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Operator: Good morning, ladies and gentlemen, and welcome to the Slate Grocery REIT Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Shivi Agarwal, Manager of Finance at Slate Grocery REIT. Please go ahead. Shivi Agarwal: Thank you, operator, and good morning, everyone. Welcome to the Q3 2025 Conference Call for Slate Grocery REIT. I'm joined this morning by Blair Welch, Chief Executive Officer; Joe Pleckaitis, Chief Financial Officer; Connor O'Brien, Managing Director; Allen Gordon, Senior Vice President; Braden Lyons, Vice President. Before getting started, I would like to remind participants that our discussion today may contain forward-looking statements. And therefore, we ask you to review the disclaimers regarding forward-looking statements as well as non-IFRS measures, both of which can be found in Management's Discussion and Analysis. You can visit Slate Grocery REIT's website to access all of the REIT's financial disclosure, including our Q3 2025 investor update, which is available now. I will now hand over the call to Blair Welch for opening remarks. Blair Welch: Thank you, Shivi, and hello, everyone. We are pleased to report another quarter of strong financial and operating results for Slate Grocery REIT. Our team continues to convert resilient demand for grocery-anchored retail spaces into robust leasing at attractive rental spreads. The REIT completed over 417,000 square feet of total leasing throughout the quarter. Renewal spreads were completed at 15% above expiring rents and new deals were completed at 35% above comparable average in-place rent. Adjusting for completed redevelopments, same-property net operating income increased by $4.3 million or 2.7% on a trailing 12-month basis. Portfolio occupancy remained stable at 94%. And our portfolio's average in-place rent of $12.82 per square foot remains well below the market average of $24.09 per square foot, providing significant runway for continued rent increases. The REIT has a weighted average interest rate of 5%, with over 90% of its debt having a fixed interest rate on a proportionate basis. This provides a stable outlook for the REIT's near-term financing costs. The REIT's weighted average capitalization rate remains well above the REIT's weighted average interest rate for outstanding debt allowing the REIT to maintain positive leverage. The REIT's attract evaluation combined with continued net operating income growth, is expected to continue increasing the value of our portfolio over time. We continue to have strong conviction in the outlook for grocery-anchored real estate and the ability of this asset class to perform in today's economic environment. Recent consumer spending data shows that the essential goods are expected to remain a top priority for shoppers over the next 3 months, underscoring the stability and resilience of the grocery sector and grocery-anchored real estate. At the same time, fundamentals remain favorable with elevated construction costs and tight lending conditions continuing to constrain new retail development and overall availability. This dynamic creates a favorable environment for landlords to retain existing tenants and achieved meaningful increases in rents as leases expire. Against this backdrop, we are seeing focus on operational execution, prudent management of our balance sheet and strong relationships with our tenants to position the REIT to deliver sustained growth and lasting value for all unitholders. On behalf of the Slate Grocery team and the Board, I would like to thank the investor community for all their continued confidence and support. I will now hand it over for questions. Operator: [Operator Instructions] Our first question comes from the line of Brad Sturges at Raymond James. Bradley Sturges: Good quarter. Obviously, the organic growth number has been trending where you expected. I think your trailing 12 months, I think you said you were 3% to 4%. Is that a level that you expect to continue -- to see continue over the course of 2026? Blair Welch: Yes, it is. I think that the moves into it are really due to expiring leases when they come on, but that sort of 3% to 4% is what we expect going forward. Bradley Sturges: Okay. And what are you seeing from like a market rent perspective? Obviously, you continue to highlight and showcase the mark-to-market available as you're able to bring in-place rents to market. But I guess what's happening from a market rent perspective? Blair Welch: Yes. Great question. I think the easiest way to point to something is we quote the -- it's just over $24 per square foot now the CBRE market average. That is increasing at the same or maybe above our in-place rents. So I would say our rental growth is very strong and the market is also growing. So I think that's -- those are both positive things. Bradley Sturges: Okay. And last question for me. Just maybe switching gears towards the investment or transaction market, any read-throughs in terms of pricing you're seeing as it relates to Slate Grocery's underlying NAV or valuation? Are there more trades starting to percolate or -- how should we think about that? Blair Welch: Yes. I would say we feel very comfortable with our IFRS cap rates, and I think we've been prudent on that. And then I think the rest of the market is kind of coming to a place where the execution where you have to do deals has moved up. I think that's what that transaction volume has been needed. So I think it's really more situational. We are looking at the pipeline of new acquisition opportunities in the billions, and that could be a platform, that could be one-off deals. But I think it really speaks to positive leverage. And if you think of Slate Grocery REIT's balance sheet, we're around 200 basis points of positive leverage from our IFRS cap rate to our weighted average cost of financing. And I think that's pretty attractive. So I think if we continue to see that with our peers and where transactions are, I think you'll see that volume pick up. And I think the U.S. market is getting -- I think if you look at other international jurisdictions, Europe is also a positive leverage situation. I think Canada is getting there, but maybe not there yet, but that's really how we look at the market. And the fundamentals of grocery-anchored real estate are extremely strong. So if you can buy an asset that's performing well and finance it well, I think that will show more volume in transactions. Operator: Your next question comes from the line of Golden Nguyen-Halfyard, at TD Cowen. Golden Nguyen-Halfyard: Just 1 question from my end. Nice to see occupancy move up a little bit in Q3. Can you talk a little bit about your progress on some of the vacancies that you had earlier in the year? Blair Welch: Yes, Golden, I'll pass it over to the team to talk about specific occupancy. But thanks for the questions. Allen Gordon: Yes. This is Allen. We continue to see a strong pipeline of new deals throughout the portfolio, both on junior anchor leasing and small shop leasing. And continue -- as you've seen, continue to do deals in both. Operator: [Operator Instructions] And at this time, we have no further questions. I'd like to turn it back over to Shivi Agarwal for closing remarks. Shivi Agarwal: Thank you, everyone, for joining the Q3 2025 Conference Call for Slate Grocery REIT. Have a great day. Operator: Thank you, everyone, for attending. This does conclude today's presentation. You may now disconnect.
Operator: Good morning, everyone. Welcome to the Solo Brands Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I will now turn the call to Mark Anderson, Senior Director, Treasury and Investor Relations. Please go ahead. Mark Anderson: Thank you, and good morning, everyone. We appreciate you joining us for the Solo Brands conference call to review the third quarter 2025 results. Joining me on the call today are the company's President and Chief Executive Officer, John Larson; and Chief Financial Officer, Laura Coffey. This call is being webcast and can be accessed through the Investors portion of our website at investors.solobrands.com. Today's conference call will be recorded. Please be advised that any time-sensitive information may no longer be accurate as of any replay or transcript reading date. I would also like to remind you that the statements in today's discussion that are not historical facts, including statements about expectations, future events, financial performance, liquidity, turnaround efforts, strategic transformation goals and future growth are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements by their nature are uncertain and outside the company's control. Actual results may differ materially from those expressed or implied. Please refer to today's earnings press release for our disclosures on forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's filings with the Securities and Exchange Commission. Solo Brands assumes no obligation to publicly update or revise any forward-looking statements. Management will refer to non-GAAP measures, and reconciliations to the nearest GAAP measures are included at the end of our earnings release. Finally, the earnings release has been furnished to the SEC on Form 8-K. Now I'd like to turn the call over to the company's CEO, John Larson. John Larson: Thank you, Mark, and good morning all. Thank you for your interest in Solo Brands. Today, Laura and I will discuss third quarter results and share our progress on strategic initiatives, then open the call to analyst questions. The third quarter sales environment was challenging, reflecting continued pressure on consumer demand while we work through excess retailer inventory and rebuilding our retail relationships, primarily in the Solo Stove division. That said, our approach remains measured and disciplined. We maintained stable gross margins and generated $11 million of operating cash flow, our second consecutive quarter of positive cash generation, driven by stronger cost discipline and better working capital management. Net sales for Solo Brands were $53 million, down from $94 million last year with softness in both DTC and retail. At Solo Stove, while working through excess inventory at our retail partners, we deliberately aligned promotional activity and pricing integrity across channels to rebuild retail partnerships. We also faced the reality that uncertainty and temporary delisting earlier this year set us back on future planning with some retail partners. That's on us to repair, and we're doing exactly that by coordinating promotional calendars with partners rather than competing with them. Now we are beginning to deliver on our core initiative of launching innovative new products. At Chubbies, revenue declined 16% year-over-year, primarily due to the timing of retail replenishment after a very strong first half of 2025. DTC was essentially flat for the quarter, signaling stable consumer demand for Chubbies. We recognize we have work to do on the top line. Recent product launches are gaining momentum, but we are committed to further accelerating structural cost reductions beyond the reduction in SG&A of 35.4% year-over-year in Q3 to better align our operating model with today's baseline demand and to allow future gains in top line performance to flow directly to the bottom line. Let me step back and frame how we are running the business. We are focused on profitability first and building a cost structure to match current demand. We're simplifying the organization, taking permanent costs out and holding the line on marketing efficiency. SG&A declined 35.4% year-over-year in Q3. That discipline is not a onetime action. It's how we operate. Cash discipline is equally central. We ended the quarter with $16.3 million in cash and cash equivalents, no outstanding borrowings on our revolver and inventories down 21% year-over-year. Across Q2 and Q3 combined, we generated $22 million in operating cash flow. Liquidity is stable, and we're allocating capital with care. We are product-led, but we are not chasing volume for its own sake. Our launches must be differentiated and margin accretive, supported by pricing integrity and coordinated promotions with our partners. The recent launch of the all-new Summit 24 firepit in late September and the Propane Infinity Flame firepit in late October are showing positive signs in Q4. Finally, we're keeping it simple, fewer distractions, faster execution and a sharp focus on the customer, on partnerships, on launching products that matter with profitability and cash being our measure of success. Q3 was not where we want revenue, and I won't address that up, but we are addressing head on with a plan to win, which includes further accelerating our structural cost rightsizing. With that, I'll hand it to Laura for the financials. Laura Coffey: Thank you, John, and good morning, everyone. As John mentioned, the third quarter was challenging but reflected progress in how we operate and manage the business. We are staying focused on what we can control, driving efficiency, protecting gross margins and generating cash as we continue to build a more stable, rightsized growth model while accelerating structural cost reductions. With that context, let me walk you through our third quarter results. Consolidated net sales were $53 million, down 43.7% from the prior year, largely reflecting softer retail sell in, primarily within Solo Stove as our partners continue to rebalance inventory levels. The Chubbies segment sales were $16.5 million, down 16%, mainly due to earlier timing of retail replenishment compared to last year, while DTC sales were essentially flat year-over-year. Within our Solo Stove segment, net sales were $30.8 million, down 48.1% from the prior year. The decline was driven primarily by retail partners continuing to manage through elevated on-hand inventory. While retail sell-in remained soft, sell-through trends were more stable. On the DTC side, performance