growth in our EMEA business outside of the U.K. moderated slightly. Overall, these excellent results drive confidence in our expectation that international net sales growth will accelerate in the second half of 2025 compared to the first half. Looking at performance by category, net sales in the cleaning category increased 12.4% year-over-year to $593 million. Robotics, extraction and corded and uprights all contributed to the success, and we gained considerable market share in the category. Net sales in the cooking and beverage category returned to growth, increasing 6.3% year-over-year to $437 million. Trends here are similar to last quarter with the Ninja Luxe Cafe espresso strength offsetting difficult compares in other subcategories such as air fryers outside the U.S. Net sales in the food preparation category increased 11.9% year-over-year to $411 million. The Ninja SLUSHi continues to be a global sensation with availability now across our largest global markets. Finally, our beauty and home environment category increased 56.7% year-over-year to $189 million. We experienced broad-based growth across fans, air purifiers, hair care and skin care in the quarter. Now let's move to gross profit, where we were able to offset higher tariff costs with our relentless focus on profitability. It's worth noting that the 2-year sourcing services agreement with JS Global ended as planned on July 31 of this year. In the third quarter, GAAP gross profit increased 17.6% year-over-year to $818 million or 50.1% of net sales. This represents a record high for GAAP gross margin since our U.S. listing and a significant milestone for SharkNinja above the 50% threshold this quarter. Adjusted gross profit increased 16.4% year-over-year to $820 million or 50.3% of net sales. Adjusted gross margin increased approximately 90 basis points year-over-year with multiple elements of our mitigation strategy offsetting a notable headwind from tariffs. The biggest positive contributor to adjusted gross margin this quarter came from multiple initiatives across our product cost optimization. We continually assess gross margin levels to drive improvement in value engineering to reduce bill of material costs and by introducing replacement versions of existing products that carry higher underlying gross margins without impacting consumer value. We also made further progress this quarter by diversifying production across our supply chain to drive further savings and flexibility with our dual source model. While we are pleased with adjusted gross margin performance in the quarter, it's important to note that roughly 1/3 of the year-over-year expansion came from true outperformance, while 2/3 was the result of favorability related to the timing of tariffs flowing through the financials. Moving down to P&L. Our adjusted operating expenses this quarter totaled $531 million or 32.6% of net sales. This compares to 32.7% of net sales in the year-ago quarter or 16 basis points of leverage year-over-year. As we've committed before, SharkNinja remains laser-focused on balancing cost discipline with the necessary reinvestment levels to fuel our exceptional growth, and we're delivering on that pledge. I will now review the components of our operating expenses on an adjusted basis. Research and development expenses decreased 3.2% year-over-year to $89 million compared to $92 million in the prior year period, leveraging 99 basis points year-over-year. I believe this quarter exemplifies how our personnel strategy drives both innovation and efficiency. A year ago, we hired external subject matter experts across new technologies and areas of expertise as we work to develop new solutions to consumer problems. Consistent with our R&D operating model, we strategically brought a portion of that talent in-house, allowing us to retain and develop our knowledge base while optimizing overall operating costs. Sales and marketing expenses increased 20.7% year-over-year to $355 million compared to $294 million in the prior year period, deleveraging 116 basis points year-over-year. We continue to invest confidently in our differentiated marketing and demand generation efforts, particularly in new and growing geographies. General and administrative expenses increased 7.6% year-over-year to $87 million compared to $81 million in the prior year period, leveraging 33 basis points year-over-year. The bulk of that increase relates to higher merchant fees in our direct-to-consumer business driven by channel growth in EMEA. Profitability improvement is the cornerstone of our financial philosophy at SharkNinja with a focus on adjusted EBITDA. We are very pleased to deliver outstanding performance with adjusted EBITDA growing 20.7% year-over-year to $317 million. This represents a 19.4% adjusted EBITDA margin, up 100 basis points compared to the prior year period, a really incredible effort by the team here. We will continue to prioritize adjusted EBITDA margin improvement by pursuing opportunity on both the gross margin and operating expense lines. To wrap up the income statement, our GAAP effective tax rate in Q3 was 22.6%, while our non-GAAP effective tax rate was 22.3%. Adjusted net income for the period was $213 million or $1.50 per diluted share compared to $170 million or $1.21 per diluted share in the year-ago period. This represents an incredible 24% increase year-over-year with SharkNinja achieving record results for both GAAP and non-GAAP earnings per share in the third quarter. Turning to the balance sheet and cash flow. We continue to prioritize flexibility given the substantial advantages our balance sheet provides relative to what we observed across the peer group. At the end of the third quarter, cash and cash equivalents totaled $264 million, up more than 100% year-over-year, with total debt outstanding of $746 million. We continue to have nearly $490 million of capacity available to us on our $500 million revolving credit facility. Total inventories were $1.16 billion exiting the quarter, up 7.6% year-over-year. We've worked through the majority of the tariff prebuild inventory that we strategically added in late 2024 and early 2025. Our healthy inventory levels position us well heading into the holiday season. Let's move to the updated outlook. Entering Q4, we remain confident in our ability to outperform the market. While tariffs remain a dynamic challenge, our revised outlook assumes current tariff levels persist, including minimum rates of 20% for China, 20% Vietnam, 19% for Indonesia, Thailand, Malaysia and Cambodia. For the fourth quarter of 2025, we expect our net sales growth to be around 16% year-over-year. We anticipate the timing impacts I mentioned earlier related to tariffs will put pressure on our adjusted gross margin by roughly 50 basis points compared to the prior year period. We also anticipate nearly 250 basis points of year-over-year leverage on adjusted operating expense as a percentage of net sales. This sizable improvement comes from seasonally strong fourth quarter sales, combined with our continued cost discipline. Finally, we expect adjusted EBITDA margin in Q4 to increase approximately 200 basis points compared to the prior year period. This expansion, of course, is also impacted by timing shifts related to tariffs. When combined with our Q3 adjusted EBITDA performance, we anticipate second half 2025 adjusted EBITDA margin to demonstrate notable improvement compared to the second half of 2024. For the full year 2025, we now expect net sales to increase between 15% and 15.5% compared to our prior year guidance of a 13% to 15% increase. Adjusted net income per diluted share is now expected to be in the range of $5.05 to $5.15 compared to $5 to $5.10 previously. Adjusted EBITDA is now expected to be in the range of $1.115 billion to $1.125 billion, representing growth of 17.2% to 18.3% year-over-year compared to the prior expectation of $1.1 billion to $1.12 billion, representing growth of 16% to 18% year-over-year. Net interest expense is now expected to be down $5 million to $10 million relative to 2024 compared to our previous outlook of flat. Our GAAP effective tax rate expectation is now in a range of approximately 23% to 24% compared to a range of approximately 24% to 25% previously. Our capital expenditures guidance remains $180 million to $200 million for the year. We are tracking toward the lower end of that range due to more efficient deployment of capital. To close, our performance in Q3 exceeded expectations across the board. Reflecting on my tenure, I marvel at how we've evolved and what we've accomplished. While we continue delivering strong growth and profitability, the drivers are now much more expansive. We believe our diversification across products, retailers and geographies should enable us to navigate challenges more effectively than ever before. I've also witnessed tremendous development across our finance organization during my decade plus at SharkNinja. It is my distinct honor to lead this amazingly talented group as we work to continue driving value for consumers, employees and shareholders. I'll now turn it back to Mark. Mark Adam Barrocas: Thanks, Adam. 2025 has been a year of unprecedented challenges for businesses around the world. While many companies struggle in this environment, SharkNinja is thriving in uncertain times, where others may lack the willingness or capability to innovate and seize the moment, we're forging ahead full throttle. Why do we operate like this? It's our existential drive to be the absolute best at what we do. This is the cornerstone of the outrageously extraordinary mindset that fuels everything from consumer insights and product development, to supply chain and marketing. But mindset means nothing without execution, which is core to our DNA. Our success is inextricably linked to the why and the how of SharkNinja, which I believe distinguishes us from everyone else. I'm proud of what we've accomplished this year and even more excited about what's to come in 2026 and beyond. My sincere gratitude to everyone at SharkNinja who has gone above and beyond to drive our great results. Thank you. And this concludes our prepared remarks, and I'll now turn it over to the operator to kick off Q&A. Operator? Operator: [Operator Instructions] The first question comes from Brooke Roach with Goldman Sachs. Brooke Roach: Mark, can you speak to your outlook for category growth for holiday and into 2026? How confident are you in your ability to continue to outperform the category to the same degree into next year? And is your portfolio of new innovation robust enough to cycle your own tough comparisons and continue to deliver a double-digit level of U.S. growth into 2026? Mark Adam Barrocas: Yes. Thanks so much, Brooke, for the question. I guess I'll start with your second question first on new innovation. The pipeline of new innovation that we have coming out, I think, is great. You can just see what we've done over the last couple of weeks now. I mean our consumer problem-solving machine was on full display. I mean we reinvented outdoor heating and fire pit. We solved the problem of stainxiety with our cordless StainForce. We brought an at-home facial solution that extracts, moisturizes and de-puffs your skin. I'm not sure that there's another company solving all of these different types of problems. So I think we've got a great road map of innovation. What I think I'm also really excited about, Brooke, is things that we're doing like, for example, with the BlendBOSS, we're reinventing existing categories. I think what we've done with Crispi Pro, look at how we're not resting on our laurels with the air fryer category, but we're trying to completely actually reinvent the air fryer category with Crispi and now Crispi Pro. So the innovation is coming not just from new categories and kind of home run new ideas, but it's coming from reinventing the base. And I think as we go into '26, I think we're going to see an increasingly larger amount of new products coming from reinventing the base. On your first question in terms of category growth, I mean, look, I think we've consistently outperformed the market now for the 10 quarters that we've been a U.S. public company. I believe the innovation cycle is there. I think we're getting better and better at our content creation that we're developing. We're engaging with consumers more. So I'm excited about where things are headed. Operator: Your next question comes from Randy Konik with Jefferies. Randal Konik: Just wanted to kind of go through -- Adam, first and foremost, congratulations on your new role. In terms of -- if I think about the new design center opening up in the last week or so, Mark, can you talk about what are your hopes in terms of utilizing that design center to kind of continue to build more muscle into the organization, build more innovation, where do you see that kind of fitting into the rest of the infrastructure you've built around the world? Kind of let's start there. Mark Adam Barrocas: Yes, Randy, I think I would start with going back to 2014 when we opened up our engineering office in Central London and recognized that there was a talent base in London for design engineering that we just couldn't attract in Boston to the degree that we wanted to at the time. And fast forward today, we have over 200 engineers in the Battersea Power Station that has really helped build this kind of chasing-the-sun innovation approach that SharkNinja has developed. I think there's a lot of parallels and similarities with that here in New York, and I'm actually in New York now. I think from a creative standpoint, there is just a level of creative talent that's exceptional in New York. I think from a design perspective, I think PR, media buying, social media, we'll have a content creator studio that will be here right in Midtown. I think it's exciting that we're actually going to be designing and developing products here in Midtown Manhattan. I actually had the Dean of Columbia Engineering School here last week that was excited to send down students and interns here at the facility. So all in all, I think it's just going to be a great magnet for talent for us. And I think it's going to blend together really well with our teams in Boston and London and around the world to just bring together the best and brightest people. Randal Konik: Super helpful. And I guess my last follow-up would be, when you think about the next few years and driving continued international growth. Maybe remind us kind of just the way you think about international and how big it should be as a proportion of the total business within a few years and where you see the biggest opportunities? You keep talking about massive continued growth in the U.K. and beyond. And then, Adam, just a follow-up on gross margin. I think you talked about there's still ability to kind of bring that further higher in the years ahead. Maybe talk to some of the puts and takes you think about high level from a gross margin standpoint as we think about the next couple of years. Mark Adam Barrocas: Yes. Look, on the international side, I think what's most exciting is that our model is replicating globally. I mean let's start with that. I mean, if I go back a couple of years ago, people would say, well, Europe is so different. It's so fragmented. Latin America, how do you even get to that market? Is it even accessible to you? And I think we've kind of proven out that the model of disruptive consumer-focused product innovation and viral marketing that creates consumer demand is a global translatable strategy, and we're seeing that in countries around the world. I'm very excited about Europe. I'm very excited about Latin America. But I'm also excited that we're continuing to build a strong business in the U.K. I mean there's strong nice growth in the U.K. I'll continue to reinforce that I think over time, our business in Germany, just because of the market size will ultimately be bigger than the U.K., and France, maybe a little bit smaller. But for right now, Randy, we're very focused on the path to getting to 50% of our business outside of the U.S., and that's kind of the short to midterm immediate target for us. Adam Quigley: Yes. And on the gross margin front, I mean, as you continue to see from us, we've expanded gross margin considerably every quarter thus far. And what we're seeing as we move forward is the changes that we're making, they're structural changes, right? We're improving our product cost through value engineering efforts. We're improving the product cost through where we source the product through the supply chain that we've talked a lot about. And also, we're entering into new categories that are commanding higher price points that have more structural higher gross margins. And so the durability of our ability to expand gross margin, I think we feel very good about going into the future because it's really -- it's no one thing. It's coming from multiple avenues. Operator: We now have Rupesh Parikh with Oppenheimer. Rupesh Parikh: So just going back to your commentary on the inventory side, it appears to be in really good shape. I think you had a high single-digit growth this quarter. Do you believe you have the inventory right now to meet underlying demand or even stronger demand out there? Because I know at times, you guys have been inventory constrained in recent quarters. Adam Quigley: Yes. Thanks for the question, Rupesh. I think where we're at with inventory right now is you saw last year, we really leaned into our balance sheet strength and brought in prebuilt inventory ahead of some of the tariffs coming into place, and that served us quite well throughout this year. What you saw in Q3 of growing about 7%, 8% year-over-year is we've got healthy inventory stock. We're not in an overstock position by any means. The stock that we have on hand, we feel good about going into the holiday season. We've talked about some NPDs shifting in terms of timing and potentially picking that up in 2026. But overall, heading into the holiday season, I think we feel really good. And also reflecting on some of the actions that were taken a year ago, feeling really good about that and what's been able to help us on the gross margin front. Rupesh Parikh: Great. And then maybe just a quick follow-up question. Just on the elasticity front, we've heard from some players out there, just some of the challenges they've had in actually taking price while you guys have done quite well. So just curious what you're seeing from an elasticity perspective and overall, how you feel about your price gaps. Mark Adam Barrocas: Yes. Rupesh, we've taken price, but we've done it very, very cautiously. I mean we understand the consumer is challenged. I mean, we're particularly watching the impact of the government shutdown. And what we've seen to date is that we're still delivering extraordinary value to the consumer. I mean we're not the highest-priced products in the market. We're not the lowest-priced products. You could still buy a SharkNinja product for $59 or for $999. So I think we're in all of the key price points that consumers are looking for. And as long as we continue to maintain market-leading performance and high-quality products and still deliver them to consumers at a great value, I think that will work out fine for us. Operator: We now have Brian McNamara with Canaccord Genuity. Brian McNamara: So there was a lot of concern from investors for the last several weeks heading into this print, pretty much all of which has kind of proven unfounded with these results and guidance. A number of your competitors have reported much weaker results and one common headwind has been kind of retailer inventory levels. So you had a European competitor profit warm last month and called out U.S. retailers' "wait-and-see" attitudes," while a U.S. competitor last week called out a retailer inventory adjustment in Q3 as kind of higher inventory value due to tariffs were absorbed by the market. So I'm just curious how your business was impacted by these market dynamics. Mark Adam Barrocas: Yes. Brian, I mean, I guess on your first point, we've delivered 10 consecutive quarters of double-digit top and bottom line growth since we've been a U.S. public company. So I can't speak to what investor concerns were specifically. As it relates to retailer inventory, yes, I mean, we're experiencing good retailer support. I mean I think the retailers are leaning in with SharkNinja. I think they believe in our innovation. I think they believe in the demand generation that we're going to bring to them. I mean there are, of course, situations where maybe there isn't the inventory levels that we'd like them to be. I think we distribute through lots of different channels. I mean, from dot-com to brick-and-mortar to D2C. Our job is just to make sure that our innovation is able to be purchased by consumers when we create the demand for it. And we love full retailer participation. In some cases, we get it. In some cases, we don't get it. But we still have to drive demand and fulfill orders for consumers. Adam Quigley: And Brian, I was just going to mention, too, I think one of the things that we can point to is our Q4 guidance is sort of the confidence that we have in the retail orders that are ahead. And so I think you're seeing that reflected also in what we've put out today. Brian McNamara: Great. And then secondly, obviously, I don't want to front run '26 guidance, but you've consistently said you're a double-digit growth company. Is that a reasonable expectation for the top line next year? Adam Quigley: Yes. I mean, I think as we go forward, we're continuing to be very proud of where we're going to land in 2025. We're not in a position right now to give any guidance on 2026. But I think we've got a really incredible Q3 that we've just put out today, and I think we're really excited about Q4. Operator: Your next question comes from Steven Forbes with Guggenheim Securities. Steven Forbes: Mark, Adam, maybe just a follow-up on international expansion. As we look out sort of over the next couple of quarters here, I was hoping maybe for a formal update on the transitions of the international markets from third-party distribution to self-distribution. I don't know if you can give us maybe a road map to think through. And then maybe broader comments on how has the risk parameters of that transition period changed? I mean we're coming off, right, the Mexico transition. I think you talked about some optimism on a smoother transition ahead. So maybe just would love to hear your most updated thoughts as we look ahead to those transitions. Mark Adam Barrocas: Yes, Steve, I mean, I think the biggest -- as we talked about on previous calls, I mean, I think the biggest learning was not to approach these things from a big bang perspective that in each market, likely there is a role for a distributor, particularly in countries that do have a sizable amount of small retailers that maybe it's just not in our best interest to be working with on a direct basis. I mean you take a country like Spain, there's 4 major retailers that we're going to work with, but there's a whole lot of other retailers that we might be better off just being serviced by a distributor. And so I think that's more of the model that we're moving towards. You're going to see that in the Nordics, you're going to see that in Poland. You're going to see that in Spain and Italy, likely see that in some countries in South America. So I think that it shouldn't be kind of an event situation. I think you should see it as more of a kind of just an ongoing smoother transition as we take over some of the larger retailer relationships and continue to partner with distributors to reach the secondary and tertiary retailers in the market. Steven Forbes: And then just a quick follow-up. I don't know if you can provide maybe a formal update on the path to becoming a domestic filer. It seems to be a point of interest from your -- from investors. So I don't know if there's a formal statement that you guys can provide. Adam Quigley: As we look ahead to 2026, we have officially failed the foreign private issuer test. And so certainly making our way forward as a domestic filer, and that will occur in 2026. So yes, on track on that front, what we've said before. Operator: We have Phillip Blee with William Blair. Phillip Blee: Adam, congrats on the new role. I wanted to focus on the beauty space a bit more. Can you maybe provide a bit of color around the consumer response to all the newness you've released in hair and skin over the past few months? What kind of lift that could have during this holiday season as a more giftable option? And then what's the opportunity to expand the availability of your skin assortment to retail partners beyond just the specialty beauty space? Mark Adam Barrocas: Yes. Thanks. Phillip. Look, we're really excited about what we're doing in beauty, both in hair and in skin and what that potentially opens up for us to other categories in beauty. This will be the first holiday selling season for CryoGlow in the United States and most of Europe. So we're excited about that. We're seeing great momentum. It's the #1 selling skincare beauty device in the U.S. in just a very short period of time. We just launched a product called the Shark FacialPro Glow. We think it's off to a great start. It won't have broad distribution in Q4, but we think it will as we start to roll it out into Q1 and Q2 and beyond. I think what's exciting about that product is the replenishment topical that is sold with it. I mean we developed that with this Korean formulation company. So I'm excited that we're not just selling a product, but we're selling a system that the consumer will kind of ongoing engage with us. In the hair care space, we've got a lot of new innovation and technology happening, not just with what we launched today, but the pipeline of what's to come moving forward. I don't view it as that we're only looking at the beauty business to sell that in the prestige retailers. I think you're going to see broadened retail distribution from us. I mean we want to be able to positively impact everyone. We think everyone should feel beautiful with our haircare products and our skincare products. So I think you'll continue to see broader distribution as we get into '26, but we're in very much our early stages in the expansion of our overall beauty business. Phillip Blee: Okay. Great. That's super helpful. And then just now that a lot of this accelerated supply chain diversification efforts are behind you and inventory levels seem to be in good shape, how do you think about the potential to accelerate the category availability in international markets more in line with what's available here in the U.S.? And then what kind of lift could that have on the segment? Mark Adam Barrocas: Yes. Phillip, I think inventory and our global sourcing model obviously has impacted our ability to roll out as fast as we want or fulfill as much demand as we wanted to globally. But I think there's another constraint also that we've talked about, which is marketing and just being able to invest a sufficient amount of marketing on each category to be able to get a foothold in these new markets. I mean, let's not forget, like 3 years ago, a German consumer didn't know who Shark or Ninja was. And there was no German consumer that had our products in their homes. And so there's still a lot of brand building that's needed. I mean there's still a lot of education that we need to do in a lot of these markets. So supply chain is a component of it, but I almost see marketing as an equal or bigger component of it. And it's just going to take us some time as we move forward. And really, I don't want to make the mistake of pushing too far too fast and not being able to support it properly from a marketing standpoint. Operator: We have Andrea Teixeira with JPMorgan now. Andrea Teixeira: Congrats, Adam, on the promotion. I wanted to go back, Mark, with the commentary because you did say in the beginning of September at a competitor conference that some of the inventory may have slipped through into the fourth quarter. And you also mentioned some of the innovation also that had been planned for 2025 could come to fruition in 2026. So I was just hoping to see if, one, that concern that some of these shipments would shift into the fourth quarter actually did not materialize at the end of the quarter. In other words, you don't have that benefit potentially in the fourth quarter. Obviously, we can do the math, but we just want to figure how consumption and shipment dynamics are unfolding and inventory levels. And then if you think on the innovation, obviously, you have announced a very strong pipeline now. But just wondering how that pipeline compares with when you started the year or as it unfolded and how it sets you for 2026? Adam Quigley: Andrea, let me take the question around Q3 and Q4 and some of the retailer shipment timing. I think every year at this time, we're actively watching and monitoring daily what inventory patterns are and what the retailer shipments are. And so as the retailers ramp up for the holiday season and we also ramp up our inventory for the holiday season, that Q3, Q4 timing is often quite tricky. I will say our sales and operations team did an incredible job to really get as much out as we could with the retailers that we had. And I think one of the items that Mark mentioned earlier in the call was retailers really view us quite favorably right now. And we know we're operating in an uncertain consumer environment and that retailers, we can't speak for them, but they're going to make their own choices and they're going to make their own bets across who they're buying inventory from and when. And I think we've positioned ourselves really well for them to prioritize us because they know that we're going to stand behind the products. They know that we're investing behind the brand and the products that we're launching. And I think they're looking to win in Q4 with us. Mark Adam Barrocas: Yes. In terms of the innovation, listen, I think we feel very good about the pipeline of what we've developed across lots of different categories. And as I said earlier, I think we're doing a really good job of innovating in the base. And that's something that I really want to reinforce to investors because we have a great healthy base business, which is the foundation of the overall business that we've created. So things like BlendBOSS and things like Crispi Pro and things like improvements to our core vacuum business, those are all, I think, really, really exciting that maybe do not get some of the fanfare out there that they should. Operator: Thank you. I can confirm that does conclude the question-and-answer session here. And that does conclude today's call. Thank you all for your participation. You may now disconnect, and please enjoy the rest of your day.
Antonia Junelind: Good morning, and a warm welcome to the presentation of Skanska's Third Quarter Report for 2025. For those of you that don't know me, I'm Antonia Junelind. I'm the Senior Vice President for Skanska's Investor Relations. And here on stage in our studio today, I've got President and CEO, Anders Danielsson; and CFO, Jonas Rickberg. We're going to follow the typical structure of these press conferences. We will start by walking through the past quarter to provide you with a business, financial and market development update. And after that initial presentation, we will move over to questions. [Operator Instructions] If you are here in the room with us, then you can, of course, just ask questions by raising your hand. We will bring a microphone to you, and we will take it from there. So yes, I will no longer hold you off. We'll take you through the third quarter. Anders, let's do this. Anders Danielsson: Thank you, Antonia. Good to see everyone. Before we jump into the figures, I want you to look at the picture here on the slide. And that's called The Eight, one of our project development office building in Bellevue, part of Greater Seattle area in the United States. And it's actually a Class A building, one of the biggest or the biggest commercial investment we have had. We're also proud to be able to announce in a couple of years back that we have the greatest, the biggest lease here as well. And this -- today, the office building is leased more than 80%. So it's a great, great building. I'm happy to say that we're going to host the Capital Market Day in a few weeks in the same building. So I look forward to see everyone who will show up there. And we will also have a deep dive, of course, of the U.S. operation at the time, together with the commercial direction forward for the group. But now the third quarter. It's a solid quarter, solid third quarter. The construction is performing very well in all geographies, and we have strong market generated by a solid project portfolio. In Residential Development, we have very strong sales and margin in our Central European business, so a very high performance there. The Nordic market remains weak, which impacts both the sales and the profitability level. Commercial Property Development. We have 2 large lease contracts signed in the quarter, and I will come back to the profitability level here. Investment Properties, stable performance, stable cash flow and stable leasing ratio. Operating margin in Construction is 4.2%, very high level, very high compared to last year, 3.6%, and well above our target, as you know. Return on capital employed in Project Development, 1.4%, and that's on the low level below our target but it's driven by a slow market in different parts of our operation. Return on capital employed in Investment Properties is 4.7%, stable performance there on a rolling 12. Return on equity, 10% on a rolling 12-month basis. And we continue to have a solid performance on the financial position, and that's very important for us, of course, and a competitive advantage going forward. And we also managed to continue to reduce the carbon emission. And now we are at 64% reduction compared to our baseline year in 2015. So I will go into each and every stream, starting with Construction. Revenue increase in local currencies, 7%, which is good. Order bookings is around SEK 40 billion. And we do have a book-to-build ratio over 100% on a rolling 12-month basis. So we have a very good position when it comes to order backlog. I will come back to that. But it is on historically high levels. And operating income close to SEK 1.8 billion, increased from last year, SEK 1.5 billion. And again, the operating margin is very strong here, 4.2%. So strong result and high margin across all geographies, and that's very encouraging and also prove that we have kept our discipline and we have been successful in the strategic direction here. And we have a rolling 12 months group operating margin of 3.9%. Solid order intake for the group and a strong backlog. Moving on to the Residential Development. Revenue is pretty much in line with last year. We have sold 383 homes, and we have increased the started homes mainly driven by the Central European operation, 572 started homes. And we have an operating income of SEK 131 million, representing a return on capital employed 5.9% on a rolling 12. Very strong sales and result in Central Europe. We have started 2 new projects, and we have -- with a very good presale level, which drives, of course, the sales in the quarter. The Nordic housing market remains weaker and Nordic businesses recorded a very small loss there. But overall, it's driven by a weak market. We can see some signs of improvement in the Norwegian operation here, but overall, quite slow. Commercial Property Development. Operating income is minus SEK 397 million, which is driven by write-downs in impairments, write-downs in few projects in the U.S. properties. We'll come back to that. But that gives -- we also have a gain on sale of SEK 377 million in the quarter. Return on capital employed is 0, rolling 12. We do have 15 ongoing projects representing SEK 15 billion in investment upon completion of those projects. And we have 22 completed projects representing SEK 18 billion in total investment. The leasing ratio in those completed projects is fairly good. We are at 77% leased. So we have a good position there, giving us a cash flow -- positive cash flow. Three project divestment and one internal land transfer in the quarter. Result includes these impairment charges, of course, in U.S. And we have 2 large lease contracts signed in the same quarter. Investment Properties, operating income stable, SEK 143 million, and we do have a stable occupancy rate of 83%, it was the same as last quarter. The total property values continue to be on the same level, SEK 8.2 billion. If I go back to the Construction stream now and look at the order bookings. And here, you can see over time for last 5 years, the order backlog, the bars, the blue bars here. You can also see the rolling 12 order bookings, the light gray line and the order bookings per quarter, the orange. And also the revenue, the green, rolling 12, which you can see has had a slow increasing trend the last few years. And that's thanks, of course, that we have been successful in increasing the order backlog, which again is on historically high level. And you can see the yellow line, the book-to-build rates over 12 months. So I think it's important here to look at over the rolling 12 months' trend, because when it comes to order bookings, it can fluctuate quite a lot between a single quarter. And that you can see also when you look at the order intake in the quarter, which is down from SEK 50 billion to around SEK 40 billion. We'll come back to each and every geography here. But we are in a very good position. And if I look at the order bookings per geographies, you can see here that overall, we have a book-to-build ratio of 106%, and we have over well above in the Nordic and European operation slightly below in the U.S. operation on a rolling 12-month basis. But look at the months of production, 19 months in overall, and I'm very confident that we have a very good position. So we can continue to be selective going for projects that we see we have competitive advantage and that we have a good track record as well for the future. So with that, I hand over to Jonas to go through the financials. Jonas Rickberg: Thank you, Anders. And we'll continue here with the Construction side. And as you can see, the revenue is fairly flat here in SEK, but it's actually up then with 7% in local currency. The green line, we're actually then having a gross margin that has increased to 8% in the quarter, which really emphasizes the great quality that we have in the order book. We continue to have a strong and good cost control within the stream, and that is then generating that you can see over the line there, but that is also then showing here with a good result in the operating margin of 4.2%. Operating income of SEK 1.8 billion, an increase with 22% versus last year. Worth mentioning again, I would say, is the rolling 12 of 3.9% in operating margin. Looking here on the geographies, we still see that we have a solid delivery for all the areas, Nordic, Europe and U.S. That sticks out a little bit on the positive side here, it's actually Sweden with 4.9. That is building up from a strong portfolio right now, and it's very clear natural trends within the quarter and so on. So if we summarize the Construction line here, the Construction stream, we can see that we have a strong performance in all geographies right now. We have actually a 5-year track record here on margins that are on or above our target of 3.5%, which is strong. And of course, as you said, Anders, we had SEK 264 billion here in our order book that we can harvest from, and that is a real strength going forward. Moving on then to residential development. Here, we can see the income statement. And of course, you can see that half of the revenue actually come from Central Europe, which is really strength from that delivery point of view. We started 2 new projects in Central Europe in Prague and Kraków, and that had a really good presales level as well. We have reduced S&A significantly over the years. And right now, we have an organization that is set for higher volumes going forward to really get the leverage here on the S&A going forward. Also, please note that we have an upward trend on the rolling 12 operating margin at 8% here, which is strong. Looking at the operating income or income statement by geographies, you can see here very clear that Europe of SEK 159 million, that is really lifting or keeping up the strong -- the performance here in the stream on a margin of 17.5%. Secondly, here, you can see that Nordic is a little bit on the weaker side, and that is mainly driven by low revenue, actually low sales, few units sold. And also it confirms the trend here that we have said before that buyers really would like to buy close to completion and that we are selling mostly from projects that were a little bit weak in margin that is reflected here. Moving on to home started. You can see that we have out of the 572 units, we have 430 that is coming then from Central Europe and then 142 in Nordic here, and that is actually that we have started places here in Oslo and Uppsala and [ Östersund ]. And looking at the homes sold of the 383, you can see that 240 is actually then coming from presales started in Central Europe and 141 from the Nordic areas here. Rolling 12 months, you can see that we are very balanced when it comes to the sold and started homes, I would say. If we turn into our stock situation, you can see that we have -- the homes in production is actually then ticking up to a level of almost 2,900 homes in production, and that is up since Q2. Unsold completed homes is also coming down from Q2 level of 486, which is good as well. If you summarize the Residential Development area, we can see that we have a good performance despite we have a challenging situation in the Nordic, but it's really lifted up from the Central European unit here. And also that we are preparing here good projects within pipeline for start when the market condition is in a better place as well. If we move to Commercial Development, you can see here that revenue side, there are 3 divestments, 1 in Poland and 2 in Sweden. And also, we have the internal sales of land from -- in Europe here. Impacting the operating income is actually the gain from sales mostly related then to -- from a situation of SEK 234 million here in the gain of sales. Also, as we were into, we had an asset impairment in U.S. of SEK 658 million. And as we have mentioned earlier, it's low transaction volume in U.S. and it's very slow there. So it's -- the visibility is hard to compare there. So it's a few units only. The impairment has done, of course, to really ensure that we are having the right balance, the asset value in the balance sheet, and we are doing this continuously over quarters. And it's very clear that it has no cash flow impact, and it's then representing a little bit more than 3% of the book value of total U.S. portfolio. Moving on to unrealized and realized gains. Here, we can see that we had SEK 5 billion in the quarter, and it's an upward trend, which is good. And that is then sign actually of the starting -- of the fact that we are starting to see the positive impact of slowly starting new projects here with profitable and solid business cases. We have a situation. We have a good land bank in attractive locations that we really would like to build and harvest from going forward and actually making sure that we have solid business case for this going forward. In the portfolio, we have unrealized gains of 10% here in Q3. And as we have said many times before, it's very, very quite much in the portfolio between the different regions of started and older -- more new project versus older projects and so on. If we move on here to the completion profile of all the Commercial Development properties that we have, we have SEK 18 billion of already completed and 22 projects. And as we can see here, it's on the purple line, it's up -- it's 77% in leasing, and that is up from 74% last year. So it's a good trend there. Also, if you look into the green dots, and if you are very particular comparing them to the last quarter, they all have moved up, and that is a real strength here that we are leasing more with ongoing projects. And in Q3, we also made sure that we are having a better outlook here for Central Europe and Nordics when it comes to the commercial property. And it's very much based on the fact that we can see that we have -- there's better access to debt as well as the pricing on debt and so on, and that is driving a little bit the market here. And that is, of course, very encouraging to see. Focus even more here when it comes to the leasing part of commercial operation. We can see that we have in the bar there to the blue, last right, you can see 77,000 square meters let, and that is actually then coming from 2 big leases, H2Offices in Budapest as well as Solna Link that we have started there. Also, we can see, I'm very glad also that we have a trend shift here. Average leasing ratio of the ongoing projects is 64% versus then the compared to completion of 55%. And that is a strength, of course, that we are increasing the leasing versus then the completion that we have. To sum up, we have a strong leasing activity in the quarter. And of course, we see the importance here to turning the -- all the completed assets that we have and translate them going forward and also be able to make sure that we have solid business case to start with when the market is ready and so on. We have a lot of things to sell, but we are also very cautious about how -- and we have a very patient and good value for the -- we really would like to capture the good value that we have created over the years. So very good patience here to sell the good things that we have, I would say. When it comes to the Investment Properties, it's stable operational and financial performance within the stream. Operation income is positively impacted by a reassessment of the property value of some units here, and it's actually then SEK 53 million up. And that is also a sign that we can see that we have better outlook here for the Nordic markets real estate as well. Moving into the income statement. We can -- here, I would like to take the focus a little bit on the central items that is SEK 58 million, and that is actually then coming from a positive effect from release of provision on the asset management business related to some milestones in projects there. Also, we can see that cost varies between quarters and so on. And as I said last quarter 2, we are on the level that we are representing more or less the first half year of this year for the full year. And we are seeing a little bit higher cost here due to the fact that we have outsourced IT infrastructure that is impacting this year, but of course, it will be better here going forward once we can see these synergies. Also, looking at the elimination line there, you can see that, that is then connected to the internal transfer, that of SEK 234 million recognized in the commercial development area. And no swings really in the financial net, and we actually then recorded a profit of SEK 1.3 billion and an earnings per share increased by 36% versus last quarter. Moving into group cash flow. We can see that we had a 0 cash flow for the quarter, and that was a result of that we are in a net investment for Residential and Construction stream right now. If we lift ourselves a little bit more and look into the bigger trend of rolling 12, we can see that we have a really good underlying cash flow from the business operation, and we can see good -- and continue to have good level of negative working capital as we will come into soon as well. And also, we can see that we continue being a net divestment cycle that we really would like to be and releasing more cash and so on. Focusing on the construction and the free working capital, you can see it's fairly flat there between the Q2 and Q3. And we are quite comfortable with these levels as we have right now and so on. Also worth mentioning here is that the higher bars here last year, quarter 3 and quarter 4, are not representing really because it was very much connected then to mobilization of some milestones in big projects that we have an advantage of. And of course, we have 18.2% here in relation to revenue, which is strong. Moving on to the investment side. As mentioned, the quarter, we had net investment for the group. But rolling 12 period, we remain on the net divestment territory here. This means that we are taking down the capital employed level within Residential and Commercial Development here, as you can see in the bottom from SEK 64 billion then to SEK 62 billion and so on. Looking ahead, of course, as I said, we have a few assets on the balance sheet that we really would like to transfer and making ready for divestments. We are starting and preparing new products with really good solid business case as well. But the timing of these flows are of essential that the market and the demand and supply are meeting, then, of course, we will shoot off these. For sure, once we see that we are succeeding here with the divestments, we're making sure that we will then invest more going forward. If we look into the liquidity point here, we can see that we have a good liquidity situation of SEK 28.1 billion here. And that is then a super strong position, and we have a loan portfolio that have a balanced maturity profile as well. Finishing off here with the financial position, which is very, very strong, as you know, who has followed us. We have an equity of SEK 60 billion, and that is almost a level of 38% and equity ratio. We have an adjusted net cash of SEK 9.3 billion. And as you were into Anders, it's a good situation to be in and also good for all our customers that are really relying on us and making sure -- and trusting us in the fact that we are here to complete the projects no matter what. So we have the financial strength to do that, I would say. And by that, handing over to you, Anders. Anders Danielsson: Sure. I will go through the market outlook before we summarize and start the Q&A. Market outlook for Construction is pretty much unchanged from the last quarter. We have a strong civil market in the U.S., and we can see we are in a more traditional infrastructure operation in U.S. So we can see a strong pipeline, and we don't see any slowdown here. And there's still existing federal funding programs as running over time here. The civil market in Europe is more stable. It's strong in Sweden due to -- we can see that there's a lot of investments in infrastructure. We can see defense and also wastewater and that kind of facility coming out. So that's a good opportunity for us. And the building market is stable in the U.S., continue to be stable and more weaker, especially in the Nordic due to the slower residential and commercial construction market. But in Central Europe, it's more stable, both on civil and building. Residential Development, good activity, as we've been talking about in Central Europe, great market and driven by a lot of people moving into the capital cities and the largest university cities. And the lower-than-normal market in the Nordic housing market, even though we can see some signs, the underlying need for residential is there in the market we are operating in. The lower interest rates helps, of course, but I think we need to see some economic growth, GDP growth in the different market in the Nordics to really see that people are getting back the confidence and buying homes. But we do have an underlying need. Commercial Property Development, we're increasing the outlook in Central Europe and in the Nordics. We can see higher leasing activity in both Central Europe and Nordic, we can also see that the investor market and transaction market, they are more active, especially in Central Europe, but we can see signs of improvement also in the Nordics. So we are increasing it to a stable market in those geographies. Investment Properties. Here, we can see continue to be stable market outlook. There's a strong demand for high-quality buildings, office building in the right location with good train connection and so on. We can offer that. So we can see it's a polarized market, definitely, but we are in the right location there, and we expect rents to be mostly stable here. So if I summarize the third quarter. Construction, strong margin generated by the solid project portfolio. We had a great performance in Residential Development in Central Europe, weaker in Nordic. Commercial Property Development, 2 large lease contracts signed here in the Nordic and Central Europe. And again, the Investment Property is very stable. And very important, we are maintaining a solid financial position, which is a competitive advantage. So with that, I hand over to Antonia to open up the Q&A. Antonia Junelind: Very good. So yes, now we will open up for your questions. [Operator Instructions] But I will actually start by turning to the room to see if we have any questions here. If you have a question, then just please raise your hand. We will bring a microphone and we'll ask you to please start by stating your name and organization. We have a question here in the front. Stefan Erik Andersson: Stefan from Danske Bank. A couple of quick ones. First, the margins in the Construction division. It's a major jump year-on-year. It looks good quarter-on-quarter as well. We're not really used to that kind of jump up. We can see the drop sometimes, but rarely such jumps up. Could you maybe elaborate on -- 2 questions. What's behind that? Are you getting rid of problem projects, and therefore, the good ones are seen? And second question on that, is this a new level that we could be comfortable calculating also for the future? Anders Danielsson: I can take that question, Stefan. Yes, we have a very strong performance in the Construction stream. And I can say that we have been able to, by this good discipline, avoiding loss-making project. And that's a real key to be successful here. And also, we should not look at the single quarter, I said it before. So you should look more on the rolling 12 months. We don't have any positive one-offs in the quarter. It's a very good performance. And the key here is all geographies performing, and that's also quite unusual even though we have been on a good level for some years now. So right now, everyone is performing. And of course, that boosts up the underlying margin. And I also see that in a single quarter, it can fluctuate because we -- sometimes, we are completing large project, profitable project. And then since we have a conservative profit to take in -- during the construction, we can have a boost in the -- when we complete the project. So look more over time. What we expect of the future? I always expect to reach our targets and be above our targets, which we have been for some time now, and I have no other view on the future, definitely. Stefan Erik Andersson: That's good. That's enough. And then on orders, when listening to you, you're talking a lot about the rolling 12 months and don't look at the quarter above and all that. But 2024 was extremely good in -- with large orders. Should I interpret you as the level in 2024 to be a normal year? Or should I continue to believe that it was a very, very good year, unusually good year? Anders Danielsson: It was an unusually good year. If you look at the third quarter now in U.S. because you can see the Nordic and European is actually increasing the order intake. But the U.S., if you look at the current year, we are on a 5-year, 10 years average. And again, we have a rolling book-to-build of rolling 12, but it's very close to 100% in U.S. So I'm -- so that's how we should look at it. Stefan Erik Andersson: And then the final question on IP. You talked about the stable situation with the occupancy there, 83%. It's 80% in Stockholm, Gothenburg. To me, if you're not [ Kista ] with new stuff, it's actually a low level and it's not improving. So just wondering a little bit, is the specific properties that is a problem? Or is it just a general spread out issue? Anders Danielsson: I would say the leasing market is somewhat impacted by a slow economic growth. So there is -- we see some, as I said, increase in some signs of improvement, but it takes time, and it's a very polarized market. So if you have a Class A building and right location, it's much more attractive. So that's -- but it's -- you're right, it's on the same level for over a couple of quarters. Stefan Erik Andersson: Is there specific properties that are really... Anders Danielsson: No, I wouldn't say so. It's quite even spread. Antonia Junelind: So we're going to continue with a question here in the room. Albin Sandberg: Yes. Albin Sandberg, SB1 Markets. I had a question on the financial position, and you made a comment about a level where the customers are happy and they can trust you. At the same time, you have the financial targets that would allow you for substantially more debt, which I guess also is tied back to the commercial property activities and so forth. But what kind of levels do you need to be in order to have the customers to be sort of happy with you? And is there anything to read into where we are in the cycle now that makes you want to operate with a higher net cash maybe than what you theoretically could? Jonas Rickberg: Albin, of course, I mean, we are in a business that is very cyclical. And of course, we really would like to be able to take advantage of things and be opportunistic when things are possible to do that. So we are not really guiding how much we need and so going forward. But we are comfortable with the situation we are right now, definitely. Albin Sandberg: And my second and final question is, when it comes to your investment, the plans and so forth because obviously, your invested capital has come down a bit now year-to-date. Given what's happening on the office side and so on recently, what would take you to get the investments up now, let's say, over the next 12 months? Jonas Rickberg: No. But as we said, we can see that we have a good leasing traction and so on and also that the market is here in Central Europe as well as in Nordic, it starts to meet and so on. And of course, if we are successful here with the SEK 18 billion that we have in the balance sheet of [ 22 ] ready projects, and if we can make them fly here. And of course, then we are a little bit more appetite for the things that we have prepared, of course. So really looking forward to things to move here. Anders Danielsson: I can add to that, that we will start project and our starting project in geographies that we see that there's more -- better activity, we announced starting in Poland the other day as one example. Antonia Junelind: Very good. So we will then move over to the online audience. And I will ask you, please, operator, can you put through the first caller. Operator: [Operator Instructions] Our first question comes from Graham Hunt with Jefferies. Graham Hunt: I've just got 2 questions, please. First one is on the U.S. commercial impairment. So you only have a handful of assets in the U.S. So I just wondered if you could give any more color on where that impairment has been taken or what kind of assets it's been taken on region-wise, type of building wise. Just any more color on the breakdown of that impairment would be helpful. And then second question also on the U.S. construction business. Last year, you had quite a lot of order intake related to data centers, but that seems to have dropped off quite significantly in 2025. Is there anything that we should read into that as to your offering in data centers? Or is that just typical lumpiness in the market? Any comments around that would be helpful. Anders Danielsson: Sure, Graham. Thank you for the question. If I start with the U.S., we have an operation in 4 cities in U.S., as you know, and we haven't announced where. We have said now it's a few projects. And again, to Jonas' point, the value of this write-down represent just about 3% of the total value. So I don't see any drama in that. And if you look at the U.S. portfolio overall, we have mainly -- the main part is office building in those 4 cities. And we also -- but we also have high-end rental residential in the different cities as well. And we also have some small life science. But the main part is office building. And again, we have a good leasing