reflected our deliberate shift to maintain minimum advertised pricing or MAP, and reduced promotional intensity. We believe that trade-off, while impacting near-term volume, supports the long-term brand health and profitability. For the third quarter, adjusted gross profit was $32.2 million, representing a 60.6% adjusted gross profit margin compared to 61.9% last year, down modestly, mainly due to inventory write-downs. We continue to manage costs carefully across our entire business. Selling, general and administrative expenses were $39.5 million in the quarter, down 35.4% year-over-year, driven by lower marketing spend, reduced employee-related costs and continued structural efficiencies. We also recorded a $1.9 million onetime restructuring contract termination and impairment charge in the quarter, primarily tied to a facility exit in Mexico. Net interest expense was $7.6 million compared to $3.7 million last year, reflecting both higher average debt balance and the higher average interest rate during the quarter. Our weighted average interest rate at September 30 was 8.38% on the term loan and 5.95% on the revolver, which had no borrowings outstanding at quarter end. For the quarter, GAAP net loss was $22.9 million and adjusted net loss for the quarter was $11.9 million. Adjusted EBITDA was a negative $5.1 million or negative 9.6% of net sales. Please refer to our earnings release for the reconciliation tables to the most comparable GAAP measure. Turning to cash flow. We generated $11 million of operating cash in the quarter, marking our second consecutive quarter of positive cash generation. This reflects disciplined working capital management and leaner operations. Inventories are down 21% year-over-year, and we've continued to align supply with demand, particularly within Solo Stove, where we are working closely with retail partners to support sell-through and prepare for the holiday season. We continue to monitor cash and inventories closely and are carefully managing all of our working capital. On the balance sheet, we ended the quarter with $16.3 million in cash and cash equivalents. Our debt structure included a $240 million term loan and a $90 million revolving credit facility that matured in 2028. During the quarter, we paid down the $10 million revolver balance and ended September with no outstanding borrowings on the revolver. As of September 30, we were in compliance with all financial covenants and have no significant debt repayments until 2028. This provides strength and flexibility as we execute the strategic transformation of the business. Regarding the steps we've taken with tariffs, earlier this year, we began transitioning to a more balanced diversified supply chain footprint, including Southeast Asia and other strategic regions, adding dual sourcing where appropriate, so we can quickly adapt as market conditions or tariffs shift. Our goal with these mitigation plans is to maintain a trusted supplier relationships that are flexible, scalable and resilient as we grow. We feel good about the progress we've made and remain proactive in strengthening our sourcing network to stay ahead of future changes. We are taking a disciplined approach to capital allocation. Our growth investments remain focused on new product innovation, typically in the range of $2 million to $3 million annually within our means and aligned with our return expectations. We are continuing to structurally rightsize the business to match today's demand environment, focusing on profitability, efficiency and cash generation. We believe this ongoing execution of our profit-focused model should position us to drive long-term shareholder value. This concludes my prepared remarks. John? John Larson: Thanks, Laura. I want to reiterate, we are not satisfied with our revenue performance in Q3. It was a challenging quarter and the top line pressure reinforces why we are taking action to align our operating model with current demand. Those actions are already delivering meaningful savings, and we will continue to move with urgency. On Solo Stove retail, the uncertainty in delisting earlier this year clearly set us back with some partners. We are rebuilding confidence the right way, partnering with integrity and providing the coordinated framework to win together. Looking ahead to our all-important Q4 holiday season, we're encouraged by initial consumer response to the very recently launched Summit 24 and Infinity Flame firepits, which have improved our year-over-year sales trends in October. I invite those on the call to explore these new innovative products, including the Steelfire 30 Griddle as evidence of the quality and superior design of our new products. As we look to 2026, we're executing with purpose. We have taken difficult actions required to rebuild our relationships with our Solo Stove retail partners. We know this turnaround takes time, and we expect some continued volatility, but we've stabilized our foundation, proving cash generation even in a contraction and are now leaning into innovation and further operational discipline. The path forward is clear: continue simplifying the business, focus on profitable growth, protect liquidity, invest where the customer and the data points us. I'm confident we're building a structurally smaller, stronger, more focused company with durable brands and passionate communities behind them. That's how we'll create sustainable value for our shareholders. To close, we value our investor communications and outreach. We plan to participate in the IDEAS Conference in Dallas on November 19. Please reach out to our IR team if you'd like to speak with us or meet in person at the conference. With that, operator, I'd like to open the line for questions. Operator: [Operator Instructions] The first question comes from Will Hamilton with Kestrel Merchant Partners. William Hamilton: Congrats on the positive cash flow in a difficult environment. You've been obviously busy on the new product front. I was wondering if we could just expand a little bit more about what you're seeing there in terms of online at your websites, but then also where do you stand in terms of the rollout to retail and what you think will be accomplished over the next couple of months and quarters there? John Larson: This is John Larson. Thanks for the question. Appreciate it very much. Yes, it's really soon. We launched the Summit 24 at the end of September, and we just launched the Infinity Flame October 24. But we're really excited about the initial response to it. I can tell you that we have increased orders from our partners in terms of building some more opportunity for sales here in the fourth quarter. What is really encouraging is we're bringing a lot of new customers into the category. More than 70% of the customers are new to us who are buying these products. And in particular, the Infinity Flame, the #1 state for sales is California right now. And given California generally has some fire bans, et cetera, as you know, wood burning isn't big there, but it's now the #1 state that we're selling in with Infinity Flame. As we look across the country, we're moving into other markets that we didn't participate in as heavily before. So we're very encouraged by the initial results. Nothing to announce in terms of the rollout plan with our partners. We have been reviewing with our partners our entire new lineup of products. And in '26, we have just an aggressive lineup coming out from the Solo Stove division, and we're talking about exactly what we'll do in terms of rolling out in the spring of '26. But very encouraged by the initial response to it and feel good about it heading into the fourth quarter as these are really key products for us. And as I said, the initial response has been very strong. William Hamilton: And then just in terms of the destocking with the retailers, particularly, I guess, with Solo Stove, are you nearing completion of that, do you think? Will you be done maybe by the end of the holiday season? John Larson: I think I heard most of your question here. What I'd say is it really has been a difficult transition here. Imagine our retailers were loaded with significant inventory. We did -- we were very promotional on the DTC side at the end of last year. So they came into '25 with a lot of inventory. And it was painful to reset our approach, and that was we weren't going to compete and undercut our retailers to regain confidence and promote together with them in a coordinated fashion moving forward. So what it did was it put real pressure on our DTC sales because we're no longer promoting deeply and selling. At the same time, they were working through excessive inventory, and we're working to regain their confidence. What I'd say is I think we really hit the trough in Q3. And their inventories are now in line with very normal level of inventories, and we believe we'll start seeing more normal cadence of reordering from our retailers and the conversations have been great recently. And I would say that working together for these 6 months, in October, we had a promotion that we coordinated with our retailers together, and it was very successful for both of us. And due to that success, it just shows how when we're working together, a rising tide lifts all boats. And so we feel very comfortable with the promotional cadence in the fourth quarter. We are aligned with all our key retail partners at the Solo Stove division, and we're excited about seeing where it takes us in Q4. Chubbies is -- this is related to Solo Stove. Chubbies, I think, has been a more mature relationship with the retailers and has had this alignment more in line for the entire year. But particularly with Solo Stove, we had to make these changes. It's been painful, but we're finally coming out the other end, and I think seeing some positive initial results. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to John Larson for any closing remarks. John Larson: Thank you for continuing to follow our company, and we look forward to providing fourth quarter and full year results and updates on our strategic transformation in a couple of months. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, everyone, and welcome to the International Seaways Third Quarter 2025 Earnings Conference Call. My name is Carla, and I will be coordinating your call today. [Operator Instructions] I would now like to hand you over to your host, the General Counsel, James Small, to begin. Please go ahead when you're ready. James Small: Thank you, operator. Good morning, everyone, and welcome to International Seaways Earnings Call for the Third Quarter of 2025. Before we begin, I would like to start off by advising everyone with us on the call today of the following. During this call and in the accompanying presentation, management may make forward-looking statements regarding the company or the industry in which it operates, which may address, without limitation, the following topics: outlooks for the crude and product tanker markets; changes in trading patterns; forecasts of world and regional economic activity; forecasts of the demand for and production of oil and petroleum products; the company's strategy and business prospects; expectations about revenues and expenses, including vessel, charter hire and G&A expenses; estimated future bookings, TCE rates and capital expenditures; projected dry dock and off-hire days; new build vessel construction; vessel purchases and sales; anticipated and recent financing transactions and plans to issue dividends; the effects of ongoing and threatened conflicts around the world; economic, regulatory and political developments in the United States and globally, including the impact of protectionist trade regulations; the company's ability to achieve its financing and other objectives, and its consideration of strategic alternatives; and the company's relationships with its stakeholders. Any such forward-looking statements take into account various assumptions made by management based on a number of factors, including experience and perception of historical trends, current conditions, expected and future developments and other factors that management believes are appropriate to consider in the circumstances. Forward-looking statements are subject to risks, uncertainties and assumptions, many of which are beyond the company's control that could cause actual results to differ materially from those implied or expressed by the statements. Factors, risks and uncertainties that could cause the company's actual results to differ from expectations, include those described in our annual report on Form 10-K for 2024 and our quarterly reports on Form 10-Q for the first 3 quarters of 2025 as well as in other filings that we have made or in the future may make with the U.S. Securities and Exchange Commission. Now let me turn the call over to our President and Chief Executive Officer, Lois Zabrocky. Lois? Lois Zabrocky: Thank you so much, James. Good morning, everyone. Thank you for joining International Seaways earnings call for the third quarter of 2025. On Slide 4 of the presentation, which you can find in the Investor Relations section of our website, net income for the third quarter was $71 million or $1.42 per diluted share. Excluding gains on vessel sales, adjusted net income for the third quarter was $57 million, or $1.15 per diluted share with adjusted EBITDA $108 million. Today, we also announced a combined dividend of $0.86 per share to be paid in December, as you can see in the upper right section of the slide. This is our fifth consecutive quarter with a payout ratio of at least 75%. We continue to believe in building on our track record of returning to shareholders as part of our consistent and balanced capital allocation strategy. We also announced the extension of our $50 million share repurchase program to the end of 2026, as we believe repurchasing shares is an option as an addition to our payout ratio. On the lower left part of the page, we took delivery of 2 of our 6 LR1 vessels. The Suez Alacran delivered in the second half of September and the Seaways Balboa delivered on October 30. In connection with the deliveries, we borrowed $82 million, or $41 million per vessel on our new Korean export agency-backed financing that we put in place during the quarter. On our last call, we announced the ECA financing for up to $240 million with a blended 20-year amortization profile and a margin of 125 basis points with a 12-year maturity. The balance of the financing will be drawn upon delivery of each new building vessel in 2026, and the company has only $30 million of additional liquidity required to complete the program. During the third quarter, we sold 5 vessels with an average age above 17.5 years old for proceeds of $67 million. Another 3 of our oldest MRs with an average age close to 19 years old have been agreed to be sold in the fourth quarter for proceeds of about $37 million. When these transactions close, we expect to record a gain on the sale. Also in the fourth quarter, we expect to date delivery of our 2020-built scrubber-fitted VLCC, which we will utilize our available liquidity to pay the remaining $107 million due since making a deposit of $12 million in the third quarter. Overall, in 2025 through the end of October, we sold 8 vessels for proceeds of around $100 million, and we'll be purchasing this eco, modern VLCC in the fourth quarter for close to the same amount. Fleet renewal is always part of our strategy, and we expect to execute sales and purchases throughout the tanker cycle. We continue to work through our time charter book as well. While we did not execute any fresh charters this quarter, and even though some have rolled off, we will have over $230 million in future contracted revenue with an average duration of about 1.5 years. We continue to work with the market for opportunities as we believe generally a portion of the fleet will remain on fixed chart. On to the balance sheet in the lower right part of the page. We continue to explore and execute options to enhance our capital stack. After executing the ECA facility documents to fund our LR1 new building, the team went back to work on a knock bond opportunity as an option to pay for our upcoming purchase option that we declared on some of our sale leasebacks. I'm very pleased with the execution to secure a coupon as one of the lowest for first-time issuers in the tanker space. Due to the strength in demand, we increased the size of the bond to $250 million, which is nearly equal to the amount needed to repay the leases. We're very grateful to welcome in our new credit investors, and quite proud of the success in the execution of the bond. Due to the timing of the settlement of the bonds in the third quarter and repayment of the leases in the fourth quarter, we ended the third quarter with $985 million in total liquidity with $413 million in cash and $572 million in undrawn revolver capacity. Net debt at the end of the quarter was under $400 million, which on over $3 billion in fleet value, our net loan-to-value is a very low 13%. Turning over to Slide 5. We've updated our standard set of bullets on tanker demand drivers with the subtle green up arrow next to the bullets representing positive for tankers, the black dash representing a neutral impact, and a red down arrow meaning the topic is not good for tanker demand. Without reading each bullet individually, we believe demand fundamentals are solid and continue to support a constructive outlook for seaborne transportation. Oil demand growth remains healthy at 1 million barrels per day of growth for this year and next. OPEC+ is supplementing 1 million barrels per day of production growth from outside the group with their own production increases that we have not seen the full scope of what could be on the water soon. Some countries in the cartel had penalties for overproduction during the cuts and others were using some production increase in country for power generation. The fourth quarter looks to be the environment where the increased production is hitting the water. For now, it's much needed after the inventory levels have been near their historic lows, as you can see in the chart on the lower left. We are still monitoring how these increased barrels on the water can affect the tanker markets in the longer term. The geopolitical intensity on tankers remains strong with port fee discussions altering trade routes and working through a multitude of scenarios that could impact our business. On the lower right-hand chart, sanctioned barrels out of Russia and Iran have historically been transported to India and China. Lately, we've been seeing more pressure on those exports on those 2 specific countries, in particular, along with more sanctions put on the tanker fleet. Both effects could be positive for international tanker markets, and we expect more development in time, as we have had over the last few years. Moving on to the supply side on Slide 6 of the presentation. It remains one of the most compelling cases for tanker shipping. Orders have slowed in 2025 following a surge in 2024, as you can see on the lower left-hand chart. Tankers on order represent 14% of the fleet that deliver over the next 4 to 5 years. Over a 25-year life of a vessel, we would expect as much with a 4% increase per year of removal candidates multiplied by the 3 to 4 years it takes to deliver a new ship. In practicality, based on actual ship deliveries, there is a significant number of removal candidates that were built in the golden age from '04 to 2010. By the time the order book delivers fully in 2029, nearly 50% of the fleet will be over 20 years old and likely excluded from the commercial trade. There is simply not enough tankers to replace the current aging fleet, as we show in the graph on the lower right-hand side, less than 800 ships are delivering over the next 4 years, representing 1/3 of ships likely to face challenges in securing tonnage for the global trade, not to mention further sanctions or environmental regulations. We also highlighted in dark blue as sanctioned vessels in the chart, which currently tops the number of vessels on order. We believe these fundamentals should translate into a continued up cycle over the next few years and Seaways remains well positioned to capitalize on these market conditions. We will continue to execute our balanced capital allocation approach to renew our fleet and to adapt to industry conditions with a strong balance sheet while returning to shareholders. I'm now going to turn it over to our CFO, Jeff Pribor, to provide the financial review. Jeff? Jeffrey Pribor: Thanks, Lois, and good morning, everyone. On Slide 8, net income for the third quarter was $71 million or $1.42 per diluted share. Excluding gains on vessel sales, our net income was $57 million or $1.15 per diluted share. On the upper right chart, adjusted EBITDA for the third quarter was $108 million. In the appendix, we provided a reconciliation from reported earnings to adjusted earnings. On the lower left chart, I would like to point out that our TCE revenues from crude and products have been evenly balanced over the past year. Our revenue and expenses were largely within expectations for the third quarter. We're pleased with our cost management, particularly with vessel expenses. The lightering business generated approximately $9 million in revenue in the third quarter and contributed nearly $1 million in EBITDA after $3 million in vessel expenses, less than $4 million in charter hire, just over $1 million in G&A. During the summer, the number of jobs decreased, but we're pleased that since September, activity has picked back up again. Turning to our cash bridge on Slide 9. We began the quarter with total liquidity of $790 million, composed of $149 million in cash, $560 million in undrawn revolving capacity. Following along the chart from left to right on the cash bridge, we first had $108 million in adjusted EBITDA for the third quarter, plus $22 million of debt service and another $22 million of dry dock and capital expenditures. We therefore achieved our definition of free cash flow of about $63 million for the third quarter. This represents an annualized cash flow yield of nearly 10% on today's share price. We received $67 million proceeds from the sale of the 5 vessels Lois mentioned earlier. We also paid a $12 million deposit for a 2020-built VLCC, which delivers in the fourth quarter. We paid about $36 million in LR1 newbuilding installments, net of the $41 million drawn down from our new ECA facility. We repaid $27 million on our revolver during the third quarter, of which $15 million offset our capacity reduction, increasing our undrawn revolver capacity to $572 million. Net of fees, we received $247 million of proceeds from our issuance of senior unsecured NOK bonds. The remaining $38 million represents our $0.77 per share dividend that we paid in September. The latter few bars on the chart reflect our balanced capital allocation approach, where we utilize all the pillars, fleet renewal, balance sheet optimization and returns to shareholders. In summary, the result of our activity this quarter yielded a net increase in cash of $264 million. This equates to ending cash of $413 million with $572 million in undrawn revolvers for total liquidity of nearly $1 billion. Naturally, this is impacted by the timing of the settlement of the NOK bond proceeds and the $258 million of purchase options that we will execute on the Ocean Yield leases during the fourth quarter. Now moving to Slide 10. We have a strong financial position detailed by the balance sheet on the left-hand side of the page. Pro forma cash and liquidity remained strong at $727 million when including the impact of payment in the Ocean Yield purchase options. We have invested about $2 billion in vessels at cost on the books currently valued at about $3 billion. And with under $400 million in net debt at the end of the third quarter, our net loan-to-value is approximately 13%. Shown on the lower right-hand table of the page, we have included the pro forma impact of our debt till the end of 2026. Gross debt at the end of September was $804 million. We'll repay the Ocean Yield leases in November and add another $200 million of debt in connection with the LR1 newbuildings in the K-SURE ECO facility. Mandatory debt repayments through the end of 2026 are $33 million, giving us a little over $700 million in debt by the end of 2026 based on our latest balance sheet initiatives. We continue to enhance our balance sheet to maintain the financial flexibility necessary to facilitate growth as well as returns to shareholders. Our nearest maturity in the portfolio isn't until the next decade. We have 31 unencumber vessels on a fully delivered basis, and we have ample undrawn RCF capacity. We continue to explore ways to lower our breakeven cost even more and share in the upside with substantial returns to shareholders. On the last slide that I'll cover, Slide 11 reflects our forward-looking guidance and book-to-date TCE aligned with our spot cash breakeven rate. Starting with TCE pictures for the fourth quarter of 2025, I'll remind you that actual TCE during our next earnings call may be different. But in the fourth quarter, we are now seeing the impact of the elevated rate environment we began to see in late Q3. We currently have a blended average spot TCE of about $40,400 per day fleet-wide, 47% of our fourth quarter expected revenue days. On the right-hand side, our expected 2026 breakeven rate is about $14,500 per day compared with roughly $13,100 per day when we last presented a next 12-month view. On a comparable next 12-month basis, the breakeven remained about $13,500 per day with that difference primarily reflecting higher operating costs and the roll-off of time charter volume. The higher -- full year 2026 figure is mainly driven by timing, specifically higher dry dock costs in the fourth quarter of 2026 compared with the fourth quarter of 2020. Based on our spot TCE book to date and our spot breakeven, it looks like Seaways can continue to generate significant free cash flows during the fourth quarter, and build on our track record of returning significant cash to shareholders. In the bottom left-hand chart, we provide some updated guidance for our expenses for the fourth quarter and our preliminary estimates for 2026. We also included in the appendix our quarterly expected off-hire and CapEx. I don't plan to read each item line by line, but encourage you to use these for modeling purposes. That concludes my remarks. I'd now like to turn the call back to Lois for her closing comments. Lois Zabrocky: Thank you, Jeff. On Slide 12, we have provided you with Seaways' investment highlights, which I encourage you to read in its entirety and summarizing briefly here, over the last 9 years, International Seaways has built a track record of returning cash to shareholders, maintaining a healthy balance sheet and growing the company. Our total shareholder return represents over 20% compounded annual return. We continue to renew our fleet so that our average age is about 10 years old in what we see as the sweet spot for tanker investments and returns. We've invested in a range of tanker-class to cast a wider net for growth opportunities and to supplement our scale in each class by operating in larger pools. We aim to keep our balance sheet fortified for any down cycle. We have nearly $600 million in undrawn credit capacity to support our growth. Our net debt is under 15% of the fleet's current value, and we have 31 vessels that are unencumbered. Lastly, we only have our spot ships earned under $15,000 per day to breakeven in 2026. At this point in the cycle, we expect to continue generating cash that we will put to work to create value for the company and for our shareholders. We want to thank you very much. And with that said, operator, we'd like to open the lines for questions. Operator: [Operator Instructions] And our first question comes from Omar Nokta with Jefferies. Omar Nokta: Obviously, it looks like things are continuing to work out quite nicely for you guys, and you're doing a bit of everything. You're growing, rejuvenating the fleet, strengthened balance sheet, lowering your breakevens and obviously paying out capital. I wanted to just ask a couple of questions, more market-related, just based on what we've been seeing here recently. And I like your slide, on Slide 4, you showed the table of your achieved rates so far in the fourth quarter. There's quite a bit of a step-up, you'd say, across all the different segments from what you've earned during the prior 4 quarters. And I think in general, when people have been thinking about this market with OPEC and all that, it's been viewed that the VLCCs are going to lead the way, and certainly, we're seeing that. But we're also seeing some strength in the other classes, especially the Suezes and the Afras. And just wanted to get a sense from you, given your vantage point, is the midsized tankers, are they benefiting from what's going on with the VLCC? Are they getting pulled into those trades? Or is this a shift in cargo flows for those vessels that maybe has to do with Russia? Lois Zabrocky: So I'm going to have Derek Solon, our Chief Commercial Officer, attempt to tackle that one. Derek Solon: Great. Thanks, Lois. Omar, this is Derek. Thanks for the question. I mean you're, of course, right. The fourth quarter has been a lot stronger than the prior quarters. And a lot of that is OPEC+ sort of removing some of their voluntary cuts and kind of returning to a tanker market, a more normal tanker market where the VLCCs would lead the way on the big crude. So when the Vs are strengthening, what we see is they're doing a lot less of the business that they have done since post Russia, meaning fewer transatlantic cargoes that were really cannibalizing off the Suez and the Aframax. So now that we've got the VLCCs with healthy rates back in more of their normal trades, that naturally benefits the Suez and the Afras. To the point now where we're seeing, the Suezmaxes try to start to cannibalize back on the VLCC trade, right? So with that healthy V market, you're going to have a healthy midsized crude sector. Omar Nokta: Okay. So it's a bit more -- it's a pull basically upwards by the VLCCs, which is the old-fashioned way as you're kind of hinting at. And, I guess, maybe as we've seen this big move up in crude spot rates, products seem to have lagged and been held back. Is this normal? Do you think crude is leading the way, eventually products will get there? But here, obviously, I'm looking at your MR performance, and it's at 29,000, still fairly strong, quite a bit stronger than, say, indexes. But I guess maybe the indexes have lagged the crude. Do you think that's a lag? Or is this one of those things where maybe product fits this one out, and it's really more of a crude trade here in the next few months? Lois Zabrocky: So, yes, Omar, imagine that we earned just shy of 26 a day in the third quarter on MR and earning 29 a day in the fourth quarter for days booked, and that we think that's lagging. So that is just stunning stellar outperformance continued, I think, on the MR sector. Derek, could you add on that? Derek Solon: On that. Sure. Look, I mean, obviously, the MR rates are very healthy. I think our third quarter is strong. Our fourth quarter to date is very strong. A lot of that has to do with where we trade here in the Americas with a substantial portion of our MR fleet. But Omar, I think it's also -- it's certainly not that the MRs are sitting it out because the market is strong, but there's just different geopolitical factors impacting the MRs on the positive side. So you kind of talked about Russia in the bigger crude, but I talked about Russia more here on the clean sector, because a combination of things happening between stronger newer sanctions on Russian oil companies and Ukraine upping its attack on Russian oil infrastructure, we see a lot less diesel exports from Russia. So that void is being filled by the U.S., by some Latin American stuff. And the benefit to us, and a lot of our peers, is also that those are barrels that the compliant fleet can move, not the dark fleet, not the gray fleet, but the combined fleet. So that's part of why you see -- where we see the MRs pretty helped. Omar Nokta: Okay. Yes. And certainly, you can see from your results, definitely a fairly strong, I would say, outperformance in that segment. Operator: The next question comes from Chris Robertson with Deutsche Bank. Christopher Robertson: Just wanted to turn to the current crude inventory levels and get your thoughts around how that inventory building cycle will play out here? And do you think given the current forward oil curve, will this incentivize any offshore storage opportunities in the coming quarters? Or is the curve not steep enough yet to kind of incentivize that? Lois Zabrocky: It's interesting for sure. What we're seeing at the moment is that there's a lot of oil on the water. We don't really see heightened inventories yet onshore. So we speculate that some of these barrels that are on the water are not sure where they're going to land yet as a home. So it may be somewhat sanctions-impacted. And we're watching the forward oil curve very carefully. It's pretty flat. So this is definitely not a steep contango situation that we are involved in right now. So it seems a little bit more, you've got a lot of oil on the water, disagreements between IEA and OPEC and on just how much production is out there. So it's really interesting times for us. Christopher Robertson: Just turning to the S&P market, given the recent momentum in rates and things, as part of your normal fleet renewal strategy, are you seeing an increase in opportunities here to potentially divest further older assets? Or are rates sufficiently high at the moment that you might want to slow down on divesting assets at the moment? Lois Zabrocky: Well, on those older MRs, we've had a high degree of success, and we are starting to see asset values pick up, reflecting increased rates. We will continue to judiciously upgrade the fleet going forward. So in 2026, it will be more of the same of some disposals of the older vessels, and then we want to high-grade the fleet so that we really improve our earnings capability. Operator: [Operator Instructions] And as we have no further questions, I will hand back over to Lois for any final comments. Lois Zabrocky: Thank you very much. We appreciate it, Carla, and I want to thank everyone for tuning into International Seaways' quarterly conference call as we continue strong rates into the winter. Thank you. Operator: Thank you, everyone. This concludes today's call. You may now disconnect. Have a great rest of your day.
Operator: Good morning, ladies and gentlemen, and welcome to the OceanaGold Corporation Q3 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. And I would now like to turn the conference over to Haley Myers. Thank you. Please go ahead. Haley Mayers: Good morning, and welcome to OceanaGold's third quarter 2025 operating and financial results webcast and conference call. I'm Haley Mayers, Vice President of Investor Relations. We are joined today by Gerard Bond, President and Chief Executive Officer; Marius van Niekerk, Chief Financial Officer; and Bhuvanesh Malhotra, Chief Operating Officer. The presentation that we'll be referencing during the conference call is available through the webcast and our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release and MD&A as well as the risk factors set out in our annual information form. All dollar amounts discussed in this conference call are in U.S. dollars. I will now turn the call over to Gerard for opening remarks. Gerard Bond: Thank you, Haley, and good morning, everyone. The third quarter was a solid one, in line with our expectations, where we safely and responsibly executed to plan. We are now in high-grade ore at both Haile and Macraes, which is why we expect the fourth quarter to be the strongest of the year. This also underpins our confidence in meeting full year guidance, lowering our unit costs and generating significant free cash flow in this fourth quarter. As a fully unhedged gold producer, we continue to benefit from today's favorable gold price environment. Most of the gain in average realized gold price was converted to the bottom line, and we delivered yet another strong quarter of free cash flow generation to the tune of $94 million. We have a superb balance sheet with 0 debt and cash of $335 million, up 12% from the last quarter. This increase in cash is after investing in our business and after the $46 million of capital returned in both dividends and buybacks during the quarter, reflecting our disciplined capital allocation framework. Our balance sheet strength provides us the flexibility to continue investing in our organic growth pipeline, which remains a focus for us. I'm pleased to say that the early works construction activities at the Waihi North project are progressing well, and we remain on track for fast track permit approval of this project by year-end. We are very much focused on maximizing shareholder returns. And this third quarter was one in which we generated strong free cash flow ahead of market expectations, increased our cash balance and returned a record amount of cash in the quarter to shareholders via dividends and buybacks. As of today, we have completed $100 million of share repurchases this calendar year at an average price of CAD 19.64 per share. I'm pleased to say that the OceanaGold Board has approved a substantial 75% increase in our share buyback program for this 2025 year, raising the total amount of planned buybacks up to $175 million. Widening the lens, I want to highlight just how focused we are on generating and sustaining an attractive return on capital. Our rolling 12-month return on capital employed is 17% over the last 12 months. Over the same period, we delivered $422 million of free cash flow, which represents a free cash flow yield of approximately 15% on our average market capitalization over that same period. Both of these metrics demonstrate how we are executing well, how we are successfully converting the strong gold price into bottom line results that we're generating significant free cash flows and that we are deploying capital effectively. Looking ahead, we are confident that the fourth quarter will be our strongest of the year from a production standpoint, and we remain on track to meet our 2025 full year guidance. Our consolidated gold production at the end of the third quarter represents 70% of the midpoint of our guidance range, in line with plan, while our year-to-date all-in sustaining cost is at the top of the guided range. The projected strong fourth quarter production is expected to drive our all-in sustaining costs back within our full year guidance range, which is exactly how we always expected this year would play out. Total capital investment is expected to be in line with guidance. Sustaining capital and growth capital expenditures are anticipated to be higher in the fourth quarter, including further spending on early works associated with the Waihi North project. In summary, we are pleased with the strong operational and financial performance year-to-date. And looking forward, we remain confident that we are well positioned to achieve full year guidance, progress our growth options and continue to increase returns to shareholders. I'll now turn the call over to Marius, who will discuss our financial results in detail. Marius van Niekerk: Thank you, Gerard, and good morning, everyone. This quarter, our focused operational performance translated into a record quarterly revenue of $449 million, supported by a record average realized gold price of just under $3,500 per ounce, which is still well below where spot gold prices are trading today. I'm pleased to highlight a few other key metrics this quarter. Adjusted EBITDA reached $211 million and was up 18% compared to Q3 last year, resulting in a healthy margin of 47%. Adjusted net profit was $93 million and adjusted EPS was $0.40, representing increases of 40% and 48%, respectively. Operating cash flow per share was $0.93, up 41% versus last year. We generated a strong free cash flow of $94 million in the quarter, bringing the year-to-date total to $283 million. The balance sheet is clean. We have 0 debt and our cash balance increased to $335 million. These results highlight our focus on maintaining cost and capital control and reinforcing our financial strength to continue delivering shareholder value. With our balance sheet in the strongest position ever, we have the flexibility to continue funding our exciting organic growth opportunities while also returning capital to our shareholders through our dividend and our upsized share buyback program. In addition to maintaining our quarterly dividend this quarter, we bought back $39 million of shares at an average price equivalent to around CAD 24 per share. Having fulfilled our previously announced $100 million buyback program for 2025, the Board has now approved a 75% increase for the remainder of the year, raising the targeted share buyback to $175 million for 2025. Together with $24 million in share repurchases made last year and our doubled dividend in 2025, by year-end, we expect to have delivered over $225 million in capital to shareholders, and that's over the previous 18 months. This demonstrates our clear commitment to delivering capital returns to our shareholders while maintaining a strong balance sheet and funding our growth projects. I'll now pass it over to Bhuvanesh to discuss our operating performance at each of our sites. Bhuvanesh Malhotra: Thank you, Marius, and hello, everyone. Ore production at Haile was 30,000 ounces in the third quarter, which was our planned lowest production