ratio here. So we do get a good cash flow from them. But we have looked into this internally, external help, and we see due to the slow market, very few transactions. So we have to take this write-down in the single quarter. On the construction data centers, I don't think you should look in a single quarter. It can be quite lumpy. We do -- we have a healthy backlog with data centers, a lot of international -- strong international players, who invest in data centers, and we can see they continue. So we haven't seen any cancellation. And we can see that the strong pipeline will -- our expectation, it will materialize going forward. Operator: Our next question comes from Arnaud Lehmann with Bank of America. Arnaud Lehmann: A couple of questions on my side. Firstly, just following up on U.S. construction. Have you seen any implication from the recent government shutdown? We hear in the press about some projects being potentially canceled. So either in terms of order intakes or delays in payments or anything happening there in U.S. construction, please? That would be helpful. And secondly, I appreciate it's a small part of your business, but coming back on Residential in the Nordics, you mentioned the weakness. Can you give us a bit of color on why that is the case when rates have been coming down a little bit? And do you see at one point potential improvement into 2026? Anders Danielsson: Thank you, Arnaud. If I start with the U.S. civil and the -- U.S. construction operation and the government shut, we haven't seen any impact on our project, and we haven't seen any cancellation either or late payment. The most of our client in U.S. operation are states, cities, institution, large -- as I said, large player on the data center side. So we are having a close look at it, of course. But so far, we haven't seen any impact. And on the Nordics, yes, as I said earlier, the underlying need for homes in the Nordics are there, definitely. And we are on a very low level if you look at the whole market and new units coming out. But -- and the rates helps, of course, interest rates cut, it helps. But we need to see consumer confidence coming back. We saw it dropped quite a lot in the first quarter this year, and we also saw the impact on the sales. So I think we need to see some economic growth in the different geographies. There's a lot of now initiative, Sweden as one example from the government to boost the growth, economic growth. And if that materialize, I'm sure we will see a different outlook in the future. But right now, we think it will take sometime. Operator: [Operator Instructions] Our next question comes from Keivan Shirvanpour with SEB. Keivan Shirvanpour: I have 2 questions on CD. The first is that you lifted your outlook for the Nordics and Europe in Q3. What's your expectations on divestments going forward? Are you maybe optimistic for making some transactions before the end of the year? Jonas Rickberg: Okay. And as you all know, we don't guide here going forward. And right now, of course, we can see signs that, as I said earlier, when it comes to the leasing activities that is coming up and also that the transaction market is a little bit better with international players as well like this coming in and interesting to use the capital, so to say. So that was the main things why we are actually then increasing the outlook for the CD business here in Europe as well as in Nordic, I would say. Keivan Shirvanpour: Okay. And then my second question is related to the unrealized gains. First of all, the complete project that you have, you have unrealized gain, which is at 5%. And then for the ongoing projects, you have unrealized gains, which is up 20%. Could you maybe elaborate the difference? Jonas Rickberg: Sorry, once again, if you said that the unrealized in? Keivan Shirvanpour: Yes. Unrealized gains for the completed project is equivalent to 5%, but the unrealized gains for completed projects or ongoing projects is at 20%. Why is there such a difference? Jonas Rickberg: And that's, as I said, I mean, we had here the average of 10%, and that is then correlated to the fact that you are pointing out that we have a little bit older properties with lower, and then more new ones that is stable when it comes to the business cases and so on that is then generated the higher portfolio value there. Keivan Shirvanpour: Okay. So just -- maybe I'll follow up. So I assume that divestments that may occur from completed projects will potentially have quite low margins, potentially single digits, if I interpret that correctly based on that valuation. Jonas Rickberg: No. And as I said, I mean, we have the average here of 10%, and that is where we are communicating at the level right now. Operator: Our last question over the phone comes from Nicolas Mora with Morgan Stanley. Nicolas Mora: Just a couple of questions coming back on the U.S. First one on the order intake. You still seem to be struggling a little bit with the smaller projects, the one you account for below SEK 300 million. Is the market still soft there? There's just no real pickup in these small projects from either on the private side or the public side? That would be the first question. Second, on margins. So another very strong performance. All your peers are also doing better, especially, for example, in the U.S. civil works, but the Nordics peers as well have reported very strong results. Since everybody is being more disciplined, why not think about increasing the medium-term margin trend? You're getting very close to 4% now. Anders Danielsson: Yes. Thank you for that question. If I start with the U.S. order intake, the average size in the U.S. are larger than compared to Europe. So we would more proportionate more -- communicate more orders there compared to Europe. But I would not -- again, I would not look at a single quarter and compare it to -- last year was significantly higher -- unusually higher. And you should look more over time. And also, we are still on a 5 years average. And I think that's -- we have a very strong order backlog in U.S. as well. So I'm confident in that, and I can also see a strong pipeline. So I'm not worried about the situation. We can continue to be selective and go for projects where we can see a competitive advantage and we can go for higher margin. That's what we've been doing for several years now, and that's paying off, obviously. So that -- and if I look at the margin then, yes, we can see that it's increasing not only in U.S., we can see good margins in Europe as well. And we definitely -- we have been on the target level or above for some time now. And -- but the target is, as you know, 3.5% or above. And of course, I have no other view on it that we should maximize the profit from the operation. So -- but the target is still relevant. Nicolas Mora: Okay. And if I may, just following up on the question on data centers. I mean you -- obviously you said, I mean, these orders are lumpy. We should look at it over at least a 12-month basis. But if we -- indeed, if we look on a 12-month basis, it's been -- it's really been a dearth of projects in the U.S. in your sweet spot regionally and in terms of size, do you have an issue with your main customer? Or it's just basically bad luck on timing and things will pick up? I mean you say strong pipeline, but it's been now 5, 6 quarters with not much in terms of strong order intake. Anders Danielsson: Yes. But we have also communicated the last few quarters that some -- it's coming in new -- this data centers that needs to be cool and require more cooling. So sometimes we need to -- or the client needs to design the facilities to water cooling instead of air cooling and of course, that delays some of the projects. So I don't see any -- I haven't seen any cancellation. I have seen that some clients are postponing some projects due to the need for redesign. So I still -- I'm confident in that. Antonia Junelind: Very good. Then as far as I can see, there are no more questions from our online audience. Can you confirm that, George? Operator: That's correct. We have no more questions. Antonia Junelind: Perfect. And no more raised hands in the audience, or Stefan, you have one more question? Yes, sure. Stefan Erik Andersson: Just a follow-up there on the earlier question from SEB about the margin in the completed. When it comes to the projects that you -- over the last 2 years in the U.S. have written down the value on, I would imagine if you sell them to what you think is the market value, you wouldn't have any margin on those or -- so that's part of the explanation of the low margin or do I misinterpret that? Jonas Rickberg: No. But as I said earlier, sorry to repeat myself, I mean it's a full portfolio view we are looking into here and there is differences here between the older project and the new ones that we started and so on, and we don't give any guidance really for specific markets where we have the profitability, so to say. Stefan Erik Andersson: I fully understand that, but put it this way, when you write down the property value, you write it down, so you don't have any margin if you sell it, what you think you could get for it? I mean you don't write down and get the margin... Jonas Rickberg: Yes, correct. Correct. Antonia Junelind: Very good. So that was then the final question. Thank you, Anders, Jonas, for your presentations and answers here today. And thank you, everyone. Big audience in the room today. Thank you for coming here and joining us here today. And for those of you that have been watching, thank you so much for tuning in for this webcast and press conference. We will naturally be back with a new report in the fourth quarter. And even before then, as Anders mentioned here earlier, we are hosting our Capital Markets Day on November 18. So it will take place in Seattle. And if you can't join us there, we will also live stream part of the day on our web page. So turn into our IR pages there, and you will find the link, or reach out to myself or anyone else in the IR team. Thank you so much for watching. Have a lovely day.
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: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 SandRidge Energy conference call. [Operator Instructions] I would now like to turn the call over to Scott Prestridge, SVP of Finance and Strategy. Please go ahead. Scott Prestridge: Thank you, and welcome, everyone. With me today are Grayson Pranin, our CEO; Jonathan Frates, our CFO; Brandon Brown, our CAO; as well as Dean Parrish, our COO. We would like to remind you that today's call contains forward-looking statements and assumptions, which are subject to risk and uncertainty, and actual results may differ materially from those projected in these forward-looking statements. These statements are not guarantees of future performance, and our actual results may differ materially due to known and unknown risks and uncertainties as discussed in greater detail in our earnings release and our SEC filings. We may also refer to adjusted EBITDA and adjusted G&A and other non-GAAP financial measures. Reconciliations of these measures can be found on our website. With that, I'll turn the call over to Grayson. Grayson Pranin: Thank you, and good afternoon. I'm pleased to report on a positive quarter for the company. Third quarter production averaged approximately 19 MBoe per day, an increase of approximately 12% on a Boe basis and 49% on oil, translating to a roughly 32% increase in revenue and a 54% increase in adjusted EBITDA relative to the same period last year, benefiting from increased volumes from our prior Cherokee acquisition and development program this year. I'll turn things over to Jonathan for some more details on financial results for the quarter. Jonathan Frates: Thank you, Grayson. Compared to the third quarter of 2024, the company continued to benefit from higher natural gas prices, partially offset by headwinds in WTI. The company continued to grow production, generating revenues of approximately $40 million, which represents a 32% increase compared to the same period last year. Adjusted EBITDA was $27.3 million in the quarter compared to $17.7 million in the prior year period. We continue to manage the business within cash flow while growing production and utilizing our substantial NOL, which shields us from federal income taxes. At the end of the quarter, cash, including restricted cash, was approximately $103 million, which represents approximately $2.80 per common share outstanding. The company paid $4.4 million in dividends during the quarter, which includes $0.6 million of dividends paid in shares under our dividend reinvestment plan. Including special dividends, SandRidge has now paid $4.48 per share in dividends since the beginning of 2023. On November 4, 2025, the Board of Directors declared a $0.12 per share dividend payable on November 28 to shareholders of record on November 14, 2025. Shareholders may elect to receive cash or additional shares of common stock through the company's dividend reinvestment plan. Year-to-date through the end of the quarter, the company repurchased approximately $600,000 or $6.4 million worth of common shares. Our share repurchase program remains in place with $68.3 million remaining authorized. Capital expenditures during the period were roughly $23 million, including drilling and completions and new leasehold acquisitions. The company has no debt outstanding and continues to live within cash flow, funding all capital expenditures and capital returns with cash flows from operations. Commodity price realizations for the quarter before considering the impact of hedges were $65.23 per barrel of oil, $1.71 per Mcf of gas and $15.61 per barrel of NGLs. This compares to second quarter realizations of $62.80 per barrel of oil, $1.82 per Mcf of gas and $16.10 per barrel of NGLs. Our production remains meaningfully hedged through the fourth quarter of the year with a combination of swaps and collars representing approximately 35% of fourth quarter production based on guidance. This includes approximately 55% of natural gas production and 30% of oil. These hedges will help secure a portion of our cash flows and support our drilling program through recent commodity price volatility. Despite growing production, our commitment to cost discipline continues to yield results with adjusted G&A for the quarter of approximately $2.1 million or $1.23 per Boe compared to $1.6 million or $1.02 per Boe in the third quarter last year. Net income was approximately $16 million during the quarter or $0.44 per basic share and adjusted net income was $15.5 million or $0.42 per basic share. This compares to $25.5 million or $0.69 per basic share and $7.1 million or $0.19 per basic share, respectively, during the same period last year. Adjusted operating cash flow was $28 million during the quarter. Finally, despite the ramp-up of our capital program, the company generated free cash flow before acquisitions of roughly $6 million during the quarter and $29 million year-to-date. Before shifting to our outlook, we should note that our earnings release and 10-Q will provide further details on our financial and operational performance during the quarter. Now I'll turn it over to Dean for an update on operations. Dean Parrish: Thank you, Jonathan. Let's start with recent results. During the third quarter, the company successfully completed and brought online 3 wells from our operated 1-rig Cherokee drilling program. We are currently completing the fifth and sixth wells in the program in our drilling the [indiscernible]. We are pleased with the results of the first 4 operated wells, which had a per well average peak 30-day production rate of approximately 2,000 Boe per day, made up of 43% oil. The first well in the program has now produced approximately 275,000 Boe in its first 170 days of production, demonstrating strong rates beyond the initial 30 days, which indicates attractive recovery trends. A majority of the remaining wells in our development program this year directly offset these and other proven wells in the area, which have had similar performance. These wells and the results in the area give further confidence in reservoir quality and expectations in the area. Moving to our capital program. We plan to drill 8 operated Cherokee wells with 1 rig this year and complete 6 wells. The remaining 2 completions are anticipated to carry over into next year. Currently, all but one of our planned wells are proved undeveloped or PUDs, meaning that our planned drilling locations this year will offset producing wells, which translates to higher relative confidence in well performance. Gross wells costs vary by depth, but are estimated to be between $9 million and $12 million. While we have taken proactive steps to help mitigate the effects of inflation, further changes to tariffs or other factors could influence these costs in the future. We intend to spend between $66 million and $85 million in our 2025 capital program, which is made up of $47 million to $63 million in drilling and completions activity and between $19 million and $22 million in capital workovers, production optimization and selective leasing in the Cherokee play. Our high-graded leasing is focused to further bolster our interest, consolidate our position and extend development into future years. We intend to fund capital expenditures and other commitments using cash flows from our operations and cash on hand. Our legacy assets remain approximately 99% held by production, which cost effectively maintains our development option over a reasonable tenor. These non-Cherokee assets have higher relative gas content, but commodity price futures are not yet at preferred levels to resume further developments or more well reactivations at this time. Commodity prices firmly over $80 WTI and $4 Henry Hub over a constant tenor and/or reduction in well costs are needed before we would return to exercise the option value of further development or well reactivations. Now shifting to lease operating expenses. LOE and expense workovers for the quarter were approximately $10.9 million or $6.25 per Boe compared to $5.82 per Boe in the third quarter last year. We will continue to actively press on operating costs through rigorous bidding processes, leveraging our significant infrastructure, operation center and other company advantages. With that, I'll turn things back over to Grayson. Grayson Pranin: Thank you, Dean. As we look forward to developing our high-return Cherokee assets this year and into next, we anticipate growing oilier production volumes further. From a timing perspective, we expect to deliver 2 more wells to sales this year with another 2 completions carrying over into next year. This, combined with further drilling, could see production volumes, specifically oil volumes increasing meaningfully above 2025 exit rate levels. At current commodity prices, our operated Cherokee wells have robust returns and breakevens for our planned wells are down to $35 WTI. Given these returns and durability, we plan to continue our 1-rig development plan into next year with a watchful eye to adjust if needed. Please keep in mind that we do not have any significant leasehold expirations in the near term and have the flexibility to defer these projects if needed for a period of time. We are hopeful that our nearly 24,000 net acres in the Cherokee play will translate to a meaningful multiyear runway as we look beyond 2025. And we plan to continue to invest in new leasing and other opportunities that will further bolster our operating position and extend that runway. I would like to pause here to highlight the optionality we have across our asset base, coupled with the strength of our balance sheet, which sets us up to leverage commodity price cycles. The combination of our oil-weighted Cherokee and gas-weighted legacy assets as well as robust net cash position give us multifaceted options to maneuver and take advantage of different commodity cycles. Put simply, we have a strong balance sheet and a versatile kitbag, which makes the company more resilient and better poised to maneuver and adjust no matter the commodity environment. I will now revisit the company's advantages. Our asset base is focused in the Mid-Continent region with a PDP well set that provides meaningful cash flow, which does not require any routine flaring of produced gas. These well-understood assets are almost fully held by production with a long history, shallowing and diversified production profile and double-digit reserve life. Our incumbent assets include more than 1,000 miles each of owned and operated SWD and electrical infrastructure over our footprint. This substantial owned and integrated infrastructure helps derisk individual well profitability for a majority of our legacy producing wells down to roughly $40 WTI and $2 Henry Hub. Our assets continue to yield free cash flow. This cash generation potential provides several paths to increase shareholder value realization and is benefited by low G&A burden. SandRidge's value proposition is materially derisked from a financial perspective by our strengthened balance sheet, including net negative leverage, financial flexibility and advantaged tax position. Further, the company is not subject to MVCs or other significant off-balance sheet financial commitments. We have bolstered our inventory to provide further organic growth opportunities and incremental oil diversification with low breakeven in high-graded areas. Finally, it is worth highlighting that we take our ESG commitment seriously and have implemented disciplined processes around them. We are particularly proud to announce that our team recently achieved 4 years without a reportable safety incident. This incredible achievement demonstrates our continued commitment to putting the health and safety of our employees and contractors at the forefront of our business. Not only do we continue to operate our existing assets extremely efficiently and execute on our Cherokee development in an effective manner, but we do so in a prudent and safe manner. Shifting to strategy. We remain committed to growing the value of our business in a safe, responsible, efficient manner while prudently allocating capital to high-return growth projects. We will also evaluate merger and acquisition opportunities in a disciplined manner with consideration of our balance sheet and commitment to our capital return program. This strategy has 5 points: one, maximize the value of our incumbent Mid-Con PDP assets by extending and flattening our production profile with high rate of return production optimization projects as well as continuously pressing on operating and administrative costs. Two, exercise capital stewardship and invest in projects and opportunities that have high risk-adjusted fully burdened rates of return while being mindful and prudently targeting reasonable reinvestment rates that sustain our cash flows and prioritize a regular way dividend. An important part of this organic growth strategy is further progressing our Cherokee development and economically growing our production levels while providing further oil diversification. However, we will continue to exercise capital stewardship and maintain flexibility to respond to changes in commodity prices, costs, macroeconomic and other factors. Three, maintain optionality to execute on value-accretive merger and acquisition opportunities that could bring synergies, leverage the company's core competencies, complement its portfolio of assets, further utilize its approximately $1.6 billion of federal net operating losses or otherwise yield attractive returns for its shareholders. Fourth, as we generate cash, we will continue to work with our Board to assess path to maximize shareholder value to include investment in strategic opportunities, advancement of our return of capital program and other uses. Our regular way quarterly dividend is an important aspect of our capital return program, which we plan to prioritize in capital allocation along with opportunistic share repurchases. The final staple is to uphold our ESG responsibilities. Now shifting over to administrative expenses. I will turn things over to Brandon. Brandon Brown: Thank you, Grayson. As we approach the conclusion of our prepared remarks, I will point out our third quarter adjusted G&A of $2.1 million or $1.23 per Boe continues to compare favorably to our peers. The continued efficiency of our organization reflects our core value to remain cost disciplined as well as prior initiatives, which have tailored our organization to be fit for purpose. We will maintain our efficiency and low-cost operation mindset and continue to balance the weighting of field versus corporate personnel to reflect where we create value. Outsourcing necessary but perfunctory and less core functions such as operations accounting, land administration, IT, tax and HR has allowed us to operate with total personnel of just over 100 people while retaining key technical skill sets that have both the experience and institutional knowledge of our business. In summary, at the end of the third quarter, the company had over $100 million in cash and cash equivalents, which represents approximately $2.80 per share of our common stock outstanding, an inventory of high rate of return, low breakeven projects, low overhead, top-tier adjusted G&A, no debt, negative leverage. A flattening base PDP production profile, double-digit reserve life and approximately $1.6 billion of federal NOLs. This concludes our prepared remarks. Thank you for your time today. We will now open the call to questions. Operator: [Operator Instructions] Your first question comes from the line of [ David Terdell ] with [indiscernible]. Unknown Analyst: Congratulations on a great quarter and what looks like a fantastic purchase in Cherokee. Can you talk a little bit more about M&A activity in the Cherokee opportunities for you guys, M&A opportunities overall? And maybe discuss a little bit more about how a year later after having bought these assets, how you can evaluate the success of that purchase? Grayson Pranin: Sure, David, it's great to hear from you and a great series of questions. I'm going to try to tackle from the top if I missed something, please let me know. I think M&A opportunities in the Cherokee exist, although it's a very competitive landscape. So we continue to keep our eyes wide open. I think those opportunities are right now predominantly leasehold or acreage related because a lot of the PDP is new and building, so there's not that sustained level of PDP-based cash flow like you'll get in more aged assets. And that could change over time as further development occurs in the play. I think within the overall Mid-Con, the M&A landscape is healthy. There's been a number of deals announced within Mid-Con overall within the last several weeks. We continue to look at a lot of these and look for opportunities that could have synergies, whether that's in the Cherokee play or within our legacy assets or areas that we could apply our low-cost know-how where there's incremental margin that can be added through our own skill sets and through our structure, right? Because we have this 24-hour, 7-day a week man operations center that allows us to operate very cost effectively. And from a back-office perspective, we can add assets very efficiently without really increasing G&A materially. As we look towards last year's acquisition, I think we continue to see that as very favorable. Not only did it add accretive cash flow, but the operations side of the house has been able to add meaningful margin by reducing costs and on some of the PDP wells, finding opportunities that make that production curve up and to the right through low-cost workovers and other activity there. I think you can see the results of that. And David, you pointed out for themselves, just look at the growth, not only from the acquisition, but what we've been able to do from a development perspective year-over-year with EBITDA near 54% increase -- so I think we're very pleased. And hopefully, that answers your questions. I'm happy to follow on as needed. Operator: [Operator Instructions] There are no further questions at this time. Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Ladies and gentlemen, welcome to the Addiko Bank Results Q3 2025 Conference Call. My name is Youssef, the Chorus Call operator. [Operator Instructions] This conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Herbert Juranek, CEO. Please go ahead. Herbert Juranek: Good afternoon, ladies and gentlemen. I would like to welcome you to the presentation of the results of the third quarter 2025 of Addiko Bank AG on behalf of my colleagues, Sara, Ganesh, Edgar and Tadej. Let me show you today's agenda. In the beginning, I will present to you the key highlights of our results. Ganesh will continue with our achievements on the business side. After that, Edgar will give you more details on our financial performance. And Tadej will inform you about the developments in the risk area. Finally, I will do a quick wrap-up before we go on to Q&A. So let's start with a quite positive note. I'm happy to inform you that in Q3, we achieved a record operating performance with an operating result of EUR 31.2 million quarter-to-date due to a strong business performance of our team and due to good cost management. This represents the highest quarterly operating results so far, achieved entirely under the new business model. On a year-to-date basis, the operating result ended up at EUR 82.9 million despite the significantly lower interest rate environment and based on our measures to manage the inflation-driven updrift of our administrative costs. The strong business performance is based on a 17% growth rate in new consumer lending business and on a 9% growth rate in new SME lending business. However, the positive effects from new business were, to a certain extent, neutralized by lower income from variable back book and national bank deposits as well as by repayments of loans driven by aggressive competitor attacks. Nevertheless, we were able to grow our net commission income by 7.8% year-on-year or even at 12.5% if you compare the third quarter with the third quarter last year. Moreover, we managed to expand our active customer base by 5% year-on-year. Altogether, we could keep our net banking income stable, compensating the mentioned negative effects. Let's briefly comment on our risk performance. We were quite successful in reducing our NPE volume further to EUR 140 million at the end of Q3 compared with EUR 145 million at the end of 2024. Our NPE ratio is kept stable at 2.9%, while our coverage ratio continued to improve to 82.2% from 80.8% at the end of June. Our cost of risk on net loans ended up at 0.7% or EUR 25.5 million compared to EUR 25 million last year. Tadej will give you more details on the risk development later. So in summary, we achieved a net profit of EUR 11.3 million in Q3, which results in a year-to-date profit of EUR 35.3 million at the end of the third quarter 2025. Consequently, the return on average tangible equity stands at 5.6% and the earnings per share at EUR 1.83. The funding situation remained quite solid with EUR 5.2 billion deposits and a loan-to-deposit ratio of 69%. Our liquidity coverage ratio is currently very comfortable, above 380% at group level. And finally, our capital position continues to be very strong with a 21.3% total capital ratio, all in CET1, based on Basel IV regulations. Now what else is worthwhile to mention? As presented in our last earnings call, we have laid the operational foundation for our market expansion into Romania in the first half of 2025 and started our fully automated consumer lending business based on a very diligent and prudent risk approach. On that basis, we have started at the end of August with a 360-degree marketing campaign to raise awareness, to build the brand, to position our product and to start generating business. The campaign included TV and out-of-home advertising as well as digital integrated marketing campaigns and was able to create noise and positive reactions in the market. Despite significant parallel marketing efforts by incumbent banks, we view this initiative as a strong starting point for building our brand in a new market and is a solid foundation for continued marketing activities to drive sustained traction. Ganesh will provide further details in his section of the presentation. Now let's come to a different topic. In 2024, Addiko decided to get a listing on the Frankfurt Xetra platform to improve the trading liquidity and to increase the attractivity to a wider range of potential investors. Now after 1.5 years, based on the very limited trading volume in Frankfurt and due to the given changes in the shareholding structure, we concluded to discontinue the Xetra listing in Frankfurt as of 1st of January 2026, as the defined targets were not met. Concerning our ESG program, I would like to inform you that all initiatives are on track and progressing as planned. You will find more information in the appendix of the presentation. Next page, please. Unfortunately, I have to inform you about several unpleasant changes driven by local governments and local regulators with significant impacts to our business revenues. I will explain them country by country. In Croatia, we are confronted with a series of measures with severe impact on our earning capacity. As of 1st of July this year, the Croatian National Bank introduced preventive macro potential measures restricting consumer lending criteria. Amongst other regulations, a debt-to-income ratio of 40% for nonhousing loans was introduced. The effect of this new rule was already visible with an approximately 30% reduction of our new consumer -- Croatian consumer business generation in the third quarter vis-a-vis last year. Now the experience with our respective vintages does not provide the evidence that such a measure was needed. Moreover, we anticipate detrimental consequences for the concerned customers as those affected may be excluded with their loan demand from the banking system and cover it with unregulated providers. Tadej will give you more background later on. Furthermore, the Finance Ministry of Croatia supported a new regulation to restrict and cut banking fees as of 1st of January 2026. This means that we have to offer free account packages, which shall include opening, maintaining and closing the account, Internet and mobile banking, depositing money, issuing and using debit cards, incoming euro transactions and executing payments with debit cards. Additionally, we have to provide a fee-free channel for cash withdrawals for all customers, while for pensioners and vulnerable client groups, both ATM and branch must be free of charge. On top of that, from the 1st of January 2027, 2 cash withdrawals on ATMs of other banks must be offered for free. All of that eats directly into our core business revenues. And one can ask the question, why do banks have to provide such core services for free? In Serbia, starting with the 15th of September, the National Bank of Serbia asked all banks to reduce the interest rate by 300 basis points to maximum 7.5% for citizens with an income of up to RSD 100,000 per month. This reflects almost the average salary in Serbia. In addition, no loan processing or account maintenance fees shall be charged. Unfortunately, this will affect the vast majority of our customers. In the Republika Srpska, the banking agency decided to restrict specific banking fees. As of 9th June 2025, fees for credit party account maintenance, ATM account balance checks and for sending warning letters of delayed payments are not allowed anymore. And finally, in Montenegro, effective 1st of November 2025, a new regulation will introduce a debt-to-income cap of 50%. This will be accompanied by a restriction on maximum interest rates, limiting them to no more than 100% above the average consumer rate in the market, including non-payroll loans and credit cards. Now to summarize. Altogether, the measures depicted on this page would lead to an unmitigated potential impact of just above EUR 10 million on our revenue base. Nevertheless, we are actively working on solutions to mitigate these effects and to create new offers to our customers to enable new growth opportunities. Now with that, I would like to hand over to Ganesh to give you more insights on how we are reacting in this respect and first of all, to inform you on our business development. GaneshKumar Krishnamoorthi: Thank you, Herbert. Good afternoon, everyone. Moving to Page 6, I'm pleased to report strong third quarter performance in our Consumer segment, delivering 17% year-over-year growth in new business with a premium yield of 7.2%. This was achieved despite a persistently low interest rate environment and supported 9% year-over-year growth in the loan book. On the SME side, the new business origination grew 9% year-over-year with a solid yield of 5.1%. However, we continue to face a challenging market with competitors sharply lowering prices to stimulate demand. This has prompted many existing clients to repay loans early, particularly those with higher fixed rates originated last year. As a result, the SME loan book declined 2% year-over-year, mainly due to reductions in large tickets, medium segment loans. I will share more updates on SME turnaround plan on the next page. Overall, our focused loan book grew 5% year-over-year, and this focused book now accounts for 91% of our total loan portfolio, underscoring our strategy to prioritize high return and scalable lending. Please turn to Page 7 for a detailed outlook. Let's take a closer look at our Consumer segment. Year-to-date, we have delivered double-digit growth while maintaining premium pricing, driven by several key factors: number one, strong market demand across our core geographies. Number two, the launch of fully digital end-to-end lending with zero human interventions in 4 of our core markets clearly differentiates us from the competitors. Number three, our point-of-sale lending proposition continues to perform well, achieving 17% year-over-year growth. Number four, we have identified a sweet spot between growth and pricing, enabling us proactively to retain customers and the loan book through disciplined repricing actions. Number five, additionally, we are redesigning our mobile app, introducing new card features with Google Pay and Apple Pay integrations, which has contributed to an 8.5% year-over-year increase in net commission income. As Herbert mentioned, our business model has been affected by new regulatory restrictions. We are already implementing mitigation measures, including downselling, introducing core debt structures and focusing on high-quality customer segments with larger ticket size. Furthermore, we are developing a new specialist program that focuses on non-blending products, aiming at fee-based income growth, and we will share more details once the program is launched. We are confident that these initiatives will not only offset regulatory headwinds, but also strengthen the foundation for sustainable quality growth going forward. Over to SMEs. Our core business model remains unchanged, to be the fastest provider for unsecured low-ticket loans to underserved micro and small enterprises through our digital agents platform. As mentioned earlier, we are facing market challenges due to aggressive pricing, which has led to some loan book contraction. However, we are now seeing a recovery in the market demand. And to reignite growth, we have taken several strategic actions. Number one, our turnaround plan in Serbia, supported by new leadership team, is delivering 20% year-over-year growth in new business. In fact, all countries are recording double-digit growth, except for Slovenia. Number two, we are placing strong emphasis on retaining quality clients and the loan book through better pricing, loan prolongations and superior service delivery. Number three, we also have broadened our product range while maintaining our focus on unsecured loans, we are also expanding to secured investment loans with slightly higher ticket sizes, targeting both existing and new customers. And this has resulted in a 69% year-over-year increase in investment loan volumes. Finally, we have launched a new digital SME tool to process high-ticket loans with a greater speed and simplicity, providing a clear competitive advantage. Overall, we believe these initiatives positions us well to return to a sustainable growth in the SME segment going forward. Lastly, let me touch on our progress with AI adoptions. We are investing in AI technologies to enhance efficiency and customer experience across the organization. Two AI-driven applications are already live, one supporting employees with HR-related inquiries and the other assisting our call center by analyzing customer inquiries, feedback and creating responses. Additionally, we are exploring AI use cases in IT, risk and marketing, further strengthening our operational excellence and data-driven decision-making. To summarize, 2025 is a transitional year, focusing on refining our SME business model and launching new USPs that enhances speed, convenience and value across consumer and SME segments. These investments are essential, not only to drive future growth, but also to strengthen our specialization, stay ahead of the competition, compensate regulatory restrictions and justify high-margin premiums in a low interest rate environment. We are building the foundation for stronger, faster and more profitable growth in the years ahead. Please let me hand over to Edgar. Edgar Flaggl: Thank you, Ganesh, and good afternoon, everybody. Let's turn to Page 9 for an overview of our performance in the first 9 months of 2025. Despite a challenging interest rate environment and cost pressures, we delivered stable results, supported by resilient consumer lending, strong fee income and a robust capital position. Now let's take this one by one. Our net interest income came in at EUR 177.8 million, a slight year-on-year decrease of 2.2%. This marks a modest recovery compared to the 2.4% year-over-year decline, as reported in the first half this year. The decline was mainly due to the lower interest rate environment, which impacted income from our variable back book, so roughly 14% of our book, [ 1-4 ], and on National Bank deposits. As a reminder, the ECB implemented 8 rate cuts since June 2024, totaling a reduction of 2 percentage points, a faster pace than we initially anticipated. This also caused pressure on interest rates we can charge on new loans. Importantly, our Consumer segment performed quite strong with interest income up 7.3%, driven by 9% growth in the consumer portfolio. Overall, the focus portfolio grew 5% year-on-year, slightly ahead of the previous quarter. On the fee side, we delivered solid growth. Net fee and commission income rose 7.8% to EUR 57.8 million, driven by bancassurance, accounts and packages as well as card business, which altogether grew 11.6% year-on-year, with bancassurance as a key contributor. Now looking ahead, new regulations, respectively, law in Croatia, limiting fees on banking products will have an impact on fee generation going forward. Coming back to the end of the third quarter, as a result, net banking income remained stable at EUR 235.6 million despite the challenging environment. Our general administrative expenses in short OpEx increased slightly to EUR 144.5 million, up just 1% year-on-year, and that's mainly due to wage adjustments and operational updates as well as increases. When excluding the 3 million in extraordinary advisory costs related to takeover of [ what we had ] last year, operational costs were only up 3.2% year-over-year. Our cost-income ratio came in at 61.4%, which is a tad higher than last year. The operating result landed at EUR 82.9 million year-to-date, down only 0.8% year-on-year, supported by an exceptionally strong operational third quarter, as Herbert pointed out already. The other result, which includes costs for legal claims as well as for operational banking risks, remained manageable. We have allocated some additional provisions for new legal claims in Slovenia and made a small top-up in Croatia, also to reflect further increased lawyer costs. The main point in Slovenia remains what the higher courts will rule upon regarding the applicable status of limitation and if that will be in line with the dominant legal opinions. As usual, during the fourth quarter, a further deep dive will be conducted in the context of the year-end audit. So there is a possibility for some additions here. When it comes to risk costs, our expected credit loss expenses were EUR 25.5 million, which translates to cost of risk of 0.7% on net loans year-to-date. Tadej will provide more insights in just about a moment. All in all, we delivered a net profit after tax of EUR 35.3 million for the first 9 months. As of today, we do expect the fourth quarter contribution to be less pronounced. So while operating in a challenging rate environment and managing high cost pressures, our focus business remain resilient. And we are seeing solid momentum in our consumer lending and fee-generating activities this year, while also SME lending has started to pick up again in September. Turning to Page 10 and our capital position, which remains a real strength. Our CET1 ratio remained at a very robust 21.3% at the end of the third quarter. For context, that's only slightly down from the 22% at the end of 2024, which was under Basel III rules, while third quarter is calculated under the new Basel IV or call it CRR3 rules. You will notice that our risk-weighted assets increased, and that's mainly driven by changes in risk weighting under Basel IV as well as the new interpretation of EBA guidelines on structural FX, which we already discussed on the back of the half-year results. Looking ahead, we recently received the final SREP for 2026, which includes a small increase in our Pillar 2 requirement, up by 25 basis points to 3.5%, while the Pillar 2 guidance stays unchanged at 3%. So in line with the draft that we disclosed earlier. In summary, our capital position is very strong, giving us a solid foundation for future growth and the flexibility to navigate regulatory changes with confidence. With that, I'll hand over to Tadej for more on risk management. Tadej Krašovec: Thank you, Edgar, and good afternoon, everyone. Let me walk you through the credit risk section for the first 3 quarters of 2025. I'm glad I can report that in the first 9 months, we achieved excellent collection from defaulted clients, surpassing our goals and positively impacting loan loss provisions. At the same time, we managed risk rules dynamically and decisively to keep portfolio quality and NPE inflow under control on the group level. All that led to the NPE decrease, low NPE ratio and the level of loan loss provisions. I will talk about on this on the next page. As we see on the right-hand side of the slide, NPE portfolio decreased by EUR 2.5 million in the last quarter, which brings it to the EUR 4.9 million decrease on a year-to-date basis. NPE volume decreased to EUR 140 million, which is reflected in a stable [ NPE ] ratio of 2.9%. Short-term NPE initiatives are still ongoing, like, for example, further portfolio sale to dynamically drive further NPE portfolio reductions. At this point, I would like to refer to local limitations that central banks are imposing and were before mentioned by Herbert, specifically DTI limitations. Although these regulations will restrict more indebted and therefore, higher risk clients from obtaining larger loans with banks, which will result in an improved consumer portfolio quality; the excluded clients do not have a risk profile that would not be acceptable for Addiko. For context, clients who are no longer eligible due to new regulation limits have on average a default rate twice as high as those that remain eligible. However, the default rates in both groups remains below 2%. Using nearly 10 years of consumer behavioral data, we know that clients who have become noneligible demonstrate a risk profile well aligned with Addiko's business model and profitability objectives. Before going to the next page, let me revisit the topic from the previous calls. This is consumer portfolio in Slovenia. We see that smart risk restrictions implemented in the previous months have already a positive impact on the portfolio quality, which is getting gradually closer to our expectations. Let's move on to Slide 11. Loan loss provisions amounted to EUR 25.5 million in the first 9 months of 2025, resulting in a cost of risk of negative 0.71% on net loans basis. Segment breakdown is as follows: in Consumer, we recognized minus 0.7% cost of risk; in SME, minus 1.3% cost of risk, while nonfocus contributed to loan loss releases with a positive cost of risk of 1.6%. Development in SME segment was impacted by a black swan event, which represent almost 1/5 of loan loss provisions recognized in 2025. We talked about this case already in the previous earnings call. Loan loss provisions also include additional post-model adjustments recognized in the third quarter in the amount of EUR 3 million. The post-model adjustments will be netted out by model changes that will take effect in fourth quarter this year. This amount is in addition to EUR 1.2 million previously booked post-model adjustment to cover sub-portfolios where insufficient data is available for precise calibration. In conclusion, overall, Addiko's risk position remains stable and resilient, further supported by a strong collection performance and active portfolio management, resulting in a reduction of nonperforming exposure and lower loan loss provisions. Thank you for your attention and go back to Herbert. Herbert Juranek: Thank you, Tadej. Let's move on to the wrap-up. At the top of the slide, we present our current 2025 outlook figures. While our guidance is currently under review, due to the potential impact coming from the regulatory front, we have decided to maintain the stated outlook for 2025. We will update our guidance in line with the revised midterm plan and disclose it together with the year-end results for 2025 on the 5th of March 2026. Now we currently operate in a macroeconomic environment marked by global uncertainties, driven by conflicts such as the war initiated by Russia, shifting tariff conditions and persistent supply chain disruptions. Europe and the European Union are very much affected by these developments. However, if we look at the markets where we are operating in, they are performing better than the EU average and are also expected to sustain this outperformance. On that basis, we will concentrate our efforts to further innovate our product offerings and services to our customers in order to initiate sustainable growth in both business segments, Consumers and SMEs. Therefore, we are working on the preparation of our new midterm specialization program, which shall be launched and presented to you in the first quarter of 2026. This program shall enable further optimization of our cost base, expand digitalization capabilities and contain projects to exploit productive and profitable AI-based solutions. Altogether, we are confident to find the path to compensate the negative effects coming from the regulatory front and to prepare Addiko for future growth. Of course, by doing so, we will keep our prudent risk approach as one of our strategic anchors. Together with our dedicated team, we remain committed to delivering our best as we pursue our ambition to become the leading specialist bank for consumers and SMEs in Southeast Europe. On that basis, we will work with full energy to further improve the bank to create value for our clients and for our shareholders. With that, I would like to conclude the presentation. Our next earnings call to present to you the year-end results of 2025 is scheduled for the 5th of March 2026. I would like to thank you for your attention. We are now ready for your questions. Operator, back to you. Operator: [Operator Instructions] Our first question comes from Ben Maher from KBW. Benjamin Maher: I've got a couple. The first one is just on Romania. I was just interested to get your views on why the market is seen as particularly attractive. Is it seen as an underserved Consumer segment? Or is there other reasons that you're targeting a particular market for growth? I understand you're going to give your targets with full-year results, but it would be helpful just to get a sense of how important Romania will be as kind of a share of the business or a share of the loan book in kind of the terminal kind of state. And my second question is on the competitive pressures you note. Is this concentrated in a specific market? Or is this seen across your footprint? And then the third question is just on capital. As you said, it's very solid. I see the dividend still suspend. So I'm just interested for your thoughts on how you plan to monetize the excess capital next year. And then sorry, just a final clarification. Was it a EUR 10 million unmitigated revenue impact from the regulatory changes? I think you said, but perhaps I misheard. Herbert Juranek: Okay. Thank you for your question. Maybe we start one by one with Romania. I will give a brief feedback and maybe also, Ganesh, if you can then add your view on that. We consider Romania as an attractive market, given the digital capabilities given to us and also the stage of development of the market overall and the size of the market. So if you consider our existing markets, we lack scale there because of the size of the given countries. So we see that as an opportunity with our business model. We differentiate ourselves with a solution, which is very, very efficient straight through online. And we differentiate ourselves also with the USP that customers don't need an account with us when we do business. But I also have to admit that we are currently in a starting phase, we have a good engine, but our brand is not known. So that's what we are currently focusing on building up our brand there and getting traction on our business. Maybe, Ganesh, if you want to add something? GaneshKumar Krishnamoorthi: I think you mentioned well there. But additionally, we would like to expand this not just solely on the B2C level, we are also looking at expanding other channels digitally going forward. So we are exploring that options as well. And we will be also enhancing the product features with more refinancing capabilities. So yes, there's more things we are working on, which would help us to position more stronger than what we are today. But I think Herbert covered it with the USP, there's a distinct proposition we have in Romania. Edgar Flaggl: And maybe just to add or conclude on the Romanian questions, if I remember all of them correctly, so you asked about the impact or kind of the contribution in the results. So this year, we are not expecting any noteworthy contribution. It's rather the opposite due to building up the engine and also having some kind of a marketing push, as we disclosed. There is costs. It will take a bit of time for kind of a positive contribution to materialize. But overall, it's rather negligible in the short -- near and short term. Herbert Juranek: Okay. Let's go on to the second question. Edgar Flaggl: So the second one was, and Ben shout, if I misunderstood you, on the competitive pressure that we're seeing if this is like specific markets or across the board. GaneshKumar Krishnamoorthi: Thanks, Ben, for the question. So yes, on the SME level, we are seeing competition really pricing it quite low. They're looking for low margins and higher volumes in the loan book. We have also -- we faced this pressure already in a couple of quarters. We are also adjusting some price going forward and so focusing on growth. You already saw we have recovered well with the growth around 9%. So yes, I mean, we will continue to go forward. So -- but the competition is pricing across the markets, not just a specific market. We are seeing this quite extensively there. On the Consumer side, obviously, the whole Euribor changes is reflecting a much more lower interest rate environment. We see a big pricing pressure and also in Consumer side. And additionally, if you heard Herbert, he also mentioned we have in Serbia, a special situation where we have to drop our price 3% based on the new regulation. So yes, so a lot of pressure across the markets on the pricing side. Herbert Juranek: And the last question was on the capital and on the dividend. So if I understood you correctly, the question was, how is our view there and how do we want to continue here? From -- so according to the current situation, the shareholder situation did not change. So also, our perspective on the dividend is not changing. So there is no change for the time being. So what do we do with the additional capital? Of course, we will use it for further growth. But on the other hand, if the situation with the shareholders would change, we would also return back to the payout. Our dividend policy did not change. So we still are committed to the 50% payout ratio. And as soon as the topic is solved, we would return to that. Edgar Flaggl: And I think, Ben, you had one more question on the EUR 10 million unmitigated potential top line impact, but I didn't get the full question. Benjamin Maher: No. So just checking out the correct number. I want to make sure I didn't mishear -- it was that EUR 10 million unmitigated revenue impact. Edgar Flaggl: Yes, it's just above EUR 10 million. Operator: Next question comes from Mladen Dodig, Erste Bank. Mladen Dodig: Congratulations on the third quarter. If you allow me, I'm happy to see that in Serbia, you have finally managed to capture the decline -- to arrest the decline in the credit portfolio. So congratulations to that, too. As you explained, the moves with the interest rates, very difficult to grasp with also in Serbia. But again, it's a market battle. I already wrote my questions in the Q&A, so I will try to repeat them. IR sensitivity and breakdown of fixed and variable interest rate arrangements, if I'm not mistaken, there is -- that slide is missing in the presentation or not. Edgar Flaggl: Mladen, good to have you on the call. This is Edgar speaking. So you're absolutely right, it's missing because we only publish it on a half yearly basis. But if you would go back to the half-year results, I think it's Page 34, 35 or something, you would actually have it there. And given the structure of our balance sheet, it hasn't changed much. Mladen Dodig: It hasn't changed. Edgar Flaggl: Not much. So 14%, 1-4, is variable in our total loan book. Mladen Dodig: So the colleague already asked about Romania. You said a couple of things about the specialization program. So looking to extend the digital proposition efficiency and AI-based solutions. Any other details, maybe duration or some -- anything else on this? Herbert Juranek: Yes. I mean we will disclose it next year, but -- and we are currently in the process of finalizing our new midterm plan, and the specialization program will be part of that. So it's still under construction, but we aim -- it will have three different layers, the program, and it will be a midterm program. So it will last at least 2 years, potentially a bit more. So intended to bring the bank to the next level. And we will present it then, as said, together with the year-end result in 2026. Mladen Dodig: You already talked about the dividend and the shareholder structure. Could you tell us anything -- I bet you can't, but I need to ask. So is there any kind of event on the horizon that might trigger either the recall of this recommendation or some other action by the regulator? Herbert Juranek: Well, we are not aware about anything which would release or change our perspective on the dividend for the time being. But we are also prepared -- as I said beforehand, if the shareholder situation would change, we would be also ready to take actions on our side and to adjust accordingly. But if there was something already known today, we would, of course, disclose it. Mladen Dodig: And final question regarding Romania. I was recently in Bucharest and wanted to ask you, could it be possible that I heard commercial on Addiko on the radio... Herbert Juranek: Yes, this could be well because we -- as I said beforehand, we started our marketing campaign in August. And we will continue with this marketing campaign, and it also includes radio and TV. Mladen Dodig: Yes. I was driving there, and I heard something on radio because I don't know one word of Romanian, but I think I recognized the Addiko. Herbert Juranek: Good that you recognized it. Mladen Dodig: Yes. So yes, as you said, you are there, but it needs -- it takes time. Sorry for this mess-up with the call. Obviously, I changed recently with my computer. So obviously... Edgar Flaggl: No worries, Mladen. All good. Herbert Juranek: Any other questions? Operator: Ladies and gentlemen, that was the last question from the phone line. I would now like to turn the conference back over to Sara for questions on the webcast. Sara Zezelic: Thank you, operator. We have not received any further questions on the webcast. I'm handing over to Herbert for closing remarks. Herbert Juranek: So in this case, I would thank you very much for your attention. All the best from our side, and we hear each other then in March next year with our year-end results. Thank you very much for attending. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Datadog Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Yuka Broderick, Senior Vice President of Investor Relations. Please go ahead. Yuka Broderick: Thank you, Martin. Good morning, and thank you for joining us to review Datadog's third quarter 2025 financial results, which we announced in our press release issued this morning. Joining me on the call today are Olivier Pomel, Datadog's Co-Founder and CEO; and David Obstler, Datadog's CFO. During this call, we will make forward-looking statements, including statements related to our future financial performance, our outlook for the fourth quarter and the fiscal year 2025 and related notes and assumptions, our gross margins and operating margins, our product capabilities and our ability to capitalize on market opportunities. The words anticipate, believe, continue, estimate, expect, intend, will and similar expressions are intended to identify forward-looking statements or similar indications of future expectations. These statements reflect our views only as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially. For a discussion of the material risks and other important factors that could affect our actual results, please refer to our Form 10-Q for the quarter ended June 30, 2025. Additional information will be made available in our upcoming Form 10-Q for the fiscal quarter ended September 30, 2025, and other filings with the SEC. This information is also available on the Investor Relations section of our website, along with a replay of this call. We will discuss non-GAAP financial measures, which are reconciled to their most directly comparable GAAP financial measures in the tables in our earnings release, which is available at investors.datadoghq.com. With that, I'd like to turn the call over to Olivier. Olivier Pomel: Thanks, Yuka, and thank all of you for joining us this morning to go through our results for Q3. Let me begin with this quarter's business drivers. We have seen broad-based positive trends in the demand environment with an ongoing strength of cloud migration and digital transformation. Against this backdrop, we executed a very strong Q3 both in new logo bookings and usage growth of existing customers. As a notable inflection, we saw acceleration of year-over-year revenue growth across our non AI customers. And the sequential usage growth for non-AI existing customers was the highest we have seen going back 12 quarters. This growth was broad-based as our customers are adopting more products and getting more value from the Datadog platform. We also experienced strong revenue growth for our AI native customers and a broadening contribution to growth among those customers. There, too, we saw an acceleration of growth in our AI cohort in Q3 when excluding our largest customer. Looking at new business. Contribution from new customers increased in Q3 in both the amount of new customer bookings as well as the revenue contribution from new customers. And as usual, churn has remained low with gross revenue retention stable in the mid- to high 90s, highlighting the mission-critical nature of our platform for our customers. Regarding our Q3 financial performance and key metrics. Revenue was $886 million, an increase of 28% year-over-year and above the high end of our guidance range. We ended Q3 with about 32,000 customers up from about 29,200 a year ago. We also ended with about 4,060 customers with an ARR of $100,000 more, up from about 3,490 a year ago. These customers generated about 89% of our ARR. And we generated free cash flow of $214 million with a free cash flow margin of 24%. Turning to customer adoption. Our platform strategy continues to resonate in the market. At the end of Q3, 84% of customers were using 2 or more products, up from 83% a year ago. 54% of customers were using 4 or more products, up from 49% a year ago. 31% of our customers were using 6 or more products, up from 26% a year ago and 16% of our customers were using 8 or products, up from 12% a year ago. Digital experience is an example of an area within our platform where our rapid piece of innovation is turning into tangible value for our customers. Our digital experience products include RUM or Real User Monitoring, to observe and improve application behavior in mobile and web apps, synthetics to stimulate user flows and proactively detect user facing issues and product analytics to help users connect application behavior to business impact. Over the years, we built our product breadth and depth in this area, and that is being recognized in the marketplace. For the second year in a row, Datadog has been named the leader in the 2025 Gartner Magic Quadrant for Digital Experience Monitoring. We are pleased that today, these digital experience products together exceed $300 million in ARR. And this includes, in particular, a very fast ramp for product analytics, which has already seen adoption by more than 1,000 customers. We also want to call out our security suite of products where we are executing and accelerating growth. Security ARR growth was in the mid-50s as a percentage year-over-year in Q3, up from the mid-40s we mentioned last quarter. We're starting to see success in including Cloud SIEM in larger deals, and we'll get back to that in a bit in our customer examples. And we're seeing positive trends beyond Cloud SIEM, including fast uptake of good security and an increasing number of wins in cloud security. Overall, we saw year-over-year growth acceleration in each one of our security products. Moving on to R&D. We continue to deliver on what is a very ambitious AI road map. We are seeing high customer interest in our Bits AI agents, which we announced at our DASH user conference in June. We have now onboarded thousands of customers for preview access, the Bits AI SRE agent. And as we prepare for general availability, we are getting very enthusiastic feedback on the time and cost savings enabled by Bits AI. As RUM user recently told us, with Bits AI SRE being on call 24/7 for us, meantime to resolution for our services has improved significantly. For most cases, the investigation is already taken care of well before our engineers sit down and open their laptops to assess the issue. And this is not an isolated comment. We see the potential here for our agents who radically transform observability and operations. In LLM observability, we recently launched LLM experiments and playgrounds for general availability, helping teams to rapidly iterate on LLM applications and AI agents. We also launched custom LLM as a judge evaluations for general availability, which lets customers write evaluation prompts to access application quality and safety. As an illustration of growth and adoption in the past few months, the number of LLM spans customers are sending to Datadog has more than quadrupled. And we are seeing a lot of interest in the Datadog MCP servers. Our MCP server acts as a bridge between Datadog and AI agents, such as Codex OpenAI, Claude by Anthropic, Cursor, GitHub Copilot, Goose by Block and many more. Our preview customers are using real-time production data context to drive trouble shooting, root causes analysis and automation in these agents. One user told us, the Datadog MCP server is a great tool. It enables me to get the last 5 of my app and follow the spans and traces all the way to the root cause. I have never been more hooked on Datadog. So we see MCP adoption as a great way to cement Datadog even further into our customers' workflows. Finally, we continue to see rising customer interest for next-gen AI observability with over 5,000 customers sending us AI data to one or more of AI integrations. On the topic of integrations, we are very proud to now support over 1,000 integrations, which we believe is unparalleled in our space. By using our integrations, customer call it otherwise disparate data sources across Datadog products for deeper analysis. We can see from a customers usage that this is a critical part of the Datadog platform. Our 32,000 customers use more than 50 integrations on average, while customers spending over $1 million annually with us use more than 150. And most importantly, as tech stack evolves, we continue to update and expand our integrations. So our customers can use Datadog to deploy new technologies with confidence. Last but not least, I wanted to give a shout out to our AI research team for the amazing work they have published. Our TOTO OpenWave time-series forecasting model has been one of the top downloads on Hugging Face over the past few months, and that is across all categories. It is very impactful as, among other things, the high quality of this work allows us to attract world-class AI researchers and engineers. Now let's move on to sales and marketing. We had a number of great new logo wins in customer expansion this quarter. So I'll go through a few of them. First, we landed a 7-figure annualized deal with a leading European telco, our largest ever land deal in Europe. This company's previous setup was expensive, inefficient and wasn't scaling to meet their needs. By using Datadog, they expect to save over $1 million annually on tool cost alone, along with millions of dollars more in reduced operation costs, lower engineering time and avoidance of revenue loss. They will adopt 11 Datadog products to start, and we consolidate more than 10 commercial and open source tools. Next, we landed a 7-figure annualized deal with a leading financial risk and analytics company. The company's fragmented tooling has led to major incidents that sometimes took multiple days and hundreds of engineers to resolve. They plan to start with 11 Datadog products including On-Call, Cloud SIEM and Bits AI, and will replace 14 commercial open source and hyperscale observability tools. Next, we landed a 7-figure annualized deal with a Fortune 500 technology hardware company. This is an exciting win for new -- sorry. This is an exciting win for our new go-to-market motions, targeting the largest and most sophisticated companies in the world. Datadog has been chosen as their strategic observability partner, and we are displacing commercial tools across availability, cloud team and incident response. This customer is starting with 14 Datadog products. Next, we signed a 7-figure annualized expansion with a Fortune 500 financial services company. This customer has pockets of siloed teams and data, including one business unit, which manually hosted and maintained 93 separate instances of open source tooling. With this expansion, this company will adopt 15 Datadog products, including all 3 pillars in all of their business units. They will also replace their SIEM solution with Datadog Cloud SIEM in a 7-figure land deal for Cloud SIEM. And by bringing all their telemetry data into the Datadog platform, they expect better insights for their adoption of Bits AI SRE Agents today and Bits AI [indiscernible]. Next, we signed a 7-figure annualized expansion with a Fortune 500 heavy equipment company. With this expansion, this customer will replace its open source log solution with Datadog log management and Flex logs. They plan to adopt LLM Observability and their IT team is using cloud cost management to improve cost visibility and governance. Next, we will come back a leading vertical SaaS company with a 7-figure analyze deal. By returning to Datadog, this customer benefits from our alignment with open telemetry and we'll implement the incident and reliability processes that they were unable to execute on previously. Next, we signed a 7-figure annualized expansion with a major American carmaker. This customer is adopting Datadog products faster than previously expected and this agreement supports the higher usage. With this expansion, they will adopt Datadog incident management and On-Call solution company-wide for a total of 5,000 users who support operational continuity across the business. Finally, we signed a 9-figure annualized expansion with a leading AI company. This company has been a long-time Datadog customer and has expanded their usage of multiple products, securing better economics for a higher commitment with an early renewal. Speaking of AI customers, we continue to help AI native customers big and small to grow and scale their businesses. And we continue to see this group broaden in number and size with more than 500 AI native companies in this group, but 100 of which are spending more than $100,000 annually with Datadog and more than 15 who are spending more than $1 million annually with us. While we know there's a lot of attention on this cohort, we primarily see it as an indication of what's to come as companies of every size and every single industry incorporate AI into their cloud applications. And that's it for another very strong quarter from our go-to-market teams, who are now very hard at work as we have a really exciting pipeline for Q4. Before I turn it over to David for a financial review, I want to say a few words on our longer-term outlook. There is no change to our overall view that digital transformation and cloud migration are long-term secular growth drivers of our business. Meanwhile, we are advancing rapidly in AI, where we are incredibly excited about our opportunities. We're building a comprehensive set of AI Observability products to help our customers tackle the higher complexity that comes with these technologies. And we are building AI into Datadog, and I spoke earlier about the excitement our customers have for our Bits AI agents. The market opportunity in cloud and AI is expected to grow rapidly into the trillions of dollars and companies of every size and industry are looking to adopt AI to deliver value to their customers and drive positive business outcome. So we're moving fast to help our customers develop, deploy and grow into the cloud and into the AI world. With that, I will turn it over to our CFO. David? David Obstler: Thanks, Olivier. To start, our Q3 revenue was $886 million, up 28% year-over-year and up 7% quarter-over-quarter. To dive into some of the drivers of our Q3 revenue growth. First, overall, we saw sequential usage growth from existing customers in Q3 that was higher than our expectations and the strongest in 12 quarters in our non-AI native customer base. We saw year-over-year growth acceleration broadly across our business, including in new logos and existing customers, both enterprise and SMB, with customers across our spending bands, big and small, and customers in a wide variety of industries. Next, we saw strong and accelerating contribution from new customers. New logo annualized bookings more than doubled year-over-year and set a new record driven by an increase in average new logo land size, particularly in enterprise. We believe we are starting to see the benefits of our growth of sales capacity. And we are seeing new logos ramping faster, contributing more to revenue growth. The portion of our year-over-year revenue growth that related to new customers was about 25% in Q3, up from 20% in Q2. Next, our AI native customers continue to exhibit rapid growth, while more customers in this group are growing to be sizable customers. As Olivier discussed, we extended the contract of our largest AI native customer. In addition, we now have more larger AI customers, including 15 of them spending $1 million or more annually with Datadog, and about 100 spending more than $100,000 annually. Year-over-year revenue growth from our AI native customers, excluding the largest customer, again, accelerated in Q3. In Q3, this group represented 12% of our revenue, up from 11% last quarter and about 6% in the year ago quarter. I will note that over time, we think this metric will become less relevant as AI usage in production broadens beyond this group of customers. Our year-over-year revenue growth also accelerated amongst our non-AI native customers. In Q3, our revenue growth, excluding the AI native customer group, was 20% year-over-year, accelerating from 18% year-over-year in Q2, and we have seen this trend of accelerating growth continue in October. Regarding retention metrics. Our trailing 12-month net revenue retention percentage was 120% similar to last quarter and our trailing 12-month gross revenue retention percentage remain in the mid- to high 90s. And now moving on to our financial results. Our billings were $893 million, up 30% year-over-year. Our remaining performance obligations or RPO was $2.79 billion, up 53% year-over-year, and current RPO growth was in the low 50s percentage year-over-year. Our strong bookings contributed to this acceleration of RPO. We continue to believe that revenue is a better indication of our trends in our business than billings and RPO. And now let's review some of the key income statement results. Unless otherwise noted, all metrics are non-GAAP. We have provided a reconciliation of GAAP to non-GAAP financials in our earnings release. First, gross profit in the quarter was $719 million, and our gross margin was 81.2%. This compares to a gross margin of 80.9% last quarter and 81.1% in the year ago quarter. As previously mentioned, we continue to see the impact of our engineers cost-saving efforts in Q3 as they deliver on our cloud efficiency project. Our Q3 OpEx grew 30% -- 32% excuse me, year-over-year, down from 36% last quarter. We continue to grow our investments to pursue our long-term growth opportunities, and this OpEx growth is an indication of our execution on our hiring plan. Q3 operating income was $207 million for a 23% operating margin compared to 20% last quarter and 25% in the year ago quarter. And now turning to our balance sheet and cash flow statements. We ended the quarter with $4.1 billion in cash, cash equivalents and marketable securities and cash flow from operations was $251 billion in the quarter. After taking into consideration capital expenditures and capitalized software, free cash flow was $214 million for a free cash flow margin of 24%. And now for our outlook for the fourth quarter and the fiscal year 2025. First, our guidance velocity overall remains unchanged. As a reminder, we based our guidance on trends observed in recent months and imply conservatism on these growth trends. So for the fourth quarter, we expect revenue to be in the range of $912 million to $916 million, which represents a 24% year-over-year growth. Non-GAAP operating income is expected to be in the range of $216 million to $220 million, which implies an operating margin of 24%. Non-GAAP net income per share is expected to be in the range of $0.54 to $0.56 per share based on approximately 367 million weighted average diluted shares outstanding. And for the full year -- fiscal year 2025, we expect revenues to be in the range of $3.386 billion to $3.390 billion, which represents 26% year-over-year growth. Non-GAAP operating income is expected to be in the range of $754 million to $758 million, which implies an operating margin of 22%. And non-GAAP net income per share is expected to be in the range of $2 to $2.02 per share, based on 364 million weighted average diluted shares. And finally, some additional notes on our guidance. We expect net interest and other income for the fiscal year 2025 to be approximately $170 million. We continue to expect cash taxes in 2025 to be about $10 million to $20 million and we continue to apply a 21% non-GAAP tax rate for 2025 and going forward. And finally, we expect capital expenditures and capitalized software together to be 4% of revenues in fiscal year 2025. To summarize, we are pleased with our execution in Q3. We are well positioned to help our existing and prospective customers with their cloud migration and digital transformation journeys, including their adoption of AI. And I want to thank Datadog's worldwide for their efforts. And with that, we'll open the call for questions. Operator, let's begin the Q&A. Operator: [Operator Instructions] Our first comes from the line of Kash Rangan of Goldman Sachs. Kasthuri Rangan: Appreciate it. Congratulations on the spectacular results and showing sequential improvement across the board. Olivier, I had a question for you. We've talked about GPU monetization versus CPU monetization. So how closer are we to the point where you can confidently expand and get your share of the customer wallet when it comes to whether it's training workload, inferencing workload on the GPU clusters, which are becoming more prevalent and increasingly a larger part of the compute build-out in the future? That's it for me. Olivier Pomel: Yes. So we have products that are getting into the market now for GPU monitoring. But these don't generate any significant revenue yet. So all the revenues we've shared, like the acceleration, et cetera, that's not related to us capitalizing more on GPUs, that's a future opportunity. Operator: Our next question comes from the line of Sanjit Singh of Morgan Stanley. Sanjit Singh: Congrats on the acceleration in growth this quarter. Olivier, I wanted to talk about some of those enterprise trends you're seeing in sort of your non-AI cohort. What do you sort of put the improved performance in growth this quarter on? You mentioned that the sales productivity or the benefit from some of the sales investments starting to come online. Is there sort of an uplift in sort of the cloud migration trends as you're starting to see enterprise build more AI applications. I'd just love to get your perspective on the underlying trends in the enterprise and the mid-market business. Olivier Pomel: Yes. I'd say there's 3 parts to it. One part is the demand environment is not -- is positive in general. I don't know that we see massive acceleration of cloud migration, but at least the environment is not pushing the other way. We know which happens from time to time. So that's point number one. Point number two is we've been growing sales capacity quite a bit, and we've created new go-to-market motions to go after the kind of customers who were not getting before. Like we've done quite a bit of investment over the past couple of years and we see that starting to pay off. As I said also, we feel good about Q4 in terms of pipeline on the sales side. So it's too early to tell yet. We still have to close those deals, but we feel good about the scaling of our go-to-market. And point number three is we have a number of products that we've been developing over the years. Some of them are early, some of them a little bit further along that are really clicking. We see -- we have a lot of success with getting large enterprises to adopt Flex Logs, for example. We have a lot of success in some of new products such as analytics that we mentioned on the call. We're seeing some large land deals with our cloud team. So all of that is contributing to the picture you're seeing today. Sanjit Singh: And just as a follow-up on the AI observability opportunity. When you look at some of the independent software vendors that are releasing Agentic solutions, Agentic portfolios. A number of them are including observability as part of their sort of value proposition. Is there any work you think Datadog has to do to sort of infiltrate that market or make sure that customers look to Datadog as that Agentic monitoring capability as some of these independent software vendors try to bundle in observability into their solutions. I would love to get your perspective on that? Olivier Pomel: Yes. I mean there's absolutely no doubt to us that the customers will even want a unified platform for observability for all of this. There's 2 parts to that. One is, historically, every single piece of software we integrate with, whether that's SaaS or things that customers on themselves, also has its own management control and observability control. But you're not going to log into [ 70 ] or in the case of customers we mentioned that they use 60 integrations for the smaller customers, 150 integrations for the larger ones. It's not practical to actually go and manage that separately. So we think all of that belongs in a central place, and that's the historical trend we've seen. We also think that you can't separate the AI parts from the non-AI parts of the business. So you're not going to look at your agents separately that you do at your web hosting and your database and your -- everything else you have in your stack. So all of that in the end will be attached to observability. Operator: Our next question comes from the line of Raimo Lenschow of Barclays. Raimo Lenschow: Perfect. Congrats from me as well. That sounded like an amazing quarter and nice to see it coming together. On the AI side, and I don't want to talk about the customer, but more the other ones, like 15 customers over 1 million. That's like a big number and 100 over 100,000. How do we have to think about the nature of those? Is this kind of -- are those kind of especially the bigger ones of those kind of model builders, but then even 15 is a big number. And over 100 sounds like this whole new application world that we've all been kind of waiting for starting to come together. Is that kind of what's going on there? Because it does sound quite exciting and much more broader than we thought. Olivier Pomel: It's actually fairly broad. So there is model vendors, there's models -- model that can be the lens model that can be video, it can be sound generation, it can be all of the various parts of the stack you see as independent companies. It can be -- there's quite a few companies that do that work on the coding side. So coding assistants and vibe coders and everything in that range. Some of these are very new companies. Some of these are not very new companies, some of these started 5, 7, 8 years ago. And we're sort of not necessarily AI native from day 1, but very quickly, that would give them the growth they see today with the people to AI. So we see a little bit of that. We have companies that are other parts of the stack in AI on the, say, the [ steady ] side, the other components of the infrastructure. And we have other companies that are purely applications filled with AI. So we have a bit of everything in there. Like it's actually fairly representative of the space. Operator: Our next question comes from the line of Mark Murphy of JPMorgan. Mark Murphy: You had mentioned the expansion of the contract with your largest AI native customer and I believe you said better economics for a higher commitment. Can you speak to that because I would assume a higher commitment would carry a volume-based discount. I'm just trying to understand if. For some reason, if that was not the case here, what did you mean by better economics? And then I have a quick follow-up. Olivier Pomel: Yes. I mean, this is without getting to the detail of any specific customer like this is the motion is always the same, like customers grow, they commit to more, they get better prices. So you see, like a, again, talking about customers in general, you see both of usage, drops in revenue as customers renew and get higher commit and a better price and then usually growth after that for those customers. That's the motion that we've had. We have about 30,000 customers so far. Mark Murphy: Okay. And the -- what in that, so the better economics part of it is just where it's going to be netting out like 12 months down the road? Is that what you mean? Olivier Pomel: Well, the bigger economics means you commit tomorrow, you get a better price. And as we -- remember, we have a usage model. So we charge people every month on what they use at the price we agreed. So if you get better economics, and your usage is somewhat similar month to month, one month and the next that you pay less, but the overall backdrop of our business is increased consumption. Mark Murphy: Okay. And then as a quick follow-up, Olivier, the acceleration that you saw in the security growth is pretty noticeable too. We recall, I think about 6 months ago, you had ramped up and engaged a lot more of a channel partners, which is a key ingredient to grow in the security business. Is it a function of that? Or is there a mindset change happening out there where customers want observability to be the central point of collection so that all the security teams and the ops teams are working with the same set of metrics and logs and tracers? Olivier Pomel: Look, I think it's a number of things. Definitely, we've been investing in the channel, and that's certainly helpful to do the security business as a whole. The win -- the big win we mentioned on security that we mentioned a couple of wins in Cloud SIEM. These tends to be more related to product maturity. The strength of our underlying platform, especially when it comes to technology like Flex Logs, for example. And the fact also that we've been learning how to properly go to market for security. And I think we see things clicking in a way that is exciting. Operator: Our next question comes from the line of Fatima Boolani of Citi. Fatima Boolani: Oli, I'll start with you and I have a follow-up for Dave. On the On-Call product, Oli, how do agentic advancements in general detract or enhance the value proposition here? And I'm very simplistically thinking about the core nature and value proposition of the On-Call product intelligently routing, requests for remediation, right? So how do you just broader advancements in AI, help beef up and/or detract your ability to monetize this product? And then just a follow-up for David, please. Olivier Pomel: Well, I mean, if you zoom out, we entered the field with On-Call because we wanted to own the end-to-end incident resolution. So we wanted because we before that, we were detecting the incidents and sending the alerts, and then we were pretty much where the resolution happened after that. Customers were spending their time in data to diagnose and understand what was going on. So we wanted to own the full cycle. . And we thought that with AI, in particular, we'd have the ability to do things if we are on the whole cycle that we couldn't do otherwise. So what you see right now is, I mean, this resonates with customers, they adopting to product. We've mentioned like some exciting customers with say, [ one ] with 5,000 seats for On-Call, which is very exciting. But in the future, there's many more things we can do in working on for that product. If we both detect incident and notify, we can do some sort of things such as even predicting the incident and notifying early or rerouting early or telling people before the incident actually takes place, how they can potentially fix it. So these are all things we're working on. I mean, look, if you look at the various product announcements we've made, whether that's Bits AI or SRE or the time series forecasting model we have released. When you assemble all that, you get to a very, very interesting picture of what we can do in the future. So we're excited by that. Our customers are excited by the vision there too, and that's why these products are successful. Fatima Boolani: Appreciate that. David, on net retention rates, why aren't we necessarily seeing more upward pressure on the metric, just given the strength of expansionary bookings that you alluded to in the quarter from the installed base. And I mean I suspect it's because it's a trailing 12-month metric. But any directional color you can just share on that. And any high-level commentary on some of the non-AI native net retention rate trend behavior? David Obstler: Yes, you've nailed it. It's a trailing 12 months, it's a number that's rounded, it has the dynamics that you might expect in that the growth of the non-AI natives has been, as we mentioned, a combination of landing and expanding at higher rates than we've seen in recent quarters. So if that continues as you go into a trailing 12-month metric, you see a directional movement. Operator: Our next question comes from the line of Eric Heath of KeyBanc. Eric Heath: Oli, David, Bits AI seems like a really exciting thing out of Dash. And I know it's still in preview, but you mentioned there's a lot of interest there. So I'm just curious how you think about the agentic opportunity with Bits AI. How meaningful this can be for 2026 as a differentiator versus competition and also as a revenue contributor? Olivier Pomel: Yes. So -- I mean, look, it's super exciting. The feedback is very good on it. I mean, we've been collecting all the -- so I read one quote, we have dozens that look just like that, that was sent to us by customers. And so that's very, very exciting. We also started having some customers buy and come to it to just to show value and to make sure we're on to the right product mix. And so we feel good that this is something that is high quality and we can monetize. In terms of the impact for next year, on the packaging side, I'm not completely sure yet whether the biggest impact will be seen from what we charge Bits AI itself or for the rest of the platform, that it gets benefits from the differentiation of Bits AI. I think that's more of a broader question of packaging and monetization of AI. And remember that we have a product that is usage based. So anything that drives usage up and adoption from customers is good for us and is very, very monetizable. But what we can tell is this is differentiating, this is good. It works significantly better than anything else we've seen or heard of in the market, and we are doubling down on it. We have many, many teams now working on deepening Bits AI SREs to making sure it goes further into the resolution doesn't just point to the issue, but fixes the code that all these kind of things working hard on that. We're also working on breadth, making sure that we train it on many more types of data, many types of sources, sometimes even systems that are observe the systems that are not dialed up, so we can cut across to other systems our customers are using. So we are very, very aggressively developing Bits AI SRE. It's resonating very well in the market. Operator: Our next question comes from the line of Gray Powell of BTIG. Gray Powell: Congratulations on the great results. So maybe just like taking a step back, if we go back to the beginning of the year, Datadog was expecting 19% revenue growth. It looks like you're tracking to something over 26% growth now, and that's just the high end of your guidance. So I guess my question is, what surprised you the most this year? And then just how do you feel about the sustainability of those drivers as you look forward? Olivier Pomel: I mean, look, the -- so first, I apologize for over delivering on the results. We might do it again, but we'll see. I think the biggest surprise for us has been that -- so AI in general has or AI adoption has grown faster than we thought it would at the beginning of the year. So we've seen that across our AI cohort. We've seen also that we got some of our new products and new, like the changes we're making on the go-to-market side to click perhaps earlier than we would have thought otherwise. So all in all, we saw the leading part of the business with AI growth faster, not the lagging but the slower growing, more traditional part of the business also accelerate and that gets us where we are today. David Obstler: And I'd add, we have a good demand environment and we've been investing whether it be in the products that Oli's been talking about or in the sales capacity we made clear that we were in investment and we're seeing those investments pay off. Operator: Our next question comes from the line of Koji Ikeda of Bank of America Securities. Koji Ikeda: Just one from me here. I wanted to ask a question on the inflection in the non-AI native growth and how to think about the areas of strength in this cohort. Is it coming from your largest enterprises? Is it coming from a certain type of customer? Is there a common theme in the workloads that you're seeing or the products that are being added on that is driving that strength? Or is it just really just broad-based? What I'm trying to get out here is I'm really trying to understand more the durability of this growth reflection. Olivier Pomel: So it is broad-based. And I think, again, speaks to a couple of things. It speaks to the fact that, in general, the demand environment is good. Though I would say, there's been a very, very high growth of hyperscaler revenue like over the past an acceleration for the hyper scalers in general. A lot of that is GPU related, but the growth we're seeing here and the exception we're seeing here is largely not GPU-related. It's a little bit of it, but not a ton of it. So that's not exactly what you've seen with some of the other vendors there. One reason this is broad-based is these are the same products we sell to all customers, and this is largely the same go-to-market organization that we have a few segments, but -- and we've been doing well executing there. I think we've invested quite a bit in product, and we keep and we will keep doing it, and we see the results of that. David Obstler: Yes, I want to -- I'll add that it's across the customer base, enterprise SMB. And when we look at it, it's not just an AI SMB. If you remove the AI companies, you still see a strengthening SMB demand cycle going on. And unlike in previous periods, it also is across spending ranges. We're not seeing larger spenders or smaller spenders. We're just seeing a broad trend of improved demand across the spending trends. Olivier Pomel: And remember that for us, SMB is, any company of less than 1,000 employees. It includes a lot of very legitimate and growing businesses. It's not... Operator: Our next question comes from the line of Ittai Kidron of Oppenheimer & Co. Ittai Kidron: Congrats guys. Really great numbers. Oli, in your answer to one of the questions and kind of going into the drivers behind the upside. You've talked about sales capacity increase. You didn't talk much about sales efficiency. Is there a way you can give us some color on where do you stand on percent of salespeople that are hitting quota, where does that ratio stand relative to historical patterns for you guys? And as you approach '26 year, do you anticipate any material changes in the comp structure just given the breadth of product and the list of opportunities, how do you get people focused? Olivier Pomel: Yes. So we feel good about the sales productivity in general. And the rule generally, you grow by scaling capacity and maintaining productivity, it's hard to drive both up at the same time. And remember, if you want to go to 10x, you can do that by scaling if you can't really do it by improving productivity, so you have to scale. And we've been doing that, and we've been successful at it so far. In terms of the complaints that, look, we keep changing the way we compensate and the way we manage the sales force in general to make sure we have the right focus. One of the gifts of a business like ours is that we see -- we have a very heavy land-and-expand model. And so we get a lot of growth from existing customers. The challenge it creates on the other hand is how do we get to focus the sales force on the newer customers, the smaller ones and the new ones because it is more work to get an extra dollar for a smaller customer or for a new one and it is from an existing one that they already have scale. And so a lot of the tweaks we met to our comp plans relate to that. Who do we make sure we direct our attention and we reward people for what is going to generate the most long-term growth for us. And we've made a number of changes. I won't go through them, these are our internal changes. But we had a number of changes this year, we see a number of them pay off. Another thing I mentioned on the call was you mentioned a win for one of our new go-to-market motions and that specifically getting in place multiyear plans to go after some larger customers that are tougher to land than what we've done in the past. And sometimes, it takes more than a year to land certain types of customers. And the problem is if you comp plan only has a 1-year horizon, like it doesn't give a great incentive for the sales force to go after those customers. And so we cordoned off a few of those companies who have special plans to go after that, and we're starting to see success with that too. It's just an example. Operator: Our next question comes from the line of Andrew Sherman of TD Cowen. Andrew Sherman: Great. Congrats. I know you have a team focused on the Fortune 500, where there's still a lot of white space for you. Curious to hear how the team is ramping to productivity. Did that help drive some of the strong new logo bookings and can this contribute even more next year? Olivier Pomel: Yes. I mean, look, the team is not new, right? I mean, we've been focusing on that for many years, and we're tracking well. One thing I was mentioning just before was one challenge even in the Fortune 500 is to make sure that we focus on landing new customers and make sure that there's the right amount of sales attention and reward for the landing a customer even if it's for a small amount, and I think we've done well. I mean again, we can comment on that again after the next quarter when we have a full year of our new clients that have been validated. But so far, we feel very good about it. Operator: Our next question comes from the line of Alex Zukin of Wolfe Research. Aleksandr Zukin: Congrats on dropping some truly inspiring quotes in the script. Maybe Oli, one for you and then I have a quick follow-up for David. Just the duration of this acceleration of the non-AI cohort. It seems like from all your forward-looking metrics, whether it's billings, RPO, CRPO. Those were, again, really, really strong how long do you think we should think about the duration of this trend of this non-AI acceleration? Olivier Pomel: Well, we're a consumption business. So we -- the hardest thing to understand is what the future is going to look like for consumption. The way I would say it is we feel very good about it at the midterm, long term. Now with ebbs and flow in any given month or quarter, that's harder to tell. And again, that's what we've seen through the life of the company. So we feel very confident about the motion in general for digital transformation and cloud migration is steady. And sometimes it slows down a little bit, but it reaccelerates after that. And we see that key going on for a very long time. Aleksandr Zukin: Okay. And then maybe, David, for you, look, gross profit dollar acceleration while you're seeing your largest customer kind of get better unit economics is also inspiring to see how should we think about the progression of gross margins and gross profit dollar growth, particularly as you continue to also see the AI cohort acceleration. David Obstler: Yes, there's a couple of things. I think we've mentioned that we've been focused and have focused over the many years on the efficiency of our cloud platform. We have significant engineering efforts around cost of sales and delivery of value. And so we've been able to deliver on that. We also have a very broad customer base distributed in terms of volume. So as customers get larger and maybe get volume discounts, we have a number -- a lot of customers coming in, it's smaller, so that balance there. And then in terms of the sort of the future -- I'll repeat what we've always said that we've been running the company with a gross margin plus or minus 80%, we've given that range and not changed it, and we watch it. And it gives us mixed signals in terms of efficiency, how we're operating, it gives us good signals in pricing and things like that and I wouldn't change the comments we made over the many years about looking at that and then developing operations and strategies around that. Operator: Our next question comes from the line of Ryan MacWilliams of Wells Fargo. Ryan MacWilliams: Just one for me. On the large AI contract expansion that you provided commentary on, is there any way we can think about the contribution change from this customer over the next few quarters? David Obstler: No. I mean we don't provide that kind of information on individual customers. We're trying to give a picture of the overall business. Generally, I think as Oli mentioned, on our larger customers, we have a motion of the expansion of volume and then we talk when we work on the term and the volume-based pricing, but we don't give guidance like that on individual customers. Operator: Our next question comes from the line of Mike Cikos of Needham. Michael Cikos: I just wanted to come back to it, Oli, for the non-AI native strength, I know we've kind of hit on this a number of times, whether it's road map sales capacity execution, but like kudos on the numbers here? I'm just trying to get a better sense of the why now. Is it just a composite of all those different pieces clicking together this quarter? Or is there anything more to unpack there? And then I have a follow-up for David. Olivier Pomel: Again, I don't think there's a lot more to unpack there. And I know it's boring in a way, but it's also the way we've been growing for the past 15 years, really. So that's a -- I would call it the usual. Michael Cikos: Awesome. Awesome to hear. Okay. And then for the follow-up to David. David, I don't want to take anything away from the Q3 results you guys just posted, and we obviously have the strong guide here for Q4. But I just can imagine myself a month from now starting to get inbounds from certain folks asking about the holiday season and the fact that we have the holidays landing on weekdays in Q4 here. Can you just kind of discuss how you thought about constructing guidance for this Q4 year? David Obstler: Yes. We have years of experience of analyzing the day-by-day patterns. In the holidays, we know that the holiday period ends up in the usage side because of vacation holidays, and we incorporate that into our guidance. We, I think, evolved a lot over the years and sort of days adjusted types of days, et cetera. And so we would be incorporating that like we've incorporated in other years. If there are differences in this calendar period, we incorporate that as always. Operator: Our next question comes from the line of Karl Keirstead of UBS. Karl Keirstead: Okay. Great. I'll ask one for David and one for Olivier. David, first of all, congratulations on the extension of the larger contract, I think everybody on the line is applauding that. I know you're reticent to get into any details, but maybe I could try. Are you able to clarify whether that was a 1-year deal or multiyear? And then related to that, David, what is the contribution to CRPO from that deal, which I presume landed in your CRPO number. If it is a 1-year deal does the entirety of that contract contribute to the sequential CRPO performance in the quarter? So that's it for you, David. And then Olivier, maybe I'll just ask both at once. Some of the very large AI natives are beginning to diversify to utilizing Oracle's OCI and Stargate. And I'm wondering what's the opportunity for Datadog to essentially follow that behavior and begin scaling on Oracle's target or because a lot of what Oracle is doing with the AI native is training clusters, perhaps that near-term opportunity is more limited. David Obstler: Yes. On the first point, I think we give a lot of examples and our motion, which our customers would be following, including that one would be -- we fix out annual plus commits. We're not commenting on individual contracts here, but it would follow a typical path to other types of contracts. So that's what we would do. Olivier Pomel: Yes. And on the OCI, look, this is -- we've built an OCI integration, and then we see more demand from customers on OCI. Some of the things we see like the targets, et cetera, like these are extremely custom build out, like I don't know -- they're not necessarily exactly cloud because they are custom built for specific customers. So the opportunity there is more remote today. But it's -- again, one company is that it's a not fantastic opportunity to product type. But if 10, 15, 20, 50 companies start using that, then that really becomes a commercial opportunity. And so we're very much plugged into all of that. And we go basically where our customers are. David Obstler: I think you mentioned about the RPO. I think in this case, we've mentioned this current and the total is roughly the same, and there wouldn't be anything in that contract that would have been materially around of those numbers. Those numbers, I think we mentioned are produced from the bookings growth more generally and not from that particular contract. Operator: Our next question comes from the line of Jake Roberge of William Blair. Jacob Roberge: Yes. Just on the recent go-to-market investments, obviously, it seems like there's been a lot of traction thus far with those. So I'm curious if there are any areas like security or the new logos or upmarket that you could look to lean even deeper into just given the growth that you've seen here. Olivier Pomel: Yes, definitely. And there are some things we didn't do this year that we'll definitely go to the next year. So there's a number of things we are -- we're in Q4, right? So we're in the middle of planning for next year, and we basically will keep scaling what's working, stop doing some of the things that are not conclusive and then try to do more things. That's the way it works. Interestingly enough, building a go-to-market is not that different from building software like you experiment together data you see what's working was not working and you build the systems. Jacob Roberge: That's helpful. And then just on the new Bits AI Agents, can you just talk about the early feedback that you've gotten for those solutions and maybe how the engagement with those agents as compared to kind of the ramp of security Flex Logs. I know, obviously, much earlier days, but just how it compared when those were still largely in the preview phase? Olivier Pomel: I mean look, the Bits AI Agent is -- it really has a growth factor for customers. So what works really well is and we've seen that number of times, like we set it up for them. It's running on their alert and they go through an outage and they still go to the motion, so they still go -- they still set up a bridge and they have 20 people and they spend 2 hours and in the end, they have an idea what went wrong. And then they go to Datadog and they see, oh, there's an investigation that had run. And 3 minutes into the outage, it got the same conclusion that we got 2 hours later with 20 people on the call. And that's completely eye-opening for customers when they see us. And we have -- so that's why we get many quotes about it. So now there's more we need to do there, like customers say, "Oh, it's great. Now can it make this fix for me? Can you do this? Can you do that? Can you support that other system that right now, you can't actually set it up for. So we have a very, very full road map of things we need to do, and we're doubling down on it. We also shipped -- I mean this one is in preview, but we shipped a security agent that looks at vulnerabilities and looks at security signals and those triad that basically look at trying to investigate what might be benign or what might be a real issue. We also are getting very, very positive feedback for that. And in fact, that's what helped us win some large land deals for our Cloud SIEM products because the combination of the SIEM that runs extremely efficiently on top of observability data that runs very efficiently on top of Flex Log, but also saves an immense amount of time by getting 90% of the issues out of the way with automated investigation that's extremely attractive to customers. All right. And I think with that, we're going to close the call. So -- before we go, I just want to give one quick shout out to the team because I know, as I said earlier, we have quite a lot going on in Q4, whether it's on the planning side, on the product building side or on the sales side, where I said we have a really, really exciting pipeline. And so we have a lot to do. I want to thank the team for the hard work there. I also -- I'm looking forward to meeting a lot of our existing and new customers at AWS re:Invent in a few weeks, and I'll see you all there. Thank you all. Operator: Thank you for your participating in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and welcome to the CF Industries Q3 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Martin Jarosick, Vice President of Treasury and Investor Relations. Please go ahead. Martin Jarosick: Good morning, and thanks for joining the CF Industries earnings conference call. With me today are Tony Will, President and CEO; Chris Bohn, Executive Vice President and Chief Operating Officer; Bert Frost, Executive Vice President of Sales, Market Development and Supply Chain; and Greg Cameron, Executive Vice President and Chief Financial Officer. CF Industries reported its results for the first 9 months and third quarter of 2025 yesterday afternoon. On this call, we'll review the results, discuss our outlook and then host a question-and-answer session. Statements made on this call and in the presentation on our website that are not historical facts are forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or implied in any statements. More detailed information about factors that may affect our performance may be found in our filings with the SEC, which are available on our website. Also, you'll find reconciliations between GAAP and non-GAAP measures in the press release and presentation posted on our website. Before we begin today's call, I want to provide an update on the incident we experienced at our Yazoo City, Mississippi complex last evening. All employees and contractors are safe and have been accounted for, and there are no significant injuries. The incident has been contained, and an investigation is underway. Now let me introduce Tony Will. W. Will: Thanks, Martin, and good morning, everyone. Yesterday afternoon, we posted results for the first 9 months of 2025 in which we generated adjusted EBITDA of $2.1 billion. These results reflect outstanding execution by the CF Industries team across all aspects of our business. And most importantly, our team continued to work safely. At the end of the quarter, our trailing 12-month average recordable incident rate was 0.37 incidents per 200,000 work hours. Five years ago, October 2020, we announced a significant shift in the company's strategic direction, including an ambitious plan to begin decarbonizing our production network, a plan to become the world's leader in clean ammonia and a model example of environmental stewardship and how to abate an energy-intensive business in a financially responsible way. Today, that vision has been realized. I'm very excited to announce that the plans we launched 5 years ago have begun delivering real value to our shareholders and broader benefits to the society as a whole. We have made great strides over the last 5 years and have reduced our GHG emissions intensity by whopping 25% from our original baseline. And every single one of the initiatives that contributed to this remarkable achievement have been highly NPV positive, creating substantial value for shareholders. We are the best example of how being environmentally responsible can actually go hand-in-hand with creating significant shareholder value. On our journey, we have executed all of the following initiatives. We closed 2 of our least efficient, highest emissions plants that were also borderline uneconomic to continue operating. We commissioned 2 new highly efficient, lower emissions plants that have return profiles exceeding 20% IRR. We acquired the Waggaman, Louisiana ammonia plant, a very efficient plant with relatively low GHG emissions intensity and increased production at that facility significantly from 750,000 tons annually to over 900,000 tons, resulting in an IRR of over 20%. We installed N2O abatement systems into certain nitric acid plants, the resulting carbon credits from which are being sold at high values, more than recovering our costs within just a single year. And finally, we have begun sequestering approximately 2 million metric tons per year of CO2 from our Donaldsonville complex. The 45Q tax credits from this project will more than pay our installation costs within 2 years, generating an IRR over 20%. And we are currently selling the resulting low-carbon ammonia at a premium. What is otherwise a commodity product, chemically identical to ammonia produced anywhere else in the world has become differentiated and now commands a premium in the marketplace. These initiatives have helped reduce our emissions intensity by roughly 25% from our baseline while creating significant value for our shareholders. And now we are embarking on the development of the world's largest ultra-low emissions ammonia plant at our Blue Point complex in Louisiana. We have 2 world-class equity partners, JERA and Mitsui with us in this venture, and I fully expect the financial and societal benefits will be equally as impressive as the initiatives we have already completed. Additionally, we have a second carbon capture and sequestration project underway at our Yazoo City, Mississippi complex and numerous other initiatives yet to be announced. The end result is that we have a robust high-return growth trajectory in front of us through the end of the decade that will continue to dramatically reduce our GHG emissions intensity while providing exceptional financial returns. Before I turn the call over to Chris to talk more about our operating results, I do want to take a moment and highlight what I consider to be a great misconception in the market. I want to refer you all to Slides #10, 11 and 12 in our materials. Slides 10 and 11 show our consistently strong free cash flow generation and our relentless share repurchase program. Slide 12 shows our remarkable free cash flow conversion efficiency from EBITDA and yet amazingly how we trade at a shockingly low valuation. Oftentimes, CF Industries is compared to agricultural companies, and yet we are very different from most of those. The seed and chemical companies face challenges of products coming off patent and declining margins or of distribution channels being stuffed full and having to go through the pain of destocking. We are also very different from capital equipment companies or those selling more discretionarily applied products like phosphate and potash who are really and truly subject to grower profitability. However, our sole product, nitrogen, is fundamentally different. Even in periods of relatively weak grower profitability, nitrogen demand is unaffected, almost completely inelastic. This year, when there was great hand ringing due to subdued grower profitability, high planted corn acres and global nitrogen supply production disruptions in other parts of the world, created a situation where nitrogen demand and resulting pricing was very, very strong. As Bert will talk about in a few minutes, we see the same strong demand dynamic shaping up for next year. Nitrogen and certainly CF Industries' financial performance is not impacted by most of the factors affecting the rest of the ag sector companies. While other times, we are compared to industrials or material sectors, again, we have very little in common with most of those companies either, especially the chemical companies. We do not suffer from global overcapacity nor from sluggish or declining demand. Our free cash flow generation is consistently high. And yet as shown on Page 12, we have traded at an anemic average cash flow multiple of barely 7.5x free cash flow. Realistically, that should be the low end of an EBITDA multiple, not a cash flow multiple. Oddly, businesses that are on the whole more volatile and structurally way less advantaged than CF trade at a higher valuation. The industrial sector trades at 27x cash flow. The materials sector trades at 30x cash flow, while our consistently high cash flow generation on average has traded at a sickly 7.6x. All of this is a long way of saying the market doesn't really understand our business or our consistently high free cash generation. As Greg will talk about shortly, we have made great progress on our share repurchases and continue to do so. We, around this table, believe CF represents an amazing value, especially when only trading at an average 7.5x cash flow. And we will continue aggressively repurchasing shares from the nonbelievers and those that don't take the time to understand why we are fundamentally different from most ag, industrial and materials companies. With that, I'll now turn it over to Chris to provide more details on our operating results. Chris? Christopher Bohn: Thanks, Tony. CF Industries manufacturing network has operated well throughout the year with a 97% ammonia utilization rate for the first 9 months of 2025. As is typical for the third quarter, we had significant maintenance activity, which reduced production volumes compared to the first 2 quarters. We continue to expect to produce approximately 10 million tons of gross ammonia for the full year. We also have made significant progress on strategic initiatives that are now generating EBITDA and free cash flow growth for the company. In August, we were able to fully utilize expanded diesel exhaust fluid rail loadout capabilities at our Donaldsonville complex for the first time. This enabled us to capture incremental high-margin DEF sales and led to a monthly record for DEF shipments from the site. Also at Donaldsonville, the carbon dioxide dehydration and compression unit, which was commissioned in July, continues to run well. We are generating 45Q tax credits and moved to full rate safely through the quarter. Finally, in October, we completed a nitric acid plant abatement project at our Verdigris, Oklahoma facility. This project is expected to reduce carbon dioxide equivalent emissions at the site by over 600,000 metric tons on an annual basis, which we are monetizing through the sale of carbon credits. By the end of the decade, we expect the returns generated by our CCS projects, along with the Verdigris abatement project will add a consistent incremental $150 million to $200 million to our free cash flow. Longer term, we remain excited about the compelling growth opportunity that the Blue Point project offers us, particularly given the sales team's success in selling low-carbon ammonia from Donaldsonville for a premium. Detailed engineering activities and the regulatory permitting process are progressing well with capital expenditures for 2025 expected to be within the range we projected earlier this year. We expect site construction to begin in 2026. With that, let me turn it over to Bert to discuss the global nitrogen market and the growing interest in low-carbon ammonia. Bert? Bert Frost: Thanks, Chris. The global nitrogen supply-demand balance remained tight in the third quarter of 2025. Demand led by North America, India and Brazil was robust. Additionally, product availability remained constrained due to low global inventories and outages during both the third quarter and earlier in 2025. China's re-entry into the urea export market provided tons the world needed, but did not substantially alter these dynamics. Looking ahead, we expect the global nitrogen supply-demand balance to remain constructive. We believe supply availability will continue to be constrained. Global inventories are low, including in North America. Additionally, major planned and unplanned outages are occurring now while geopolitical issues and natural gas availability, particularly in Trinidad, remain a challenge. The start-up of new capacity also continues to be delayed. At the same time, we expect global demand to remain strong. India is likely to tender for urea in the near term, especially given the result of their most recent tender. Nitrogen demand in Brazil and Europe has picked up recently. And in North America, economics favor corn planting over soybeans next spring based on the December 2026 corn contract, which is currently priced at approximately $4.70 per bushel. Farmer economics across the globe remain a key focus as crop prices have not kept price up -- pace with the price of inputs, equipment, rent and other costs. That said, we believe nitrogen offers clear value for farmers relative to other nutrients for its immediate impact on yields. Given where crop prices are today, we expect farmers to focus on optimizing yield, which should support healthy nitrogen applications. We believe that the strong uptake of our UAN fill program and our robust fall ammonia program and the order book that supports it will support that outlook. We're also preparing for the implementation of the European Union's Carbon Border Adjustment Mechanism, or CBAM, which takes effect in less than 2 months. While there remains some uncertainty about the final structure of these regulations, we feel very confident about our competitive position. Thanks to our Donaldsonville CCS project, we have the largest certified low-carbon ammonia volume in the world. And over the last few years, our team has put in a great deal of time to build relationships with customers, including those who will be affected by CBAM. This has enabled us to sell certified low-carbon ammonia at a premium to conventional ammonia today as customers begin to adapt their supply chains. Based on our conversation with customers, we also believe CBAM will drive significant demand for other low-carbon nitrogen products such as UAN. We see this as a tremendous opportunity for CF Industries on top of our already high-performing nitrogen business. We look forward to working with customers to build out a low-carbon ammonia and nitrogen derivatives supply chain. With that, I'll turn it over to Greg. Gregory Cameron: Thanks, Bert. For the first 9 months of 2025, the company reported net earnings attributable to common stockholders of approximately $1.1 billion or $6.39 per diluted share. EBITDA and adjusted EBITDA were both approximately $2.1 billion. For the third quarter of 2025, we reported net earnings attributable to common stockholders of $353 million or $2.19 per diluted share. EBITDA and adjusted EBITDA were both approximately $670 million. On a trailing 12-month basis, net cash from operations was $2.6 billion and free cash flow was $1.7 billion. We continue to be efficient converters of EBITDA to free cash flow. Our free cash flow to adjusted EBITDA conversion rate for this time period was 65%. As you saw in the press release, we updated our projection for capital expenditures on our existing network to approximately $575 million for 2025. This reflects additional maintenance we were able to complete efficiently during planned outages as well as the timing of strategic investments that Chris mentioned this morning, and he spoke about at our Investor Day in June. We returned $445 million to shareholders in the third quarter of 2025 and approximately $1.3 billion for the first 9 months. In October, we completed our 2022 share repurchase authorization, having repurchased 37.6 million shares, which represents 19% of the outstanding shares at the start of the program. Our share repurchase program continues to create strong value for long-term shareholders. Net earnings increased approximately 18% compared to the first 9 months of 2024, while earnings per share were approximately 31% higher, reflecting our significantly lower share count. The same positive impact can be seen in our shareholders' participation in our production capacity and the free cash flow it generates. We are now executing the $2 billion share repurchase program authorized in 2025 with over $1.8 billion of cash on hand at the end of the third quarter. We are well positioned to continue returning substantial capital to our shareholders while also investing in growth through Blue Point and other strategic projects. With that, Tony will provide some closing remarks before we open the call to Q&A. W. Will: Thanks, Greg. For me, this is earnings conference call #48 and my very last one as CEO of CF Industries. Over the past 12 years, traditionally at this point in the call is when I have thanked the entire CF Industries team for their hard work and contributions to our success. I'm eternally grateful to the entire team. Today may be more so than usual, and I am particularly aware of what an amazing team we have here. So indeed, thank you all said perhaps a bit more heartfelt than the past 47 times. I'm exceptionally proud of the company and the organization I'm leaving. The highly ethical way in which we conduct ourselves, our unwavering commitment to employee safety and our absolute focus on value creation. In addition to the entire CF team, I also want to thank our Board of Directors who have always been supportive of me, providing insight and guidance through the years and importantly, always aligned with me on the objective of value creation. I also want to particularly thank the CF senior leadership team with whom it has been a truly great pleasure to work alongside. I can honestly say this is the best group one could possibly hope for and not only respect them as individuals along with their business acumen, but I also thoroughly enjoy their company and our camaraderie. Finally, I want to thank and congratulate Chris Bohn on being named CEO. Chris has been a consistent thought partner and devil's advocate working with me as we navigated foundational decisions like the Terra acquisition, the sale of our phosphate business, the capacity expansion projects, our strategic repositioning of the company, the Waggaman acquisition, and most recently our Blue Point joint venture. Chris has been hugely successful in leadership roles across the company, including heading FP&A, supply chain, manufacturing, CFO, and his current role as COO. Chris has my complete faith and confidence that he will successfully lead the company to new heights. Again, thank you, and congrats. It has been some kind of a thrilling ride for me as CEO, an incredible honor and a very great privilege. We've accomplished many things over the years. As I say, success has many parents and indeed, all of our successes were team efforts, and I'm delighted to say that the team remains in place. Therefore, I'm steadfastly confident that the company's best years are in front of it. With that, operator, we will now open the call to your questions. Christopher Bohn: Before Q&A, I want to take a moment to acknowledge Tony's retirement and his contributions to CF over his 18-year tenure. Tony's influence and impact on CF cannot be overstated. From his time leading manufacturing where he generated and championed the do-it-right phrase is a core statement of CF's values and culture to his relentless pursuit of personal and process safety. CF has improved through his leadership. Tony's leadership, which can be best described as bias towards action. This has been exemplified through the growth the company has experienced under his guidance through the CHS transaction, Donaldsonville and Port Neal expansion projects, Waggaman acquisition to the recent announcement of the Blue Point joint venture, increasing CF ammonia production and free cash flow generating assets by 45% during his time as CEO and over 200% since he started at CF as a member of the senior leadership team. His safety-first mentality, keen decision-making and focused on disciplined investments and execution is what has positioned CF where we are today, tremendous safety performance, industry-leading asset utilization and superior capital allocation. Over the years, he's not only been a great mentor, but also a great friend. I look forward to building on what Tony has established and wish him the best in his next act. Thank you, Tony. W. Will: Thank you. Operator: [Operator Instructions] First question comes from Ben Theurer from Barclays. Benjamin Theurer: So first of all, Tony, all the best in retirement. I'm pretty sure you have plenty of things you want to do. So enjoy that. And that's -- it was quite a run, I guess. So that's never bad. So enjoy that piece. And maybe as well for you, Chris, all the best on your new assignment as CEO. So 2 quick questions I have. So one, you've talked about in your presentation material about the mid-cycle where you are right now and the mid-cycle where you think you're going to be in 3, 4 years' time as you get these additional projects come through. So I just want to understand the current market conditions obviously still seem to a degree, stretched, right, with the European gas price somewhat elevated versus what maybe mid-cycle in the past was. So I wanted to get your view in terms of the bull versus the bear around that $2.5 billion mid-cycle mark and how we should think about that evolving from a feed cost standpoint of view into the period of 2030? And then I have a very quick follow-up on pricing premiums. Gregory Cameron: Yes. So I'll start. It's Greg. So clearly, today, right, when we built the $2.5 billion, we had a $3.50 gas strip in there for Henry Hub and a price -- realized price on urea at $3.85. As of today and through the year, we've obviously traded below that on the Henry Hub. So from a feedstock, we've been benefiting in our results. And then lately, you've definitely seen a price move up through the course of the year on the urea. So from a results standpoint, hopefully, you're seeing that and appreciating that in the results that we printed at $2.1 billion of EBITDA through the first 3 quarters. I think as you think about it going forward and the spread between what we see here in the U.S. and in Europe, our view is that there'll be some tightening there, we expect to have a competitive advantage and remain lower priced on a nominal basis as well as relative basis versus what we're seeing in European production, which is -- will continue to be a tailwind to us for our financial performance. W. Will: I mean, I guess it's a long way of saying, Ben, that we would agree with you that current conditions are well above mid-cycle and our expectation just based on history of how fourth quarter paces against the other quarters should deliver full year results well above mid-cycle this year. And I think that's consistent with kind of what you said, industry conditions, gas price in Europe, kind of what's going on in terms of the energy space and overall demand, it does feel stronger than, I would say, mid-cycle, but we're delivering against it. Christopher Bohn: And the only other point I would add is on the growth that Greg talked about going to the $3 billion, that is identified in motion being executed on today. So that is not things that are in the pipeline that is what we know today and that will likely grow as time goes on as well. Benjamin Theurer: Okay. Got it. And then that price premium on the ammonia you're selling in Europe, the blue ammonia that you're getting out of Donaldsonville, can you give us a little sense of magnitude as to the premium that you're getting here with your customers? Bert Frost: Sure. This is Bert. And we've been fairly consistent with our goals of as we build the supply, which has come on stream and over time, as we add additional locations and then Blue Point, we want to build correspondingly demand. And so we've been working very synergistically with our European customers, North African customers and even in the United States. So today, the premium is $20 to $25 per ton. As demand grows and we don't see the supply, we would anticipate that those will be matched on as demand grows. So very positive for CF. W. Will: But again, Ben, that was never contemplated as being part of the economics when we went with the dehydration compression plant. So the cost of the plant was just under $200 million. The 45Q benefit when we're sequestering at a rate of 2 million tons a year is going to be about $100 million of cash. And then we're adding another roughly almost 40-ish to 50 from product premium. So we're picking up an extra 50% EBITDA that was never initially part of the justification of that project. And so it's kind of nothing but goodness across the board in terms of our -- that project. Operator: The next question comes from Edlain Rodriguez from Mizuho. Edlain Rodriguez: Tony, clearly, you will be missed. That's clearly the case, and good luck with everything. So a quick question, again, maybe for you, Tony, and maybe for Bert. In terms of -- I mean, as you noted, the nitrogen outlook looks very constructive. But if you were digging for possible bogeyman in terms of trying to find something to worry about in the near or medium term, like where would you look? Bert Frost: Well, actually, we do every day, assess the forward market, the spot market, the prompt market, and we try to be constructive in terms of how we build our order book and thinking about the customer base. That's why we're broad-based in terms of ag business, industrial business, export business, and we're levering those along with our terminaling activity, how do we enter and exit the market and play the market. But when you look at the market today, then it's a global market, you're seeing a constrained supply, and that happened through the global conflicts as well as plants coming offline in Saudi Arabia, Bangladesh and a few other places and gas limitations in Trinidad, high-cost gas in Europe and not a lot of new capacity coming online in low-cost areas. So constructively, supply is, I would say, consistent on a limited basis, while demand continues to grow at that 1% to 2% per year. And we're seeing very healthy demand in India, Brazil, North America, and we plan to continue with that level of demand. And so when I look at the negatives, I think what -- it's -- from your side, it's always yes, but yes -- but this is going to be negative. And we've been hearing about China for 10 years. We've been hearing about other issues for years, and we continue to outperform the market. So looking at the negatives, I would say I like the current market. I think the current market is going to extend into 2026. That's as far as we give a viewpoint. But China's demand internally to consume the tons they produce is pretty well tied to that. So these 4 million tons of exports that we see coming out in 2025 is probably needed. And then India hasn't performed on their production internally. They've been importing consistently high levels of urea and Brazil continues to grow. So I have a hard time finding a negative bogeyman out there. W. Will: See, I was -- Edlain, I'm going to give you a little more flip in answer. I was going to say all you have to do is read some of your other colleagues out there in the industry, you'll get kind of where the bogeyman sits, even though we don't really believe a lot of that is accurate. Edlain Rodriguez: So one quick follow-up for you, this is for Tony and Chris. I mean, Tony, you've talked about the valuation disconnect in your shares. Clearly, I guess, like you failed to convince those jittered investors. Like what else do you think Chris -- and Chris, you could answer that, too. What else do you think you will need to do to convince investors of that valuation gap that you've clearly seen? W. Will: I mean we did a European roadshow this summer or this fall and talked to investors over there. And there was a little bit of kind of not understanding why the valuation was what it was, but also -- there was also, frankly, a little bit of just we trade you as part of this broader group of other companies. And when there's a lot of automated trading going on and there's something that affects, like I said, either the ag sector or something else, all of the company's kind of move. And I think there just isn't a recognition that we're -- our financials are very different from most of the companies in that sector. And I think at some point, when there are few enough shares out, we'll start getting a more realistic valuation against what's remaining. And I think, fortunately, we're generating enough cash, and the shares are such a screaming value that I think continuing just to buy shares out of the market is the only way we can eventually get there. Christopher Bohn: Yes. And the only thing I would add to that is when you ask what should we do, it's to continue to do what we are doing. We have exceptional operational performance focused on safety and a conversion to free cash flow that I think we, as a company, reflect on more than anybody else that I see both in the chemical and the agri and really all industries. And so at some point, that has to resonate with people. Cash is king and whether it's buying back the shares, as Tony said, or making high-growth investments that have great return profiles, it will pay off at some point. So it's continuing to execute the way we're executing. Operator: The next question comes from Joel Jackson from BMO Capital Markets. Joel Jackson: Tony, congrats again. A couple of questions. If you brought forward $75 million of maintenance CapEx this year, does that mean that next year, you should be run rating $425 million CapEx on your non-Blue Point network? Christopher Bohn: Yes. Joel, I'll start with that and then if anybody needs to add something to it. But that increase, we were probably a little light on the $500 million. Generally, we start the year running at about a $550 million is kind of the range we're performing in, but it's really affected by 3 things. One, we completed more projects than we typically do at this time. There's a lot more, I would say, smaller dollar projects that are easier to finish during this particular timeframe. And then we also -- part of it was a timing of a nitric acid precious metal purchase, which was quite a bit that we do from time to time. And then we had, to be honest, slightly higher labor and capital costs related to some of the inflation by a few percentage points than what we had been forecasting. So as I look at 2026, I would still use the $550 million as our range going forward for sort of, let's call it, our base CapEx and then adding CF's component of Blue Point on top of that. Joel Jackson: Okay. And I know it's early, very early, and it's great that no significant injuries. But do you know if what's happening in Yazoo City, is this going to be an outage that's order of magnitude days, weeks or months? W. Will: Yes. It's way too early to speculate on that. I would say the ammonia plant was not directly affected. It's still operating as of this morning. But at some point, you run into inventory containments depending upon how long the upgrades are down. So we're thankful that everyone is accounted for and is safe and that really there is only just a couple of very minor injuries, nothing serious or significant. That was our biggest concern. And then also that there is -- the site has been secured. Now we're in the process of kind of really understanding what the condition of things are and what the root cause was, and then we'll start worrying about turning things on after we do a thorough investigation. I would say, Joel, that this is our smallest segment and a relatively small plant in our smallest segment. So we're not focused on kind of potential financial implications at this time. And as Chris said, we're still expecting to be able to produce the 10 million tons of ammonia this year like we had planned on. Operator: The next question comes from Chris Parkinson from Wolfe Research. Christopher Parkinson: Awesome. Tony, I'm not one to always say like say great quarter, but I'll give you a shout out and I'll say great 12 years and through all the debate, agreements and at times disagreements, you've always challenged me. So I'd like to personally thank you for that. It's been a pleasure. A question to both you and Bert. There's been -- and it shows you outside the market to me. There's been a lot of inconsistency of supply throughout the entirety of this year. And you have things in Russia, Germany, Poland, Romania. I mean perhaps this becomes a broader intermediate to longer-term question. But how much of the demand and the price strength do you attribute to the supply side of it versus the fact that demand, I think, broadly speaking, throughout the year-to-date has also been pretty healthy and kind of led to these price rallies at times at nonseasonal time. So I'd really appreciate your perspectives and kind of how to think about '26 in the context of what we've actually been seeing experience and what we've been experiencing in 2025. W. Will: I think the demand piece of the equation is much easier to forecast going forward. And as Bert said earlier, given where the different products are priced at in the corn-to-bean ratio and just looking at what we saw in the way of the UAN fill program as well as fall application of ammonia that's going on right now, we're anticipating the demand side of the equation to be very strong for the planting year of '26. The supply side is a little harder to kind of peel back. And as you said, it's an integrated kind of question in terms of how much it is the S and how much of it is the D. I would say a lot of the places that you mentioned, not so much Russia and Iran, but a lot of the places that you mentioned where there were some supply disruptions are on the relatively higher end of the cost curve. So those tons don't necessarily move things dramatically up in terms of price. But there's no doubt the conditions that we saw this year due to both the S and the D side were quite strong, and that's why our anticipation is delivering a result that's well above what our mid-cycle numbers when Greg talked about it at Investor Day, what he gave, we expect to be well above that. Bert Frost: I think for CF in particular, how we view the world and being students of the world geopolitically, economically and systematically and how it affects our business. Tony touched on the specifics, but we did lose 5 million tons from the market through the conflicts for Iran and Egypt, Algeria and some in Russia and Turkmenistan. And then I think the lack of China or the late coming in of China in June probably pushed the market higher than anticipated. But we're still tight. And like Tony articulated in terms of demand with India pulling 8 million to 9 million tons, Brazil, 7 million to 8 million tons, North America, 6 million tons and Europe producing less and not having the access and the lack of inventory in any major destination market sets up 2026, I think, very well. And we're going to see, I think, higher-than-anticipated corn acres in North America due to just the economic opportunities and impacts, which is constructive for CF. Christopher Parkinson: Got it. And just as a quick follow-up, I mean, Tony, you've gone through your fair share of capacity expansions, both -- well I should say, very large brownfields and other brownfields and everything within your network. What have you, Bert and Chris learned the most from all of those efforts over the last 12 or so years that Chris and his team can essentially apply the Blue Point to perhaps mitigate a lot of the things. Is there kind of a track record of lessons that you can really apply here? Or is it just going to be every project is different at the end of the day? W. Will: Yes. I would say we learned a ton that is currently in direct application of this project, one of which was we did a full-blown FEED study and detailed engineering of this plant before we announced it, went to FID. And so we have a much better perspective of the actual construction hours, and the unit build material lifts than we did when we announced the expansion projects back in 2012. The other thing I would say is the size of our network and the expertise we have across the network and the scale we have brings tremendous skill sets and capabilities to bear against a project like this. And you see that when you're looking at other people that are trying to start up ammonia plants that are years late because they just don't have the capability and expertise running ammonia. And there are a few of those out there right now. And so I think both the fact that a number of the people involved in this construction project were also involved in the big Port Neal, Dville expansions in 2012 through '16 as well as just some of the broader lessons like the engineering and FEED study, I feel very confident in this. And we also have expertise from our partners that we're going to be able to leverage as well with JERA and Mitsui that are equally, if not even more so, comfortable doing very, very large capital projects like this, and they're bringing some of their best resources to bear as well. Bert Frost: I would say, as Chris said in his comments, Tony, being bold and -- but that boldness is based on market knowledge, understanding -- we've looked at plants all around the world. We've looked at a lot of opportunities over the years. We've had some great debates and discussions and disagreements at times on where to go and how to grow. But in the end, have made some very good decisions on that. And Blue Point is a good example. We're the company that does it right, builds -- stays within, I think, our fairway and brings these plants on safely, and they operate above nameplate. And so it's that bold step of taking it when the market is growing and needs these tons. Christopher Bohn: Yes. And the only thing I would add is that's different from last time, Chris, as we've talked about before, is we're going with modular construction. Last time on a stick build time and material, you started to see labor costs get out of control. So I think that was something that we did a lot of evaluation on and also looking at who we're going to select to build those modules. And then lastly, something that we'll do that we did last time that the whole team is working on, which is we begin hiring operators and engineers today, even though the plant will not be up for 4.5, 5 years or whatever. And what that allowed us last time was to get to over nameplate production within a couple of months after start-up, which nobody else was able to do. So again, as Tony said, leveraging our overall network, not just for engineering expertise, but to train operators and other individuals that will be working at these sites. Operator: The next question comes from Andrew Wong from RBC Capital Markets. Andrew Wong: Just echoing everybody else's comments, Tony, congratulations on a very successful career and guiding CF through a lot of market ups and downs. We've seen a lot. So enjoy your next chapter. W. Will: Thank you, Andrew. Andrew Wong: Yes. And so just maybe on the comments you made earlier around the valuation, I think you made some very fair points. So maybe a question for you and also for Chris. Just given the value in shares and buybacks seem to be the path to kind of realize that value, you have a very strong balance sheet. Would there be any consideration for using debt to fund Bluepoint and then maybe using the cash flows and the cash generation to buy back shares? Like would that make more sense right now. W. Will: I think the problem with doing that a little bit, Andrew, is its sort of a onetime sort of benefit that you get and then you're living with much higher fixed costs as you go. And I think one of the things that we've seen in this business is having a balance sheet with low fixed cost and a lot of liquidity gives us opportunities to move when there's things that are available to us like the Waggaman deal, which we did in cash. And so instead of this being a kind of trying to rush an equity swap for debt, which benefits kind of near-term shareholders. We're really playing the long game here, and it's about trying to make sure that we retain all of the long-term operating and strategic flexibility and at the same time, rewarding the truly long-term shareholders who eventually, I think, will start valuing the company properly. But given my perspective, I'm not going to be here in a couple of months. So this is probably -- Chris and Greg can talk about it. Christopher Bohn: Yes. From my perspective, well, just for starters, I think the numbers that Greg presented and where we're seeing this year, where we're seeing next year and even the mid-cycle, we're going to have enough cash to do both at a significant level, just as we've done over the last decade under Tony, where we've been able to grow and also do significant share repurchases. So the ability to do both. I would echo Tony's comments, like having fixed charges in line, having a, I would say, flexible balance sheet is very important when you're in a commodity business. As we're seeing more of our business here go to ratable, more industrial with premiums and things, we can make different decisions from there. But I think the cash flow that we're generating due to the conversion rate that we do allows us to do whatever we want to do really. Gregory Cameron: Yes. The only thing I would add to it is just emphasize the numbers that we talked about today, right? $1.3 billion of cash back to the shareholders for the first 3 months, $700 million in CapEx, so $2 billion, and we have $1.8 billion of cash on hand today. That creates incredible flexibility for the company. Andrew Wong: Okay. Understood. And then maybe just one on costs. I think SG&A looked still just a little bit elevated for the quarter, obviously, not hugely, but just curious if there's anything there. And then also on just some of the non-gas costs, I suspect that the turnarounds this quarter contributed to some of that. Just I'm wondering if there's anything to flag or anything to add. Gregory Cameron: It's Greg. On the SG&A side, we continue to just update our bonus accrual for the company for the year, and there was a small catch-up as well as a plan for the third. So that's the elevated level on the SG&A. On the non-gas side of production cost, really the one that stuck out to me as I climbed through them was really around ammonia in that segment. And the point to make there is we did have an increased mix around our purchased tons, which obviously come into the system at a higher value than what we can produce them at, but it also contributed to gross margin dollars in the ammonia segment being up 30% year-over-year. So other than that and the timing of some turnarounds, there was really nothing to speak of in the non-production cost. W. Will: Yes. And on the purchase front, just to remind you, the tons that are produced in Trinidad, we purchased, and we realize the value in Trinidad and then that comes through equity earnings instead of directly into the ammonia segment. And then into the U.K., we're purchasing ammonia and then upgrading it to a margin, and then that's going to come through kind of our other ops segment. But the price because we're buying it at market shows up in COGS for ammonia. So that kind of helps dimensionalize what Greg was talking about. Operator: The next question comes from Kristen Owen from Oppenheimer. Kristen Owen: I do want to start with a more strategic long view here, just given some of the prepared remarks about the valuation disconnect. And given your comments on whether it's CBAM, where those Blue Point ammonia tons will go, even some of your comments on DEF, help us understand if we're looking at this business model in that 2030 framework, how much exposure really is ag anymore versus some of these more industrial applications? And how should we think about that mix contributing to that sort of mid-cycle framework? W. Will: Yes. I mean ag is still going to represent the lion's share for the foreseeable future of where we sell our products. And the simple reason for that, Kristen, is that the margins in ag are far superior to the margins in industrial. We could move all of our products into the industrial marketplace, which tends to be ratable and then -- but we would end up doing it at a significantly lower price point, and we wouldn't get the benefit of our distribution and logistics network by doing so. And so some of the -- even though it is kind of "a little bit less predictable," it's at a lot higher volatility. And I'm going to refer back to, I think, sort of something I've heard attributed to Warren Buffett, which is give me a 15% spiky return over a 10% flat, we'd way rather have a spiky to the upside return profile associated with serving the ag marketplace than we would the other way. Now we're starting to build some and that will continue to increase. That does tend to be a little more ratable with predictable margin structures. But we're going to be -- we're 75%, 80% in ag company today, and it's going to be like that for a very long time. Bert Frost: I think you have to also think about how our company is structured with our unique distribution and terminaling assets that are throughout the Midwest on the best farmland in the world with the lowest cost access logistically, if you compare our cost to get to the middle of Iowa for, let's say, $30 for urea against taking that to Mato Grosso from Paranagua or Santos, it's significantly cheaper and the yields are significantly better and the farmer economics is better as well. On top of, we have low-cost gas in those regions. So we are structured to serve the ag business, which, as Tony mentioned, is spiky but profitable. But we balance that with this industrial book and export book that places us in, I think, globally, a very unique position, and we're benefiting from that. Kristen Owen: Sure. And I appreciate that. And perhaps a little clarification on my side. I'm not suggesting that there's some major move out of the ag markets. It's more just how much more meaningful can the earnings potential be on the industrial side given the uplift of some of these markets. So perhaps a slight clarification there. And while I'm here, I'll just ask my follow-up question. Just given the cost curve in China, a little bit more affordable to keep those a little bit more domestic affordability. So just any thoughts on China exports in 2026? Bert Frost: We've been fairly consistent regarding China in that 3 million to 5 million ton range, and that's how they seem to perform. We're expecting them in 2025 to be in the 4 million to 4.5 million ton range. And they've announced this additional export quota. They haven't announced their program for 2026, but I would just bet on the same, probably coming out in sometime in Q2 with exports, May, June and exporting into the early part of Q4. Because their domestic market is so big, their domestic demand, both ag and industrial and where they are capacity-wise and operationally, that 4 million to 5 million -- 3 million to 5 million tons of exports makes sense as you build kind of what their structure should be. W. Will: Yes. Kristen, I'll just add one thing back to your first question. If you think about the 45Q tax credit associated with both Dville and Yazoo City when it comes online, we'll probably be close to $150 million of cash, and that's not net of taxes and everything that is not dependent upon where market pricing is for any of our products. Between what Bert is able to realize in price premium and some of the other initiatives we have like selling carbon credits, there could be another $25 million to $50 million of additional value that accrues to us that is also not tied to the market. So you're starting to get to the point where there's probably -- could be $200 million-ish a year that's coming in that is very ratable and predictable and just part of the base then that, everything else kind of rides above. Operator: The next question comes from Lucas Beaumont from UBS. Lucas Beaumont: Good luck with your retirement, Tony. Congrats on your career [indiscernible] the others. Yes, I just wanted to kind of ask you about Blue Point. So you guys noted that you'd procured all the long lead time equipment now. So kind of just where did the costs come in there compared to the budget? Kind of what percent of the project spend was that. And kind of just remind us of any cost escalation components that are built in there for like inflation and tariffs, et cetera, between now and sort of when the delivery occurs? Christopher Bohn: Yes. Thanks. This is Chris. Well, for starters, I would say the projects were way too early in the phase to say we're under significantly or we're slightly over or whatever. I would say we're right where we thought we'd be. The products that we -- or the equipment that we ordered as long lead time is like your boilers, your compressors, different equipment like that. The modular equipment, which is going to be the significant dollar amount that we'll be selecting the modular yard here shortly. And those have been fixed fee bids in which we had -- which was part of our overall $3.7 billion. So that part, we still feel very confident about. As we look at, I think, your question probably with tariffs, I mean, with the Supreme Court hearing arguments right now, there's still a lot of uncertainty what happens. A lot of the equipment that would be tariffed is most likely going to be coming in, in 3 years from now. So there's still quite a bit of time frame, and I'm certain more will change between now and then. But what I would say is we forecasted quite a bit into tariffs. We're slightly higher than that, that's going into our $500 million contingency, but not anything that would have us concerned at this time. I think additionally, there potentially could be upside dependent on what the Supreme Court rules, but I'm certain there would be some reactions by the administration as well on additional tariffs and other areas. So again, tariff side, a little uncertain, but we feel like we're covered there. Long lead items, those are in path, but those are more some of the more engineered complex items like compressors and such. Lucas Beaumont: And then I guess just on the pricing outlook, I mean, you guys are kind of talked at length about it. I mean, ammonia has been very tight. The pricing is strong. UAN and ammonia imports are sort of running below trends heading into the fall and spring. So I mean the near-term setup looks quite attractive. I mean, at the same time, the TTF futures have sort of been coming off the past couple of months have sort of gone from 12 and looking flattish year-on-year, sort of low 10s kind of now down about $1.50. So I guess just how do you kind of see those 2 factors resolving each together as we go through '26? Or I guess, if you don't think they'll resolve, then why not? Christopher Bohn: Maybe I'll start with the gas side with the TTF -- I mean, TTF has come off about $1. So you're still sitting near $11 on the forward strip with that with the U.S. sitting anywhere from $3.50 to $4. So you still have that differential that is very constructive. As Greg said, longer term, when we get into '28, '29, we may see that contract some, but not nearly to the level just given that the projects being built have to have return profiles with those as well and the additional demand that will be drawing on LNG. So from a constructive standpoint, we still think the gas differential is going to be very strong even if it comes in $1 or $2 from where it is today. Bert Frost: Regarding the market and the tightness we're experiencing today, with Saudi, the plant -- the ammonia plant being down and the late start of some of these new capacities, as well as Trinidad and then suboptimally operating in Europe. The ammonia market is, I think, going to maintain tightness until these new plants come on, and we'll see what happens. But the United States today is at a net import negative on UAN and ammonia, probably balanced on urea. And so again, looking around the world where we participate and where we have communication, you have a tight inventory position in all of the destination markets. And so looking at gas and costs and kind of upside, I think we roll very well into 2026 and probably through the first half easily in a positive way. Operator: The next question comes from Vincent Andrews from Morgan Stanley. Vincent Andrews: I'm actually late to something else, but I wanted to stick around and just congratulate you, Tony and say thank you and good luck in the future. W. Will: Thank you, Vincent. I appreciate that. Operator: The next question comes from Matthew DeYoe from Bank of America. Matthew DeYoe: Tony, congrats on the run. I know I didn't cover you directly for much of the time, but Steve always held you with the highest regard. So I know that goes for the rest of us here at Team BofA. I wanted to ask, I guess, a little bit on the slide where we talk about like ammonia expansions and closures. Certainly, we don't disagree that a number of European plants need to close chemicals across like a lot of chains. But if we look at that 3 to 4 number, I mean, what's the -- how much of that has been announced? What do you think the rates are that those plants are running? And then like I just know that closing plants is expensive and not really done easily. So I'd love a little bit more kind of commentary around your outlook for that capacity. Christopher Bohn: Yes. So this, as you may recall, is a study we did about 1.5 years ago where we analyzed every ammonia plant in Europe based on how its ownership structure was, what its maintenance structure, what its cost structure was going to be to try to identify which of those plants would come off. In Europe used to have about 48 ammonia assets that we're operating and how we have it leveled was red, yellow, green. And what we've seen is the red plants have come off as we expected. And in fact, we're probably ahead of that particular schedule with a number of curtailments and shutdowns that are occurring in Europe from that. But that 48 assets today is probably around 30 assets or maybe 31 assets. And we expect that to drop another 4 to 5 assets over the next couple of years. You have to remember, the decision we made in the U.K. was because we had a significant turnaround coming forward. And these turnarounds are $50 million to $60, so when you're entering into that, you have to make certain you're going to get that return on that cash. Additionally, where TTF is today at the $10 to $12 range makes it difficult to be producing throughout 12 months of the year for really selling in what may be 3 months a year, maybe 4 months a year. So you're making a risk decision based on that. So what we're seeing today is with some of the pricing, there's just a little bit more curtailment going on. But eventually, through our study and what we've seen, you're going to see some of those plants continue to go off. So the European side, we feel very confident that, that 3 million to 4 million is going to come off. Now whether all that gets imported as net ammonia or as upgraded product, that will be determined. But I think the other aspect here is, as Bert mentioned, there is just not a lot of new supply coming on. we have visibility of what plants are being built. And with the exception of ours and the 2 in the Gulf Coast that are about to come on probably sometime in 2026 and one in Qatar, there's really not much coming on. And the other plants that are coming on are upgrade plants that are consuming ammonia and making the ammonia market even tighter. So what we see is a strong constructive gas differential where we'll make money off of that versus TTF. And then we also see a very tight S&D balance that not only continues here into 2026 but really goes all the way to 2030. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Martin Jarosick for closing remarks. Martin Jarosick: Thanks, everyone, for joining us today. We look forward to speaking with you at future conferences. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome, everyone, joining today's EDAP TMS Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to John Fraunces with LifeSci Advisors. Please go ahead. John Fraunces: Good morning. Thank you for joining us for the EDAP TMS Third Quarter 2025 Financial and Operating Results Conference Call. Joining me on today's call are Ryan Rhodes, Chief Executive Officer; Ken Mobeck, Chief Financial Officer; and Francois Dietsch, Chief Accounting Officer. Before we begin, I would like to remind everyone that management's remarks today may contain forward-looking statements, which include statements regarding the company's growth and expansion plans. Such statements are based on management's current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in such forward-looking statements. Factors that may cause such a difference include, but are not limited to, those described in the company's filings with the Securities and Exchange Commission. Now I'd like to turn the call over to EDAP's Chief Executive Officer, Ryan Rhodes. Ryan? Ryan Rhodes: Thank you, John, and welcome, everyone. The third quarter of 2025 marked another strong quarter for EDAP as we continue to execute on our mission to make Focal One the standard of care for localized prostate cancer. With global revenues of USD 16.1 million, this is the second consecutive quarter with record overall quarterly revenue for the respective period. Additionally, this is also a record for HIFU revenue for the third quarter, which reflects consistent commercial execution, expanding clinical adoption and growing recognition of the value Focal One Robotic HIFU brings to patients, physicians and hospitals. During the quarter, our HIFU revenue reached USD 7.7 million, representing a 57% increase compared to the third quarter of last year. This is consistent with our previously announced strategy of focusing our investments in the company's core HIFU business. We recorded 8 Focal One placements, including 6 capital sales and 2 operating leases. This represents growth of 167% as compared to the same period 1 year ago, reflecting the growing confidence hospitals have in adopting Focal One Robotic HIFU as an integral cornerstone of their prostate cancer program. With new placements this quarter at the University of Virginia and the University of Michigan, Focal One has now been integrated within 21 of the 35 Society of Urologic Oncology, or SUO approved fellowship programs, representing 60% of all such academic centers nationwide. Our growing presence across these leading urology centers is instrumental in training the next generation of urologists, while accelerating clinical awareness and adoption of HIFU focal therapy as a mainstream treatment option for prostate cancer. Focal One procedures in the U.S. grew more than 15% year-over-year, making a return to double-digit growth. This acceleration reflects the growing clinical adoption of Focal One combined with the impact of our sustained investment in market access initiatives. We are seeing meaningful progress in reimbursement coverage with commercial payers, particularly among Medicare Advantage providers, which is driving broader patient access and stronger hospital economics. On the clinical front, an important peer-reviewed scientific study was recently published in the Journal of International Urology and Nephrology. This study concluded that HIFU delivered non-inferior 10-year oncological outcomes as compared to external beam radiation therapy in patients with Stage II prostate cancer. Both the overall survival and cancer specific survival rates were higher in the HIFU group with a statistically significant overall survival benefit favoring HIFU in early-stage disease. This is an important addition to the growing body of evidence supporting HIFU in the treatment of prostate cancer. While both the HIFI and FARP, or FARP studies, are already showing strong midterm cancer control as compared to surgery, this new publication further validates HIFU with favorable long-term follow-up data compared to radiation therapy. Together, these results continue to strengthen the clinical foundation for the Focal One platform and HIFU's role in the treatment of localized prostate cancer. On the reimbursement front, the latest hospital and physician payment rules released by the Center for Medicare and Medicaid Services, or CMS, continue to reinforce the important use case of HIFU, thus providing hospitals and physicians with a clear and predictable Medicare reimbursement pathway. In addition, several commercial payers, both local and national, has started to routinely approve individual claims around the country, particularly within Medicare Advantage plans, further reinforcing the positive economics driving adoption. I will now briefly touch on our development in focused areas to expand into new clinical indications. We are making meaningful progress in our benign prosthetic hyperplasia, or BPH clinical development program, which represents another major growth opportunity for the company. While our combined Phase I/II multicenter study is progressing to plan in Europe, we are proud to report Institutional Review Board, or IRB approval for the U.S. BPH clinical study in partnership with the Icahn School of Medicine at Mount Sinai in New York City, a prestigious academic hospital and recognized leader in urology innovation. This study will evaluate use of Focal One Robotic HIFU for the treatment of BPH, building further on our clinical experience in Europe. Our goal is to demonstrate that Focal One's precision and image-guided approach can offer an effective noninvasive tissue-sparing alternative to conventional treatment options. We expect the first patient to be enrolled in this study before the end of the year. I would now like to provide a brief update on our endometriosis clinical evidence and commercialization progress. Starting first with clinical evidence. On October 20th, Professor Dubernard, the principal investigator of the Phase III randomized controlled trial, previewed the latest clinical data in the plenary session on endometriosis at the Annual Meeting of the European Society for Gynecological Endoscopy, or ESGE. As previously announced, the double-blind Phase III RCT compared patients treated in the HIFU group with patients assigned to a sham treatment group. Patients treated in the HIFU group reported a significant improvement across their various symptom scores at 3 months. Such improvements were maintained at the 1-year follow-up. Over the same period, the majority of the patients in the sham group returned to baseline symptom levels, similar to when they were enrolled in the beginning of the study. After unblinding, over 85% of the patients from the sham group when given the option, elected to undergo a Focal One HIFU procedure to treat their condition. As noted at 3 and 6 months post HIFU treatment, this group reported a significant improvement of their symptoms. These patients continue to be monitored as part of a long-term follow-up clinical study. On the commercial front, we are actively working with leading European centers in a limited launch phase. The goal is to establish a solid foundation to enable the expanded adoption of Focal One HIFU as a noninvasive treatment option for women suffering from deep infiltrating endometriosis. Finally, during the quarter, our teams maintained a strong visible presence across multiple global scientific urology meetings. These meetings allow us to showcase our latest Focal One i Robotic HIFU platform as the leading focal therapy technology. Urologists were able to attend numerous compelling presentations from world-renowned academic users on both the positive clinical benefits and the supporting scientific outcomes. Of particular importance was the World Congress of Endourology and Uro-Technology, or WCET meeting held in Phoenix, Arizona. This meeting featured a Focal One master class led by expert users as well as a semi-live Focal One procedure. During this event, Focal One received the 2025 Industry Award for innovations in Endourological Instrumentation. This prestigious international award given by the Endourological Society acknowledges our innovation leadership in Robotic HIFU technology. Focal One is the first focal therapy technology to receive this distinguished award. I will now turn the call over to Ken to review our third quarter results. Ken Mobeck: Thank you, Ryan, and good morning, everyone. For conversion purposes, our average euro-dollar exchange rate was $1.16 for the third quarter of 2025. As Ryan mentioned earlier, our record revenue for the third quarter was driven by significant strength in our core HIFU business, which grew 49% over the third quarter of 2024. Growth in our HIFU business was offset by expected continued decline in our noncore distribution and ESWL businesses, which declined by 16% in Q3 2025 versus Q3 2024. Total revenue for the third quarter of 2025 was EUR 13.9 million, an increase of 6% as compared to total revenue of EUR 13.1 million for the same period in 2024. Total HIFU revenue for the third quarter of 2025 was EUR 6.7 million as compared to EUR 4.5 million for the third quarter of 2024. The 49% year-over-year increase in HIFU revenue was driven by 6 Focal One capital sales in the third quarter of 2025 versus 3 capital sales in the prior year period as well as a 26% year-over-year increase in Focal One treatment-driven revenue. As mentioned earlier, Focal One procedures in the U.S. grew 15% year-over-year. For the 9 months ending September 30, 2025, HIFU revenue was EUR 21.3 million, an increase of 42% over the same period in 2024. Total revenue for the 9 months ending September 30, 2025, was EUR 43.5 million compared to total revenue of EUR 43.8 million for the same period in 2024. Gross profit for the third quarter of 2025 was EUR 6 million compared to EUR 5.2 million for the same period a year ago. Gross margin was 43% in the third quarter of 2025 compared to 39.4% for the same period a year ago. The increase in gross margin year-over-year was primarily due to the strategic shift to our high-margin HIFU business segment. Gross profit for the 9 months ending September 30, 2025, was EUR 18.5 million compared to EUR 17.5 million for the same period in the prior year. Gross margin was 42.5% for the 9 months ending September 30, 2025, versus 39.9% for the same period in the prior year. Operating expenses were EUR 10.9 million for the third quarter of 2025 compared to EUR 11 million for the same period in 2024. Operating expenses were EUR 35.2 million for the 9 months ending September 30, 2025, compared to EUR 34.3 million for the same period in 2024. Operating loss for the third quarter of 2025 was EUR 4.9 million, approximately EUR 1 million lower as compared to the operating loss of EUR 5.8 million in the third quarter of 2024. Operating loss for the 9 months ending September 30, 2025, was EUR 16.7 million compared to an operating loss of EUR 16.8 million for the 9 months ending September 30, 2024. Excluding the impact of noncash share-based compensation, operating loss for the third quarter would have been EUR 4.1 million compared to an operating loss of EUR 5 million in Q3 2024. Net loss for the third quarter of 2025 was EUR 5 million or EUR 0.13 per share, a EUR 1.4 million improvement as compared to a net loss of EUR 6.4 million or EUR 0.17 per share in the same period a year ago. Net loss for the 9 months ending September 30, 2025, was EUR 17.7 million or EUR 0.47 per share as compared to a net loss of EUR 17.1 million or EUR 0.46 per share for the 9 months ending September 30, 2024. Turning to the balance sheet. Inventory decreased to EUR 13.8 million in Q3 as compared to EUR 15.5 million in the prior quarter. The sequential decrease in inventory was due to continued efforts and focus on just-in-time inventory management. Total cash and cash equivalents at the end of Q3 2025 were EUR 10.6 million as compared to EUR 16.3 million in the prior quarter. The sequential decrease was driven primarily by the cash used in operating activities to support strategic investments in HIFU. As announced earlier, we closed the credit facility with the European Investment Bank, which further strengthens our balance sheet. We are pleased to report that the first tranche of EUR 11 million, approximately USD 13 million was received and will be reflected in our Q4 and full year 2025 financial statements. I will now provide a brief update on tariffs. Based on the latest information, we are still forecasting a 15% tariff impact for all goods transferred between France and the U.S. On a year-to-date basis, the tariff impact to our business has been approximately EUR 300,000, and we are currently estimating a full year impact of EUR 900,000. We continue to monitor the potential impact of U.S. tariff policies on a go-forward basis. In closing, during the quarter, we improved manufacturing efficiencies, optimized supply chain performance and managed our operational spend. We are also making significant progress in our transition to a new supplier regarding our ultrasound imaging scanner and expect to see the cost reduction impact in the upcoming calendar year. These achievements lay the foundation for future growth. I would now like to turn the call back to Ryan for closing comments. Ryan Rhodes: Thank you, Ken. With respect to guidance, we are maintaining our financial guidance for 2025. Our core HIFU business revenue is expected to grow within the range of 26% to 34% year-over-year and our combined noncore ESWL and distribution business revenue is expected to decline within the range of 25% to 30% year-over-year. As we progress through the fourth quarter, our priorities remain clear: first, accelerate adoption and utilization across our Focal One installed base; second, continue expanding market access and reimbursement coverage; and third, maintain a disciplined investment approach specific to market growth opportunities. With the return to double-digit U.S. procedure growth and expanding presence at top academic centers as well as leading community hospitals and the recent recognition of our innovative Robotic HIFU technology, we drive forward in Q4 2025 with strong momentum and clear visibility for continued growth across our HIFU business. With that, I will now turn the call over to the operator for questions. Operator? Operator: [Operator Instructions] We'll take our first question from Charles Wallace with H.C. Wainwright. Charles Wallace: This is Charles on for RK. So, I guess the first question I had was on the EIB deal. Could you maybe give a little bit more color on how these proceeds are going to be used and what was the kind of the main reason to do this? Was it just to provide more financial flexibility? And do you plan to use these funds strictly for the U.S. business or also in the international business? Ryan Rhodes: Yes, great question. With EIB, we've been open about our investment strategy, both in various areas to include product development which is inclusive of R&D, but also in clinical development as we're working on expanding new indications. And so really, it's more in those operating areas. And some, obviously, in the commercial domain, we make appropriate investments where needed. But really, it's across those 3 areas: product development, inclusive of R&D; clinical development; and some additional focus in commercial growth. But it is centered around our HIFU core business. Ken Mobeck: And to follow up, to answer the second part of your question, why the EIB. We did a lot of research and analysis. And given where the stock has been trading over the last 180 days, we thought this was the most attractive financing option to really allow us to further invest in HIFU, as Ryan mentioned, with no short-term dilution to the stock. Charles Wallace: Great. And then I guess you mentioned the double-digit increase in U.S. Focal One procedures. Can you comment on how many of these procedures were covered? And then also, as you work to expand coverage, do you expect the procedure volume to grow? Ryan Rhodes: Yes. So again, we have a Category 1 CPT code. Some of these cases are obviously Medicare patients. Some are also noted in, as I referenced, Medicare Advantage plan patients and some are commercial patients. So it's a little bit of a mix. I think the one area that I commented on was the fact that we saw improvement across the payers that represent Medicare Advantage plans. And that was a positive sign and a positive trend we've been on. And again, we believe looking forward, we will continue to drive momentum and activity across Medicare Advantage plans. Charles Wallace: Great. And maybe one more question, if I can squeeze in. Could you remind us -- I think the third quarter is typically seasonally soft. Can you remind us what you expect in the fourth quarter? Ken Mobeck: So when we look to the fourth quarter, as Ryan mentioned, we're reiterating our guidance for the year. And given what Ryan talked to you about, our guidance remains between $58 million and $62 million for CY '25. So our -- where we don't give quarterly guidance, we feel confident that our Q4 number will be in that range to help us hit those year-end targets. Operator: There are no further questions in the queue. I will now turn the call back over to Ryan Rhodes for any additional or closing remarks. Ryan Rhodes: In closing, I want to thank everyone again for joining us on today's call, and we look forward to seeing you at the upcoming global investor conferences. These include the UBS Global Healthcare Conference being held next week in West Palm Beach, Florida; the Jefferies Global Healthcare Conference in London being held the week of November 17th, and the Piper Sandler 37th Annual Healthcare Conference being held the week of December 1st in New York City. Thank you. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Grant Howard: While they're doing that, I think we're going to get started. Good morning, afternoon, and welcome to the CEMATRIX Q3 Financial Results Webinar. The results were very good. And presenting today will be Randy Boomhour, who's the President, CEO of CEMATRIX; Marie-Josee Cantin, who is the CFO; and out of Chicago is Jordan Wolfe, who is the President of MixOnSite. So again, congratulations. And with that, Randy, I'm going to turn it over to you and the team. Randy Boomhour: Thank you, Grant. Much appreciated. We're really excited to be here with all of you today to share with you some information about our company and our financial results for Q3 2025. As always, there's a disclaimer here. We will make some forward-looking statements so that you understand the context of those. We always like to start with this slide, which I kind of view as a bit of an executive summary, key investor highlights, key things that investors should know. So number one is we're an innovative cellular concrete solutions company, a leading provider of lightweight, cost-effective, durable cellular concrete for infrastructure projects. We have a strong competitive advantage that we'll cover off in an upcoming slide and work primarily as a subcontractor for major North American general contractors. We're in a position of financial strength and overall growth trend. Sorry, I had trouble getting that out. We've had revenue cumulative annual growth of 24% since 2017, which is very impressive. Our margins have been improving. We've met our record for -- a record 2025 commitment already in Q3, and 2026 is forecasted to be another good year. I like this chart here on the right here because it really shows kind of the key metrics that we follow, 2023 being a record year. 2024 is a step back year, but still profitable and then 2025, focused on profitability and delivering a record year already. So, there's a significant market opportunity in front of us. We're an industry leader. The global cellular concrete market is significant and is expected to continue to grow. And there's just increased tailwinds around infrastructure spending, both in Canada and the U.S. And we see more and more the federal and provincial and state budgets just adding more fuel to the fire of increased infrastructure spending. So, I'm going to hand it over here to Jordan next, who's going to cover the next couple of slides. Jordan Wolfe: Thanks, Randy, and hello, good morning and good afternoon, everybody. So, I'm going to just take you a little bit through the team and corporate time line. We are just -- management was introduced just a moment ago by Mr. Howard. So, we are also led by a Board of Directors, including Minaz, Patrick, Steve, Anna Marie and John, who offer valuable insight with all of their experience across many different industries. Insider ownership in our company is strong, roughly 10% of the 150.2 million outstanding shares, 166.8 million fully diluted. The largest insiders include myself with 12.2 million and Randy with 1.8 million shares. In the lower right corner, we like to show this company time line. It just kind of shows you everything that we've been through as a company from being founded in 1999, going through many different scenarios, challenges from financial crisis, oil price crashes and over the last 5 years with the pandemic, the Ukraine outbreak causing global shortages of cement. We've been through it all, but here we are persevering and flourishing with a record level of earnings. So next slide, please. All right. So, let me give you a little recap or explanation, cellular concrete one-on-one, if you will. The product description is -- cellular concrete is basically made mixing water, cement and a foaming agent that looks like an everyday Maxima shaving cream. The foam agent basically creates a bubble inside the mixture, and it holds its shape long enough until the cement and water harden around it, leaving a cellular structure that has many different air pockets and causes a lightweight effect. The key properties include being cost effective and it is low density and lightweight. It has a high bearing capacity. It's extremely pumpable. We've pumped upwards of 14,000 feet before to give you an idea. It's highly flowable, self-leveling, self-compacting, has thermal insulating properties that help out greatly in colder climates. It's very durable and it's very excavatable. And these are just key properties. There's others as well that I'm not mentioning. Primary applications would include a lightweight engineered fill. This is the bulk of the work that we do, otherwise known as load reducing fill and has many different names. One of those would be MSE or mechanical stabilized earth, retaining wall backfill. Others include lightweight insulating road subbases, flowable self-compacting fills, pipe culvert abandonments, tunnel and annular grout applications, shallow utility, foundation installations. And again, this just names a few. There's several others that we rarely get involved in, like roofing and flooring applications as well as underwater placement applications. So this just, again, highlights the primary applications that we do. And our competitors -- our customers and competitive advantage. Our key customers would include some of the largest companies, general contractors and engineering companies in the North Americas, including your Bechtel, Kiewit, PCL's, I could go on and on. We pretty much work for them all. We'll occasionally contract directly with an owner, but the vast majority of jobs that we work on, we are always a subcontractor. And for our competitive advantages, our reputation is probably the most important. We've been successfully delivering cellular concrete solutions on time and over budget -- on time and on budget for 25 years. I often tell people that our production team is actually one of the greatest assets of our sales team because we do so well in the field. It really speaks volumes when general contractors and owners come to us or come to GCs and say they'd like to use MixOnSite CEMATRIX, Pacific International Grout because of our experiences. So it's really important. And that reputation, of course, is built on our team and experience having 200 years -- over 200 years of experience in our field across our employees. Our equipment gives us a great advantage being the largest fleet of technologically advanced equipment producing cellular concrete, and we actually, with our existing equipment, have capacity to grow. Our size and scale helps tremendously. We have multiple locations coast-to-coast, and we can successfully complete projects across Canada and U.S. in a manner that our competitors are not quite fit to do. And we're more sustainable, generally more environmentally friendly than legacy products that we replace. And just to give you an idea, one ready-mix truck that can come down the road with 10 cubic yards, we can take that 10 cubic yards and turn it into 35, 40, 45 when we're doing wet mix applications. The same is true when we do dry mix applications. We can take one tanker that delivers roughly 50 tons, and we can turn that into around 125 cubic yards of material depending on the mix design. But you can imagine having only 1 truck versus 12 trucks on site, not only does it help be more environmentally friendly, but it also adds a safety element as well, having less construction traffic on site. And with that, I'll pass it off to Randy. Randy Boomhour: Thank you, Jordan. Really good job. One of the questions we get quite a bit is just how big is this opportunity? How big is the market? And it's very tricky to nail it down. Really, the best way to do it would be to add up every single bid that came across cellular concrete and across all the markets and across all the applications, but that's practically impossible to do. So, what happens is third parties estimate the size of this market. And so we've seen estimates from as low as $4 billion from Market Research Future to as high as $27 billion from Allied Market Research. Now that would be worldwide. It would be every single application for cellular concrete, even some that we don't pursue like roofing and flooring applications that Jordan mentioned. But I think the bottom line is the opportunity is pretty big, and then all these sources agree that the market for cellular concrete is growing. And then if you look at the market for other lightweight fills or competitive products, that market is even bigger, which means the market that we can capture is a multiple of the sizes that we would estimate. The other thing that we chat about already, and it's really important is infrastructure spending. So, infrastructure in Canada and the U.S. is aging. It needs to be repaired and replaced. Populations continue to grow, requiring new infrastructure and also placing additional load on existing infrastructure. And so because of that, spending on infrastructure is expected to continue to increase now and into the future. And we see this kind of budget cycle after budget cycle for governments. Even the Canadian government recently just came out this week with a focus on putting more investment into infrastructure spending. Now it's really hard for us to tie those bills to very specific cellular concrete projects. But we know in general, with there's more money spent on infrastructure, that's going to be ultimately more opportunities that pop up that require cellular concrete based on the properties of the material and based on the applications and geotechnical needs of the situation. So just a quick summary here of our financials. MJ is going to get into the details of Q3 here, but I just wanted to highlight, we are forecasting a record year for 2025, and we're very careful about the words we choose. We didn't say we're forecasting a record revenue year. We forecast a record year, and we've hit that achievement already in Q3 by delivering EBITDA that's higher than our best year ever of 2023. Despite stepping back in 2024, we have an overall growth in revenue. So the company continues to grow. So the cumulative annual growth rate of the company since 2017 has been 24% per year. And we should be -- we will grow revenue this year as well. We have a positive bottom line, and we're generating cash. So, we've got a record $5.9 million in 2025 year-to-date adjusted EBITDA, and we've got a record $5.6 million of 2025 year-to-date cash flow from operations before working capital adjustments. We have a healthy balance sheet with low leverage. We've got $9.9 million in the bank and no long-term debt at the end of Q3. So the things that are important to understand about our business is that the revenue growth will be lumpy. Everybody I talk to would love to see a staircase, but that's just not the way it works in construction and it's not the way it works, especially in specialty construction because we don't control when our scopes of work start and stop. And so because of that, our revenue can move quite a bit or be variable quite a bit based on when large projects start or stop. But the overall trend, as we've mentioned many times, is one of growth. For our business, because we operate primarily in Northern climates, it's a seasonal business. So, we're going to have higher revenues in warmer months. And I think we've all experienced that where construction activity picks up in the summer and into the fall. If you look at the last 5 years, we've averaged 18% in Q1, 18% of our revenue in Q2, 36% in Q3 and 28% in Q4. Now obviously, each year is different. They're not all 18%. They're not all 36%, but it gives you an idea of how our revenue is spread out through the year. We're a specialty contractor. So because of that, margins tend to be higher than general contractors, but we have more bench time and fixed costs to cover. So, that's an important concept to understand. Project size impacts margins. So when we bid larger projects, there is more competition for those for obvious reasons. Everybody wants to win the big ones. And then when that happens, the margins that we recognize on those projects will always be lower because of that extra competition. And we do have excess capacity. We have excess capacity in our equipment that Jordan mentioned quite a bit, where we could easily do 2 to 3x the revenue we're currently doing and we have excess capacity in our staffing levels. We can't do 2x revenue with existing staff levels, but we could do 2x revenue without a significant increase in staffing. So, I'll hand it over to MJ, who will go through our Q3 financial highlights. Marie-Josee Cantin: Thanks, Randy. So let's talk about revenue. So revenue for the quarter was $15.3 million compared to $10.1 million in 2024. That's a 51% increase. For the first 9 months of 2025, we did $32.6 million in revenue compared to $25 million last year. So, that's a 30% increase. Gross margin is up at 34% compared to 27% last year for the quarter. That's a 7% gross margin increase. And year-to-date, we had gross margins of 33% compared to 26%. That is also a 7% gross margin increase. Operating income is $2.8 million in Q3 compared to $700,000 last year. Som that's a $2.1 million increase. Year-to-date, we did $3.9 million in operating income compared to a loss of $100,000 in 2024. That's a $4 million increase. Adjusted EBITDA was $3.5 million in Q3 compared to $1.4 million in 2024. That's a $2.1 million increase. And as Randy mentioned, we have a record adjusted EBITDA year-to-date at $5.9 million compared to $1.8 million, which is a $4.1 million increase. Cash flow from operations, both positive for the quarter and the year, $3.2 million in Q3 compared to $1.3 million in Q3 of last year. That's a $1.9 million increase. And year-to-date, a record as well, $5.6 million year-to-date compared to $1.7 million year-to-date last year. So, that's a $3.9 million increase. So, we ended up the quarter with almost $10 million in cash, which is similar to what we had at the same period of last year. Looking at these graphs. So on the left-hand side, you can see our revenue and the trend line is growing, as Randy mentioned. So just as a reminder, in teal, you see full-year numbers and in orange, you see year-to-date. So, we basically did quite the same as last year and past previous years. So, our revenue line is growing, which is great. Gross margin percentage is improving over the last few years. So year-to-date, it was 33%, largely due to the higher revenue that we experienced, as well as key contract structure that we'll talk in a minute. And maybe what can I -- sorry, sorry. All right. 32% apologies for that. Debt and interest were -- debt and interest, we have no longer debt on our balance sheet, but we have an equipment financing loan for $1.6 million. So aside from that, there's nothing else. We've come a long way since 2017. In our share structure for Q3, we had 150.2 million shares outstanding, 5.9 million of options, 2.4 million in RSUs and 8.2 million in warrants. These warrants are set to expire at the end of July 2026. So fully diluted, we have 166.8 million financial instruments. Let's talk about our backlog a little bit. So, we had announced $43.6 million in new project awards since the beginning of the year. In Q3 only, we announced $17 million, and these awards are for various applications for our product. Our backlog is growing. It continues to grow with sales success. So at the end of the quarter, we had a backlog of $75 million, and that's compared to $69.6 million at the end of the quarter last year. So, that's a $5.6 million increase. So, I'll pass it back to Randy. Randy Boomhour: Thank you, MJ. So, one thing that we want to highlight for investors from our perspective, the numbers are the numbers. But I think when you're trying to do comparisons, it's important to understand this. So, we had a large contract in 2025 that was going on through Q3 and continues into Q4, where we made the arrangement to allow the customer to buy the cement themselves and the deal was that we would make the same amount of gross margin dollars. So because of that, our revenue and cost of sales was lower than would be versus kind of comparable contract structure and our gross margin percentage was higher. So in this chart here below, we've kind of shown you what it would look like if we had entered into a traditional contract structure with this customer and the impact it would have had on revenue and gross margin. So, you can see that revenue would have been 14 -- sorry, $4 million higher, up at $19 million and gross margin would have been 7 points lower at 27%. And then you can see on a year-to-date basis, our revenue would have been $36.7 million and our gross margin would have been 30%. So again, the numbers are the numbers as reported, but if you're trying to do comparisons and understand what's happening with revenue growth or understanding what's happening with gross margins, it's important that you understand this contract structure. So yes -- so just we always like to end just like we like to start is, if you're a potential investor or an investor, why should you invest in CEMATRIX? And these are the 5 points that we believe are key to understanding that. Number one is we're an industry leader. We're really well positioned to capitalize on the large opportunity in the growing infrastructure construction segment. We are a growth company. We have growing revenue, 24% annual cumulative growth rate since 2017. We have positive adjusted EBITDA, record levels all time, positive cash flow from operations, and we have a really strong balance sheet. We believe that we're currently undervalued based on traditional valuation metrics. Whether that be forward revenue or forward EBITDA multiples, we still think the share price is under where it should be. We don't have to raise any capital in the short term or long term to fund a burn rate. We're self-sustaining now. Any new capital would only be raised in support of an accretive acquisition. And we don't have an accretive acquisition in the short term or near term here that's being contemplated. And lastly, we do have capital to deploy, and we're adding to that capital because we're generating positive cash flow. And so we're looking for opportunities to grow organically or to grow via acquisition if we can find the right opportunity. On the right-hand side here is our Investor Relations contacts with Howard Group and Bristol. And then we have one analyst covering the company from Beacon Securities, who is Russell Stanley. So then, I think that will take us to the Q&A session. Just before we get into the actual questions, I just wanted to cover a couple of things that I think may come up or that I've been thinking about. Number one is just as an investor, like diversification is important. And so if you have a portfolio of stocks, I'm sure you've heard stories of people that have invested everything they had in Tesla or Bitcoin or some other stock and made out like bandits. But what you don't hear as much about is people who did the same thing in other names and lost everything. So, no security in your portfolio should be more than 5% or 10% of your holdings as an investor. It doesn't matter how great any company sounds. You don't want to risk everything on one company. If you do, that's not investing, that's gambling. So don't do that. CEMATRIX is -- we're slow and steady. We're a traditional bricks-and-mortar infrastructure stock that is focused on profitable growth. We're not really -- we're focused on building and running a profitable business that puts the needs of our customers first because we know if we do that, that the share price is going to follow. So, we're less concerned about the day-to-day or week-to-week fluctuations in the stock price. We know that if we run a good business, sooner or later, the share price is going to follow, and we've seen that happen this year. And so the final thing I'll say is we care why the share price goes up. We know that some stakeholders and some shareholders don't care. They just want to see the price go up. They don't care if it stays there as long as they can exit and make money. We don't want that. We want a share price that makes sense, trading based on fundamentals. I want every investor in CEMATRIX to make money, but we do that by focusing on the customer and the 3 things that we're obsessed with: safety, quality and profitability. So that's it. With those kind of comments, Grant, I'll turn it over to you, and we can go through the Q&A. Grant Howard: Thank you, Randy, MJ and Jordan. That was a good wrap, Randy, or wrap up, not a wrap. We've got about 13 questions already in the queue, and you were mentioning Russell Stanley, who happens to be the Managing Director of Equity Research at Beacon Securities. And the first few questions are from Russell. His first one, outside of the contract restructuring, was there anything unusual in the quarter such as revenue pulled in from Q4 from faster work or pushed out to Q4? Randy Boomhour: Yes. Good question, Russell. I mean it's very rare in construction to have revenue move forward. It almost never happens. So, that would be the exception rather than the norm. The norm is that projects and start dates push. So, we definitely saw some revenue push into Q4, and we've seen some projects that we originally thought might go in 2025 that have pushed into 2026. Grant Howard: Next question is about project size. Can you talk about what you are seeing now in terms of projects starting in 2026? Understanding you see a very wide range of project sizes, how do the jobs you are bidding on and winning compare in size to what you were seeing a year ago? With respect to demand, have you seen any specific projects in the pipeline get trimmed back in scale and/or pushed out perhaps out of caution? How does your level of optimism now compare to what you had a year ago on the demand front? Randy Boomhour: Okay. We're testing my memory there. That's a lot of questions. I'll do my best here if I missed part of it, just let me know, Grant. So in terms of contract or project size, right now, we are actively executing the 2 largest contracts that we've ever had in the history of the company. One being the North -- the project in North Carolina, which we talked about quite extensively, that started in Q3, and it's going to continue into 2026 and likely spill over part of it into 2027. The second was the tunnel grouting project in the Midwest that we started in Q2. We're working on in Q3 and we'll finish this quarter. So, we don't see many projects of that size. I will say we're seeing more and more projects in the $5 million size. And I would say, in general, we're seeing more opportunities for cellular concrete where cellular concrete is spec-ed in, and we're finding more opportunities where other lightweight products are spec-ed in and we're working to actively flip them. So from an overall market perspective and kind of consistent with the earlier slide, we just see the market for cellular concrete continue to grow and more and more people are getting exposure positively to cellular concrete and seeing the benefits that it can provide in solving their geotechnical challenges. So, we're really optimistic about where the business is today, really optimistic about 2026 and really optimistic about the future in general. Grant Howard: Well, that answers the latter part of Russell's long questions or series of questions about your level of optimism. You just addressed that. I think the only thing you might want to touch on here more is with respect to demand. Have you seen any specific projects in the pipeline get trimmed back in scale or pushed out? Randy Boomhour: We haven't really seen that. I think -- and I tried to talk about this earlier is people always try to get us to draw direct lines between administrative directions or administrative changes at the federal government level. And we never see that. I think you would more see that at the GC level. When we see projects that kind of get to the point where they're engaging subcontractors, those projects generally are green lit and they're moving forward. So, I haven't seen anything to indicate that there's any kind of slowdown in infrastructure spending. In fact, what I would say is all the tailwinds point to more money will be spent on infrastructure. Grant Howard: Russell's next question. Can you talk about what you are seeing on the M&A front? In the past, you've noted your first choice would be another cellular concrete player in the U.S. with complementary products, technologies representing plan B, how has that environment evolved since the August call? Randy Boomhour: Yes. I would say really, there's no change, right? Nothing has changed there. Our first priority was executing on our commitment this year to deliver a record year, and we really are trying to get the share price fixed to where we're much closer to a fair value because any acquisition we do would be primarily cash, but we would want to have an equity component as part of that. And so until we kind of get the first part of the job done, which is deliver this year and get the -- get our equity more fair valued, we're not really engaging in deep conversations with potential targets. Grant Howard: Next question, but not from Russell. Could you please elaborate more on your comment that you mentioned in the press release and then the quote was "Looking forward into the fourth quarter, we will be very busy in the first 6 weeks of the fourth quarter and then slowing down in the last 6 weeks, consistent with the normal seasonality in our business." Randy Boomhour: Yes. I mean, this feels like a sort of a tricky way to ask me for like more specific guidance on the fourth quarter. And as you know, Grant, we just don't do that. I would just say the fourth quarter is traditionally our second best quarter, and I would expect this year to be really no different. And that's always the pattern. It's always busy for the first 6 to 8 weeks as October, November is a big push to get things done before winter hits. And then once winter hits and we hit into the Christmas season, we always slow down. There's exceptions sometimes like in 2023, we're really busy over the Christmas season because there was a big push on the Trans Mountain project to get that finished. But generally speaking, that's normal pattern that's in our business since we started these companies. Grant Howard: I know this was addressed during the presentation in some way, but the question is, is any percent of your revenues due to residential business? Randy Boomhour: Not really. I would say sometimes we might be working on infrastructure related to residential development, whether that's a gas line or a banding in a pipeline or supporting road infrastructure. But we don't do residential work specifically. Grant Howard: Since AI is such a big topic these days as well as data centers, the question is, do you see any demand coming from data center construction? Randy Boomhour: Yes. So, I've gotten this question probably the last 2 or 3 calls. And what I would say is it always depends on the geotechnical situation. So, you can't say if there's $1 billion in data centers, there's x percent that's going to be for cellular concrete. It doesn't work like that. You could build 10 data centers and have no need for cellular concrete, but you could build a data center in a situation where there's weaker unstable soils or it's in an environment where they're worried about lateral load or they've got some annulus to fill or pipes to abandon from an existing site, and there could be lots of cellular concrete. So, what I would say is I always go back to is just any increased spending in infrastructure sooner or later is going to result in an opportunity for cellular concrete. But it's not going to be -- like every data center is obviously going to have a huge electrical component. So, there's a one-to-one correlation. There's not going to be a one-to-one correlation with data center construction and cellular concrete usage. It doesn't work like that. Grant Howard: How much of your labor costs are variable? Randy Boomhour: Yes, it's an interesting question. I mean, we really think about labor costs as fixed, but there's an element of our labor that does fluctuate with revenue. So, for example, overtime costs are going to be higher during the peak periods and overtime costs are going to be lower in the slower periods. So, I think that just makes sense and it is common sense. But we spend a lot of time and money training our employees and their experience in the field really to what Jordan mentioned earlier, is one of our key competitive advantages. So, we don't want a lot of turnover in that team. And so as a result, even when we're slow, we keep those employees employed because if we don't, then we can't execute projects successfully in the future. And that really gets back to our comment around understanding the margin as well is when you're a specialty contractor, when you work, you get a higher margin because when you're working, you're not just paying for that day's labor, you're also paying for all the labor and the bench time. It's a very similar model that you would see in consulting or any other specialty construction business. Grant Howard: Question about the stock. And have you considered a reverse stock split? Or another way to put it is a consolidation of the stock? Randy Boomhour: Yes, it's funny. I can ask 10 different people for their advice, and I would get 10 different answers. And so believe it or not, there are people that are advocating that we do a stock consolidation. But the vast majority of the experts I talk to don't recommend that. And so we don't anticipate doing that anytime in the near future. It's not something that we're actively considering. It's not something that we're looking at. We're really focused on just running and building a good business because, again, as I said many times, I know if we do that, the share price will follow. I know it's very frustrating for some of our long-term shareholders, myself included, Jordan included. Jordan is the largest shareholder in the company. I'm the third largest shareholder in the company. So, believe me when I tell you that we feel your pain when the share price doesn't respond the way we expect it to respond. But we also know that if we do the right things for the business, over time, the share price will improve. All you have to do is look at this year where earlier this year, we were trading at $0.16 or $0.17. And even though we've stepped back today on the share price, we're up significantly from that low. We're up significantly from last year when I took over as CEO. And we know that if we continue just to run a good company, grow revenue, be profitable, that share price is going to follow. And it will probably take longer than we all hope, but it will follow because it will be based on fundamentals. It won't be based on some hype or press release. It will be based on us actually doing a good job for our customers and our customers recognizing that good job and rewarding us with more work in the future. That's how you build a good company. Grant Howard: Next one. What does the pipeline look like today versus this time a year ago? Randy Boomhour: Yes. I mean, we had a similar question like this, but I would say the pipeline today looks better than it did a year ago. We're seeing more opportunities to bid. We're actively chasing more opportunities. We're investing more in business development so that we're uncovering opportunities we didn't see in the years past. And so our bidding activity is higher this year than it was last year. So, we remain extremely optimistic. And I think you can see that success in our sales results. So, we've so far this year, sold more revenue, added it to backlog than what we've delivered and we're on track for a really good year for revenue. So, that's pretty impressive and I think indicative of what's happening in the marketplace for us. Grant Howard: Question about earnings per share. Maybe MJ, a specific question was what is the EPS for the third quarter, if you have that? Marie-Josee Cantin: I do. The EPS for the third quarter was $0.012. And year-to-date, we are at $0.015. Randy Boomhour: Yes. And again, Grant, I would say there's all kinds of fancy metrics that the spreadsheet analysts can come up with. But it always boils down to the same thing. There's certain constants in the numerator and denominator. And we know if we increase the numerator by making more money, all of those metrics are going to improve. So, people can ask us about free cash flow, return on capital employed, return on assets. It all boils back down to the same thing, fix the numerator, and I guarantee you that calculation gets better, and that's what we're focused on. We're going to make more money and all those metrics that you can dream up or think about are going to get better. Grant Howard: I think the fact you've had a 6-point bump in your gross margin is incredibly positive. And the fact you're sitting on almost $10 million in cash and virtually no debt speaks volumes in itself. Do you have an estimated contract size that generates the best return for CEMATRIX? Randy Boomhour: I don't really because it's very situational, right? So if you had a situation where you just had a large fill or a large hole to fill and it's just an open pour, literally, Grant, you and me could probably go buy a piece of equipment and run it and have a good chance of executing that project. But if you talk about grouting a tunnel that's underground where you're pumping thousands of feet, then you need specialized equipment and you really need to know what you're doing. And so the margin that we would get is really dependent on the situation, the complexity of the task. Who could compete in that area? How far is it from one of our offices? And this is an area that we've really made a lot of strides in, in the last 5 years in terms of trying to get better at recognizing those factors so that we can price that project appropriately. So if it's relatively simple and straightforward, but big, we know there's going to be a lot of competition on it, and we know the margin is going to have to be tight. If it's very complicated, very sophisticated, very sensitive, we know that's going to rule out many, if not all, of our competitors. And so on that one, we can and should demand a higher margin. So it very much is very situational and the answer is it depends. Grant Howard: You do have some major projects underway right now, and this individual is just asking for an update on those projects. Randy Boomhour: Yes. No different than Procter & Gamble wouldn't give you an update on Crest sales in the U.S. We're not going to provide information on specific projects because we don't want to help our competitors. What I will say is both those projects are going well and kind of as expected from our perspective. Grant Howard: A couple of questions on share buybacks or the normal course issuer bid. What's the status of that? And any plans to continue buying? Randy Boomhour: So the status is we've purchased 700,000 shares all in Q2 related to that as we've disclosed. The NCIB remains in place. If in discussions with the Board, we think there's an opportunity to buy more shares after looking at the best use of capital, we could potentially do more than that. I personally -- this is not necessarily the company's position, but my position. I'm a fan of the NCIB. I think in situations where we think the shares are undervalued, I think it's a good use of capital if we don't have an active acquisition. We will never buy back the maximum. I don't see us deploying that much capital into that, but I do see us hopefully doing more NCIB purchasing in the future. Grant Howard: With the proliferation of MSE wall construction, have you seen an increase in contracts specking cellular concrete as backfill material? Randy Boomhour: Yes. No other elaboration, yes. Yes, we have seen that. And I think you can see that in our numbers. That's part of what's contributing to our growth. We make a lot of sense in that application in terms of ease of construction and often, we can be cheaper than EPS. So it makes a lot of sense for us. Grant Howard: Not sure where this one came from, but do you feel confident on collecting accounts receivable that is aged over 90 days? Could you share a little color on that? Randy Boomhour: 100%, we do. As we talked about earlier, our customers are almost always the large general contractors that operate in North America. Almost all of them have really good credit. And there's lots of legal security around these projects, whether it's liens, whether it's payment bonds, whether it's holdbacks. So, we have very rarely had any AR-related losses. When we do, it tends to be on a very, very small job. So, we do a 5 cubic meter job for Randy's pools, and Randy turns out to be not a reputable guy. So, that's where we run into sometimes occasionally an AR issue, but we almost never run into it on a very large project because of the protections that are built in the construction industry. Grant Howard: Another question on buybacks, which you've already addressed. I guess the only other part of it is whether or not those are filed on SEDI. Randy Boomhour: Yes. So, there's no requirement to file NCIB purchasing on SEDI. We are required to disclose it in our financial statements and our MD&A, which we do every quarter. Grant Howard: I already know what your answer is, but what does Randy think the fair share price should be at present? Randy Boomhour: Yes. I don't want to speculate what would be. Just my personal opinion is it should be higher, right? And you can use whatever valuation you want to use, whether it's a discounted cash flow, whether you want to look at peers, whether you want to look at a forward multiple, whether you want to look at a forward multiple of EBITDA, I would say in almost every one of those, you'll come up with a share price that's probably higher than where we're at today. And then what I would say is we're lucky enough to be covered by Russell Stanley out of Beacon, who's a financial analyst who does this for living. And I think you could take some guidance from what he's put out there. Grant Howard: You heard of other players in the cement industry, cellular industry, such as Martin Marietta Materials or Astec. Do you compete with them? Randy Boomhour: So, obviously, we've heard of those guys for sure. Some of them will have a project or a project -- a product that's similar to cellular concrete. But generally speaking, commodity players struggle in what I would call the more specialized or technical sales. So if you sell cement, you're almost like an order taker. So, someone phones you up and they say they want so much cement and you say, here's the price and here's when I'll deliver it. Cellular concrete is a much more complicated sale because you sometimes have to convince people to use it and you've got to go through the technical qualifications about why it makes sense. So it's a much more complicated sale. So, we don't really compete against those guys. Much like we see general contractors trying to self-perform work, you will often see cement companies trying to figure out how they're going to make more money or grow their business. And sometimes they'll dip down into specialty construction around cement products. But our experience is they're generally not successful at it because it's just a different sales process. So we don't -- I would say we don't compete against those guys. Grant Howard: Interesting one around national defense. Federal government has said it's going to spend up to 2% of GDP on national defense and 5% by 2035. We'll see. But anyways, a significant part of this would be updating defense infrastructure. Are you seeing or expecting any demand from national defense? Randy Boomhour: It's a good question. I'm not sure I've seen anything specifically, but examples I could think of is if, for example, the Canadian military or somebody want to upgrade a port, there could be applications for cellular concrete there. We've done some work down in the Houston area around upgrading a port where cellular concrete, again, because of the geotechnical situation, made a lot of sense. So it really is -- it's definitely possible. It would have to be like a physical infrastructure as opposed to the equipment for obvious reasons. So, I wouldn't expect that to be a big opportunity for us, but there could be opportunities that come about for that. Grant Howard: And this was addressed in the presentation and Randy, you've commented further, but any growth plans like acquiring any other companies? And I believe you said that at this point, there's nothing on the horizon. Randy Boomhour: I'd say there's nothing imminent, Grant, right? Like my hope really was that at Q3, the results would come out, the share price would reflect the progress we've made, would reflect the commitment that we achieved by having a record year already in Q3. We'd be in a better spot to come -- to go talk to some of these players more actively. But what I don't want to do is engage in a conversation and not have the ability to complete the conversation. So, we're still kind of waiting to fix the equity. Any acquisition we did because of the types of company we're target is going to be primarily cash based, but we would want some kind of equity component as part of that. Grant Howard: You've talked about this, but what are the key catalysts investors should keep an eye on in coming quarters? I think you're probably going to say watch the fundamentals. Randy Boomhour: Yes. Exactly, Grant. I mean, when we manage the business, we focus on revenue, how is revenue growing, what are gross margins, what's the bottom line, what's adjusted EBITDA, how is cash flow going? And then we're looking at what investments do we have to make to continue to grow our business or maintain our business. And so the things that we show investors are the same things that we use to track the success of our business. So, we really are fundamentally a fundamentals company, right? And I believe strongly that as those fundamentals continue to improve, that's going to get reflected in the share price. One of the things I would really like to see is to get less -- how do I say it, more institutionals or more long-term shareholders, long-term shareholders involved. So, there are some people who have been shareholders for a long time, and those people are definitely frustrated because many of them have a cost basis that's higher than where we're at. But we need more people that believe in the long-term view of the company and hold so that we don't have as much trading that happens around announcements or as much emotional selling or buying that happens around the company. I'd really like to get more of our shares in the hands of people that are long-term holders and see the future in the company, so we can get some of the volatility out of it. Grant Howard: With that, we've got a couple more, but they've been addressed already or they've been addressed. We don't have any other questions. Team, any closing comments? Randy Boomhour: Yes. Maybe I'll just -- I'll let MJ and Jordan do some closing comments, and I'll do something right at the end, Grant. Jordan Wolfe: I don't have much to say other than thank you for the opportunity to present, and we're really looking forward to the future here, not just with Q4, but 2026 and beyond. Marie-Josee Cantin: I echo what you say, Jordan, pretty excited for the future. Randy Boomhour: And I guess I will just kind of pile on there is we're all equally excited. I think as people that are owners of the business and people that run businesses for a living, when we look at where CEMATRIX is, we really couldn't be happier. Like we're growing revenue, we're generating cash flow. Our customers are happy with us. Our employees are happy with us, and we're focused on the same things that our investors are. So, I would say just keep on believing. I think the people that stick with CEMATRIX continue to be investors are going to get rewarded over the long term. Grant Howard: As a shareholder of 15 years, I keep on believing. So with that, thank you very much to all of those who attended. And thank you to the CEMATRIX team, and we'll see you next quarter. Thank you. Randy Boomhour: Thank you, Grant. Marie-Josee Cantin: Thank you. Jordan Wolfe: Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Tripadvisor's Third Quarter 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Angela White, Vice President of Investor Relations. Angela, please go ahead. Angela White: Thank you so much, Felicia. Good morning, and welcome to Tripadvisor's Third Quarter 2025 Financial Results Call. Joining me today are Matt Goldberg, President and CEO; and Mike Noonan, CFO. Earlier this morning, we filed and made available our earnings release. In that release, you'll find reconciliations of non-GAAP financial measures to the most comparable GAAP financial measure discussed on this call. Before we begin, I'd like to remind you that this call may contain estimates and other forward-looking statements that represent management's views as of today, November 6, 2025. Tripadvisor disclaims any obligation to update these statements to reflect future events or circumstances. Please refer to our earnings release as well as our filings with the SEC for information concerning factors that could cause actual results to differ materially from these forward-looking statements. With that, I'll turn the call over to Matt. Matthew Goldberg: Thanks, Angela, and good morning, everyone. In Q3, we delivered consolidated revenue growth of 4% to $553 million and adjusted EBITDA of $123 million or 22% of revenue. We were pleased with this performance, which beat our expectations on adjusted EBITDA and was within range for overall revenue growth. This week, we've initiated a set of changes that represent a fundamental shift in our operating model to support a more focused set of strategic priorities. These actions will sharpen our execution focus, which we expect to accelerate revenue growth, improve operating margins and create a more durable financial profile. To do so, we'll focus on three priorities. First, extending our leadership position in experiences to drive long-term growth by fully deploying our differentiated assets across Tripadvisor and Viator to win in this category. Second, leveraging our unique content, data and brand trust for an AI-enabled future by powering our marketplaces and positioning Tripadvisor at the center of an emerging AI ecosystem. And third, narrowing the focus at brand Tripadvisor to support experiences and our AI future while managing our legacy offerings for profitability. These priorities reflect a shift from optimizing individual brand strategies to speed our transformation into an experiences-led and AI-enabled company. We will direct our focus, talent and investments to what matters most, resulting in a simpler, leaner and faster-moving organization. Our plan is expected to drive significant operational efficiencies of at least $85 million of annualized gross cost savings, which Mike will discuss shortly. But this is not just a cost-cutting exercise. We are aligning ourselves to drive accelerated growth going forward. This is an important moment in the evolution of Tripadvisor Group. We're a very different company than we were 3 years ago with a portfolio mix now anchored in high-growth marketplaces, delivering more sustainable revenue and profit. In the past 12 months, Viator and TheFork accounted for almost 60% of group revenue, up from approximately 40% in the same period 3 years ago, representing a 27% CAGR over that period. In that time, these businesses contributed an incremental gain of more than $150 million of adjusted EBITDA and now comprise 30% of overall group profitability. Today, we are far less dependent on a legacy model built on SEO with its well-known structural headwinds. These trends have reshaped our financial composition, and we expect them to continue. Now let's walk through these priorities in more detail. Our first priority is extending our leadership position in experiences to drive long-term growth. Strategically, we're already well positioned to win in experiences. We've achieved scale and established a clear track record of growing the top line while expanding profitability from breakeven in 2023 and now approaching double-digit adjusted EBITDA margins. Earlier this year, we shared that Experiences is becoming the strategic and financial center of gravity for the group. Over the last 12 months, we've achieved $4.6 billion in GBV, driven by 17% items growth. And over that same period, for the first time, our total Experiences revenue has surpassed the revenue from our legacy business lines. Now experiences will become the unified focus of both Viator and Brand Tripadvisor. The global experiences TAM is expected to reach $350 billion in GBV by 2028, growing faster than any other category in travel. To date, we've been concentrating on the U.S. as our primary source market and focusing mostly on tours and activities. We believe we can accelerate our growth by addressing new geographic markets and expanding into new categories while benefiting from the tailwinds of growing demand and the offline to online shift. This is a dynamic, fast-growing category without a global digital brand leader. Going after this opportunity will be our primary objective as a Group. We believe that our strength to lead the experiences category lies in the differentiated assets across our brands that are hard to replicate. At Viator, we're leading in the world's biggest market with the largest global catalog of experiences. Our improved storefront is driving uplift in conversion, repeat and customer loyalty trends. Tripadvisor offers two key assets that we expect will drive growth and expansion in experiences, a trusted global brand and proprietary data on more trips and travelers than anyone else in the category. This combined reach, along with our third-party distribution creates unmatched value for operators. Together, we believe these capabilities give us a unique advantage for our experiences business that we have not yet fully realized. In order to accelerate the next phase of growth, we're unifying our Viator and Tripadvisor experiences operations, unlocking the power of all our resources to focus squarely on this opportunity. This is a significant shift in our operating model designed to drive meaningful outcomes with more efficiency. Our conviction to go all in on this opportunity is grounded in what we've learned from a period of increased coordination between the Viator and Tripadvisor teams across marketing, product and supply over the past several months. Here are a few examples. From a demand perspective, as I shared last quarter, we've been experimenting with how Tripadvisor and Viator can operate together in a more coordinated manner, not as two separate brands with different goals, one focused more on growth, the other focus more on profitability, but as a united team aimed at winning the Experiences category. We began coordinated testing in marketing and found that we could compete more effectively on a combined basis to deliver more efficient marketing spend overall, improving revenue while maintaining profitability. This is just one experiment, but it demonstrates the power of treating our brands as complementary levers working together rather than as separate independent P&Ls. We also believe there's an opportunity to lead with Tripadvisor to put our large global audience in service to Experiences in key international markets while leveraging our high brand awareness to acquire more customers more efficiently in paid channels. From a product perspective, we've increased our experiment velocity and coordinated learnings across points of sale. As a result, our conversion rate has continued to show improvement at both Viator and Tripadvisor. In this new formation, we will lean even harder into these dynamics, focusing on key conversion drivers like personalization, pricing and availability with more resources deployed to scale our optimizations seamlessly across our full Experiences offerings. From a supply perspective, we're expanding on our unmatched scale, over 400,000 experiences globally and growing. In the last year, we've seen healthy double-digit growth in active products and suppliers. We're broadening our supply coverage in new categories and strengthening our presence in secondary and emerging destinations while building industry-leading connectivity with our recently updated APIs, now enabling real-time and dynamic management of pricing and availability. And we're using Tripadvisor data to identify where new supply is most needed, all while optimizing how new supply performs, improving conversion, refining pricing and smoothing the experience for both travelers and operators. By unifying our teams behind experienced leadership, we'll build on our strong marketplace flywheel. Our product and supply optimizations accelerate our conversion wins to fuel more efficient and effective marketing, which in turn compounds the conversion gains, driving higher repeat rates and improved unit economics. And now we're unleashing the full power of the Tripadvisor brand and its unmatched global awareness in service of Experiences. Our second priority is leveraging our assets to position ourselves for an AI-enabled future. Tripadvisor is among the most trusted names in travel, built on decades of authentic contributions. Sitting at the privileged intersection of hundreds of millions of travelers and the operators who serve them, we have unique insights about how people make travel decisions, a proprietary knowledge graph across experiences, hotels and restaurants, which is unique in the industry and a powerful foundation for what comes next. AI is collapsing discovery, planning and booking into a single conversational moment. For travelers, it means less friction and faster decisions. For Tripadvisor Group, it plays directly to our strengths in the space we helped invent, helping people travel smarter. At a time when it's hard to know what information to trust for a highly considered purchase decision like travel, we believe our first-party data, user-generated content and decades of trust, combined with supplier connectivity, detailed pricing information and booking gives us a unique advantage to lead in the age of AI. Over the past several quarters, we've experimented with a broad set of efforts to learn how travelers use AI. We built data science and machine learning capabilities to drive conversation and conversion, and we've explored the role of our content in the AI ecosystem. Here are a few things we've learned. First, our content and data are unique and valuable. Internally, it's been the foundation of our product innovation and growing engagement. And Tripadvisor is already among the most cited sources by LLMs. According to a recent third-party study,Tripadvisor appeared as the #8 overall and the only travel company in the top 20. Second, travelers have a very specific problem. It's hard to make decisions. There are too many options and getting it wrong means wasting time and money. That friction is why travelers come to Tripadvisor to inform and validate their travel decisions. While LLMs do a good job of generating high-level trip plans, the opportunity lies in the underlying recommendations, their social validation and actionability, which we are uniquely positioned to deliver to help travelers make it happen. And finally, AI is raising customer expectations as they look to solve these problems. Customers are choosing AI-native products over legacy products with AI features. They