quarter of the year as we advanced phase stripping at Embeda Phase 3, which unlocked fresh ore towards the end of the period. We are confident that the fourth quarter will be a strong quarter comparable to the first quarter, driven by the high-grade ore from Ledbetter 3, positioning us to achieve our full-year guidance. Third quarter all-in sustaining cost was above our guidance range as expected, reflecting the lower production volumes and capital investment on waste stripping and increased sustaining capital. We maintain our all-in sustaining cost outlook for the year as we expect unit costs to decrease significantly in the fourth quarter, in line with the expected improved production profile. During the quarter, we also released some exciting exploration results at Haile, highlighting the high-grade mineralization at several deposits across the property, notably at Ledbetter Phase 4, Horseshoe Underground and the early-stage Pieces and Clydesdale targets. The exploration success enjoyed year-to-date continues to highlight attractive upside for low-risk organic opportunities. Work on Ledbetter Phase 4 trade-off study continues to progress well. We are on track to release an updated NI 43-101 technical report by the end of quarter 1, 2026 with the results of this work. Now on to Didipio. During the quarter, Didipio delivered gold production of approximately 22,000 ounces and copper production of 3,100 tonnes, in line with our full year plan. In the quarter, we successfully completed the dewatering of the decline and expect to be at normal underground mining rates by the end of 2025, keeping us well on track to meet our full year guidance. We continue to pursue our underground optimization plans to support our growth. In the third quarter, we increased our investment in sustaining capital with planned spending on underground pumping infrastructure and ongoing lifts to the tailings storage facility. We expect this investment to continue into the fourth quarter. With the investments in mine water resilience in the second half of 2025, we expect all-in sustaining costs to be around the top of the guided range for the full year. We remain excited about our exploration prospects with ongoing drilling at multiple targets. This quarter, we continue to explore our near-mine targets, Napartan and D'Fox. In the fourth quarter, drilling will resume at True Blue, an area of known mineralization approximately 800 meters away from the Didipio mine. Additionally, resource conversion drilling from the underground is expected to resume shortly following the successful dewatering of the decline. We're making good progress and remain on track to reach our targeted underground mining rate of 2.5 million tonnes per annum by the end of 2026. We expect to release an updated technical report in the first half of 2026, outlining this plan to the market. We remain excited about Didipio's future growth opportunities. Moving on to Macraes. This quarter, Macraes delivered improved gold production of 33,000 ounces as waste stripping at Innes Mills 8 began unlocking fresh ore towards the end of the period. Looking ahead, with access to fresh ore at Innes Mills 8, we are confident in the significant fourth quarter uplift in production, positioning us well to achieve our full year guidance for production and costs. We remain excited about our potential opportunities to unlock value at Macraes. We are continuing to evaluate many options available to extend the mine life given today's high gold price environment, leveraging the value of our industry-leading low mining unit costs. We expect to share more with the market in an updated technical report at the end of quarter 1, 2026. Waihi delivered another strong production quarter of just under 19,000 ounces of gold, maintaining the progress achieved with the underground improvement plan initiated in 2024. This marks the fourth consecutive quarter of stronger performance at Waihi, which is testament to all the hard work done by the team there. This great turnaround at Waihi in recent quarters has positioned the site to deliver gold production around the high end of its guidance range for 2025. Now on to our exciting Waihi North project. I'm pleased to say that our fast track application progressed through the commenting phase in the third quarter and is currently in the panel consideration phase, which includes of responding to requests for information. Our expectation remains that we will be permitted by year-end and will be able to start the underground decline towards Wharekirauponga in 2026. Early works activity continued to progress with the construction of the service trench, civil works and Velos bulk earth works all commencing this quarter. We are on track to spend our guided $45 million this year, helping the project to be ready to start in earnest when we receive that approval. Turning to exploration at Wharekirauponga. Exploration focused on confirming the extent of mineralization of the southern end of the deposit, which remains open. As part of our fast track application, we are also seeking approval to increase the number of drill sites and double the number of allowable drill rigs, which will accelerate efforts to define this exciting deposit. Back at Waihi, exploration drilling is focused on resource definition and conversion and expansion of the Martha underground. With the improved underground performance and solid progress on permitting of the Waihi North project, we remain very excited about Waihi's future. I will now turn the call back to Gerard. Gerard Bond: Thank you, Bhuvanesh. In summary, this was another good quarter for OceanaGold and in line with our full-year plan. We expect the fourth quarter to be our strongest of the year, setting us up well to meet our full year guidance and generate substantial free cash flow at today's gold prices as a fully unhedged gold producer. Our balance sheet is in excellent shape. We returned a record amount of capital to shareholders through dividends and buybacks. Our 2025 buyback program has been substantially increased by 75% and the fast-track permitting approval of the Waihi North project is expected by year-end. We're also targeting a listing on the New York Stock Exchange in April 2026, which we believe will provide enhanced trading liquidity and access to a wider range of potential investors, both of which should drive value for shareholders. All this is possible through the dedicated efforts of the many tremendous people who work at OceanaGold and a big call out of thanks to them for all their hard work. I'll now turn the call over to the operator, who will open up the lines for any questions. Operator: [Operator Instructions] And your first question comes from the line of Ovais Habib from Scotiabank. Ovais Habib: Gerard, congrats to you and your team on a great quarter and really great to see Haile and Macraes in the higher grade ore. Also, really great to see the significant increase in the share buyback program. So that was really good to see and really depicts how confident you guys are on your free cash flow profile. A couple of questions from me, Gerard. Number one, starting off with -- you've got a lot of studies coming up in 2026. There's the Haile tech report, Macraes tech report. You've got the Didipio underground PFS as well. In terms of the free cash flow and free cash flow profile that we see going into 2026, that seems to be very strong. So the question is, do you see any major CapEx projects going into 2026 based on these expected studies? Gerard Bond: Firstly, thanks for the questions. Look, I mean, the cash flow requirements of those studies or the mine plans that will be reflected in those studies will be available in 2026 when we release them. But there's nothing -- unlike, say, the Waihi North project, there's nothing more than we're doing than updating the mine plans for latest reserves, latest reserve assumption and latest estimates of activity and the mine plan itself. There is nothing of a vastly different nature in capital that we're expecting to be associated with any of those 3 assets, Haile, Macraes or Didipio. Ovais Habib: Fantastic. And just kind of moving on to Didipio then. Q3 looked fairly similar to kind of Q2, things have improved. Obviously, there were some underground water issues at the beginning of the year. Is that all now behind us? Any color on that would be great. Gerard Bond: Well, I think Bhuvanesh covered it in the call, and I'll hand it over to Bhuvanesh again. But as he said, we have completed the dewatering of the decline. And by the end of this year, we expect to be at normal underground mining rates in full. Bhuvanesh, anything else to add on that? Bhuvanesh Malhotra: No, I think you covered it well. Thanks, Gerard. Ovais Habib: Okay. And then just moving on to Waihi. Waihi is expected to finish the year around the top end of its production guidance. And this is definitely a big improvement over the past couple of years. Are you now confident in this performance continuing to 2026? Gerard Bond: Bhuvanesh do you want to take that? Bhuvanesh Malhotra: Yes, sure. Thanks, Ovais. Yes, we are very confident about our production profile moving forward from Waihi. I think we now have a very great handle of the mining in out there as well. So yes, we feel very confident about our ability to capture and maintain that rate. Operator: And your next question comes from the line of Harrison Reynolds from RBC Capital Markets. Harrison Reynolds: Congratulations on delivering another strong quarter. It sounds like well set up heading into the end of the year. Wondering if you might be able to provide a bit more detail on these upcoming tech reports for Haile and Macraes. I know you touched on it a little bit in the last question, but sort of trying to understand what they might include. I think about the Macraes mine life extension. And I think that's underappreciated, but trying to maybe think about which phases are actually going to get included in this report. And over at Haile, some of this exploration has been interesting, but I'm wondering, are we going to get details around those targets at all? Or is it just going to be updating production schedules and costs? Gerard Bond: Everyone wants a spoiler alert ahead of the -- you're going to rob all the excitement of February to keep talking. Look, I mean, Haile, we've been saying that for a while now we're studying how we're going to approach the mining of LedBetter 4. It was always in the last technical report shown to be an open pit mine. But as a result of the great drill results we had and the shape of the ore body as defined by that drilling, what the study will do is make a determination and reflect the decision on how we're going to mine that LedBetter 4 ore body. So that's probably the primary change. The -- we've had some tremendous drill results at Haile as foreshadowed, but I don't think much of that's going to alter the mine plans beyond what I've said in relation to Ledbetter 4. At Macraes, its last reserve estimate was done for the whole company was at a reserve price of $1,750 an ounce. And we said that we are going to -- we're looking at having a higher reserve price for Macraes and all sites. And when we update that technical report at a higher reserve price, the amount of mineralization at Macraes is such that you can expect that a degree of mine life extension of some magnitude because it is an ore body that's sensitive to price. And so, at these higher gold prices, and we're always going to make sure that our reserve price isn't chasing too spot gold, we're going to make sure we have a very healthy margin on mining activities at all sites. But Macraes is sensitive to the gold price, and we expect that, that increase will allow us to mine more ore for longer at Macraes. And they are the primary reflections. Harrison Reynolds: That's great detail. And maybe just one more for me. I think it's exciting to see that there's going to be more drills on the Waihi North project post permitting. But can you talk a little bit about what's going to be targeted from those drill rigs? Is that going to be more infill drilling? Or are you going to start to do step outs and define the size of this ore body? Gerard Bond: Yes. Great question, Harrison. I mean, to put it in context, we're doubling the amount -- well, doubling the amount of drill pads that we can drill from. That will give us tremendous flexibility and choice as to how we approach the drilling as opposed to being limited to the drill pads that we have had for a many number of years. And as I said, doubling the amount of drill rigs. We'll always have a choice, and they're not mutually exclusive. We can do a bit of both. It is an exciting ore body. I think there is merit in doing some infill drilling and there's merit in doing step-outs. And again, we're only to date focused on one of the veins. There's also the opportunity to focus on some of the other veins in the region. I think Wharekirauponga, the district has a long period of time to unveil what's possible there. And again, this next year is going to be a step change in drilling activity to help unveil all that. Operator: And your next question comes from the line of Fahad Tariq from Jefferies. Fahad Tariq: At Waihi, it sounds like the underground improvement plan is going really well. You've seen higher throughput, higher grades, lower cost. Are there similar opportunities at other mines in the portfolio to bring costs down? Gerard Bond: Short answer is yes, but I'll let Bhuvanesh color that in for you, Fahad. Thanks for the question. Bhuvanesh? Bhuvanesh Malhotra: Thanks, Fahad, for the question. Yes, there are other opportunities across our portfolio to really factor the cost. Currently, we are undertaking all of those opportunities as well and probably Haile being a nice one to take that into account as well, specifically when you look at the trade-off study between the open pit and the underground. So that's a great example