want technology to remove friction. We will follow the consumer and shift our focus from AI-powered features to a fully AI-native approach. Based on these learnings, we've identified a few specific AI opportunities, each of which we believe has the potential to become the primary way travelers engage. The first opportunity is in the planning phase when travelers have a rough idea of an itinerary and are trying to decide what's right for them amidst the unlimited options. Tripadvisor's first-party data and insights position us to curate the most personalized recommendations validated by relevant travelers and make them as immediately actionable as possible. The second opportunity is during the trip itself. Travelers make a lot of last-minute decisions around what to do, see and eat, but availability, pricing and logistics are tricky, especially in Experiences. So we'll leverage our assets to help travelers experience the destination better while traveling. This presents an opportunity to deploy geo-aware recommendation algorithms and deliver proactive offers with single tap booking and access to real-time customer support. We're advancing rapidly on these opportunities and expect to launch an AI-native MVP for the planning phase in the coming weeks in Q4. From there, we'll intend to build a strong foundation to scale and continuously iterate and enhance the customer experience. Of course, we're also exploring how Tripadvisor can deliver value to travelers as a deeply embedded partner with broader AI platforms. As part of our learning agenda, we're directly integrating our Tripadvisor and TheFork brands into ChatGPT through first-of-their-kind apps with a differentiated approach from others. We expect these to be live over the next few weeks. We've signed valuable licensing deals with the majority of the leading AI companies, and we're experimenting with use cases like Agentic and multimodal AI. Ultimately, whether we scale AI value creation through on-platform innovation or off-platform partnerships will be decided by our customers. We believe that by focusing on where we are uniquely positioned to serve travelers, maximizing speed of execution and continuing to fuel the content flywheel that is our most differentiated asset, we can position Tripadvisor at the center of the AI ecosystem in travel. Our final priority is narrowing Brand Tripadvisor's focus. Beyond experiences in AI, we'll optimize Brand Tripadvisor's portfolio to enhance profitability. Over the last few years, we've invested incrementally in Tripadvisor's broad engagement strategy designed to fuel new monetization paths and stabilize our legacy offerings. However, we recognize that the pace of impact from these investments has not been enough to offset increasing pressure from the shifting SEO landscape. So in our most mature legacy categories, we'll focus strictly on optimizing for profitability. We'll deprioritize the areas that we expect to be in secular decline in favor of shifting resources towards our marketplace growth opportunities while driving efficiency across areas that are more exposed to ongoing headwinds. Operationally, this will reduce our headcount and better align costs with revenue expectations. Let me be clear. Taken together, these actions are not a deprioritization of the Tripadvisor brand. In fact, we believe Tripadvisor will play an even larger role in Group level value creation moving forward. Hotels and restaurants will continue to be an important part of planning a trip and the hundreds of millions of travelers coming to Tripadvisor each month will still enjoy those features. Our partners will continue to benefit from access to these audiences. While this functionality isn't going away, we'll shift Tripadvisor's focus and resourcing to areas where we believe we can deliver the most value to customers, leverage the brand and traffic to drive experiences growth, position our content and data at the center of the AI ecosystem and enhance profit from the legacy portfolio. In addition to this set of priorities, TheFork will continue to execute on a financially disciplined growth strategy. This quarter, the segment continued its strong performance with growth of 28% and a 22% adjusted EBITDA margin, nearly double what it was last year at this time. We will continue to build on our position as the leader in European dining and prioritize the diversification in revenue across B2B and B2C while increasing profitability. We're also excited about the team's innovation agenda, which includes an AI-powered booking assistant that's driving an uplift in conversion and a social feed that allows diners to discover restaurants based on reviews and contributions from their contacts. In summary, we believe that the priorities we shared today position us well for the future to drive value for shareholders. As part of this ongoing program of work, we will also take additional steps to review our group portfolio as we determine where we'll invest and where we'll simplify further through partnership or divestment. We are building a stronger Tripadvisor Group focused on faster-growing categories with large TAMs, durable transactional economics and strong supply. We're prioritizing areas where we have a proven track record and the capabilities to win. We'll do fewer things better, move faster and optimize the lines of business where our scale or competitive position can't lead the market. We believe that our actions will strengthen our financial profile by reducing costs, accelerating revenue growth and growing profitability, both in the experiences category and for the group as a whole. With that, I'll turn the call over to Mike. Mike Noonan: Thanks, Matt, and good morning. I'll start with a review of our financial performance, and later, we'll provide more information on the cost savings program, what our operating model changes will mean for how we report our segments and some thoughts on Q4. As a reminder, all growth rates are relative to the comparable period in 2024, unless noted otherwise. Q3 consolidated revenue was in line with our expectations of $553 million or 4% growth and consolidated adjusted EBITDA exceeded our expectations at $123 million or 22% of revenue. In the Viator segment, the number of experiences booked grew 18%. Growth improved sequentially in both the Tripadvisor and Viator points of sale, while growth in third-party points of sale continued to outpace the overall segment. Importantly, the number of experiences booked through the Tripadvisor point of sale returned to growth this quarter. In North America, our largest source market, we saw bookings growth accelerate sequentially across both points of sale, which we believe is reflective of the strength of both of our brands as we scale our coordinated marketing efforts. Gross booking value, or GBV, grew 15% to approximately $1.3 billion and revenue grew 9% to $294 million. Changes in FX positively impacted GBV revenue growth by approximately 3 percentage points. The difference between the growth in the number of experiences booked and growth in revenue continues to be driven by the high growth of our third-party merchant bookings relative to 2024. As a reminder, merchant bookings generally have a lower average booking value, which impacts GBV growth relative to volume growth. They also carry a lower implied take rate, which impacts revenue growth relative to GBV growth. While the implied take rate is lower than our owned and operated points of sale, third-party merchant bookings are both financially and strategically valuable. From a financial perspective, these bookings carry an attractive profitability profile. Strategically, these bookings are largely sourced from regions outside of our core markets, which enable us to reach incremental traveler demand as we continue to scale our new and repeat booker cohorts globally. Viator adjusted EBITDA was $50 million or 17% of revenue, a margin improvement of 550 basis points, driven primarily by a more efficient marketing channel mix. We continue to see outsized growth in our direct channels and in repeat bookings, each contributing to our profitable growth profile as repeat bookings cohorts continue to scale. In addition, growth in third-party merchant bookings, which come with no marketing spend contributed to the segment's total marketing leverage. Lower marketing costs more than offset modest increases in personnel costs related to targeted investments in technology, product and supply. Altogether, these trends continue to reinforce our belief in the long-term margin opportunity for this business at scale. At Brand Tripadvisor, Q3 revenue was $235 million, a decline of 8%, which was below our expectations. We experienced stronger-than-anticipated traffic headwinds that accelerated throughout the quarter, negatively affecting both free and paid channels. In branded hotels, revenue was $143 million, a decline of 5%. In hotel meta, strong pricing in both free and paid channels was more than offset by accelerating traffic volume headwinds. Regionally, single-digit growth in U.S. hotel meta revenue was more than offset by declines in Europe and APAC. As a reminder, we will continue to manage our branded hotels business for margin stability and not chase low-margin revenue in this category. We remain focused on improving the quality of our hotels offering and delivering highly qualified incremental demand to our partners, and we believe that success is evident by the sustained pricing growth we continue to witness. Media and advertising revenue declined 11% to $36 million, primarily due to the aforementioned traffic headwinds we incurred in the quarter. Experiences and Dining revenue was $47 million, a decline of 9%. Growth in Brand Tripadvisor's Experiences revenue lags unit volume growth, which returned to growth in the quarter, as I mentioned earlier. Experiences revenue performance was largely stable sequentially. And going forward, we expect Experience revenue growth on the Tripadvisor point of sale to accelerate as a result of our new operating model. Brand Tripadvisor adjusted EBITDA was $59 million and 25% of revenue, which exceeded our expectations. Despite accelerating traffic headwinds in the quarter, placing additional pressure on revenue, the team did a good job managing the growing reliance on paid channels with fixed cost prudence to exceed margin expectations despite pressure on adjusted EBITDA. At TheFork, Q3 revenue was $63 million or 28% growth and 20% growth in constant currency. B2C bookings volume grew 11% across all channels and 13% on TheFork's branded direct channel. The strength of B2B subscription revenue growth continues to be driven by restaurants adopting higher-priced premium plans, ongoing evidence of the strength of the feature set and overall value proposition we deliver to restaurants. While still a minority of TheFork's total revenue, B2B subscription revenue is contributing an increasingly share of the overall revenue mix, which we expect to continue in the future as the team executes on its business model diversification strategy. Adjusted EBITDA at TheFork was $14 million or 22% of revenue, representing a margin improvement of approximately 10 percentage points, driven primarily by leverage in personnel costs. Turning to consolidated expenses for the quarter. Cost of revenue was 7% of revenue, an improvement of 10 basis points. Marketing costs were 41% of revenue, higher by 150 basis points. Modest leverage at Viator was offset by deleverage at Brand Tripadvisor due to the aforementioned traffic headwinds. Personnel costs as a percent of revenue improved by 100 basis points. Investment in Viator personnel offset lower personnel costs at BrandTripadvisor. Absent share-based compensation, personnel costs were approximately flat as a percent of revenue. Technology costs at under 5% of revenue were approximately flat with last year. G&A as a percent of revenue improved by approximately 70 basis points, driven primarily by lower real estate costs. Now turning to cash and liquidity. Q3 operating cash flow was $45 million and free cash flow was $26 million. On an LTM basis, operating cash flow was $347 million and free cash flow was $261 million, which represents significant improvement from last year due to a more favorable working capital and onetime cash tax settlement charges in the comparable period last year. Total cash and cash equivalents at September 30 were approximately $1.2 billion. Our cash balance includes approximately $350 million in Term Loan B proceeds raised in the first quarter of 2025, which we plan to use to pay our outstanding convertible notes due in April 2026. After taking into account deferred merchant payables of approximately $393 million and the $350 million term loan, our remaining excess cash balance is approximately $475 million. During the third quarter, we did not repurchase shares given the operating model changes and cost savings programs we were contemplating. However, we expect to restart our open market repurchases this quarter aligned with our previously communicated programmatic approach, subject to a stable macro environment. Today, we have approximately $160 million remaining in our authorization. We believe that our current cash profile and net leverage levels reflect a strong capital structure with appropriate cash for operating needs. Turning to the gross cost savings program Matt mentioned in his prepared remarks. At the group level, we are sharpening our strategic focus in order to accelerate our ambition in the areas where we believe we have differentiated assets and that can drive meaningful shareholder value. We believe that realigning our strategy, our resources and our brand and data assets across Viator and Brand Tripadvisor into a new operating model provides an attractive opportunity to accelerate growth and innovation. This operating model change will result in a greatly simplified organization and allow us to operate more efficiently. We will be launching an annualized gross cost savings program of $85 million in Q4 that we intend to execute throughout 2026 and expect to fully realize by 2027. This savings program will primarily include reductions in headcount spanning Brand Tripadvisor, corporate G&A and Viator by approximately 20%, but will also include other operating expenses -- expense efficiencies as a result of our operating model change. In 2026, the net impact of our savings program is expected to be lower than $85 million due to the timing of these actions. For example, we expect approximately $10 million of the savings to be recognized in Q4 of this year. And as I mentioned earlier, our plan to invest behind reaccelerating experience growth in 2026 may offset a portion of the savings impact. While it's too early to provide detailed guidance for next year, our preliminary estimate today on this program's impact to fiscal '26 would be an improvement of approximately 100 basis points to consolidated adjusted EBITDA margin. We will provide another update next quarter, given we're still finalizing the '26 plan. Next quarter, we also intend to update our reportable segments to align with our updated operating model and resource allocation strategy. We expect to maintain three segments, which we anticipate will be Experiences, Hotels and Other and TheFork. We believe updating our reportable segments will provide investors with a clearer understanding of the growth and margin performance and future opportunity of our entire Experiences business as well as more clearly highlight how we'll manage our legacy businesses. Let me take a moment to quickly explain the major changes that bridge our existing segment structure to our planned updates. In the Experiences segment, the definition and disclosure of unit volume, GBV and revenue will be consistent and unchanged from the way the Viator segment reports today. However, the cost profile will change to include all fixed and variable expenses related to both brands for Experiences, which have been split between the Brand Tripadvisor and Viator segments. By doing this, there will no longer be a need for intersegment eliminations related to experiences, which today is recognized as an affiliate marketing expense in the Viator segment and intercompany revenue for brand Tripadvisor. The Hotels and Other segment will effectively be the current Brand Tripadvisor segment, but without experiences-related revenue and expenses. Finally, TheFork segment will remain unchanged from today's disclosure. Given these changes are still in process, I will provide guidance for the fourth quarter and full year consistent with our existing segment structure. Turning to our outlook for Q4. Our expectations for the quarter include the benefit of approximately $10 million to adjusted EBITDA from our aforementioned cost savings program impacting both brand Tripadvisor and Viator, but do not assume any revenue benefits from our new organizational structure, which we are implementing this quarter and expect to drive benefits throughout 2026. For Q4, we expect consolidated revenue to be approximately flat to last year and consolidated adjusted EBITDA margin of approximately 11% to 13%, which implies the following for each brand. At Viator, we expect total bookings growth in Q4 of approximately 16% to 18%, driven by an acceleration at the Viator and Tripadvisor points of sale. We expect some sequential pressure in GBV growth due to the impact of promotions and a higher mix of lower-priced tickets to average booking value. We expect revenue growth to be in line to a slight acceleration with Q3 growth. Adjusted EBITDA margin is expected to be approximately 100 basis points lower due to a nonrecurring indirect tax credit incurred last year. Absent that onetime benefit, we would expect Viator's adjusted EBITDA margin to increase by approximately 200 basis points. At Brand Tripadvisor, our current expectation is for revenue to decline in the low teens, which assumes Q3 traffic headwinds persist. Adjusted EBITDA margin is expected to decline approximately 900 basis points, driven primarily by pressure in the hotel meta free channels as well as planned marketing spend resulting from ongoing coordinated efforts in experiences. At TheFork, we expect revenue growth in the mid-teens, which reflects a currency benefit of approximately 10 percentage points. The sequential step down in growth is expected as we are now lapping the scaled growth initiatives in B2B and partnerships we began realizing in Q4 of last year. Adjusted EBITDA is expected to be approximately flat year-over-year. Given our Q4 outlook, we now expect full year consolidated revenue growth of 3% to 4%. However, our adjusted EBITDA margin expectations remain unchanged at 16% to 18%. We are excited about our strategic direction as we finish the year and believe that the operating model changes and cost savings actions will sharpen our focus and allow us to grow consolidated revenue and adjusted EBITDA and improve adjusted EBITDA margin in fiscal year 2026. In Experiences, our targeted investments will unlock a larger TAM and position us to accelerate revenue growth and grow adjusted EBITDA. At TheFork, we will continue to execute a financially disciplined growth strategy, and we expect to optimize our legacy offerings and deliver cost savings to maximize profitability in the face of structural headwinds. Over the past few years, we've made notable progress driving a deliberate business model diversification strategy to grow the mix of revenue and adjusted EBITDA from our marketplace businesses. As Matt stated earlier, this year, revenue from Viator and TheFork, our marketplace businesses are expected to represent 60% of total consolidated revenue and 30% of total adjusted EBITDA in our current segment reporting. Under our new operating model and segment reporting structure, we expect this revenue mix shift to steadily continue and the mix of adjusted EBITDA to surpass 50% consolidated EBITDA in fiscal 2026, which we believe reflects our strength as an experiences and AI-enabled company and our overall marketplace mix. We look forward to sharing more detail with you on our Q4 earnings call next year. I'll pass the call back over to Matt briefly. Matthew Goldberg: Thanks, Mike. Before we start Q&A, I wanted to take a moment and welcome Alex Dichter to our Board of Directors. Alex joins us with many years of experience as an adviser and operator with deep travel industry knowledge and an extensive background working with organizations across multiple travel verticals to transform and scale their businesses. This is the first step to bringing on fresh perspectives from independent directors, and we're excited to have Alex join the Board. He joins us as Greg O'Hara departs, and I want to thank Greg for his contributions and leadership over the years. With that, I'd like to turn the call back to the operator for Q&A. Operator: [Operator Instructions] The first question comes from the line of Richard Clarke of Bernstein. Richard Clarke: I'd just maybe like to ask a question on your revenue growth assumptions going forward. I think you said you think you can accelerate growth. I'm just wondering what the shape of that will be. If you're investing even less in the sort of meta and Brand Tripadvisor product, is the revenue growth -- can you still stabilize better than the mid-teens guide you set out for Q4? And with the new organizational structure, would you expect your Experiences segment to be able to grow faster than the 9% sort of high single digits that Viator is doing at the moment? What's the kind of shape of revenue growth going forward? Mike Noonan: Yes. Richard, it's Mike. I'll take this. In terms of thinking about the longer-term shape of revenue and as reflective of our overall operating model, I'll say a few things as we set ourselves up. In Experiences, we do think the operating model and how we're allocating investment to Experiences, we are expecting our Experiences in our new segment to reaccelerate next year, right? And that is both a focus on two things: one, geo TAM expansion, looking at new source markets to acquire bookers, very important in that equation and category expansion as we think about other opportunities to bring other types of things to commercialize in the storefront, think of attractions, right, for example. So those are two important things as we think about that reacceleration statement next year. We also then, I think, as we think about our hotels and other category, which would be our other second new segment, I think we're taking a very pragmatic view of what this looks like. We are -- when you think about the traffic headwinds we've seen, particularly accelerating in the free channels and then you take that with how we will be investing in growth, meaning we're not going to be prioritizing growth necessarily in the paid channels just for growth. We're going to really divert those resources to Experiences. We would expect continued revenue headwinds next year. And then in TheFork, just to round out in terms of the growth, we are continuing to expect that TheFork is going to grow nicely with continued margin evolution. So when you take that all in, when we think about where we sit today, and to be clear, we will be refining our plans as we move through the next 3 months. From a consolidated perspective, we would expect that we would grow both revenue and EBITDA next year. When we take into consideration the cost savings program that we've enacted that really stop the growth of fixed costs in both the Viator and Brand TA segments, which we'd deliver about -- we said about 1 point of margin improvement to the consolidated financial profile next year. So again, important moves we're making today that we believe are important for growth in margin for next year, but not just next year. It's really how we set ourselves up for the next several years and driving the experiences opportunity we have in front of us. Operator: The next question comes from the line of Naved Khan of B. Riley Securities. Naved Khan: A lot to digest here and I think some of the steps here that you described, Matt, do make sense. I'm just wondering, as you look to reaccelerate growth in the Viator business or the Experiences business, is it possible to kind of get kind of closer to your closest competitor? I think they recently disclosed around 30%. And also, you have kind of expanded margins very nicely in this segment. Is it possible to remain on this margin expansion trajectory as you accelerate growth? How -- give us your thoughts on how we think between the trade-off between growth reacceleration versus margins? Matthew Goldberg: Thanks, Naved. And I think you've hit right at the core of why we are so enthusiastic about this fundamental shift to our operating model because we believe it allows us to do just that, reaccelerate growth while we continue to expand margins. And we are already really leading the category today. You can look at it in many different ways and make judgments about who's got the best profile. But let me tell you what I'm excited about our profile. We believe we're in a real position to shape what comes next as the global brand leader in this category. Together with Tripadvisor, it's the category's largest, most trusted and most profitable platform, and we are building it for sustained growth. Why do I say largest? It's largest because of our scale and reach. We're the global leader in scale with unmatched supply and reach, 400,000 experiences, 65,000 operators. And of course, we can more fully tap the hundreds of millions of travelers using Tripadvisor monthly, giving that supply more visibility and more demand that really no competitor can replicate. And the proof points in my mind are the last 12 months GBV of $4.6 billion and 17% items growth. and we believe we can accelerate off that. Being trusted has an advantage. We've got this global reputation of trust, and it's a foundation to grow Experiences globally. A very good percentage of our audience from Tripadvisor is coming outside the U.S., even though Viator has primarily focused on U.S. source market. So that gives us immediate credibility to expand experiences into new markets. We think there'll be lower barriers to adoption in those source markets where travelers already know and use Tripadvisor. And we think that it signals sort of a reliability, which is critical for the emerging category. And in Europe alone, we have 70% brand awareness and it's relatively unmonetized today. So by focusing Tripadvisor on Experiences, we have many, many times more visitors to go take advantage of than others. And finally, profitability. We are driving this performance with financial discipline. And what we've shown is that the category can scale profitably. And we're the only ones who have shown that. And we're doing it efficiency and with discipline and performance. And so Viator was profitable since 2023. Last year, we delivered a mid-single-digit margin. The last 12 months, we have a high single-digit margin, and we are approaching double-digit margins. And as we move from regional strength to building a global platform, we think that, that leadership is within our capability, and we're going to go after it. So thanks for the question. We're super enthusiastic about reaccelerating growth and expanding margins. Mike Noonan: And I'll just add to the second point of your question. Yes, sorry. And just to underscore a few points that Matt said, we are really pleased with the unit growth. And I think I want to make sure that we all focus on the most important metric, we think, is that because it's a statement of real customer conversion and it's a statement of you have the ability to bring back customers on a repeat basis, and that's super important. And so we'll continue to really focus on driving that scale and that unit volume growth. And on the margin, I would say we -- this model, as we continue our disciplined new user acquisition is really around growing margins. And I think we will continue to think about, particularly as we're excited about reaccelerating next year into new geos, there'll be some modest investment into that. But all in all, I expect to continue to see the model produce margin enhancement. Operator: The next question comes from the line of Ronald Josey of Citi. Unknown Analyst: This is Robert on for Ron. Can you maybe give us a sense of new user trends at Viator and as you continue to expand into the secondary and tertiary markets and into newer categories, help us understand your approach to growing supply in each of these newer markets. Mike Noonan: Yes, Rob, I'll take that real quick, and Matt can chime in. Great question because it does tie directly of how we're thinking about the reacceleration point. In the U.S. and North America as our core market, we continue to see very high repeat revenue growth rate from our repeat customers, very important, because that is long-term customers and they generally -- the more times they come to us, the less reliant they are on paid channels. It's part of our core flywheel. On new users, we are very disciplined, right? And it does explain some of the overall growth profile because we are looking at new user acquisition in light of do those ROIs make sense and do they contribute to our long-term margin targets. So we're very disciplined in terms of that new user acquisition. We do believe that a core tenet of the geo expansion and Matt mentioned some of this around where we would think to go would be, hey, where is our brand Tripadvisor, for example, well known, a lot of traffic volumes, which is in Europe, gives us the opportunity to grow that new user base at attractive ROIs, and we're excited about that. And again, is a key principle of how we're thinking about that reacceleration comment? Matthew Goldberg: Yes. And look, I just want to add, Rob, that the marketplace flywheel that we have working between how we generate demand across both of our brands and do that with an ROI-driven acquisition strategy, the way we expand geographically, bring those new users into our store and give them a better experience where we're leveraging AI to do personalization and matching and our sort to be far more relevant for them and then making sure that we have the right supply in those secondary, tertiary markets in new categories. All of that works together to attract new users, get them coming in, converting and then being more loyal, so you get the new and repeat working really well together. And we think that our marketing tests and the tests we've done on our product and with our supply across the two brands allow us to do that with more efficiency than we've ever been able to do it before, and we're going to scale that. Unknown Analyst: Got it. That's great. And then as a quick follow-up, Matt, you had mentioned a few months ago that AI was already making a difference financially across the business today. So can you maybe elaborate on how AI is driving cost efficiencies across the business? And then given your focus on AI going forward, help us understand how you're thinking about the potential revenue opportunities and licensing deals ahead. Matthew Goldberg: Yes. Thanks, Rob. So we're deploying AI fully across the organization in every part of our organization. And from an efficiency and productivity perspective, we've done it in a lot of enterprise use cases across customer service, where we're making major strides in our content moderation and fraud detection, the way we localize, the way we think about driving our marketing teams. It's giving us a lot of advantage. And we will continue to roll that out in every area of the business. In fact, as we're planning for next year, one of the things we want to do is really measure that very clearly so that we can see not only the pilots making sense, but the way we scale that making sense. And I think our -- we've rolled out the tools to do that, and we're excited about how that will continue. More importantly, right, is the way that we are using it in our product to drive innovation. And we've learned a lot over the last couple of years. We've built the AI infrastructure, and we've leveraged it for our product enhancements. And we've shown in succession how we can work with trips and planning and itineraries to the way that we summarize and synthesize our content through to a travel assistant, which we recently learned. And these were all efforts that are leading us to a place where we can go fully AI native and really serve the customer however and wherever they want to engage with that. So we're building on those learnings from our AI innovation. And we are setting ourselves up to put a deep focus on that and not get distracted by trying to chase other things that might not make as much sense at the expense of being able to do it. And that's why we're going to launch an AI native MVP in the coming weeks, and we're excited to continue that. I will say I also believe that the way that we are doing partnerships has been differentiated, and we're learning. We're seeing good value exchange. And we believe that going forward, we can really scale that opportunity. So we're always having conversations to do that. So feeling real good about the AI future. Operator: The next question comes from the line of Doug Anmuth of JPMorgan. Dae Lee: This is Dae Lee on for Doug. I have two. Firstly, on -- with the reset to an experience-led strategy, will the consumer experience on Tripadvisor change? And how do you expect Tripadvisor and Viator brand to be positioned for consumers shopping for experience going forward? Matthew Goldberg: Yes. So thanks for that. Absolutely, the user experience will change because we are going to primarily be focused on how the Experiences category can play on Tripadvisor. We will continue to offer the features that we've had in the past, but our primary focus as we allocate resources, as we set goals with all of our KPIs is going to be driving that experiences future. And we do believe that bringing it together under one team, which we've already proved that we can do with our product, all of the work we're doing in the store to optimize the funnel to take friction out, all the myriad of little things we do to drive conversion and loyalty and repeat will benefit both brands, both points of sale, which will come together in a more seamless fashion so that consumers can engage with us wherever it makes the most sense for them. And I think that will drive that flywheel that we were talking about, which once you get it going, really has a lot of potential to accelerate our revenue. Mike Noonan: I'd just add a few things on to that, Dae, which is this work has -- this is not a cold start. We've been doing this work. And you've seen us talk about the coordinated bidding as an example of this. And the learnings we've gotten from that has enabled us to lean in and actually gain increasing confidence around what we can do in the Tripadvisor points of sale. So we're very excited and it's a key point of -- as we think about experiences reacceleration. Dae Lee: Got it. And as a follow-up to that, what's been driving the acceleration in volume growth at Viator? And then for your guide for 4Q, what will drive acceleration, especially given the tough 4Q comps? Are there any specific channels, products or regions that's driving the acceleration? Mike Noonan: Yes. On the unit side, it's -- on the unit side, it's really been the 3P mixing higher, and that's been growing very fast, albeit on a much smaller base, but growing very fast. I think we've consistently said it around the other channels, Viator, which is by far the largest channel and TA and Viator are the vast majority of that. Viator has been generally growing around the average, and Viator has been growing lower than the average. And earlier in the year is actually -- it was declining year-over-year. But that has been improving largely because of the efforts around product that Matt just mentioned, largely because of the efforts around coordinated bidding. And this quarter, we just mentioned that both channels accelerated in the quarter. The TA point of sale actually turned to positive growth in the quarter, again, reflective -- and these are all on unit basis to be clear, all reflective of that. And so as we move forward, we are very excited about our merchant 3P business for all the reasons we've talked historically, and we'll continue to work with our partners to advance that. But the work very much continues on our owned and operated channels at both Viator and Tripadvisor point of sale, and we're going to continue to work on those. And we expect embedded in our Q4 guide would be expectations of both the TA and Viator channels to have modest acceleration again. Matthew Goldberg: Yes. And just remember, Tripadvisor Experiences has previously been a drag on growth. That's going to shift, and it will no longer be a drag on growth, and we'll get these things working really well. We have marketing products, supply, data plans to do that. Operator: The next question comes from the line of Jed Kelly of Oppenheimer & Co. Jed Kelly: Just two. Will you market -- will the go-to-market strategy for your Experiences, will that be built more around the Viator brand or the Tripadvisor brand? And then can you talk about how you think potentially expanding into other experiences into other regions, particularly Western Europe? Matthew Goldberg: Yes. So the go-to-market strategy is something that we can continue to work on, and we think that it will be where we believe we have the strongest ability to go. Now both brands can exist in both markets because they do different things. They are different products, right? Viator is a very focused vertical when you kind of already know I want an experience and I want the best way to book it. Tripadvisor still is a broad planning and recommendation platform across multiple categories. And that's not going to necessarily change where we'll put our focus and energy is in making sure that if you come to find your hotel, we're also doing a really good job to cross-market experiences to you in a fundamental way. If you're thinking about where you want to eat, there's probably a really interesting tour around that restaurant that we want to make sure you know about and book. So it will depend category by category in experiences and market by market, how we go to market. We think both brands can be there. We may choose to lead with one or the other depending on the market. Mike Noonan: Yes. And I'll follow up on that point, which is your second question on geo expansion. So we are excited about geo expansion, particularly as we think about accelerating growth in new users. When we look at the geos, obviously, we want to look for a large addressable TAM and look for areas we actually have a competitive advantage and Europe clearly is that when we think about the large TAM size, but we also think about -- and this is where it's so critical about the operating model change. The traffic and brand awareness of Tripadvisor is very large there. And so our ability to really enhance and tighten our focus around experiences, leveraging the Tripadvisor brand is going to be very important to how we think about that expansion. And that doesn't mean -- and Viator will always play a point, and we have two brands to think about how we want to grow in the new market. So a lot of work underway as we're working on this, but we're very excited about that expansion opportunity. Operator: The next question comes from the line of Nafeesa Gupta of Bank of America. Nafeesa Gupta: So my first question is on Metasearch. How are you thinking about the legacy business now that you are consolidating both the experiences in Viator and Tripadvisor? Will that business still have investments that you were planning for the last couple of quarters? And the second one is on Fork. There are reports going around regarding exploring sale of TheFork. Any thoughts on that? And how should we think about TheFork revenue growth in 2026 given the B2B lapping? Matthew Goldberg: Well, thanks for those questions. First of all, on our meta business and our hotel business, the hotel product continues to provide real value for both travelers and partners. We have the best advice, the most photos, and we're trusted really over everyone else in the space. And we recognize that with Google taking more and more share of the search traffic for themselves, we're just not going to be able to grow that business at the level of profitability that we'd like. So we know that it's an important part of the journey that travelers find value and price compare, and we're able to send our partners really good quality leads. And we've done some really good product work there to drive conversion rates higher. And we're -- I think we're still focused on that. But what we won't do is we're not going to continue to invest incrementally. You can think of it as an add-on or incremental product to our primary focus that we will make sure maintains the quality for both travelers and partners. Now as it relates to your question about TheFork. TheFork is a great business that is performing really well. We are excited about the path of sustainable growth and the improving profitability profile that really benefits the Group. But of course, we consistently evaluate all options to unlock value in all of our assets, and that includes TheFork. And our primary focus is what's going to drive the most shareholder value ahead. Nothing is off the table. We see it's a leader in core European markets. We have a good and mix of B2C and with growing B2B, and that's giving us advantage. And as a leading European dining platform, we know it's a valuable asset, both for global and regional travelers. It is run separately. There's optionality there. And we recognize there have been precedent transactions out there that suggest TheFork is a highly valuable asset, especially given its unique scale position in Europe. So optionality, and we are focused on it. We love what the team is doing there. Nafeesa Gupta: Just on the revenue growth for Fork, how should we think about that going ahead? I know this last couple of quarters, there was a lot of FX tailwind as well. And how should we think about next year? Mike Noonan: Yes, sorry about that. Yes, listen, I think a couple of things important to understand the growth profile. Big picture, one, but we still expect nice growth and profit improvement next year for sure. We are -- we will have a bit harder comp next year because we're comping and we're seeing some of this before. We're comping some very strong growth in B2B as well as some of the partnership initiatives we've put in place. So we would expect a step down in growth year-over-year, but we still believe we're very excited about the revenue diversification strategy. We're very excited about the B2B business and the ability to continue to grow into our existing restaurant base, new restaurant base, more and more premium plans. Those all offer a very, very nice upside as well as we continue to see very healthy growth -- volume growth in our B2C business, particularly in our proprietary Fork network. So I think, yes, there'll probably -- there will be -- we expect a step down in growth from what we saw this year, but still very healthy as we move into next year. Operator: This concludes the question-and-answer session. I would now like to turn it back to Matt Goldberg for closing remarks. Matthew Goldberg: Thank you all for joining us on this morning's call. The changes we walked through today represent a meaningful shift in our strategic focus and how we'll deliver value for shareholders ahead. We're excited to move into this new phase of our growth for the group. Before I close out, I also want to take a moment to acknowledge the impact these decisions have on our teams. We're grateful for their continued hard work and dedication. We look forward to updating you on our progress and plans for 2026 on the next call. Thanks, everyone. Operator: Goodbye.
Asli Demirel: Ladies and gentlemen, welcome to Anadolu Efes' Third Quarter 2025 Financial Results Conference Call and Webcast. Our presenters today, our CEO, Mr. Onur Alturk; and our CFO, Mr. Gokce Yanasmayan. [Operator Instructions] Unless explicitly stated otherwise, all financial information disclosed in this presentation are presented in accordance with TAS 29. Just to remind you, this conference call is being recorded, and the link will be available online. Before we start, I would kindly request you to refer to our notes in our presentation regarding forward-looking statements. Now I'm leaving the ground to Mr. Onur Alturk, Anadolu Efes' CEO. Sir? Onur Alturk: Good morning, and good afternoon, everyone, and welcome to Anadolu Efes Third Quarter 2025 Conference Call. Thank you for joining us today. As you may recall, due to the continued uncertainties around our operations in Russia, we have classified these operations as financial investments on our balance sheet at the beginning of the year. And accordingly, they are no longer consolidated in our income statement until there is more clarity. However, we separately disclosed the financial results of these operations in our earnings releases for the last 2 quarters. And starting from quarter 3, we decided to stop providing separate disclosure for Russia. And this is primarily because of the information flow has not been as stable, as consistent as before. We will reassess this approach as the situation evolves. And looking at the third quarter, it was a mixed set of results where the profitability was solid. However, the volume momentum came with its own set of challenges. Even so, our broad market presence and agile execution helped us to preserve overall stability as growth in several markets balance softer demands in others. So we maintained our growth trajectory from the second quarter with consolidated volumes reaching 31 million hectoliters, up by 7% on a pro forma basis compared to the same quarter last year. The volume growth was driven by our Soft Drinks operations particularly supported by robust performance in international operations, while Beer group volume performance was softer, mainly impacted by domestic markets. Strong volumes supported top line growth, but the revenue per hectoliter was pressurized due to the ongoing focus on affordability and increased discount rates. On top of strong top line results through gross profit improvement and strict management of operational expenses, we are able to record an expansion in EBITDA margin. Additionally, we successfully generated positive cash flow amounting at TRY 9.4 billion, which was mainly driven by strong operational profitability. As of September 30, 2025, our consolidated net debt-to-EBITDA ratio stood at level of 1.5x. As we shared before, as part of our Vision 2035, one of the key pillars of our growth strategy was geographical and categorical expansion. In this regard, I'm truly pleased to share two important milestones today we achieved during the quarter. Firstly, we have recently started the distribution of Mercan raki spirits in the final days of October, while the discussions regarding the acquisition of 60% of the company are still ongoing. And secondly, we have signed a licensing agreement with Salyan Food Products, which will enable us to produce, sell, distribute and marketing of Efes and Efes Draft brands in Azerbaijan. Turning to Beer group performance. During the third quarter, our consolidated Beer volumes declined by around 5% year-on-year on a pro forma basis. This was mainly driven by a slowdown in Turkiye, where volumes were down by 8.4%. In our international Beer operations, volumes were down low single digits on average. As expected, Moldova reflected a slowdown following the last year's high base. Georgia was temporarily affected by export-related business. On the positive side, Kazakhstan delivered solid growth, supported by strong portfolio execution. And Ukraine also contributed positively by growing low single digit, thanks to ongoing recovery and the low comparison base. Let me discuss Turkiye in more detail. Beer volumes declined by 8.4% in the third quarter. And as mentioned earlier, this was mainly driven by affordability pressures stemming from persistent inflation and weakening of consumer purchasing power. In the second half of the year, the absence of midyear minimum wage adjustments further deepened the pressure on consumer purchasing power and making its impact increasingly evident in the market. In addition, the price adjustments we implemented in early July had a temporary impact on demand, while the slowdown in tourism also weighed on overall volumes, particularly in on-trade and HoReCa channels. And this quarter marked a period of strengthening our portfolio and ensuring it remains well aligned with the customer expectations and market trends. We launched Jupiler 0.0%, a non-alc beer in Turkish markets, which marks an important step in expanding our product range. Although it's very early and it's very small, we expect these launches to be a new strategic pillar for growth for future. And about our CIS operations, starting with Kazakhstan, we delivered low single-digit volume growth, supported by strong brand activations and robust export performance. Our premium segment continued to perform well, driven by effective brand activations like strategic pricing and new can designs that further enhanced brand visibility in the market. And during the quarter, in line with our KEG focus, draft focus, we also launched successfully the Pegas brand SKU, Khmelnoy Los. In Georgia, volumes declined by low to mid-single digits, in line with expectations, actually, mainly due to the restructuring of our export business, which had no impact on profitability right now. And additionally, introduction of Lowenbrau-Oktoberfest Limited Edition helped us to maintain our market presence and customer engagements. In Moldova, volumes contracted in low single digits as expected, reflecting last year's high base. And moreover, year-on-year volume decline was affected from calendarization impacts. Let's briefly review our Soft Drinks operations, too. In the second quarter of the year, CCI's consolidated volumes increased by 8.9%, driven by positive contribution of all international markets. Turkiye volume declined by 1.7%, mainly impacted by weakening consumer purchasing power and deteriorating weather conditions during September, whereas international volumes demonstrated a remarkable growth, posting a 16.1% increase, mainly supported by Central Asia and Iraq. And in Pakistan, volumes increased by 0.7% year-over-year despite severe floods and ongoing political sensitivities. Kazakhstan and Uzbekistan delivered robust growth with 24.2% and 36.5% growth, respectively. And lastly, Iraq volumes up by 7.8%, marking 10th consecutive quarter of growth. When we move on to our operational results. In the third quarter, we continued our solid volume generation on a consolidation basis, although effective portfolio management and price adjustments made in certain markets helped to ease the impact of discounting and affordability focus and revenue per hectoliter decreased by 3%. With improved gross profitability margin and limited increase in operating expenses, EBITDA increased around 8%. As a result, margin also expanded, which was supported with contribution from international operations in both Beer and Soft Drinks businesses. And our consolidated net income was recorded around TRY 5 billion. Although operational profitability remained solid, higher financial expense and lower monetary gains weighed on earnings in the third quarter. Beer group delivered a year-on-year decline in earnings as a result of higher financial expense and a softer operational profitability amid challenging environment. Following a softer quarter 2 performance, we delivered strong free cash flow generation at the consolidated level, driven by our Soft Drink business. On top of the strong operational profitability, we benefited from improving working capital, lower CapEx spendings and tax expenses compared to same period of last year. In the current environment, as I emphasized in our previous conference calls as well, there is no doubt that strengthening free cash flow remains a top business priority, of course, in Beer group, and Gokce will share more details about this. And consequently, our consolidated net debt-to-EBITDA ratio stood at level of 1.5x as of September 30, 2025. And now Gokce will give details on financial metrics. Gokce, please. Gökçe Yanasmayan: Thank you, Onur. Good morning, good afternoon to everyone. Onur covered, as usual, Anadolu Efes' consolidated results. So I will provide an update on the Beer group's performance for the third quarter. But before I start again, I want to remind once more that disclosed figures in my presentation are on a pro forma basis, meaning that they exclude the financial results of Russian operations as of January 1, 2024, to ensure comparability. So in the third quarter, Beer group sales revenue declined by 6.9% on a pro forma basis to TRY 15.7 billion. Even if volume performance and revenue in local currencies were high, international Beer operations sales revenue was recorded at TRY 5.9 billion with a 4.5% decline. Like previous quarters, the decline in sales revenue was driven by TAS 29 implementation as inflation in Turkiye exceeded the depreciation of Turkish lira against local currencies of international Beer operations. So excluding TAS 29, international Beer operations revenue was up 24% on a pro forma basis, again, reaching TRY 6.7 billion. Turkey Beer operations generated a revenue of TRY 9.6 billion in the third quarter, representing an 8.7% decline despite price adjustments during the quarter, revenue per hectoliter decreased due to lower volumes alongside more controlled yet still elevated discount level in line with the market dynamics we have in the country. Thus, on a pro forma basis, Beer group revenue decreased 5.3% to TRY 41.4 billion in 9 months of 2025. And Beer group gross profit declined 11.1% on a pro forma basis again to TRY 7.8 billion in the third quarter, and that came with a margin contraction of 236 bps, though gross profit margin remains at a remarkably good level of close to 50% still. And the decline in the gross margin stem from softer volume performance and higher COGS per hectoliter, driven by increased material costs across our operations and higher hedge levels in packaging costs, especially in this period of the year for Turkey. So in the next slide, I'm going to present the EBITDA. So with an EBITDA of TRY 3.4 billion, Beer group had a 22% margin in third quarter, indicating only a 57 bps decrease. The decline in the top line performance and gross profit in the group -- Beer group was actually partially limited through disciplined operating expense management this quarter, particularly in Turkey operations. On the international front, CIS region on average continues to deliver above 30% margin performance. However, profitability was moderated in this period due to high base of last year. Consequently, Beer group EBITDA in 9 months was TRY 6.4 billion with a 15.4% margin. Again, in the third quarter, Beer group generated unfortunately, a negative free cash flow of TRY 1.3 billion. Softer profitability that we mentioned, together with a temporary deterioration in working capital and lower monetary gain collectively weighted on cash generation despite an absolute reduction in capital expenditures year-on-year. Next slide, please. So for again, information purpose, I'm going to show you the financial statements without -- excluding the impact of TAS 29. However, I have to again say that Anadolu Efes' financial statements are prepared in accordance with TAS, the standard for financial reporting in hyperinflationary economies and the numbers that you are seeing here are just presented for analysis purposes. And excluding the impact of TAS 29, Beer group revenue was TRY 40.5 billion with a growth of 27%. And again, excluding the impact of TAS 29, Beer group EBITDA would increase by 21% to TRY 8.8 billion and net income was reported as TRY 1.8 billion, excluding the CTA impact coming from the scope change in consolidation of Russian operation. About cash and debt management. So as of September 30, 2025, we had 63% of our cash in hard currency denominated in the Beer group and 61% in the consolidated Anadolu Efes level, which is pretty much in line with our previous practices. And the net debt ratio for the period was 1.7x (sic) [ 1.5x ] for Anadolu Efes and 3.9x for Beer Group. And about the risk management, so the key figures to update them, actually no new news for 2025, we are almost done with the year. As for 2026, we have already started hedging aluminum and 16% of our exposure of next year -- sorry, 14% of our exposure of next year for Turkiye and CIS countries has already been hedged. And for the FX of next year, actually as usual practice, we are going to start hedging towards the end of the year for next year. So that basically ends my part of the presentation, and I hand over to Onur. Thank you. Onur Alturk: Well, Asli, let's check the Q&A. Do we have any questions on this one? Asli Demirel: There are a couple of questions from [indiscernible]. Let me start with the first one. Thank you for your presentation. Could you please provide more color on Azerbaijan? When will you start production sales in the country? What are the potential sales volumes and EBITDA contribution and also CapEx? Let me address this to Onur bey, and then there are a few questions more, then I'll address them to Gokce bey. Onur Alturk: Let's briefly discuss Azerbaijan. Azerbaijan is a promising market actually, and CCI already has a strong footprint in the markets. Population is around 10 million, with per capita beer consumption is around, again, 7 liters. And in quarter 3 '25, a license agreement was signed with Salyan Food Products in Azerbaijan for the production, sales, distribution and marketing of Efes and Efes Draft brands. So we already started production of Efes in Azerbaijan. We see it as a strategic step expanding our regional operational footprint. And of course, we want to strengthen our local presence in the market. No CapEx is used for that because it's a [ toll ] fill, third-party manufacturing. And if we see more potential in the markets, there will be an M&A. So we are evaluating this. And also, let me mention a little bit about Uzbekistan, just like because these are the two potential markets for us. And Uzbekistan is even more promising markets where, again, CCI already has a strong footprint. And the population is around 36 million and adding up 1 million every year. And the per cap beer consumption is around 12 liters. So that's a more favorable tax environment is expected in '26. It used to be 3x compared to the local ones. Now it's 2.5. And at the end of '26, we are expecting to the equalization of local and import tax. So if the gap is fully closed, there will be a huge potential. And imports from Kazakhstan has already started in July. Our legal entity and on-site team has been established in Uzbekistan. And our business development team is closely analyzing the market dynamics and potential opportunities like [ toll ] filling, and we are so close to start [ toll ] filling in Uzbekistan as well. And again, we are chasing M&A opportunities with very small investments in this country as well. But the reward seems to be, I mean, very promising in these two geographies. Asli Demirel: The next question from [indiscernible]. Could you please also provide more color on the working capital more at the Beer group level? And what are the initiatives you undertake to improve it? Gokce bey? Gökçe Yanasmayan: Sure. Sure. I mean, overall, as Onur rightly mentioned in his presentation, one of the key focus for us is the cash flow generation on the Beer group side and to turn our free cash flow generation into positive in the coming year. And a very important component of that is working capital, one of the important components of that. On the group level, we can say that our working capital on average is mid-single digit. However, there are certain countries hitting double-digit numbers, some countries close to 0. So on the average, we end up at mid-single digit. And for those who have double-digit or higher working capital, we have started a clear focus project this year and very clearly working on targets for next year to improve the numbers and at the same time, where we want to focus in every other country that we have these high numbers. Therefore, that's especially critical for Turkiye because this working capital financing requirement is being financed with high interest rates. So all the efforts are focused now, especially in Turkiye to decrease this number and the interest payment of next year. Asli Demirel: Thank you very much. Another question is regarding 2026 about the Beer group outlook for volumes and profitability. It's a bit early to comment on this. So let's postpone this to... Gökçe Yanasmayan: Yes, we are at the beginning of our budgeting cycle now. I mean -- and we are changing the numbers very frequently as the assumptions are changing. So we would prefer to give better color towards the end of the year or next year, beginning of next year. Asli Demirel: Exactly. But there is a question from [indiscernible]. Do you expect cost pressure in Turkey after rising food inflation, which may impact wheat and barley prices due to weather conditions? Or have you hedged this cost? Gökçe Yanasmayan: I can give a very, very general color here, maybe just to help you think about it. Recently, our cost base were acting very in line with the inflation in the country. Therefore, for next year to come, initial expectations, again, I mean, we have to work on them towards the end of the year more precisely. Initial indications show currently a slow decline as inflation will decline in the country. So that gets reflected into COGS per hectoliter as well for the next year. Asli Demirel: Another question from [indiscernible]. Can you give more information about Turkey gross margin and EBITDA margin in the third quarter? Gökçe Yanasmayan: Well, I mean, very roughly, we can say that the numbers are in the gross profit in the range of 50s, let's say, EBITDA margins in the third quarter are 20s, we can say so. And those numbers in gross profit margin level, we have seen more contraction as we have discussed in the presentations, but that has been compensated to a great extent with OpEx management. Therefore, the contraction in EBITDA is less than 100 basis points overall. Asli Demirel: Thank you very much. There seems to be no more questions. Let me remind once again, if there are any questions, we can wait a few seconds. And if there are none, we can close the question [ part ]. Okay. There seems to be no more questions. Thank you, everyone, for joining. Onur Alturk: Thank you.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Seadrill's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now hand the call over to Kevin Smith, Vice President of Corporate Finance and Investor Relations. Sir, please go ahead. Kevin Smith: Welcome to Seadrill's Third Quarter 2025 Earnings Call. I'm Kevin Smith, Vice President of Corporate Finance and Investor Relations. And I'm joined today by Simon Johnson, President and Chief Executive Officer; Samir Ali, Executive Vice President and Chief Commercial Officer; and Grant Creed, Executive Vice President and Chief Financial Officer. Our call will include forward-looking statements that involve risks and uncertainty. Actual results may differ materially. No one should assume these forward-looking statements remain valid later in the quarter or year, and we assume no obligation to update them, except as required by securities laws. Our filings with the U.S. Securities and Exchange Commission provide a more detailed discussion of our forward-looking statements and the risk factors affecting our business. During the call, we will also reference non-GAAP measures. Our earnings release furnished to the SEC and available on our website includes reconciliations with the nearest corresponding GAAP measures. Our use of the term EBITDA on today's call corresponds with the term adjusted EBITDA as defined in our earnings release. I'll now turn the call over to Simon. Simon Johnson: Thanks, Kevin. Hello, and thank you for joining us for today's call. I'll begin with some highlights from this quarter, which demonstrate Seadrill's continued execution of our strategy to build backlog coverage through 2026, maximize utilization of our high-specification fleet and deliver the operational excellence that drives continuity and long-lasting relationships built on trust and performance. Following my remarks, Samir will provide detail on our contract awards and market outlook. Grant will then review third quarter financial results and provide updated guidance for 2025. As we navigate a period of fluctuating demand, one aspect of our commercial strategy remains clear: Maximize shareholder value by minimizing costly gaps between contracts. Since our last update, we've added over $300 million to our backlog, securing new contracts across 5 rigs. In what is a very competitive market, our collaborative approach with customers and the exceptional performance by our crews have enabled us to maintain our competitive edge. In Angola, securing work for the 3 rigs in the Sonadrill joint venture was a key strategic priority, enhancing the longevity of the partnership and reaffirming our position as the #1 drillship operator in Angola. The Sonangol Libongos commenced its new program in August, keeping the rig committed into early 2027 and extending the relationship with our client into its eighth year. This show of faith by the customer reflects the results delivered by our offshore crews and onshore teams day after day. The Libongos has been recognized as the Seadrill rig of the quarter 8x more than any other drillship in our fleet. The Sonangol Quenguela, which has worked for TotalEnergies since its maiden contract in 2022, has also won further work on a direct continuation basis and began its new program in early October. The Quenguela was awarded TotalEnergies Rig of the Year for 2024 and has sustained its exceptional operational performance through 2025. Finally, the Seadrill owned West Gemini recently completed its special periodic survey and is expected to commence a well-based contract with Sonangol E&P in the next few months. All 3 rigs operated through the Sonadrill joint venture have delivered exceptional performance year-to-date, each achieving near perfect technical uptime in excess of 99.7%. This accomplishment reflects our unwavering commitment to deliver industry-leading operational performance. We sincerely thank our joint venture partner and valued customers for entrusting Seadrill with the management and technical delivery of Sonadrill's operations. Our teams have demonstrated a commitment to developing local talent, world-class performance, and crucially staying at the top of the performance curve. We are proud to contribute to the prosperity of Angola, its communities and stakeholders, building a lasting legacy of responsible development and shared success. In the U.S. Gulf, the West Vela and Sevan Louisiana each secured new programs in direct continuation, adding a combined firm term of 195 days. The West Vela was awarded a 1-well contract with Walter Oil & Gas, which we anticipate will commence in March 2026. The rig will then return to work for Talos to drill an appraisal well following the discovery drilled by West Vela in August this year. The West Vela demonstrates our ability to leverage team expertise and performance excellence. 25% of the crew have been with the rig since it left the shipyard in 2013, and it was among the first rigs in our fleet to be equipped with managed pressure drilling. A decade of shared experience in technology development allows us to drill and complete wells that were previously considered too challenging. The West Vela remains one of, if not the best performing rig in the U.S. Gulf, routinely executing programs well ahead of schedule and under budget. The Sevan Louisiana has secured a new contract with Walter Oil & Gas, which is expected to keep the rig working for over 2 months following the completion of its current assignment with Murphy Oil. We're grateful to Walter Oil & Gas for their continued partnership and confidence in our crews and assets. These new contracts reflect the strong collaboration we've built over time. Also worth noting, the Sevan Louisiana is expected to finish its current campaign with Murphy Oil ahead of schedule. We appreciate the faith Murphy has placed in Seadrill as a new customer and look forward to building on our partnership as we support their operations going forward. We continue to set the standard in collaboration and innovation. Our recent partnership with Trendsetter on well intervention activities in the U.S. Gulf is our most recent example. We're preparing to install Trendsetter's equipment on the Sevan Louisiana, making an already distinctive rig in both design and function even more capable. This upgrade gives the rig flexible operating modes across both shallow and deepwater environments, opening new markets and enhancing its commercial appeal. Staying in the U.S. Gulf, the West Neptune commenced its first well with its newly installed MPD system in October with LLOG. The rig system includes the state-of-the-art Integrated Riser Joint that is set to be the new standard in safer, more efficient and more reliable MPD operations. The West Polaris is also equipped with this system and has successfully delivered 2 MPD wells for Petrobras so far this year. By executing wells safely, ahead of schedule, and under budget, we built a reputation as a trusted offshore partner in the Golden Triangle and in key markets around the world. Additionally, we continue to actively increase the capabilities of our rigs through time with the addition of advanced technologies such as MPD. Turning to the market. We continue to see a constructive pace of contracting and an uptick in global tendering activity, building momentum for a market recovery as we move from 2026 into 2027. Seadrill has consistently highlighted the industry's underinvestment in offshore and the need for renewed sustained spending to offset production declines and meet future energy demand. Our view has been validated. Oil majors are calling for renewed focus on exploration and investment to avoid a future supply crunch, and there is a growing consensus that U.S. shale production has plateaued. At a recent conference, ConocoPhillips emphasized the need to return to large-scale projects and exploration. Notwithstanding the recent increases in production, Saudi Aramco warned of a looming global oil shortage due to a decade of underinvestment, calling for renewed spending on exploration and production. The Norwegian Continental Shelf, Equinor plans to drill 175 exploration wells by 2030. Var Energi is targeting an average 15 exploration wells annually over the next 4 years, and Aker BP intends to drill 10 to 15 exploration wells per year going forward. We agree with Oxy CEO, Vicki Hollub, who said, "When you have the best discovery that has been made in the past couple of decades, i.e., Guyana, producing only enough to cover 1/3 of the demand in 1 year, that is a big issue". The renewed focus on deepwater is becoming clear as the industry faces the realities of prolonged underinvestment and the constraints of short-cycle supply. Capital is flowing back into offshore projects with a steady pace of new FIDs while exploration activity is gaining pace across many geographies and geologies. At the same time, natural gas demand continues to climb, driven by emerging uses such as data centers and the need to support an overstretched power grid. Deepwater is once again at the center of meeting the world's energy needs. With that, I'll turn the call over to Samir. Samir Ali: Thanks, Simon, and good day, everyone. To recap, since our last earnings release, we've added over $300 million in backlog, bringing Seadrill's total contracted backlog to approximately $2.5 billion. We made strong commercial progress, securing new work across 5 rigs, eliminating idle time while focusing on cash generation. Starting with Angola, all 3 rigs in the Sonadrill joint venture have been extended. The Sonangol Quenguela has been awarded a 210-day program with TotalEnergies, which will keep the rig working into mid-2026. We remain confident that the rig will secure more work in the near future. The Sonangol Libongos began a 525-day program in August, filling its schedule into 2027. The West Gemini will start a 280-day contract in the next 1 to 2 months, following the completion of its special periodic survey during the third quarter. Combined, these 3 awards solidify our leading position in Angola. In the U.S. Gulf, 2 of our 3 rigs secured new contracts in direct continuation of existing operations. The West Vela was awarded a contract with Walter Oil & Gas. Drilling is expected to commence in March 2026 with an estimated duration of 65 days and a total contract value of $28 million, excluding MPD. Following this program, the rig will return to work for Talos to drill an appraisal well. The Sevan Louisiana has secured a short program also with Walter Oil & Gas, expected to last around 70 days, starting immediately after it concludes the current work with Murphy. Collectively, these awards contribute over 3 years of backlog, reinforcing the effectiveness of our contracting strategy and the robustness of our customer relationships. Our track record demonstrates an ability to attract new clients while consistently securing additional work with existing partners. Turning to the market and to build on Simon's remarks, we continue to see constructive contracting momentum and an uptick in global tendering activity, supporting a broad-based recovery. These dynamics lead us to believe that there will be an increase in contracted utilization and meaningful day rate progression as we move from 2026 into 2027. The International Energy Agency's latest report reinforces what we're hearing in customer discussions. It highlights that nearly 90% of upstream investment since 2019 has gone towards offsetting production declines rather than adding new capacity. Conventional oilfields now account for only 77% of global oil output, down from 97% in 2000, emphasizing the need for new offshore projects. At the same time, the IEA has halved its forecast for U.S. renewable energy growth by 2030, which signals that hydrocarbons will remain a central part of global energy supply for longer than previously expected. Combined with plateaued shale production, we believe the stage is set for a renewed investment in deepwater development. We're seeing this recognition translate into real investment. Operators are sanctioning major offshore projects with attractive economics and robust breakeven profiles. Recent final investment decisions include ExxonMobil's $6.8 billion Hammerhead development in Guyana, supporting continued drillship demand in that basin, BP's $5 billion Tiber-Guadalupe project in the U.S. Gulf with 6 development wells and additional phases under review, Eni's $7.2 billion Coral Norte development and TotalEnergies' recently lifting force majeure on its $20 billion greenfield LNG project, both in Mozambique. Beyond development activity, exploration momentum is also building. In Brazil, Petrobras secured approval for its first equatorial margin well since 2013, part of a plan for 15 wells and $3 billion investment through 2029. Also in Brazil, Equinor has expanded its pre-salt position through its acquisition of 2 new blocks, highlighting its continued commitment to the pre-salt sector and renewed global interest in Brazil's offshore resources, spurred by BP's recent Bumerangue discovery. In Indonesia, Eni and PETRONAS have created a JV that plans to drill 15 exploration wells and invest over $15 billion in the region over the next 5 years. Earlier this week, Shell finalized an agreement to return to Angola following a 25-year absence, securing exploration rights for 4 new deepwater blocks and investing $1 billion in the project. More generally, Africa and Asia remain the leading sources of incremental demand. Multiple tenders continue to progress, and we remain optimistic that these will translate into rig commitments in late 2026 and 2027. In addition to activity elsewhere, it is our view that Africa and Asia will be the key geographies, which dictate the balance of supply and demand over the next 18 months. In summary, the offshore industry is at an inflection point. After nearly a decade of underinvestment, the market is refocusing on offshore as a critical source of future supply, and Seadrill is strategically positioned to capture value from that momentum. With that, I'll hand it over to Grant. Grant Creed: Thanks, Samir. I'll now walk through our third quarter financial results before providing an update on the remainder of the calendar year. Total operating revenues for the third quarter were $363 million, representing a sequential decrease of $14 million. Contract drilling revenues declined $8 million to $280 million. The decrease is attributable to fewer operating days for West Vela and Sevan Louisiana and lower economic utilization compared to the prior quarter. Management contract revenues decreased $2 million quarter-on-quarter to $63 million as the prior quarter included a retrospective catch-up for year-to-date inflationary increases to the daily management fee Seadrill earns for providing management, operational and technical support to Sonadrill. Reimbursable revenues decreased $5 million to $11 million, offset by a corresponding decrease in reimbursable expenses. Total operating expenses for the third quarter were $337 million, down 9% from the prior quarter. The decrease mostly relates to a $44 million reduction in management contract expenses as the prior quarter included an accrual for historic fees payable pertaining to the Sonadrill joint venture. This was partially offset by an $11 million increase in vessel and rig operating expenses, largely driven by the timing of repairs and maintenance spend. Adjusted EBITDA was $86 million, a sequential decrease of $20 million from the prior quarter. Moving to the balance sheet and cash flow statement. We continue to maintain a robust balance sheet with total liquidity of approximately $600 million. At the end of the third quarter, gross principal debt remained at $625 million with maturities extending through 2030. Total cash increased by $9 million to $428 million, including $26 million of restricted cash. Net cash flow from operations during the third quarter was $28 million and includes $69 million in additions to long-term maintenance. Payments for capital additions captured within investing activities were $19 million. As mentioned earlier, the West Gemini completed its SPS in September with the associated cash outflows taking place in the third quarter. Moving on to our outlook for the remainder of the current year. We are narrowing the adjusted EBITDA range to $330 million to $360 million, and that's based on an updated range for operating revenues of $1.36 billion to $1.39 billion, and that excludes $50 million of reimbursable revenues. Adjusted EBITDA guidance includes a noncash net expense of $33 million related to the amortization of mobilization costs and revenues, of which $24 million has been recognized through September 30. Full year capital expenditure guidance range is narrowed to $280 million to $300 million, and we expect capital expenditure and long-term maintenance to trend lower in 2026. I'll now hand the call back to Simon for his closing remarks. Simon Johnson: Thank you, Grant. In summary, we continue to execute our commercial strategy to build backlog coverage through 2026 and minimize our exposure to contract gaps. We're encouraged by signs that a market recovery is coming into view. We have consistently highlighted the industry's failure to replace deepwater reserves, a view that E&P supermajors are now acknowledging. A shift in capital allocated towards offshore drilling is well underway with a steady progression of contract awards and an increase in final investment decisions on major offshore projects. At the same time, a renewed focus on energy security amid geopolitical instability further reinforces the strategic importance of offshore resources. Seadrill is exceptionally well positioned to support long-term demand for energy services and create sustainable shareholder value. We believe that Seadrill represents compelling value, a view supported by the sell-side analyst community. Seadrill holds the highest proportion of buyer recommendations among the 4 largest U.S. listed offshore drillers, reflecting broad confidence in our long-term value creation potential. I'll now hand the call over for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Eddie Kim from Barclays. Edward Kim: Just wanted to ask about what you're seeing in terms of leading-edge day rates within the Golden Triangle. The 2 short-term contracts you just announced for the Vela suggest pricing is fairly resilient in that region. But you previously highlighted an expectation of some lower data points in West Africa. And I think investors are sort of bracing for maybe some other negative data points in Brazil here on some upcoming contract announcements. So first, do you expect maybe some negative data points coming out of Brazil? And second, is that sort of a fair characterization of how you're seeing things right now, so maybe some softness in West Africa and Brazil, but resilient in the U.S. Gulf. Any thoughts there would be great. Samir Ali: Sure. So Eddie, I'd say it depends what market you're in. I'd say in the U.S. Gulf, you've seen what we think we can get, and we've shown that we're able to price at those levels. And you can do the math on the Vela contracts. It gets us in a pretty good spot. If I go to the other places of the Golden Triangle, I think in the near term, there is potentially some weakness, but it's not dramatic, right? So you're going to see things in those high 3s, low 4s, I think kind of it's generally where we're tracking across the Golden Triangle, but it's really hard to pin down exactly where. But I think for us, we've tried to be very conscious about filling those gaps and focusing on getting near-term work, and we've shown an ability to get those at pretty good rates here in the U.S. Gulf. Edward Kim: And then my follow-up is just on your medium- to longer-term outlook, which is very constructive. One of the things you said in prepared remarks was that you expect Africa and Asia to be the leading sources of incremental demand. We've heard from some of your peers about incremental demand in Africa, of course, but less so about Asia. So could you maybe talk about which countries or which operators you're most excited about in Asia as we look forward over the next 12 to 18 months? Samir Ali: Sure. So in Asia, I'd say, you've got programs in India, Malaysia, Indonesia that are all starting to kind of bubble up to the surface right now. The operators are E&I, ONDC, PTTEP. So you've got to a -- it's not just one operator in one geography. It is kind of spread across different parts of Asia. So for us, we are very optimistic about that market in the near term. And candidly, for us, we've got the West Capella sitting out there that's a dual activity MPD capable rig. So we think it's very well positioned in that market. Operator: Our next question comes from the line of Fredrik Stene from Clarksons Securities. Fredrik Stene: Congratulations on the new contracts. I wanted to touch specifically on the Capella and the Carina. And Samir, you mentioned it briefly now in the end there for the Capella. But clearly, Capella idle already. Carina is rolling off early 2026. What are your current thoughts about potential downtime, et cetera, next year for those 2 rigs specifically? Simon Johnson: Well, perhaps I can kick off first, Fredrik, and then I'll pass to Samir for a bit of color. But I think as Samir foreshadowed in the previous question, this team has done a really good job in incrementally adding term through time. And we do, in fact, have these 3 rigs that have first half exposure, but we are continuing to make progress on the contracting front. And when we have news on that, we can share that with you. But it's really the first half of next year, I think, where we have concern, and we expect that the market will start tightening in the second half. And we've done a good job, we believe, minimizing our exposure to that weak period of the market. But Samir, perhaps you can add some color. Samir Ali: Sure. So back to -- if I look at the South Asia region, the Carina or the Capella, beg your pardon is well placed within there to MPD dual activity. So optimistic that we'll be able to announce something here shortly, but nothing to announce today. If you look at the Carina, beg your pardon, we have the ability to keep her working in Brazil or we can bid her outside, and we have continued to bid that rig outside of Brazil as well. That is a true seventh-generation asset. It's got MPD. We could easily retrofit with a second BOP. So that rig, it comes off early next year. We've got the abilities to potentially keep her in Brazil or we can move that rig to a different region as well. So for us, we have some flexibility with the Carina as we look forward. Fredrik Stene: Just a follow-up on that, Samir. Under the assumption that you potentially win something in Brazil since there are a couple of unresolved tenders there going on already. I think they call for late '26, early 2027 start-ups. In the case that you would get an award from something there, are there any extension options on the Carina under the current contract that would limit downtime in between? Because Petrobras tend to have certain clauses that can make contract extensions possible. Samir Ali: Yes. So what I'd say is, if we're not able to close that gap, it does make potential work in '27 in Brazil less attractive from our perspective. But it will be challenging to close that gap. 2026, as we mentioned, is going to be -- there is white space in the calendar, and it is a competitive market in Brazil. So it will be a challenge, but I'd come back to if we can't close that gap, it does make it less attractive for us to stay in Brazil. Operator: Our next question comes from the line of Ben Sommers from BTIG. Benjamin Sommers: So first, to touch on the Capella a little bit more. Just curious kind of how the cost deceleration on this rig has gone over the past few quarters. And then given the line of sight of potential work, kind of what would reactivation cost look like for that rig? Grant Creed: Look, on the cost side, we haven't been too explicit on that. Bearing in mind, it's in active tenders. I'd say we have said, it's stacked. It's more than the -- we've said the Eclipse, for example, is the $7,000 to $8,000 a day range. That's one bookend. I'd say it's more than that, keeping it live for tendering, but less than the typical warm stack that people talk about, the $80,000 a day, somewhere in between. On reactivation costs, it really depends on the opportunity we're hunting for. So it does really vary case by case. So there's no one golden rule. And so I'm kind of reluctant to throw numbers out there. If you think of it as a range somewhere between -- it's going to be more than 20, less than 50, depending on what opportunity we're reactivating for. Benjamin Sommers: And then as I look kind of in the back half of '26, I know we have some availabilities in the Gulf and elsewhere. I guess kind of on the day rate comments made earlier, I guess, where do you see timing on a potential kind of day rate inflection point here when we can really start to see some notable momentum in leading-edge rates? Samir Ali: Yes. So I think our thesis is that second half of 2026 and into '27 is kind of where we start seeing the inflection in the market. You'll see utilization pick up first, and I think day rates will be a fast follower after that. So if our thesis is as we enter next year -- or sorry, enter 2027, we should start seeing that momentum build. Operator: Our next question comes from the line of Doug Becker from Capital One. Doug Becker: Curious how you would characterize your conversations with Petrobras about reducing costs? And maybe a little more explicitly, do you see potential for any blend and extend contracts on any of the existing contracts? Or is it really on about reducing costs in other ways? Simon Johnson: Doug, yes, look, I think at this stage, we're very early in those conversations with Petrobras. I think there's a couple of important points. We're very encouraged to see Petrobras seeking the expertise in the drillers to help identify efficiencies. I think both Petrobras and ourselves are focused on opportunities that will deliver win-win solutions. Both sides need to benefit from the discussions. We are certainly looking to trade value rather than give you lateral discounts and blend and extend is definitely one of the potential approaches. So we're open to that where it makes sense in terms of our contract portfolio and the visibility of backlog and so on and so forth. Petrobras, as you know, is a very important customer for us. We've had a long-term relationship in what's an international market. And ultimately, rigs flow to where the greatest earnings potential is. It's notable that Petrobras have drilled more high-impact exploration wells so far this year and 2025, more so than any other operator in the world. And that's really encouraging for future demand. So the key point here, I think, is that any cost cutting or blend and extend discussions, et cetera, that's not going to have any impact on the underlying rig demand. We believe that continues to be robust on a many years ahead outlook. So yes, I mean, we're entering into those discussions with good faith, and we think there's a possibility of both sides obtaining advantage through a frank discussion of opportunities. Doug Becker: That sounds encouraging. And then, Simon, you appropriately highlighted the operational performance on a number of rigs. Economic utilization did slip sequentially in the third quarter. Just any rigs or regions to call out? And how do you see economic utilization trending going forward? Simon Johnson: Yes, it was a little bit disappointing on the cost side there, and there's a reason for that, which, I mean, there's some comments in the press release and the Q that we filed, but we can add a little bit more color, too. And I'm joined here today with by Marcel Wieggers, who is our Senior Vice President of Operations, who can talk about one of the operational incidents that occurred during the quarter that has sort of led to a departure from what our regular run rate is. Marcel Wieggers: Hello, Doug. So during the quarter, one of our rigs operating in Brazil experienced a downtime event caused by design-related equipment failure. This issue resulted in operational downtime and additional cost to rectify same and implement corrective measures. Learning from that event, we shared it across our fleet to prevent reoccurrence, of course. But in addition, we also proactively communicated these insights to our industry peers who operate some of our equipment to help them to mitigate this risk of similar failures in their operations. So if you look at our technical uptime for the quarter, if you exclude this rig, all the other rigs operated really well for the quarter with a technical uptime of 97.6%. Simon Johnson: Yes. So we think it's a one-off, Doug, yes. Operator: Our next question comes from the line of Josh Jayne from Daniel Energy Partners. Joshua Jayne: First one was just on the Louisiana upgrades you talked about. I assume you wouldn't do those without line of sight into something further. So maybe you could just talk about those upgrades a bit more and how they change the outlook for the rig maybe over the course of the next 12 months or so. Simon Johnson: Yes. In the Gulf of Mexico, there's -- that market has been quite dynamic in the semisubmersible segment. And a number of our competitors have retired rigs there recently. And what we are finding that we need to do in order to keep the Louisiana continuously busy, which we've been very successful in doing that. We've had to look at a couple of different modes of operation. And in particular, we've been getting quite aggressive in the plug and abandonment and the well intervention market. So what we're doing is we're making some discrete modifications to the rig, and we're setting up through an alliance-style partnership with Trendsetter, the ability to switch between drilling mode and well intervention and P&A mode. And the way -- as I say, that requires some discrete modifications to the rig. But most importantly, as you correctly allude to, Josh, it requires us to have confidence in that market segment and its prospectivity. But Samir will add some more color to what I'm sure. Samir Ali: Yes. So I'd say, we're definitely getting more demand pull in this region, and especially in the U.S. Gulf with this combination of the Sevan Louisiana and the Trendsetter system. Given the Sevan's very unique capabilities, it positions her as a unique tool in this market -- in this region. So for us, we continue to see clients coming and asking for availability on that rig. Joshua Jayne: And then on the Sonadrill rigs, congrats on the short-term extensions. Could you speak to the further outlook of those rigs? What exactly they're looking for with respect to signing the rigs up longer-term? And when they do get long-term contracts, any thought on the term that they're ultimately looking for? Samir Ali: Yes, absolutely. So I'd say, in my prepared remarks, I kind of alluded to that we feel confident in our abilities to add some more term to the Quenguela's schedule. That remains the case. We're in active dialogue about how do we add more term also with the West Gemini. I'd say both of those rigs, primary market would be Angola, but the joint venture isn't limited just to Angola. We do have the ability to take those rigs to other parts of Africa as well. So for us, we are focused on keeping the rigs working in Angola, given it's a natural home for them, and you've seen production decline in that market, and there is an active effort by the Angolan government to reverse that production decline. So it's natural to stay there, but it doesn't have to. Simon Johnson: Yes. We've seen subdued demand in Angola in recent times, Josh. But I think it's important to remember that 2 of the assets that are operated by the joint venture are directly owned by Sonangol. And when it comes time to be fed, they're ahead of the queue. And we're not concerned at all about long-term contracting opportunities for the rigs and the joint venture going forward. Operator: Our last question comes from the line of Noel Parks from Tuohy Brothers. Noel Parks: As I think about the last few months from last quarter report to maybe a month or so after as we were sort of wrapping up the summer, it does sound like those last couple of months that the generally more optimistic signs you were seeing have really sort of materialized and solidified. And I do recall some inkling of customers maybe being a little bit more willing to commit. And so I mean, is it just as simple as with the fastest of time, companies have gotten -- have finally just made decisions on their budgets, kept deepwater activity as a high priority. And I was also wondering if maybe looking ahead and contemplating more like Brent with a 6 handle than a 7 handle also made them feel like, yes, time to go back into the deepwater. Simon Johnson: Yes. Look, it's a really interesting question, Noel. Look, perhaps what I can do is speak a little bit to the backdrop and then Samir can speak to what we're seeing at an industry level. I think the key thing is that despite some of the near-term macroeconomic headwinds around tariffs, oil supply demand, we are firmly of the view that the fog is beginning to lift. And we're seeing a lot of data points emerge now, which support our view, which we've been talking about for some time. And definitely, the tone and the tenor of the conversations we're having with customers is improving. FIDs are progressing, contracts have been awarded. We're seeing the rig days awarded in Q3 as a 7% quarter-on-quarter increase, and we believe that's going to increase again in the final quarter of this year. And that's supported by industry commentators like Westwood. And of course, Seadrill are well placed for a couple of opportunities in that period. We're at a 3-year trough in '24 for the value of the FIDs, but that's starting to flip now, and we're seeing quarter-on-quarter improvement. Subsea tree installations are forecast to be at the highest level at the end of this year. We know that there's this weak spot that we've spoke to earlier in the call in the first half of '26. But we see strong signs for improvement on a whole range of fronts beyond that. Investment in green renewable energy has been in constant decline since 2019. And all across the space, the supermajors are clearly stating that there's a return to conventional dispatchable energy. That's where they're spending their capital. But Samir, perhaps you can talk to some of the more focused elements. Samir Ali: Sure. So I'd say that the Red Queen paradox is becoming real for a lot of our clients, right? You've seen reserve replacement ratios at 22% over the last 3 years. The general upswelling of reserve replacement exploration has become kind of the real topic that when we speak to clients, it is becoming a part of their normal daily discussions. You've seen all the supermajors on their recent earnings calls or public announcements saying, there needs to be more exploration. And that's leading to more rig demand for kind of generally the overall market. And we've tried to position ourselves to capture that upswing that we see coming in late 2026 and into 2027. Noel Parks: And I guess the other thing I was wondering is sort of filling out the picture. I was thinking about the comments from Conoco and from Oxy. And are you also sort of seeing internally inside the bigger players things like signs of them staffing up or you're suddenly meeting with a new manager who wasn't there before or just signs of them reallocating resources to address the deepwater opportunity? Simon Johnson: Well, we're seeing a number of different things. I think generally speaking, certainly, the big end of town, I think the supermajors are taking a cold hard look at their cost base generally. But we are definitely seeing certain of those supermajors build out exploration teams that either haven't received funding or have been greatly diminished in recent years. So I think it's -- there's a double story there. One is that they're focused on being more cost effective and trimming headcount. But certainly, in those areas that speak to new ventures, new opportunities, new exploration activity, that seems to be an area where they are willing to allocate capital. And we're seeing that. Just overnight, we're seeing the announcement of the Pakistan offshore oil licensing round, ExxonMobil are investing money in Greece. These are all healthy signs of a more normalized balance of expenditure between exploration and production. And that's been -- that's entirely consistent with the thesis that we've been sharing with the market now for several years. Operator: Thank you, everyone. This concludes today's conference. You may now disconnect.
Operator: Good morning, and welcome to Parker-Hannifin Corporation's Fiscal 2026 First Quarter Earnings Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to turn the call over to Todd Leombruno, Chief Financial Officer. Please go ahead. Todd Leombruno: Thank you, Chloe. Good morning, everyone, and welcome to Parker's fiscal year 2026 First Quarter Earnings Release webcast. This is Todd Leombruno, Chief Financial Officer, speaking. And with me today is Jenny Parmentier, our Chairman and Chief Executive Officer. And always, we appreciate your interest in Parker, and thank you for joining us today. We address our disclosures on forward-looking projections and non-GAAP financial measures on Slide 2. Items listed here could cause actual results to vary from our forecast. Our press release was released this morning, along with this presentation and reconciliations for all non-GAAP financial measures. Those are available on our website under the Investors section on parker.com. The agenda for today has Jenny starting with an overview of our record FY '26 first quarter performance. She will share some highlights from our day 1 celebrations, welcoming the Curtis team members to Parker. Jenny will also then reiterate the strengths of our interconnected portfolio and share an example from our energy market vertical. I will follow Jenny with more details on our strong first quarter results, and then we'll both provide some color on our increase to our FY '26 guidance. After that, we will move to the Q&A portion of the call and address as many questions as possible within the hour. I now call your attention to Slide 3. And Jenny, I will hand it over to you. Jennifer Parmentier: Thank you, Todd, and thank you to everyone for attending the call today. Q1 was a great start to the fiscal year. Operational excellence was on full display, powered by the Win Strategy. We achieved top quartile safety performance with a 20% reduction in our reportable incident rate. This performance is aligned with our goal to be the safest industrial company in the world. Our team delivered record Q1 sales of $5.1 billion, organic growth of 5% and 170 basis points of margin expansion, resulting in 27.4% adjusted segment operating margin. Adjusted earnings per share grew 16% and cash flow from operations was $782 million. And we completed the acquisition of Curtis Instruments. Next slide, please. A long-standing practice within Parker is for a Parker leader to personally welcome the new team at every location. This slide shows pictures from our day 1 events held around the world, welcoming the Curtis team to Parker. This was a great day for all of us, and we are thrilled to have Curtis in the Parker portfolio. Next slide, please. Obviously, we are very proud of the Q1 results delivered by our team and equally excited about our future. So just a reminder on why we win. First, the Win Strategy is our business system. We have a decentralized operating structure, 85 divisions run by general managers with full P&L responsibility, acting like owners, close to their customers and executing the Win Strategy every day. Next, we have innovative products that solve customer problems, 85% covered by intellectual property. Our application engineers provide the expertise that allows us to have a competitive advantage with our interconnected technologies that provide efficient solutions for our customers. And finally, our distribution network is the envy of the competition and the best in the world. It took us over 60 years to build it, and it is truly an extension of our engineering teams, providing solutions to all of those small to midsized OEMs that are participating in capital spending and investments. These partners are experts at applying our interconnected technology. Next slide, please. We have the #1 position in the $145 billion motion and control industry, a growing space where we continue to gain share. These 6 market verticals represent greater than 90% of the company's revenue. Our interconnected technologies cut across these market verticals and give us a clear competitive advantage. 2/3 of our revenue comes from customers who buy 4 or more technologies, and our growth is focused on faster-growing, longer-cycle markets and secular trends. Next slide, please. This slide focuses on our presence in the energy market vertical. Parker is a significant supplier of products into heavy-duty gas turbines used for electrical power generation. We bring both proprietary designs and world-class manufacturing capabilities to offer a comprehensive suite of interconnected technologies. Parker supports multiple global industry-leading customers, and we are seeing significant growth in this space. This business is long life cycle with multiyear backlog and durable aftermarket. This is a great example of products and technology that are shared across aerospace and industrial markets. I'll hand it back to Todd to go through our first quarter highlights. Todd Leombruno: Thank you, Jenny. This was a great start to the fiscal year. I'm on Slide 9, and I will start with a summary of our Q1 results. Once again, and I love saying this, every number in the gold column on this slide is a record. It was just a fantastic quarter where mid-single-digit sales growth, combined with strong margin expansion, resulting in mid-teens EPS growth. Sales were up 4% versus prior. Organic growth was positive at plus 5%. Currency was favorable at 1%. And divestitures were 2% unfavorable. Those are the divestitures that we've previously completed. And I would just note, this is the last full quarter that we will have a full quarter of a divestiture impact. Moving to adjusted segment operating margins. As Jenny said, we did 27.4%, that's an increase of 170 basis points versus prior year. Adjusted EBITDA margin was 27.3%, that was up 240 basis points. And adjusted net income was $927 million or 18.2% return on sales. All of this drove adjusted earnings per share up 16% to reach a record $7.22 per share. It was a really nice start to the fiscal year with a strong quarter across the board, and it gives us confidence for the remainder of the fiscal year. Our global team members really continue to drive results enabled by the power of the Win Strategy. If we could jump to Slide 10, you'll see a bridge on the year-over-year improvement in adjusted EPS. The majority of our EPS growth came from continued strength across our operations as segment operating income dollars increased by $132 million or 10%. That contributed $0.80 to our EPS growth this quarter. Corporate G&A and other were favorable $0.18. That was primarily due to foreign currency exchange in the prior period quarter last year, that was unfavorable last year, that created a favorable for this year. Interest expense was also favorable by $0.07, and that's driven by lower average debt balances across the quarter and lower interest rates across the quarter. Share count was $0.13 favorable, and that was driven by the discretionary share repurchases that we completed over the last 3 quarters. Income tax was unfavorable by $0.16, and that was really simply due to a few favorable discrete items in the prior period that did not repeat. And that is basically it, a really clean bridge to the 16% increase in adjusted EPS. This record was really achieved by strong sales growth across the board, margin expansion and great adherence to cost controls across the company. If we move to Slide 11, we'll just talk about the segment performance. Orders were strong at plus 8% versus prior year, with order rates increasing across all reported segments. Organic growth came in at plus 5%. This was the first time in 2 years we've had positive organic growth across all of our businesses as diversified industrial organic growth turned positive. Every business delivered record adjusted segment operating margins, resulting in great incrementals and that 170 basis points of margin expansion. Looking specifically at the Diversified Industrial North America businesses. Sales were over $2 billion with organic growth positive at 2%. That's the first time in 7 quarters North America posted a positive organic growth number, that was better than our expectations going into the quarter. We continue to see gradual improvement across market verticals with positive growth driven by the aerospace and defense businesses in Industrial North America, in the implant and industrial equipment vertical and also improvement in off-highway that exceeded expectations. If you look at North America, they also had 170 basis points of margin expansion and reached a record 27.0% segment operating margin. That was really driven by higher productivity, some new business wins at great margins and margin mix with strong aftermarket across all those businesses in North America. And North American orders increased sequentially to plus 3% versus prior year. Looking at the Diversified Industrial International businesses. Sales were up. They were a record at $1.4 billion, up 3% versus prior. Organic growth remained positive at plus 1%. Looking at Asia Pacific, that was our strongest region with a plus 6%. EMEA remained down at minus 3% and Latin America was flat versus the prior year. So Asia Pac really drove the outperformance of growth in the international businesses. Adjusted segment operating margins were also a record at 25.0%, that is a 90 basis point improvement from prior year. And I can't say this enough, our international teams continue to show great resilience, they're driving margin expansion and its really great cost controls, and they're really executing the Win Strategy to great success. International orders rebounded, they improved to plus 6% after a flat Q4. Both EMEA and Asia Pac had positive orders this quarter. And lastly, Aerospace Systems, just another exceptional quarter from this group. Sales were a record $1.6 billion. That's an increase of 13% versus prior. Organic growth of 13%. That's the 11th quarter in a row that we've had double-digit organic growth rate in Aerospace. Commercial OEM is the strongest market segment growing 24% versus prior year. Adjusted segment operating margins increased by 210 basis points and, I'm proud to say, reached 30% for the first time ever. Record top line, productivity, continued aftermarket strength all drove the margin expansion. And Aerospace orders continue to be impressive, increasing plus 15%, and backlog also reached a new level -- record level for Aerospace. There's just robust demand, and that continues across all of our aero and defense markets. It's great to be in the Aerospace business right now. If we move to Slide 12, let's look at our cash flow performance. Cash flow from operations, a record $782 million, that's 15.4% of sales. That's up 5% versus prior year. Free cash flow is $693 million, that is 13.6% of sales. That is up 7% versus prior year. Cash flow conversion for the quarter is at 86%. I just want to remind everybody, I think everyone knows this, but our cash flow is historically second-half weighted. We remain committed to free cash flow conversion of greater than 100% for the year. And lastly, on this slide, we did repurchase $475 million of shares on a discretionary basis within the quarter. That is a wrap on Q1. And Jenny, I'm going to turn it back to you on Slide 14, and we'll move on to our updated fiscal year guidance. Jennifer Parmentier: Thank you, Todd. This slide shows our updated fiscal year '26 organic sales growth forecast by key market verticals. In Aerospace, we are increasing our forecast from 8% to 9.5% organic growth. We continue to see strength in commercial OEM and aftermarket. Implant and Industrial remains the same as our initial guidance at positive low single-digit organic growth. The sentiment does remain positive with continued quoting activity, while customer CapEx spending remains selective. Transportation is our most challenged market this year. Forecast stays the same at mid-single-digit organic decline. We are increasing the off-highway forecast from negative low single digits to neutral. We see gradual recovery progress in construction, while the ag challenges do persist. We are maintaining energy at positive low single-digit growth, with robust power gen activity offset by oil and gas. And we are increasing HVAC/refrigeration from positive low single digits to positive mid-single digits. We see strength in commercial refrigeration and filtration with some nice new business wins with our filtration technology. As a result of these changes, we are increasing our organic sales growth guidance from 3% to 4% at the midpoint. I'll give it back to Todd for some more guidance details. Todd Leombruno: Thanks, Jenny. I'm on 15, Slide 15, with just some of those details. In respect to reported sales, we are increasing the range to 4% to 7% or 5.5% at the midpoint. Currency is expected to be a favorable 1.5 points, and that is based on September 30 spot rates. Now that we have the acquisition of Curtis closed, we are including sales and segment operating income from Curtis in our guide. We have added $235 million to our guide for the remainder of the year, that is approximately 1% of sales. And divestitures that we've already previously completed are 1% unfavorable. If you move to organic growth, the forecast has now increased to a range of 2.5% to 5.5% or 4% at the midpoint. We have increased Aerospace organic growth to 9.5% at the midpoint. And for the Diversified Industrial segment, we have increased North America organic growth for the year to plus 2%. And for international, we still expect organic growth to be 1% at the midpoint. We are raising adjusted segment operating margins. We're raising that 50 basis points to 27.0% for the year. That is now a forecasted increase of 90 basis points versus prior year, and incrementals are now forecasted to be approximately 40% for the full year. Just a few additional items. Corporate G&A is unchanged at $200 million. Interest expense has been increased by $30 million, we now expect $420 million for the full year. And that is driven solely by the funding of the Curtis acquisition. And other expenses just slightly up to $90 million from $80 million last quarter. Our full year tax rate, we expect 22.5%. And we are raising adjusted earnings per share to an even $30 at the midpoint. That would be a 10% increase versus prior year. The range on that EPS is plus or minus $0.40 on either side, and the split is 48-52 first half, second half. In respect to full year free cash flow, we're also raising our guidance there to a range of $3.1 billion to $3.5 billion, with conversion, like I said, greater than 100%. And finally, looking specifically at Q2 for FY '26, we expect organic growth to be -- or excuse me, reported sales are expected to be 6.5%. Organic growth is expected to be 4%. Adjusted segment operating margins, 26.6%, and EPS for the second quarter on an adjusted basis is $7.10. As usual, we have the -- some additional details in the appendix. And really just in summary, FY '26 is off to a great start. That gives us confidence to raise full year guidance for sales margin, EPS and free cash flow. With that, I ask you to move to Slide 16, and Jenny, I'll turn it back to you. Jennifer Parmentier: Thanks, Todd. And a reminder on what drives Parker. Safety, engagement and ownership are the foundation of our culture. It's our people and living up to our purpose that drives top-quartile performance, that allows us to be great generators and deployers of cash. Thank you. Todd Leombruno: All right. Chloe, we are ready to begin the Q&A session. So we'll take the first question. Operator: [Operator Instructions] We'll take our first question from Julian Mitchell with Barclays. Julian Mitchell: Just wanted to start off perhaps with the organic sales picture in the DI North America business. Maybe help us understand a little bit better the cadence of demand. It did seem to surprise you positively, I think, in the quarter. How has demand moved there in recent months? And then when we're looking at the full year guide, I think your midpoint for DI North America doesn't embed any acceleration from the September quarter growth rate. Just wondered the thinking there. Jennifer Parmentier: Okay. Julian, so yes, we're very pleased with the performance. We had guided to a negative 1.5% and came in at a positive 2%. So North America performed better than expected with the Aerospace and Defense business it sits inside of our Industrial businesses, distribution, HVAC and electronics. Construction continued to outperform versus our expectations. And margin expansion from a higher productivity on slightly stronger volume really helped us. We had some project wins at attractive margins, and we're getting a margin mix benefit with the lower industrial OE and a very resilient aftermarket. So you are right, we do expect Q2 to be much like Q1 coming in at 2%. So that was prior, as Todd stated, for the year, we were looking at a total of 1%. So as I was just talking about, what we saw in Q1, we do believe that industrial aerospace and defense world remains strong. We're still talking about a gradual Implant Industrial recovery. Certainly positive sentiment from our distribution channel continues. Quoting activity is good. But as I commented earlier, still customers are being very selective on their projects and their CapEx spending. We still see transportation challenges in automotive and trucks. So we don't expect a truck recovery this fiscal year, but we will see some benefit from the aftermarket. In off-highway, gradual recovery progress in construction, but ag challenges still persist. Energy, power gen, robust. But oil and gas upstream still weak. And we're -- HVAC and refrigeration, we're coming off a very strong fiscal year, and we have increased that for the rest of the year. So while some markets are increasing, not all of them are, and that's why we see Q2 pretty much the same as Q1, but an increase for the total year. Todd Leombruno: Julian, I would just add, Jenny covered the organic growth piece perfectly, but I would just add, on a margin standpoint, we did increase Diversified Industrial North America margins 70 basis points for the full year versus our previous guide. So the teams are converting on that, and I have great confidence that we'll be able to do that. Jennifer Parmentier: Yes. And Q2 margin is 150 basis points higher than the prior year. Todd Leombruno: Correct. Julian Mitchell: That's helpful. And just following up on that last point perhaps, so I understand that you've had a higher margin performance year-on-year for the total company than is guided for the full year. I assume that's just sort of natural conservatism given we're early in the year. I wonder if there was any other factors to think about. And allied to that, your Q2 EPS guide is a decline sequentially, which is quite unusual in Q2. Any color on that, please? Jennifer Parmentier: So I think we left the second half pretty much alone. So based on what we see today, we feel really good about Q2. And I think we'll have a better line of sight here after the first of the year. Todd Leombruno: Yes, Julian, Q2, sequentially, it usually is our softest top line. I think the EPS is just pulling off of that. Nothing out of the normal that we see. Operator: We'll move next to Mig Dobre with Baird. Mircea Dobre: I would like to talk a little bit about Industrial International. The orders there were quite good and, frankly, better than what I would guess. A little bit of update in terms of what you're seeing in various geographies. And related to this, if I look at the past 4 quarters, I think your order intake averaged about 5%. So it's quite a bit better than what you have embedded in your forward outlook for organic growth. So I'm kind of curious at what point in time do you start to see these higher orders really flow through organic growth in the segment. Jennifer Parmentier: So with Industrial International orders, they've been really choppy as we often say. If you go back to our Q3, we had a plus 11%, and then Q4, we went flat. And that was because we had some onetime long-cycle orders that didn't repeat in Q4. So it's really not an average of about 5%. So what we're seeing in the region is, if we look at EMEA, we're showing flat to slightly positive organic growth for the fiscal year. There's uncertainty that's remaining, and we're expecting a slow in-plant industrial recovery. We do expect to see some growth in energy. We are seeing some mining recovery underway. And we do think that there'll be some pickup from the stimulus in future defense spending, but that's not something that we think we're going to benefit from this year. So what we see in EMEA is really to remain flat to slightly positive with what we see on the orders right now. In Asia Pacific, we have positive low single-digit organic growth for the fiscal year. We continue to see strong electronics and semicon demand. Implant is mixed as delays continue in China, but we do see some slight growth in India and Japan. Seeing some mining and transportation improvements in China, but I think there's still some continued uncertainty from tariffs across this market. So this is what we're seeing today on Industrial International. I mean we look forward to the time when this will be a higher organic growth. Mircea Dobre: Understood. My follow-up, and I don't know if you can answer this question, Jenny, it's kind of in the weeds. You talked about the ag market where challenges persist. But I do wonder, in terms of your exposure, if you sort of separate