to factor that outcome. Similarly, at Macraes, we can -- we're looking at all opportunities as a part of the mining studies that are in out there as well. And at Didipio, the way we basically have been mining at Didipio, specifically in relation to how our stope sequencing work, we are always looking at those opportunities as to how to get the cost of the all-in sustaining cost down. Operator: And your next question comes from the line of Cosmos Chiu from CIBC. Cosmos Chiu: Maybe my first question is on something interesting that you mentioned in your MD&A. As you mentioned in your MD&A, you'll be releasing your 2026 guidance with full year 2025 results, and it will reflect updated economic influences from current market and operating environment. So I guess my question is, Gerard, is that an indication that you'll be looking at sort of inflationary factors? Or are you looking at sort of changes from the higher gold prices and changing opportunities? You kind of answered that question in your answer to Harrison on the Macraes in terms of potentially bringing in more ore. But is that what we're talking about, inflation? Are we talking about opportunities from a higher gold price? What do you mean by that statement? Gerard Bond: Yes. I mean it's everything costs, right? I mean we start with the physicals and then we have to have an overlay of what it's going to cost and what we're going to be investing in. And the mine plans will direct the activity and the activities can shift ever so slightly depending on what the mine plan takes us to and the experience of the year. And market costs, they can reflect anything, including inflation, exchange rates. I mean, we operate -- 50% of our business is outside of the U.S. And so, we update as to the New Zealand dollar and the peso, input costs and so forth. So it's a comprehensive normal update of what we expect the economics and physicals of the business are going to be. Cosmos Chiu: So pretty much everything. But I guess to ask it more concisely, have you thought about what gold price assumption you might be using for your technical reports coming up that could drive how you run the business at least into 2026? Gerard Bond: Short answer, and I think I alluded to it and we said it previously, we are going to increase the reserve price. The reserve price of $1,750 is too low. So it will go up. It doesn't change the activity set of any of our assets in 2026 at all. And the primary change that -- and it doesn't change much of the reserves of any site with the exception of Macraes because as I said on the call, it's the one that's most sensitive to price. And you can just see the difference between the reserves and the resources at Macraes and the resources at Macraes are booked at $1,950. So as we migrate from reserve to resource, you're going to see some level of those resources come into reserve, and that will extend life, but it won't alter the activity of 2026, all that much from what we expected otherwise. Cosmos Chiu: Great. Maybe switching gears a little bit. Gerard, as we all know, Q3 was going to be the weakest quarter for the year for Oceana . And despite that, you still generated very good free cash flow, $94 million positive free cash flow. Can you remind us of any kind of seasonality in your free cash flow quarter-over-quarter? For example, I know that you need to pay for your FTAA each and every April. But is there anything else that we should be aware? Gerard Bond: Not really, Cos. I mean I think the largest single lump is -- and I'll give Marius time to think and he can color in if I've missed something. But the largest single item of the lumpy spend is that additional government share that's paid in April of every year, and that's flagged in the full year results that we released in February. We -- through the course of this year, we did have some seasonality in the electricity price that we experienced in New Zealand, but it's kind of not all that significant. But -- and then the other seasonality, we can have weather events affecting shipping of copper concentrate out of Didipio, but that all washes out in the course of the year anyway. So nothing material. Marius, anything come to mind or Bhuvanesh? Marius van Niekerk: The only 2 that come to mind is obviously your CapEx spend profile, cars, depending on where you are in that quarter. And then also from a shipment perspective, yes, you have -- you could have weather events impacting it or you could have some stockholding at either site per quarter at the back end of the period. So that would influence, for instance, Didipio this quarter had some sales that came from inventory in the prior quarter. Cosmos Chiu: Great. And maybe one last question. Great to see share buybacks, you've reached your $100 million target, now increasing it to $175 million. But I guess my question is, as Marius mentioned, you repurchased shares at CAD 24. Oceana shares have done very well. Now CAD 31.85. So I guess my question is, is there some kind of upper limit in terms of when you might start considering or reevaluating the velocity in which you repurchase shares? Gerard Bond: Yes. We do have -- we are mindful of value, Cos. We have our own view on value having regard to modeling and various assumptions, and we don't go above that limit. Cosmos Chiu: Okay. And at this point in time, Gerard, can you share with us, are we going to expect share buybacks of $75 million in Q4? Or is that, again, based on what you're observing in terms of value in terms of the share price? Gerard Bond: I can say that we will be commencing that buyback at today's share price. And what happens thereafter, Cos, is, again, subject to the parameters we put around it. But I think what we have shown is that when we said we were going to buy back shares at the start of the year of $100 million, we executed to that. And I think just generally, at a macro level, I think that gold equities, not all gold equities, but certainly OceanaGold equities still have a way to go to reflect fully or even part of the uplift in spot gold. Operator: And your next question comes from the line of Don DeMarco from National Bank. Don DeMarco: First off, to these technical reports, Gerard, what is the timing of both the Haile and the Craisech reports? Are they going to both be out before 2026 guidance is released? Gerard Bond: No. They will come out in the end of the first quarter of 2026. But the essence of them will be reflected in the '26 guidance. Don DeMarco: Okay. And of course, as has been discussed in some of the questions, with the Haile tech report, you're looking at -- you faced with the decision of how to approach LedBetter 4. This analysis is ongoing. We'll look to report for what your decision is. What are some of the variables that you're including in your analysis that might drive the decision grade, CapEx, differences in throughput between the different scenarios in the mine life? What are some of the factors that you're looking at and weighing both options? Gerard Bond: Sure. Great question. Bhuvesh, do you want to take that one? Bhuvanesh Malhotra: Yes, sure. Thanks, Don. So we've been looking at the value-based decision as well. So the decision basically is more about the NPV that we will generate and then the IRR that we'll get out of the decisions that we need to make as well. And as you know, probably in the case of the open pit, given the amount of waste that we need to strip to the ore, that probably is a huge amount of time that we spend in that space as well. So we're taking a value-based decision that probably generates the best outcome. This is what the trade-off studies will be taking into account. Don DeMarco: Okay. Great. And great to hear that Q4 is going to expect to be the best of the year. And really, there's a clear path into 2026 as well. Would you expect that stretch to continue into '26? I mean, in a general sense, and of course, we'll look for details of the guidance, but it seems like a clear path carrying on the strength from Q4 into next year. Gerard Bond: Yes. Whether the quarter volume is exactly the same, but the drivers of that uplift definitely carry through into '26. I mean this has all been about accessing grade at our 2 largest operations, Haile and Macraes this year represent 70% of our projected production. And next year, that combination grows even larger because of this access to the higher grade ore and Innes Mills 8 at Macraes and LedBetter 3 that we've been investing in this year. That's what I think is particularly exciting. We have been investing in the access of those large open pits this year, still generating tremendous free cash flow. And then next year, when you're feeding higher-grade ore that's what's the primary driver of the uplift in gold production in 2026. Operator: And there are no further questions at this time. I will now hand the call back to Gerard Pan for any closing remarks. Gerard Bond: That concludes our webcast and conference call today. Thank you, everyone, for joining us. A replay will be available on our website later in the day. On behalf of the management team and everyone at OceanaGold, I wish you a very pleasant rest of the day. Bye. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good afternoon, and welcome to the Kits Eyecare Third Quarter 2025 Financial Results Conference Call. This call is being recorded and available later today for replay. Your hosts today are Roger Hardy, Chief Executive Officer; Joseph Thompson, Chief Operating Officer; and Zhe Choo, Chief Financial Officer. Before we begin, I'm required to provide the following statements respecting forward-looking information, which is made on behalf of Kits and all of its representatives on this call. Certain statements made on this call will contain forward-looking information. These forward-looking statements generally can be identified by the use of words such as intend, believe, could, expect, estimate, forecast, may, would, and other similar meaning. This forward-looking information is based on management's opinions, estimates and assumptions in light of their experience and perception of historical trends, current conditions and expected future developments as well as the factors that they currently believe are appropriate and reasonable in the circumstances. Actual results could differ materially from a conclusion, forecast, expectation, belief or projection in the forward-looking information, and certain material factors and assumptions were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information. Management cautions investors not to rely on forward-looking information. Additional information about the material factors that could cause actual results to differ materially from the conclusion, forecast or projection in the forward-looking information and material factors or assumptions that were applied in drawing conclusion or making a forecast or projection as reflected in the forward-looking information are contained in Kits' filings with the Canadian provincial security regulators. During today's call, all figures are in Canadian dollars, unless otherwise stated. And with that, I'd like to turn the call over to Mr. Roger Hardy. Please go ahead. Roger Hardy: Good afternoon, everyone, and thank you for joining us today. When we started Kits, it was with deep conviction and enthusiasm. We've explored several categories and potential ventures, all with intriguing possibilities, but one clearly rose above the rest. We envisioned building a new breed of technology company, one that would serve billions of people around the world who rely on vision correction to function every day. Through countless conversations with vision-corrected customers, we uncovered a critical insight. The optical industry had grown complacent. It had forgotten the people it was meant to serve. At its core, the sector relied on a century-old model, overly complex, expensive and opaque. Duopoly dominating the space had lost sight of its purpose, enabling people to see, work and live fully. The addressable market was already immense, estimated north of $100 billion globally, but the true potential was even greater because nearly everyone everywhere will eventually need vision correction of some form. Prospect of transforming such a vital category was profoundly motivating. This was a chance to create something enduring to build a company that improves people's daily lives in a way that enriches how they live, work and connect. That ambition inspired our mission to make eye care easy. Today, we set out to serve the modern consumer digital-first, informed and empowered, someone who grew up with a phone in hand and expected frictionless experiences. We imagined an end-to-end platform controlling every essential component through vertical integration from customer acquisition and retention to manufacturing and fulfillment. It was an ambitious vision, especially starting from 0 back in 2018. From time to time, I find it valuable to revisit those original ideals and ask, do they still hold true? Are we executing in line with our mission to reinvent a century-old category? One of the things I love most about leading Kits, a public company, is the rhythm, the relentless 90-day sprint. After more than 2 decades of running public businesses, it's a cadence I and my family know well and deeply value. At Kits, we operate on a nimble operating system. Every quarter, the metaphorical cannon fires and the sprint begins anew, 90 calendar days, 60 business days to deliver results. Each quarter starts with a clear list of 5 priorities that our management team aligns on. Of course, there are many other initiatives, but these 5 are the nonnegotiables. Call me traditional, but I like to keep revenue and EBITDA at the top of that list. From there, our focus turns to the customer, how we can strengthen emotional connection, personalize engagement and listen authentically to feedback. We examine our product to ensure it delights because our customers have no patience