out the large ag equipment, so high-horsepower tractors combines versus midsize and in lower horsepower, I'm just wondering kind of what your exposure looks like there because I am starting to see a bit of a divergence forming where, large ag, as you say, it's challenged, but some of these smaller tractors are starting to grow in terms of volumes, and the volumes are actually much higher in lower horsepower equipment than large ag. So I'm wondering if this end market might turn a little bit sooner than maybe we're thinking about when we're thinking about large ag. Jennifer Parmentier: When we talked about last quarter, I made the comment that we thought that, that market had kind of hit trough. And I would say it's broad-based when we look at ag between that equipment. But you can certainly follow up with Jeff on maybe for more details in one of the follow-up calls. Todd Leombruno: Yes. Mig, I would just add, when we look at ag, it's 4% of total company sales. So it's just become a smaller piece of the total pie. It is broad-based. There's aftermarket, there's the OEM side of it. So I don't know if I'd read too much into movements there. Operator: We'll take our next question from David Raso with Evercore ISI. David Raso: Of the organic guide raise, how much was volume versus a change in price? And of the 50 bps margin improvement, can you give us a sense of how much of that may be related to the answer to the first question, volume improvement versus maybe price/cost different than you originally expected for the year? Jennifer Parmentier: David, well, as you know, we don't disclose pricing. Regardless of pricing or volume, I think that we've shown that we can expand margins pretty much in any climate. We have had 2 years of negative industrial growth and we're seeing the gradual industrial recovery playing out with industrial organic growth now positive in Q1. So we're definitely seeing the impact of slightly stronger volume. Operator: We'll move next to Scott Davis with Melius Research. Scott Davis: I've got to ask about M&A. I probably do a lot of quarters, but I'm going to lead with it anyways because it's been a few years since you closed Meggitt and, obviously, that's such a great deal for you guys. But Curtis seems like an interesting deal too, it's just not as big as maybe some of those others. So can you just update us on your pipeline and such? Jennifer Parmentier: You bet. So obviously, we're committed to actively deploying our capital. And as you mentioned, we did close Curtis Instruments in September, and we're really excited about that. And moving forward, the strategy remains the same with plenty of optionality. So when it comes to capital deployment, obviously, we prefer acquisitions, but it has to be strategic and disciplined. You've heard me talk about this criteria before. And I would tell you that the pipeline, the relationships and the analysis continues to be very active. While sometimes timing is hard to predict, we are working it. And we want to continue to acquire companies where we're the clear best owner. And we feel like we have a strong competitive advantage with our interconnected technologies, and that's what we want to add to the portfolio. So still looking for those deals that are accretive to growth, resiliency, margins, cash flow and EPS. And as I've said many times before, the pipeline has deals of all sizes. Operator: We'll take our next question from Amit Mehrotra with UBS. Amit Mehrotra: So obviously, it was, I guess, nice to see the order improvement. Jenny, a quick question about just the broad basis of that. I mean are we seeing a broader activity in pickup? You also won -- I think I saw that somewhere you guys won a large contract to supply components for aero-derivative gas turbines. I'm just trying to get a sense of are we seeing broad-based green shoots here? Or is it mostly explained by the longer cycle pockets that kind of have been working for a while? Jennifer Parmentier: We have the longer-cycle pockets, but then we're also seeing some improvement in some of our other key verticals. So when you look at the change that we had in the guide this month, we took -- obviously, we took aerospace and defense up. We also moved off-highway from negative low single digits to neutral, and we increased HVAC and refrigeration from low single digit to positive mid-single digits. So we are seeing some pockets within those industrial businesses where we're seeing some growth. Amit Mehrotra: Okay. And the other question I have is on Aerospace margins, obviously just really good. One thing I noticed is obviously the incremental margins being so high despite OE revenue up 20%, which I would imagine would be a little bit mix-dilutive. As the OE build cycles continues to improve, can we talk about what the mix impact is on aero margins going forward? Because it seems to like defy gravity in the quarter. Jennifer Parmentier: Yes. Well, we did have 51% OEM and 49% after margin in the quarter, and we do anticipate that that's going to be the mix for the rest of the year. Aero margins are very strong in Q1, and we had a nice bit of spares in Q1, which is really nice margin for us. So that helped us reach that record 30%, hit 30% for the first time. Going forward, we're very confident in our ability to maintain the margins where we've been and go forward with strong margins. If you look at what we did with the guide, we have full year at 29.5% now. That's 100 basis points higher than prior year, and that was raised 60 basis points from the initial guide. Q2, we're forecasting 29.1%, and that's 90 basis points higher than previous year. So we're in a good spot with aerospace. Our teams are doing an excellent job executing the Win Strategy and really benefiting from this volume. Operator: We'll move next to Jeff Sprague with Vertical Research Partners. Jeffrey Sprague: Can we just cut a little further in the aerospace? And also, Jenny, maybe just a little bit of color on kind of how you see the defense side playing out in 2026 versus the commercial side? Any change of thinking there? Jennifer Parmentier: So Jeff, I'm sorry, what was -- so you wanted dig deeper into aero, especially defense, right? Jeffrey Sprague: Yes, I want to kind of get a sense of defense versus commercial mix and how that's playing and if that's changed versus your initial view. Jennifer Parmentier: Yes. We came out with mid-single-digit growth for both defense OEM and MRO, and that's the same. We haven't -- we're not forecasting any change there. Jeffrey Sprague: Great. And then just on Curtis, I think it comes in a bit margin dilutive, it's not apparent given kind of all the other execution and everything that's going on. But can you just kind of give us a little color on at the margin rate it comes in at the work you're doing to integrate it? And any thoughts on kind of how it might be positioned into next year after you've got it kind of fully digested? Todd Leombruno: Yes, Jeff, this is Todd. I can take that. I mentioned earlier, we added about $235 million of sales into the guide. You're right, it is slightly dilutive. But it's smaller, so it doesn't really have an impact. You can see we did raise both North America and International margins for the full year, even after including Curtis into the mix. If you're looking for a number, I would say, high teens, low 20s would be a good number to use. It does add -- it is EPS accretive in a stub year even. You saw that we added $30 million for interest there. And it's only been a little over a month. The team is super excited about it. Jenny mentioned the welcoming day, and I can tell you they're working really hard to integrate and make this part of Parker, just like we have on the last deals. Jennifer Parmentier: I would just add to that, as Todd said, the integration is well underway. Very similar. We've assembled a dedicated integration leader and a team of high-talent team members, and this is how we ensure a very smooth integration. Operator: We'll move next to Joe Ritchie with Goldman Sachs. Joseph Ritchie: Jenny and/or Todd, is there a way that you could maybe size the opportunity on Slide 7 or give some color just around like what the growth rates have looked like? I'm just curious how to think about this business for you guys going forward. Jennifer Parmentier: Well, I don't think we're in a position to go over the growth rates. But what's great about this power gen business is that we do have this suite of interconnected technologies for power gen applications. And you can see on that slide all the different examples of the products that we have. And it's just a very robust order book, like I commented multiyear. We expect solid growth for years to come. And we're working with all of the leading industry customers. So while this market vertical makes up about 7% of our sales and power gen is about half of that, it's a small percent overall, but a very nice growth area for us. And we expect to, not only continue to win in this market, but really benefit from it. Joseph Ritchie: Yes. No, that's great to see, and glad that you guys highlighted it. Other quick question, I know that we won't be talking specifically around pricing. But in an environment, let's say, where you do see some of these tariffs potentially getting rolled back. Like how does that impact the pricing that you've already put through? And then ultimately, is that another potential boost to margins if we do see some pullback on tariffs? Jennifer Parmentier: Well, obviously, as we've talked about tariffs, we have the analytics and the processes to navigate and act quickly up or down. And we had to do a lot of that over the last several months. And the teams have just done a fantastic job. So we're -- we have a strong muscle when it comes to pricing and to price/cost, and we'll adjust as we need to. But as I've stated time and time again, we can't use tariff as a margin expansion device. This is something that we have to recover from a cost standpoint, and we'll adjust as we need to, going forward. Operator: We will take our next question from Joe O'Dea with Wells Fargo. Joseph O'Dea: Wanted to start on the North America implant side of things and what you're seeing from customer activity or what you're hearing from dealers with respect to greenfield and brownfield investment in the U.S. And then around that, whether you're getting any color on the nature of those investments and kind of local for local or you're seeing more kind of foreign participants looking to invest in the U.S. Jennifer Parmentier: Yes. I don't have the detail too much for local for local versus foreign investment. But I would tell you, my comment earlier about the CapEx being selective, I do believe it's still selective. But in the past, we were just talking about delays and delays. And obviously, we saw a stronger area there through distribution and implant in Q1. So we're seeing some things get across the line and projects get started. But I don't have a specific breakdown for you at this time. Joseph O'Dea: And then on the HVAC side of things and seeing some strength in commercial refrigeration and filtration, I think you talked about some nice new wins in filtration. Can you just expand on that a little bit in terms of verticals you're serving there, where you're seeing some of that strength? Jennifer Parmentier: Yes. We've had some nice filtration wins when it comes to gas turbines. We have some proprietary technologies, really nice filtration products in the energy market. And then we've also had some night filtration wins on the -- actually on the mobile side of the business as well. So it's been a growth area for our filtration group this past year. Operator: We'll move next to Christopher Snyder with Morgan Stanley. Christopher Snyder: So obviously, North America Industrial turned organic positive in the quarter. I'd imagine there's some benefit of incremental price, and it does sound like some of the longer-cycle verticals kind of helped that. But I guess my question is, when you look at North America industrial, the more cyclical pieces, do you feel like the cycle is starting to get better? Jennifer Parmentier: Yes, I would definitely say that Q1 is evidence of that, right, and especially those key market variables where we've increased our outlook for the year. So yes, I would definitely say we're starting to see that. Todd Leombruno: Yes, Chris, I would just add -- I was just going to add, Chris, that we've talked about inventory across the channel, and we feel that it's kind of at a trough level. I can't say that we've seen a restocking yet, but it feels like we're closer to that than going the other direction. Christopher Snyder: Yes. No, happy to hear that. You've talked about implant as being one of the industrial verticals doing well showing momentum. Do you have any color to provide on how that business did in the U.S. versus the international markets? Just to get a sense if some of the policy is driving activity into the U.S. Jennifer Parmentier: In North America, as I commented before, it's a gradual Implant Industrial recovery. But as Todd was just saying, although we don't see restocking yet, we still have that very positive sentiment from our distribution channel and a lot of quoting activity. When we talk about EMEA, it's still some uncertainty that remains. So we're expecting a slow Implant Industrial recovery. When we look to Asia Pacific, it's kind of mixed. Delays continue in China, but there's been some growth in India and Japan. Operator: We'll take our next question from Jeff Hammond with KeyBanc Capital Markets. Jeffrey Hammond: Maybe just at the Analyst Day, you called out data center, and I know, clearly, power gen probably benefiting from that. But maybe just update us on what you're seeing on the liquid cooling side. Clearly, we're seeing some pretty mind-boggling order rates from certainly peers, et cetera. Jennifer Parmentier: Yes. So we do have a nice exposure, and we are seeing rapid growth. But this is not yet large enough for us to call it its own market vertical. It still makes up less than 1% of our sales. But again, this is something what I feel is unique about Parker, and it's these interconnected technologies and its competitive advantage. We can provide great value to our customers in this space. We have the products that they need for the data center cooling, and we have been working with all the industries there. So our ability to provide liquid cooling systems and subsystem components has really given us, I think, a nice position here. Jeffrey Hammond: Okay. And just a couple of housekeeping. One, on the Curtis revenue, can you give us a split between North America and International, kind of how that flows through the 2 segments? And then just you've been more active on buyback. I'm assuming the guide doesn't build in any more buyback, but correct me if I'm wrong. Todd Leombruno: Yes, Jeff, I'll take those. The sales is split almost 50-50 North America and International. I think we'll refine that as we get further on in the integration process. But right now, it's kind of how we're modeling it. And then you're right, over the last 3 quarters, we have done some share buyback. I think we finished the quarter with a net debt to adjusted EBITDA of 1.8. So we're well below our target of 2. That's even after funding the Curtis transaction. We haven't forecasted any additional. You heard Jenny talk about the pipeline. So we're -- that's always a balance of actionability and timing on that. But I would just restate what Jenny said, we're going to be active when it comes to deploying the balance sheet. Operator: We'll move next to Andrew Obin with Bank of America. Andrew Obin: Just a follow-up on all these exciting new verticals, power, AI, just any thoughts, how do you think about, a, available capacity at your technology portfolio to ramp and expand your presence in these markets over the next several years? How much room is there to sort of grow organically or for bolt-ons targeting these specific high-growth verticals that are seemingly new versus where we were for the past decade? Jennifer Parmentier: Yes. Good question, Andrew. So we -- obviously, as I was saying, we've been working with some of the names everybody would recognize when it comes to data centers. And we've been working very closely with them globally to understand the capacity that is needed for our products. And it's another good example of how having this global footprint really helps us because we can partner with these customers in the regions where they need us. In some cases, we can add shifts and add capacity. And in other cases, there's some other capacity increases that we'll have to do. But nothing significant expense or nothing that doesn't have a real nice return to it. So constantly evaluating it and making sure that we're staying a bit ahead of it as we always do. So we can really give them a good delivery and quality experience. Andrew Obin: As we're sort of sitting at the bottom of the cycle, how do you think about the ramp over the next several years? And specifically labor availability, the need to train the labor and any sort of inefficiency as we go from multiple years of limited no growth to actually growing, how do we make sure that the ramp is smooth. Jennifer Parmentier: Yes. We rely heavily on our tools sitting inside of the Parker Lean System and on our culture of Kaizen. That's where we really do get a lot of our efficiency improvement. And the way that we work with Kaizen and the way that we work with our teams, we established how our production line, power assembly cells can operate at different volumes and what that takes from a labor standpoint or flexing at other areas of the factory. So in many cases, we've been able to do that without adding team members. And in other cases, we will add team members as needed. But we put a lot of energy into onboarding and training new team members, and I think we have some really robust programs when it comes to that. So I think we're in a good position. Todd Leombruno: Andrew, this is Todd. I would just add, we did bump up our CapEx forecast for the year. It's higher than we've been historically. A lot of that is going towards automation, safety-related items, capacity in certain regions where needed. So we are -- I think we're being thoughtful about it, and I think we are, obviously, we're preparing for growth. Operator: We'll take our next question from Nicole DeBlase with Deutsche Bank. Nicole DeBlase: Just maybe circling back to the really impressive Aerospace margin performance this quarter. If we kind of look at what you guys are forecasting for the rest of the year, there is a bit of a step-down versus the 30%, and I know that's a really robust result. But is that just because of the mix within the mix with what you said, Jenny, around spare shipments? Jennifer Parmentier: Yes. Spares are hard to forecast. So yes, that would be the biggest part of it, Nicole. For Q2, we have margins at 29.1% for Aerospace, which is a 90 basis point increase year-over-year, and obviously an increase from our initial guide. Nicole DeBlase: Okay. Perfect. That makes sense. And the incremental stepping up to 40% also really good to see. I know kind of the previous long-term target or what's baked into the longer-term 2029 target is closer to 35%. Could this possibly be a new norm for Parker given how strong margin performance is? Or do you still think it's best for us to kind of anchor to the 35% or so in forward years? Todd Leombruno: Yes, Nicole, this is Todd. I'm glad to see those incrementals, they are very much impressive. As you know, they're not easy to get. There's a lot of work around the globe that happens to turn out these great results. Sometimes it's a little easier when the sales are -- the math works a little funny when the sales growth is not enormous. But you've seen our margin expand. You've seen our EBITDA expand. But as far as what we hold our team to, we modeled that 30% to 35%. Of course, it varies depending on where you're at in the cycle. But I don't think we're ready to change that guidance yet. Operator: We'll take our next question from Brett Linzey with Mizuho. Brett Linzey: First question just on construction. So you noted the gradual recoveries. Is this predominantly the MRO piece of that business? Or are you beginning to see a little bit of load-in from OEMs as they're seeing some dealer increases? Jennifer Parmentier: I think it's both. Brett Linzey: A little bit of both? Okay. And then just to follow up on that last question regarding the fiscal '29 targets. So the adjusted op target was 27%. The top end of the guide this year is 27%. So basically got there 3 years early. Should we think of this year as the new bouncing-off point and you're comfortably marching above that? Or is there something about mix or discretionary costs that might need to come back? Jennifer Parmentier: Well, listen, we're really pleased to see what the team was able to accomplish in Q1 and very happy to be able to increase our organic growth forecast outlook from 3% to 4%. We do still have some markets that need to recover. And we think that what we have out there in the guide right now reflects what we see today. Obviously, we could not have achieved this 27% adjusted operating margin without the hard work and dedication of our team. But just a reminder, with the FY '29 target, adjusted operating margin is not the only target, and we're focused on achieving all 5 of those targets. There's still work to do there, but we're confident we're going to get there. Operator: We will take our next question from Nigel Coe with Wolfe Research. Nigel Coe: We've got a lot of grounds, but I did want to go back to the Aero margins. And I'm actually wondering, is there a way to think about legacy Parker Aero margins and Meggitt? And through other question is I'm trying to judge how much more runway there might be to operationalize the Meggitt margins. Todd Leombruno: Nigel, this is Todd. That integration has gone unbelievably well. We have certainly made that part of the Parker operating strategy. It is really hard to tell the difference between the legacy margins now and the Meggitt margins now. A lot of the synergies really came from across the group. And quite honestly, that's not the way we're really running the company now. It's not Parker Meggitt and Parker Aerospace, it's Parker Aerospace. I would tell you they're both stellar, hitting 30% for the first time. It was equal parts of both. And we've got a very great future there. Nigel Coe: Yes. I think that's the right answer, by the way. And then on -- going back to power gen. I think, Jenny, you mentioned, or maybe it's you, Todd, that roughly half of that 7% is power gen. So I'm actually curious, when would you think about breaking it out as a separate reportable subsegment. It seems to be getting to the same sort of size of HVAC. So just curious on that. And then any more color you can provide on the exposures in there? I'm curious the heavy-duty exposure versus the aeros and maybe some of the smaller gas turbines? Sorry for the detail, but it would be interesting to know that. Jennifer Parmentier: Yes. So -- what was the first part of your question? Todd Leombruno: Breaking down the difference. Jennifer Parmentier: The difference. We don't look at the percentage on the market verticals as to where we can break out some subsegments. We haven't gotten that far yet. So I really don't have a number in mind where it would become its own market vertical. Obviously, we're very bullish about the future of power gen. So it's something we continue to evaluate. But energy is an area -- all types of energy we think belongs together. So no real plans to break that out yet. And I would say maybe in a follow-up with Jeff, you could look at some of the other details that you were asking for. But I don't have that available for you right now. Operator: We'll move next to Nathan Jones with Stifel. Nathan Jones: I got a quick follow-up on the gas turbine business. If I remember correctly, many years ago, probably up to nearly a decade ago, the OEM margins on at least some of the components that went into the gas turbine business were pretty low and the aftermarket margins were pretty high. Just wondering if that's still the case and there might be a little bit of a drag as the OE side of that ramps up? Or if that dynamic has changed over the last decade? Todd Leombruno: Yes, Nathan, this is Todd. When you go back and try to compare Parker to a decade ago, it's very difficult. It's a totally different company. The margin expansion is significant. You see that. Every one of these business has been part of that margin expansion. We still have the mix between aftermarket and OEM margins. I would say that that's probably always going to be like that. There's nothing here in power gen that dramatically sticks out that it's lower than the rest of the OEM aftermarket mix. Nathan Jones: Fair enough. And then I had one follow-up on Mig's question earlier on the longer-cycle Industrial International orders. Any color you can give us around what drove those? I know they were maybe 4Q last year that they came in. And Jenny was giving us some cadence on how that doesn't phase in, I guess, to revenue this year, but any color you can give us on when that starts to contribute to growth in International? Jennifer Parmentier: So the longer-cycle orders that we had in Q3, I believe that were in our Engineered Materials business. And that longer cycle could be anywhere from 6 to 12 months. I don't have the details committed to memory on exactly what those were. But they did not repeat in Q4. So longer cycle, longer demand sense, anywhere between 6 and 12 months, I would say. Todd Leombruno: Chloe, this is Todd. I think we've got time for maybe one quick, positive last question, if you could put whoever's next in the queue. Operator: Absolutely. We'll take our last question from Andy Kaplowitz with Citi. Unknown Analyst: This is actually Jose on for Andy. Maybe to wrap it up. You've talked in the past about mega projects and how they could potentially impact Parker. Curious if you could talk about how customers are moving forward with the mega projects? What are you guys listening from your distributors? And how are you approaching that trade-off between there's still a lot of larger projects out there versus a somewhat still uncertain macro environment? Jennifer Parmentier: Yes. And when I was talking about our distribution channel and how they serve all those small to midsize OEMs on capital investments and CapEx, those definitely are those megaprojects. So we still see a very large amount of them out there. We still do hear that there are delays. But there's obviously some of these that are starting to kick off and they're mainly focused on customers looking for productivity and efficiency. And that's what we're hearing from our channel that supports those customers, and that's where we believe most of that is happening today. Todd Leombruno: Chloe, I think we're running out of time. So this concludes our FY '26 Q1 earnings release webcast. Like I said earlier, we appreciate everyone's attention and their time. We thank you for joining us today. Our Investor Relations team of Jeff Miller and Jen Specky will be available for the rest of the day if anyone has any follow-ups or needs clarification. So thank you all, and have a great day. Operator: This concludes today's call. We appreciate your participation. You may disconnect at any time, and have a wonderful afternoon.
Operator: Greetings, and welcome to the Redwire Corporation Third Quarter 2025 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host, Alex Curatolo, Senior Director of Investor Relations. Alex Curatolo: Good morning, and thank you, Diego. Welcome to Redwire's Third Quarter 2025 Earnings Call. We hope that you have seen our earnings release, which we issued yesterday afternoon. It has also been posted in the Investor Relations section of our website at rdw.com. Let me remind everyone that during the call, Redwire management may make forward-looking statements that reflect our beliefs, expectations, intentions or predictions of the future. Our forward-looking statements are subject to risks and uncertainties that are described in more detail on Slides 2 and 3. Additionally, to the extent we discuss non-GAAP measures during the call, please see Slide 3, our earnings release or the investor presentation on our website for the calculation of these measures and their reconciliation to U.S. GAAP measures. I am Alex Curatolo, Redwire's Senior Director of Investor Relations. Joining me on today's call are Peter Cannito, Redwire's Chairman and Chief Executive Officer; Jonathan Baliff, Redwire's Chief Financial Officer; and Chris Edmunds, Redwire's Chief Accounting Officer and incoming Chief Financial Officer, effective December 1, 2025. With that, I would like to call -- turn the call over to Pete. Pete? Peter Cannito: Thank you, Alex. During today's call, I will outline our key accomplishments during the third quarter of 2025. Chris, our incoming Chief Financial Officer, will then present the financial highlights for the same period and discuss our 2026 outlook, after which we will open the call for Q&A. Please turn to Slide 5. Now that we have a full quarter of performance from the combination of Redwire Space and Edge Autonomy, I would like to continue to emphasize the major transformation underway at Redwire. As you will see in our accomplishments and results, the technical, operational and financial positioning of our platform has been significantly enhanced. As part of this transformation, I'm excited to introduce our updated vision statement, reflecting Redwire as an integrated space and defense tech company. At Redwire, our expanded vision is to pioneer next-generation space and defense technologies that empower scientific discovery, advance global industries and strengthen security, transforming how humanities explores, connects and protects from the skies above to the stars beyond. Let's now turn to a discussion of highlights from the third quarter of 2025. Please turn to Slide 7. As you can see from the highlights on this slide, the impact of our transformation, including the acquisition of Edge Autonomy was accretive to our financial performance. During third quarter of 2025, we increased our adjusted gross margin to 27.1% in the third quarter. We also saw sequential improvement of $24.8 million in our adjusted EBITDA. Additionally, we recorded significant revenue growth of 67.5% sequentially and 57% year-over-year to revenues of $103.4 million during the third quarter. We continue to scale aggressively. From a growth perspective, we closed a number of key strategic opportunities, adding to our backlog by achieving a book-to-bill ratio of 1.25, resulting in backlog of $355.6 million as of September 30, 2025. We are greatly encouraged by our growth reflected in our strong book-to-bill in Q3 based on strong customer demand for our differentiated products. However, looking forward, we anticipate some issues with near-term timing of awards in Q4 resulting from the ongoing U.S. government shutdown. In particular, we have seen delays in the U.S. Army's long-range reconnaissance and similar UAS programs as well as a slow start to Golden Dome. We've ramped production capability to meet these needs, but have not yet seen awards begin to flow. Therefore, we anticipate the diminished government staff and resulting delay in contracting activity is likely to push a number of our anticipated awards out of the quarter. Notably, however, we do not see a decrease in demand, but rather a temporary near-term timing impact that supports a strong 2026 as the government returns to full strength. Please turn to Slide 8. As Redwire nears completion of its transformation, expanding from exclusively space subsystems and components to becoming a highly scalable space and defense technology platform, I'd like to reorient investors to our 5 primary value-driving product areas. These value drivers represent the product areas where Redwire has differentiated intellectual property, first-mover advantage and recognized thought leadership in rapidly growing domains with sizable total addressable markets. They are differentiated next-gen spacecraft, particularly in VLEO and GEO like SabreSat, Phantom and Mako and others that support next-generation capabilities such as high-fidelity earth observation, quantum key distribution, in-space refueling, AI imaging and maneuverability. Large space infrastructure, specifically our rollout solar arrays and international berthing and docking mechanisms where we provide building blocks for critical space infrastructure like space stations and Moon to Mars exploration. Microgravity development, where we are a global leader with decades of heritage and hundreds of experiments flown in the areas of biotechnology and advanced materials and manufacturing. Combat proven UAS, namely the Stalker and Penguin series, where we supply combat-proven autonomous UAS built in the United States and Europe to war fighters in the most challenging battlefield environments. And finally, sensors and payloads such as optics and radio frequency systems where we support multi-domain missions ranging from airborne ISR to Artemis and the historic commercial moon landings. To underscore our strategic positioning in each area, I will share a brief description of the differentiators, a highlight or 2 from the third quarter as well as examples of future growth targets as we move towards 2026. Please turn to Slide 9. Starting with next-gen spacecraft. Redwire's key differentiators are that we have existing funded customers, classified personnel and facilities and a first-mover advantage in VLEO, GEO and space refueling and quantum secure satellites. During Q3, Redwire announced that we have reached an agreement with Thales Alenia Space to become the prime contractor for ESA's Skimsat mission, a technology demonstration mission for a spacecraft designed to operate in VLEO. The Skimsat mission leverages Redwire's Phantom spacecraft, an advanced European VLEO platform out of our Belgian facility. With this prime ship, we further establish ourselves as a global leader in VLEO capabilities. In addition, we signed an MoU with Honeywell during the quarter for QK-VSAT. Under this ESA public-private partnership, we aim to combine Redwire's quantum platform technology with Honeywell's quantum optical payload as we build towards a QKD constellation. As we look for further growth opportunities, VLEO is a relatively untapped orbit with no dominant provider. Redwire is now executing on 2 prime contracts in VLEO, DARPA's Otter program in the U.S. and ESA's Skimsat mission in Europe. And these funded contracts position us as an early mover and market leader in this exciting orbit. We are leveraging this funded development to position VLEO for Golden Dome and growing European defense spending. In the future, we are targeting opportunities with the intelligence community, Air Force Research Lab, or AFRL, most notably our current TETRA program, Space Force as well as additional phases for DeepSAT and expanding our Honeywell partnership for QKDSat as just a few examples. Please turn to Slide 10. Another key value driver is our large space infrastructure, where we are differentiated as a key supplier for products like ROSA and IBDM on funded contracts from customers with significant heritage and protected IP such as our rollout design. Our unmatched heritage with ROSA on the IFS continues to translate into follow-on orders from customers that need a proven solution. During the quarter, Redwire was awarded a contract to develop and deliver rollout solar arrays or ROSA wings for Axiom's Commercial Space Station. Power is critical to a sustained presence in low earth orbit and another commercial station provider selecting ROSA further underscores our strong positioning in this key capability. Building on Redwire's heritage from the ISS, DART, Blue Origin's Blue Ring, Thales Alenia Space GEO satellites, the power and propulsion element of Gateway and now Axiom's Commercial Space Station, Redwire is pursuing numerous follow-on opportunities to scale with our existing customers as their businesses grow. Additionally, we are aggressively pursuing orders for large space infrastructure such as ROSA and IBDM for other commercial space stations as well as other power-intensive spacecraft programs and Moon to Mars infrastructure like Artemis. Please turn to Slide 11. With hundreds of microgravity experiments conducted, proven IP like PIL-BOX and existing funded commercial, governmental and international customers, Redwire is at the forefront of microgravity development. We are decades ahead of many of our competitors. During the third quarter, Redwire launched 14 PIL-BOXes, studying 18 molecules to the International Space Station with 3 different partners: Bristol-Myers Squibb, Butler University and Purdue University. These PIL-BOXes are expected to return to earth in the coming months. With these, Redwire has now flown a total of 42 PIL-BOXes studying 35 unique molecules as of the end of the third quarter, adding to our extensive heritage in pharmaceutical development on orbit. In terms of future growth, we see the potential impact is extraordinary. Pharma has less than a 10% success rate from Phase 1 trials to approval and a fast-approaching patent cliff that threatens approximately $350 billion in annual worldwide revenue from drugs losing exclusivity through 2030. We see Redwire's pharmaceutical development on orbit as offering a potential solution to these challenges as we will take advantage of the unique microgravity environment in space to grow seed crystals using Redwire's flight-proven PIL-BOX technology. Our subsidiary, SpaceMD, will then sell or license these seed crystals to companies that can use them to create reformulated versions of existing drugs or entirely new therapeutics. We have a template for these commercial agreements and many successes with key partners in the biotech community to build on. Please turn to Slide 12. Next, let's turn to our combat-proven UAS. First, I'd like to take a moment to discuss a few key differentiators of the Stalker. The Stalker is a combat-proven UAS that is built on nearly 20 years of heritage with more than 300,000 flight hours, including in highly contested and harsh environments. The Stalker is silent, enabling covert surveillance and reconnaissance and minimizing detectability in contested or civilian-sensitive environments. The Stalker is also payload agnostic. More than 30 different third-party payloads have been integrated via our modular open systems approach, which enables plug-and-play integration. And finally, the Stalker Block 40 offers extended endurance of more than 18 hours, critical for long-range operations. We also have significant heritage with our Penguin series built in Regal Latvia, having delivered more than 200 Penguin aircraft to the Ukraine armed forces. European defense spending is growing rapidly and we are one of the few European-based suppliers with proven performance on the battlefield. During the quarter, we were awarded and delivered Stalkers for the prototype phase agreement of the U.S. Army's Long-range Reconnaissance or LRR program. The Stalker has previously been selected for 2 programs of record, the U.S. Marine Corps Long-Range Long Endurance and the U.K. Ministry of Defense's TIQUILA program. In total, during the third quarter, we shipped Stalker aircraft to 8 different end customers in the United States and other allied countries, showing the global demand for the combat-proven Stalker platform. Clearly, Stalker is broadly fielded for a variety of mission sets with multiple countries and U.S. military branches based on our differentiated capabilities. From unleashing American drone dominance in the U.S. to the European Drone Defence Initiative, the demand signal is strong. With existing production facilities and a broad customer base, we are targeting future growth globally. Redwire is ready with production capacity and fielded aircraft to deliver on key programs like LRR as we move into 2026. Please turn to Slide 13. Finally, moving to sensors and payloads. Redwire has decades of heritage having delivered thousands of space-based sensors and payloads, including antennas, sun sensors, star trackers and cameras for some of the most high-profile missions. Redwire now also has significant heritage with UAS sensors and payloads, having delivered more than 400 Octopus gimbals to the Ukraine armed forces, for example. These gimbals are compatible with a wide variety of UAS platforms. These are not just for Stalker and Penguin. We are selling these systems to other platform providers. During the quarter, Redwire announced a partnership with Red Cat to integrate their Black Widow Small UAS onto the Stalker to support UAS Army Echelon missions. The Black Widow, which was selected by the Army for its short-range reconnaissance Tranche 2 program can be mounted under the center wing of the Stalker as a deployable payload. By integrating best-of-breed short- and long-range reconnaissance systems, this partnership will provide war fighters on the front lines with mission -- with great mission reach and reliable data for effective decision-making. Stalker and gimbals are already integrated with controllers such as [ ATT&CK ] and CUDA technologies. And after Q3, we announced an MoU with UXV Technologies to enhance controller interoperability and align with the EU's ambitions to strengthen its defense industrial base through cross-border industrial cooperation. As we look forward, we see significant growth opportunities for airborne and space-based sensors and payloads. The UAS EO/IR sensor market segment is forecasted to grow from approximately $1.6 billion in FY '23 to approximately $4.8 billion in FY '32, a 12.9% CAGR. Redwire targets future growth both with the U.S. government and other key OEMs around the world for these products. In space, the proliferation of satellites is expected to continue with an estimated 70,000 satellites expected to be launched over the next 5 years. Further, as capabilities like space situational awareness and airborne ISR become increasingly important, Redwire is positioned for continued growth in this area. Please turn to Slide 14. Although in the near term we've seen delays from the U.S. government shutdown, which is likely to push key awards into next year, our pipeline of opportunities remains very strong and we saw a positive trend in contracts awarded during the third quarter as compared with the first half of 2025. Our contract awards during the third quarter of 2025 almost tripled year-over-year to $129.8 million with a book-to-bill ratio of 1.25x, improving backlog to $355.6 million, including contracted backlog from international operations of $128.7 million or 36% of total backlog. As a reminder, we often see lumpy contract awards from quarter-to-quarter. However, we continue to see a strong pipeline with an estimated $10 billion of identified opportunities across our space and airborne solutions, including approximately $3 billion in proposals submitted year-to-date as of September 30, 2025, inclusive of the year-to-date bids submitted by Edge Autonomy. Although the U.S. government shutdown is likely to delay timing of Q4 awards into 2026 with key wins during the third quarter and in the intervening weeks, we are pleased with the positive change in our trend line for contracts awarded and believe our pipeline of new opportunities is very strong, positioning us for continued growth for the next 12 months and beyond. Please turn to Slide 15. With that, I'd now like to turn the call over to Chris Edmunds, Redwire's Chief Accounting Officer. As previously announced, Chris will succeed Jonathan Baliff to become our Chief Financial Officer effective December 1, 2025. Chris brings deep knowledge of our business and significant finance and accounting expertise, and I look forward to working with him in his new role. Chris will now discuss the financial results for the third quarter of 2025. Chris? Chris Edmunds: Thank you, Pete. Before turning to Slide 16, I want to highlight the photo on this page of the ribbon cutting for our new 15,000 square foot facility in Albuquerque, New Mexico, adjacent to the Kirkland Air Force Base. This facility will support a wide range of capabilities from space, missile defense and other emerging war fighter domains as well as support work under the $45 million contract with the AFRL that was previously disclosed. Redwire is focused on optimizing our operational footprint and smartly investing in locations like Albuquerque, which are key to our nation's defense architecture. Please turn to Slide 16. Let's turn to the financial results for the third quarter of 2025, starting with revenue. Revenues for the third quarter of 2025 increased by 50.7% year-over-year to a record $103.4 million, with Edge Autonomy contributing $49.5 million. Turning to profitability. During the quarter, we saw a significant sequential improvement in our adjusted EBITDA from a negative $27.4 million in the second quarter of 2025 to a negative $2.6 million in the third quarter of 2025. This improvement is largely attributed to the 67.5% sequential increase in revenue and adjusted gross margin of 27.1%, offset by the unfavorable impact of VACs of $8.3 million. Finally, turning to cash and total liquidity. We ended the quarter with total liquidity of $89.3 million, which was comprised of $52.3 million of cash, $35 million of undrawn revolver capacity and $2 million in restricted cash. Although lower sequentially, this does represent a 46.2% year-over-year improvement in total liquidity. Please turn to Slide 17. I'd like to take a moment to provide some additional detail around third quarter adjusted gross profit and cash used in operating activities. Starting with gross profit, as shown on the left-hand chart, during the quarter, we reported gross profit of $16.8 million and gross margin of 16.3%. Included within these results was an $11.2 million noncash purchase accounting adjustment related to the Edge Autonomy acquisition. This represents the amount of the fair value step-up recorded through purchase accounting for the inventory sold this quarter, resulting in adjusted gross profit of $28 million with an adjusted gross margin of 27.1%. We believe that this adjusted gross margin is more representative of the potential of the combined business going forward as we have now fully recognized the inventory fair value step-up in earnings and it will no longer impact future gross margins. Second, as shown on the right-hand chart, we saw a significant and expected reduction in net cash used in operating activities during the third quarter of 2025 as compared with the first 2 quarters. During the quarter, our use of cash from operations decreased significantly on a sequential basis from a use of $87.7 million during the second quarter of 2025 to a use of $20.3 million during the third quarter, an improvement of $67.3 million. Even excluding the impact of acquisition-related costs included in our Q2 2025 operating cash flows, this represents a sequential improvement of approximately $30 million. Although this quarter represents a sequential improvement, we continue to focus on profitability, expanding revenue and gross margin and driving efficient SG&A as we sharpen execution and we achieve profitability, including positive cash from operations. In regards to capital allocation, we remain committed to a disciplined approach to fund our growth initiatives and maintain a prudent balance sheet. In line with this long-term capital sourcing strategy, we expect to file a prospectus supplement for a $250 million at-the-market or ATM equity offering program in the coming days. Please turn to Slide 18, for a brief discussion of the outlook for the remainder of 2025. Although we are benefiting from a diversification in geographical customer mix and despite the improved book-to-bill of 1.25 during the third quarter and the strong bookings we have seen thus far in October, the ongoing U.S. government shutdown has pushed a number of anticipated awards out of the fourth quarter and into 2026. As a result, for the 12 months ending December 31, 2025, including Edge Autonomy from the date of close, we are adjusting to a narrower expected revenue range of $320 million to $340 million. In closing, I'd like to reiterate that although impacts from the U.S. government shutdown have necessitated a prudent revision in revenue guidance, we believe that these anticipated orders have been pushed out of the quarter and into 2026. They have not been lost. With that, please turn to Slide 19, and I'll now turn the call back over to Pete. Peter Cannito: Thank you, Chris. The transformation of Redwire with addition of Edge Autonomy has already been accretive to our financial profile, reflected in our year-over-year revenue growth of 50.7%, 27.1% adjusted gross margin and strong book-to-bill of 1.25x. Finally, before we move to our question-and-answer session, as we announced in early October, our CFO, Jonathan Baliff, will be retiring from Redwire effective November 30, 2025. I'd like to take a moment to thank Jonathan for his leadership and valuable contributions throughout his tenure as he guided Redwire through critical phases of our evolution, both in his role as CFO and as a member of our Board. Thank you, Jonathan. With that, I want to thank the entire Redwire team for their contribution to our results during the third quarter of 2025. We will now open the floor for questions. Operator: [Operator Instructions] And your first question comes from Sujeeva Desilva with ROTH Capital Partners. Sujeeva De Silva: And Jonathan, best of luck with the transition. And Chris, congrats and good luck in the new role here. So starting with the revised guidance, appreciating that you did revise it down. What does that mean for the business looking toward 2026, given what you've seen happening during the second half of '25? Peter Cannito: Yes. So I think as Chris emphasized there in the paragraph on the guidance, these are not lost awards. These are just timing issues, particularly, as I mentioned, with the LRR program. The Army announced publicly right after the award of our prototyping contract that they would be awarding a production capability towards the end of this year and that has not occurred. And we believe the reason that that hasn't occurred is because of the ongoing government shutdown. So we do expect those awards once the government shutdown ends to start to flow. But unfortunately, we only have approximately 7 weeks or so of production time left in the quarter and that includes 2 holiday weeks with Thanksgiving and Christmas. So once the government reopens, and we believe the Army will start placing orders for the production element of LRR, we'll start producing those. And that would lead you to believe that -- and we also believe that that is setting us up for a strong 2026. Chris, anything you want to add? Chris Edmunds: No, I think this is the first quarter we've got the combined results and I think that's a stepping off point as the baseline as we start to go forward, right? So as we think about stepping from today forward and as the government reopens with our diversification geography, we are looking at '26 to be obviously a marked improvement on where we are. And I think we can start to see those trend lines as we're moving out. Sujeeva De Silva: Great. And just to understand that, was the EAC in the quarter, was that related to the government shutdown pushouts primarily? Peter Cannito: No. The EAC was, again, a market improvement quarter-over-quarter as we continue to sharpen our execution. We put a lot of effort into that, but there remain a few space programs that we're rightsizing in terms of our delivery. Sujeeva De Silva: Okay. Great. And my other question here is on the pipeline and bidding activity numbers you provided. And thanks, Pete, for the 5 areas and clarifying kind of the focuses going forward. Which of those 5 areas would you say maybe are the larger emphasis of the pipeline and bidding activity that you have in place today on a relative basis? Peter Cannito: Yes. Well, it's a good question and we are trying to -- I appreciate you acknowledging that because we're really trying to point out where the value is being driven at Redwire, so people have more clarity on that. The good news is all 5 of them are areas with extraordinary potential. Now as we just talked about, the UAS orders, this is something be -- is a major priority for the Army and quite frankly, the Department of Defense in general, our existing customers, the Marine Corps and U.S. SOCOM also have strong needs for UAS. So in terms of -- ironically, even though this is where we saw a pushout in the fourth quarter into 2026, that seems -- that still remains to be an area that has a strong growth potential. But there's been a bit of a slow start to Golden Dome as well and we think the VLEO orbit, in particular, will have a role to play in that defense architecture. So we're really excited about that as well. Those can be sizable orders when you order a large VLEO spacecraft. We believe with the now nomination of Jared Isaacman, who has shown in the past a strong disposition for commercial LEO destinations or commercial space stations that funding may ramp up for the commercial -- for the CLD program for those space stations. And you can see that Axiom is leaning forward. We're obviously in talks with all the commercial space station providers because of our heritage on the ISS. So we think that's really exciting as well. And over the longer term, we're just getting started. We continue to have a strong drumbeat in microgravity. It's not our largest revenue driver. But in terms of the potential for some of the pharmaceutical molecules that we've been working on, we see a lot of growth there. And even in sensors and payloads, that's a tried and true element of both the space and airborne market. And because we sell our payloads and not only use them on our own platforms, but sell them to other OEMs, we see strong growth there as not only coming from us selling more Stalkers and Penguins for UASs, but other people selling UASs in different categories that leverage our Octopus EO/IR sensors. So I guess it's kind of a long answer to your question, but the nice thing about it is we have many paths to victory here. It's just a matter of timing for us. Operator: And your next question comes from Greg Konrad with Jefferies. Greg Konrad: Maybe just sticking to one question. I think you had called out the gross margin improvement, which was noted, but you still had some level of VACs. I mean, how do you think about the right level of gross margins as the business comes back? And then just to reiterate, the fair value purchase adjustment, so that's gone going forward. That is just a 1 quarter adjustment? Peter Cannito: That's correct. So starting with the last part first, 27% to 30% gross margins should be our forward runway. The only reason it wasn't reflected to that and why we call it adjusted gross margin is because of that purchase accounting element. 30% is where we have in the past said is our stated goal for gross margins and where we think the business should be run rate forward, inclusive of any EAC adjustments. Now having said that, we are hyper focused on sharpening our execution. So should we be able to continue to reduce the number of EACs we see on some of these development -- space development programs and as we move out of development and more of our revenue comes from production contracts on the space side, we could do better than 30%, but I think 30% is the right forecasting run rate for us. Chris, I don't know if there's anything you want to add there. Chris Edmunds: Yes, I think you hit it right. As we're looking at the balance of our product mix, we'll continue to make investments where we see expansion in this gross margin. But based on where we are, as Pete said, with the repeat orders like we've seen recently with the announcement of the rollout solar rays with Axiom, again, repeat product line, we'll continue to see that gross margin profile continue to land around that 30% margin, Greg. Operator: Your next question comes from Scott Buck with H.C. Wainwright. Scott Buck: I just want to ask about the commentary around the cost-cutting. Have you completed that cost-cutting process? And if so, what is the annual cost savings target? Peter Cannito: Well, I'll answer the first part, and then I'll turn it over to Chris here. So the short answer is no. We have not completed it. Whenever you do a major acquisition, it's an opportunity to completely review your overall structure. One of the core principles of our acquisition is that we're able to scale to get operating leverage, particularly around SG&A on a much larger platform. So we're going to continue to look at that. And quite frankly, we have a lean culture that we've been implementing and we've been moving a lot of our engineering and development operations towards lean principles. And so that will be a part of who we are going forward. In turning of size and scope, Chris, do you have any comments on that? Chris Edmunds: Yes, playing off of the lean culture. We've gone through -- continue to evaluate all of our processes across the company. And really, the cost control is kind of balanced across all the various elements of the P&L. We are stepping off and making a commitment to a $10 million run rate savings here across the portfolio. We are seeing obviously investments where it makes sense, but being smart about where we can be more efficient in getting operating leverage as we continue to grow the top end of our P&L. We will continue to run the lean program that we've invested in. We do see additional cost savings, again, from production efficiencies as we continue to grow the top end. But no, we're happy where we are. We see margin expansions, as we said on the last comment and we'll continue to see operating leverage with our G&A as we go. Jonathan Baliff: Yes, one other thing, Scott -- yes, Scott, I have to mention [indiscernible] as I retire from the company. This will have -- what Chris has said, will also benefit our cash and cash from operations as we look into the future too. We saw obviously sequential improvement in cash from ops and free cash flow. But all of the things that Pete and Chris are talking about are really meant to obviously decrease the cash burn and eventually become free cash flow positive. Operator: And we have reached the end of the question-and-answer session. I will now turn the call over to Chris Edmunds for closing remarks. Chris Edmunds: Well, thank you all for your questions. Before concluding today's Q&A, as we've done the last quarters, we'd like to ask a select question from our retail community. Government contractors have been inconsistent as to whether they have been impacted by the government shutdown in 2025. Why do you expect to be impacted? Pete? Peter Cannito: Thanks, Chris. As usual, a very poignant and observant question from our astute retail investor base. It's a good one. It's interesting. Like the question states, we've seen a lot of different feedback on the government shutdown. Quite frankly, I'm a little bit surprised that it hasn't impacted everybody in the government contracting sector. But for us specifically, I think it really comes down to the impact on the LRR program. As I stated earlier, the Army had put out an article that they expected production to occur in the latter part of this year for LRR and that hasn't occurred because the government hasn't passed the budget. So those were not 2025 funds that they were playing off of. I also think that in many of our programs, we -- it just happened to line up that we were expecting contract awards to happen in the fourth quarter and those contracts didn't come for some key programs. And for the large defense contractor, maybe I should say, for each defense and government contractor, it probably has to do with where you are in your contract cycle. So maybe some folks that are burning off backlog don't see quite the impact. But we invested a lot in being ready for production for the fourth quarter to meet the operational demands for the drone initiatives that were out there and I'm confident they're coming. But that didn't materialize in the fourth quarter. And with only 7 weeks left for production, we think it's prudent at this time to revise down for ourselves. So thank you for that question. And of course, all the engagement we get.