for mediocrity. They want authenticity anchored in quality, selection and affordability. And finally, we set clear technology objectives to ensure we're operating on a premium stack at the leading edge of innovation. This quarterly cadence gives us a mirror, a moment to reflect, measure and hold ourselves accountable as we strive to deliver on the bigger, longer-term mission. I'm pleased today to update shareholders and our team on another strong quarter of performance. During our last earnings call, we guided Q3 revenue between $52 million and $54 million with a targeted adjusted EBITDA margin of 5% to 7%. Proud to report that we delivered record revenue of $52.4 million, up 25% year-over-year and 6% sequentially. This marks our 12th consecutive quarter of positive adjusted EBITDA, which rose to $2.9 million or 5.5% of revenue, up 79% year-over-year, and our net income reached $1.9 million or $0.06 per share. Gross margins expanded to 34.6%, up 170 basis points from last year, a seasonally strong performance. And we welcomed 99,000 new customers in the quarter. This quarter also marked a major milestone, surpassing 1 million active customers, a testament to both our reach and the trust we've earned. It's now our third consecutive quarter averaging 100,000 new customer additions. Year-to-date, new customer growth is up 37%, reflecting accelerated awareness and adoption. The Kits flywheel is spinning faster. New customers are driving growth today and recurring value tomorrow, returning at higher rates and expanding lifetime values. We have an exceptional product, unmatched selection, a beautiful website powered by state-of-the-art technology and the fastest fulfillment in optical, all underpinned by a culture committed to purposeful execution. We're now one of the fastest-growing eyewear brands or brands in North America, $200 million business with brand awareness concentrated in just one city, Vancouver. Candidly, that underscores the magnitude of the potential ahead, a uniquely attractive growth profile with asymmetric upside as we begin to replicate our Vancouver success in other cities across North America. A particular standout this quarter was the strength of our Canadian business, up more than 38% year-over-year, powered by strong repeat purchases and a robust new customer acquisition as we tempered our investment in the U.S. this quarter. Our Kits branded contact lenses grew an astounding 380% year-over-year with gross margins exceeding 50%. Other segments of our 50-50 clubs such as our Progressive and designer collections also posted impressive gains, each with margins near or above 50%. These categories are scaling rapidly and will become increasingly influential contributors to growth and profitability over the coming years. Our glasses segment remains a cornerstone growth engine. Glasses revenue increased 25% year-over-year, driven by both new customer additions and continued premium lens adoption. Our vertically integrated model gives us a structural advantage controlling quality, speed and cost to deliver premium products at accessible prices. This translates into higher customer satisfaction and superior margins over the long term. Repeat customers accounted for 62.4% of total revenue, contributing more than $32 million in the quarter, evidence of a deepening loyalty and growing engagement. And premium lenses grew 55% year-over-year and now represent 44% of revenue, reinforcing the power of our recurring compounding revenue model. We also continued our rhythm of innovation, launching 9 new collections and 77 models across 240 color ways, reinforcing our pillars of quality, selection and affordability. The standout was the oval edit, a strategic expansion capitalizing on the surging oval trend validated by the exceptional performance of our Soren frame, our top seller. We responded with agility, introducing 15 new styles across new colors, sunglasses and shape variations, including rectangular and sport additions. We also showcased the brand through our Gran Fondo activation, a proud moment seeing Kits on the podium and across the course, worn by individuals who, like us, are motivated by purpose and progress as they race to whistler on their bikes along the beautiful Sea to Sky Highway. True to our DNA, we kept testing and learning. As a nimble vertical retailer, we can pilot new ideas with minimal risk and remarkable speed. A small 4-frame capsule for children quickly demonstrated strong traction, validating another future expansion path. That speed of iteration powered by real-time customer data is what defines Kits as a forward-thinking brand. These capsules outperformed through organic and influencer channels, driving incremental traffic, engagement and repeat purchases. Looking ahead to Q4, we expect continued momentum with revenue in the range of $52 million to $54 million and adjusted EBITDA margins between 4% and 6%. We also look forward to introducing our new Chief Marketing Officer early in the new year. With that, I'll hand the call over to Joe and to Zhe. Joe? Joseph Thompson: Thanks, Roger. The Kits team has been hard at work in the quarter, building infrastructure to deliver results for years to come. Infrastructure that tracks carrier and delivery performance and allows us to systemically shift orders to the best carrier, providing faster delivery for customers. Our systems that optimize every layer of the customer journey from how customers move through the site to how orders move through our system, increasing convenience to customers and reducing bounce rates. As we invent, large language models are helping the team build these systems even faster and with less G&A investment required. And of course, building infrastructure around our 50-50 initiatives, our top-performing innovation delivering approximately 50% growth year-on-year and approximately 50% gross margin or higher. We were delighted to recently welcome Kits contact lenses to the 50-50 club that already includes initiatives like digital progressives, premium lens upgrades and more. And the team now feels we are building what may be the biggest of these initiatives yet with the beta launch of OpticianAI. As AI is moving commerce from search to conversation within agentic commerce, Kits is helping to lead the way in eye care. OpticianAI is our digital optician designed to make buying glasses easier and faster, replicate the guidance of an in-store optician and be accessible anywhere. Still in beta, the team has rapidly iterated the technology now on version 10. The most recent release, AI vision introduced major user experience improvements. Based on customers' unique attributes, they can now receive interactive and personalized recommendations as they explore new frames. Further optimizations to our virtual try-on are creating a step change in the consumer experience with the introduction of a dual try-on view that lets shoppers compare 2 frames side-by-side and the ability to adjust color ways within seconds. It's an experience that removes the friction of in-store shopping and offers a level of confidence and convenience unmatched in traditional brick-and-mortar retail. Still in early days of adoption, these enhancements are increasing conversion, lowering drop-off rates and delivering a shopping experience that feels both intelligent and human. Consumers are the heart and soul of Kits. And as customers use OpticianAI, they help shape an even better shopping experience for millions more customers in the future. We believe there's a lot more to come from this initiative as OpticianAI continues to evolve. That's a great segue to Zhe, our CFO, to share details on our Q3 financial performance. Zhe? Zhe Choo: Thanks, Joe. Following a strong first half, Q3 results reflect our continued ability to deliver consistent growth, supported by steady execution and meaningful contributions from both new and loyal customers. In Q3, we continued to see meaningful operating efficiencies. Fulfillment expense as a percentage of revenue improved to 10.2%, down 60 basis points year-over-year as our vertically integrated lab and distribution network deliver greater productivity at higher volumes. We fulfilled approximately 266,000 orders this quarter, highlighting the operational discipline and consistency of our team. Customer acquisition continued to drive our performance in the third quarter. We welcomed more than 99,000 new customers, contributing over 37% of revenue for the period. Even with this strong growth, we reduced marketing spend by 110 basis points quarter-over-quarter, bringing it down to 14.1% of revenue. This improvement reflects the growing strength of our omnichannel platform and increased recognition of the Kits brand. Importantly, despite a higher mix of new customers, average order value rose to $197, up from $190 last year, showing continued demand for higher basket sizes and premium lenses. As these new customers return for repeat purchases, we expect to see further gains in both average order value and lifetime value. General and admin expense also improved to 5.7% of revenue compared to 6.2% last year, reflecting disciplined overhead management even as the business scales. We achieved a gross margin of 34.6%, a 170 basis point improvement from 32.9% last year, while gross profit increased 32% to $18.1 million. These results show the strength of our integrated model and our ability to fine-tune pricing, product mix and promotions to attract new customers and keep them coming back. Turning to profitability. Adjusted EBITDA was $2.9 million, representing a 5.5% margin, an improvement of 170 basis points from last year. This marks our 12th consecutive quarter of positive adjusted EBITDA, highlighting our consistent execution and focus on profitable growth. Net income increased to $1.9 million compared to $0.1 million last year, a strong improvement year-over-year. We ended the quarter well capitalized with $19.7 million in cash, giving us a strong foundation to continue investing in growth while maintaining financial discipline. We have built a strong foundation for long-term growth, supported by continued innovation in digital eye care and disciplined execution across the business. As we move into the fourth quarter, we remain confident in our ability to deliver sustained profitable growth and create long-term value for our shareholders. I'll now turn the call over for questions. Operator: [Operator Instructions] Your first question comes from the line of Martin Landry from Stifel. Martin Landry: Congrats on your results. My first question, I'd like to -- if you could discuss how the quarter evolved. Some retailers have seen a strong start of the quarter in July, and they've seen the momentum abating a little bit in September. And I was wondering if you've seen a pattern like that evolve during the quarter. Roger Hardy: Yes. Thanks, Marty. For us, it was a fairly consistent quarter on the demand side. And I think we talked a bit about it at the prerelease, but we saw in September a number of others be highly promotional. In our own case, it was fairly business as usual. So we saw heavy promotion all around us, particularly in September. As you can see from the results, our margins improved. And it was fairly consistent. Probably the one side note would be that for us, the postal strike did come in late in the Q and did have some, although nominal effect, and we don't want to really make an excuse of it, but the post office shut down for the last couple of days of the quarter, and it obviously has some effect. But no real change in full demand on that side. Martin Landry: Okay. And then I heard in your prepared remarks that you talked about -- you've tempered your customer acquisition in the U.S. this quarter. Can you expand a little bit on that? What prompted you to do that? Roger Hardy: Yes. Sure, Marty. Candidly, we've been cautious with the U.S. throughout the last quarter. Lots of moving parts there, as we know, with the border and other, I'd just say, general some uncertainties. But we're -- our view is now kind of we're returning to a bullish outlook. We feel like it's stabilized, and we're getting ready to turn back on our efforts in the U.S. We were, I'd say, basically on the sidelines for a lot of the Q waiting to see how some of the regulatory and other things might develop. And fortunately, it's not in a position to have a material or an effect on us at this point. So we're looking forward to reigniting, I would say, the U.S. And as you know, wherever we invest and focus our attentions, we tend to see results. So maybe I'll see if Joe has anything else to comment there. Joseph Thompson: And I guess maybe last thing to note is we were really fortunate as we looked at the market. We now have 2 markets, 2 business lines, both doing -- all doing very well. And we felt we had plenty of room for growth in the Canadian market. And our glasses business continued to perform spectacularly well in Canada, growth north of -- well north of 50% on glasses in Canada in the quarter. And so I guess that's part of the reason why you're hearing so much confidence that we delivered a 25% growth in spite of a reduction of glasses investment in the U.S. market. Martin Landry: Okay. Okay. So I guess that explains a little bit. That's a good segue to my last question. I mean your contact lenses grew faster than glasses this quarter. It's, I think, a first in 2 years. And I think you probably have answered that question saying that you've slowed down the marketing on your acquisition -- customer acquisition for glasses in the U.S. Would that be the explanation? Joseph Thompson: That's the key driver, correct, Martin. I think Roger pointed this out very well a few minutes ago. But where we invested, we saw strong performance. So we focus on high LTV areas like Kits contact lenses, digital progressives was, again, a big driver, well, well over 50% growth quarter-on-quarter there and the overall Canadian market with revenue up 38%. And so that was really the driver. You've diagnosed it correctly. Operator: Your next question comes from the line of Luke Hannan from Canaccord. Luke Hannan: I wanted to dig in a little bit more to the Q4 outlook, and I think you've partly answered it in your responses already. But the growth -- revenue growth this quarter is around 25%. It's a little bit lighter than that, what you expect at the midpoint for Q4. I'm sure part of that is you're facing a strong comp. It likely also has to do with the marketing efforts. But specifically, what I wanted to ask about is there was a peer of yours that mentioned earlier today that they were seeing a slowdown in spending specifically amongst the younger cohorts. So I was just looking to confirm that, that's not what you're seeing in your business right now. Joseph Thompson: [Audio Gap] the Q4 guide and then the behavior that we're seeing from consumers. I think what you're hearing from us is continued high confidence in growth on both new customers and repeat, balanced with a strong dose of conservatism. Some of this conservatism, I think, comes from the fact that Q4 is increasingly backloaded with Black Friday, Cyber Monday. It's now such a dynamic period combined with year-end, which is always very strong for us and the ramp-up of returning to more glasses investment in the U.S. So we're as confident as ever in the business, but just maybe a little conservative. Why don't I just pause there. I'll come back to -- or maybe just to address the consumer question. Correct. We are seeing consistent strength on customer acquisition. We are not seeing some of the patterns that we have been hearing about in the market. On the key inputs, new customer growth strong, up 37% year-to-date, traffic up, average order value up about 4%, now just under $200. And I guess maybe one point on that, an observation over the last 6 to 9 months in this sector and others have really -- what we've been seeing is an increase in market retail pricing in the neighborhood of 10%, 20%, sometimes more and maybe a pullback on conversion or order levels for those that have. And as we look back on our business over the last year, we've really chosen to keep pricing consistent, in some cases, even lowering a few price points. And that's really proven unique and perhaps prevented us from seeing some impact. Roger Hardy: Yes. And Luke, I'd probably just echoing Joe's comments. I mean, the way we think about our business, consumer spending is about 70% of GDP in Canada and the U.S. We're in the nondiscretionary part of where consumers play. We show up with great value, as we said, affordability. And so the risk reward in our Kits business, we think, is compelling. And we're focused on driving a compelling return. So yes, we're heads down, continuing to execute on the opportunity, not seeing that softness that you referenced. Luke Hannan: Great. Roger, I also wanted to follow up. You did talk about the Canada Post strike as well. I think it impacted you for basically the last week of the quarter. Can you quantify, if at all? It sounds like it was immaterial, but is there, call it, $1 million, $2 million that you would have lost in revenue or that got shifted from Q3 into Q4? Roger Hardy: Yes. As I said, we're not -- we don't want to pull out a specific value. We -- it's a highly complex thing we do at Kits on most days. And so that just added one more component to it. But it definitely got our team activated and finding alternative ways to get the product out into customers' hands in a timely way. So it's not -- it obviously doesn't help when the post office goes on strike or when Trump announces a new regulation at the border that even the border agents aren't familiar with. And so that also takes a couple of days to trickle down. So there's always many moving parts. Our job here is to solve problems, not make excuses. So I was kind of pointing it out to say, hey, it was a factor. It blends into that quarter. And as Joe said, from our standpoint, we're going to keep being conservative as we look out into the next coming quarters. We're confident in growth in our business right now and going forward. The business has grown 29% so far this year. Canada growing 38%. So we're optimistic. When we look at investing time and energy in different markets in different sectors, we're getting returns. So our expectation is that will continue. And we're definitely not quarter-to-quarter as focused as you are, my apologies, Luke. But we're thinking -- we take the long view, and we're kind of thinking out about next year and the next 2 to 3 years and just building consistent, great, great business. So yes, no excuses. That's a long way of saying we're not making excuses, but we'd appreciate if the post office didn't go on any more strikes, we'll put it that way. Luke Hannan: Fair enough. Fair enough. I wanted to ask also about just Black Friday, Cyber Monday expectations. I was looking around on your site earlier. It looks like there's some promotions that you already have in place right now. Can you remind us, did you -- was it this early last year that you started your Black Friday, Cyber Monday promotions? And then what's your overall expectation on the levels of promotion in the channel? You did mention some other peers, it seems like have been more promotional towards the end of Q3. Has that persisted also thus far into Q4? Joseph Thompson: Yes. Thanks, Luke, for asking about it. This Black Friday, Cyber Monday period has really kind of become a whole season in itself. And so to answer your question, yes, it's consistent with last year. We do see more customers coming into the market earlier than ever. Here we are a couple of weeks before Black Friday. And so we've seen just an incredible start to the event that the team launched on Monday, and we're just -- we're super excited for these next 2 months are just so fun. You see more customers in the market, insurance kind of -- insurance premiums for a lot of customers run out at the end of December. Folks are looking for -- to refill before they go away on holidays. So it's a really fun time for our team and for our business. Luke Hannan: That's great. Last one, and then I'll pass the line, a quick one. The OpticianAI, what's the rough expectation when you expect to roll that out more broadly? Joseph Thompson: Yes. Sure, Luke. Yes. So Phase 1 was just testing the early engagement has been very strong. So it's -- the rollout begins and continues, I would say, it's in real time. Now on version 10, the team is moving into what I would say -- the way we capture it is Phase 2, which is extending the reach into more categories, including contact lenses and in more parts of the site, including search and a full checkout integration. And then maybe even post-order experience. Longer term, maybe Phase 3, you could envision this product to be a stand-alone experience. And really, we can hardly contain our excitement on the opportunity ahead of us here. We've got over 1 million active customers, vision-corrected active customers, and we have the opportunity to offer every one of them a personalized experience with this product in addition to the millions and millions more that will come onto the platform. So we're very excited. We shared a few initial data points, which were encouraging on conversion and satisfaction with the product. Really, this product is a trust builder for customers over the long term. So it's really an LTV enabler where customers can come in, ingest their prescription, have their face shape measured and have faster navigation through thousands and thousands of frames and a more personalized experience. Operator: Your next question comes from the line of Douglas Cooper from Beacon Securities. Doug Cooper: Just a couple of ones for me. Just on the glasses side of the business -- can you guys hear me okay? Roger Hardy: Yes, we've got you, Doug. Thank you. Doug Cooper: Just on the glasses side, revenue was -- where is my -- $7.1 million, I think it was just under $7.1 million. The quarter before was $7.186 million. So it was down a little bit sequentially. So I just wanted to dig in some of your thoughts there. Roger Hardy: Yes, sure, Doug. And candidly, as we discussed, we really were cautious in the quarter given some of the rumblings coming from south of the border. We did not want to make big investments in net new U.S. customers with some uncertainty around what would happen at the border, would there be changes, additional impacts, no impact and so on. And so I think, like I said, we were cautious. We're happy to see that the growth continued in Canada that as we invest, we see customers coming. And so I think that's essentially where it is. Our expectation is that as we invest in kind of the back half of this year or this Q and into next year, we'll have lots of different opportunities to continue to grow that business. Anything I missed there, Joe? Joseph Thompson: Maybe, Doug, just to emphasize, every quarter is a bit different. We had a very strong Q2 in terms of new customer adds. Q3 revenue was still up 25% year-on-year. And we saw significant growth on unit volume up over 40%. So within the Canadian business, growth was as strong as ever, actually, I think, amongst one of the strongest quarters we've ever had on glasses, both quarter-on-quarter and year-on-year. So where we invested, we saw returns, and now we're excited to lean back into the U.S. market. Doug Cooper: Okay. So of the 99,000 new customers, what percentage of those were Canadian? Roger Hardy: It's not something we break out, but -- so yes, we're not kind of at that level of detail at this point. Doug Cooper: Just... Roger Hardy: Go ahead, Doug. Doug Cooper: I was just going to say just moving on to the Q4 guidance, 4% to 6%, the midpoint would actually be a decline in EBITDA margin sequentially. Maybe just thoughts there. Joseph Thompson: Sure, Doug. I think just to emphasize, confidence has never been higher from us in our business, both -- and we're just -- we're balancing -- what we saw in Q3 was an opportunity to onboard more new customers than we anticipated. And so with a long-term view and incredible repeat rates, we took it. And so as opposed to kind of a quarter in, quarter out look at the business, we've just said, on a long-term basis, growing new customers by 37% year-to-date is going to bode very well for 2026, 2027 and beyond. And so -- and then combined with, as we talked earlier, just a really strong dose of conservatism, knowing so much of the quarter is still ahead of us with Black Friday, Cyber Monday and the end of year peak. So just know that we're just being conservative and -- but optimism is strong, particularly on our ability to add more new customers, which does come in at a slightly lower adjusted EBITDA impact driven by slightly higher marketing. Doug Cooper: Okay. So just a final one for me then just to continue on the profitability margins. We've talked in the past about target of double-digit EBITDA margin. What is your expectation now of the timing of that? Roger Hardy: Yes. It's like it's always been, Doug, slow and steady, consistent quarter-on-quarter, year-on-year progress. And as these high-margin pillars become larger parts of our business, as we continue to gain operating efficiency as word of mouth continues to fuel our growth, that's where we see ourselves getting to. We're just steady as the business goes. We're still looking out kind of a couple of years. Like I said, we've grown 29% so far this year. We're optimistic that we'll maintain that level of growth going forward, 25% to 30% is our internal target for next year. And there's a little seasonality. So we obviously pulled forward a few orders in early Q1 last year. There's lots of 1-year people who were able to buy and take advantage of annual orders. And I think that's a good learning. But our sense is that those people will be back early in this coming year, and we've learned a lot from that. So we're looking forward to continue that growth curve. Operator: Your next question comes from the line of Matt Koranda from ROTH Capital Partners. Joseph Gonzalez: It's Joseph on for Matt. Just want to see if you guys can answer. It's good to see the good -- great contact sales here year-over-year. Anything to unpack there just in terms of the consumer? Are you guys seeing any different buyer habits such as like shortened time windows instead of -- instead of customers going for those year packs going for like the 90-day or 30-day packs, anything on there to like attribute to the strength you see in 3Q? Joseph Thompson: Joseph, thanks for the question. We're not seeing a lot of deviation from historical patterns. We track average order value. That's continued to be strong and growing on contact lenses, and that was true again Q3 and year-to-date. We also track number of units per, and again, no change there, strong and growing. In terms of where have we seen some shifts within this very big and productive contact lens business, we mentioned our own brand of Kits contact lenses, which has performed very well, well ahead of our expectations and continues to grow. So I guess that would be one. And then just what we've probably -- you've heard us talk about in previous quarters is really a continued migration to high LTV opportunities like daily modality contact lenses, and that continues to perform very well. So no real shift. Joseph Gonzalez: And kind of just -- go ahead, Roger. Roger Hardy: Yes. I mean I think just to highlight Joe's point and our previous discussion around our Kits branded contacts, it's become an interesting little pillar like we like to say, a 50% growth and -- greater than 50% growth and 50% margins. And it's one of these things that could really -- in a business like ours where the contact lens business itself continues to be, as you said, it's loyal, it's recurring. It's a very healthy annuity stream. And if we can take those margins and start to blend them with our own product at 50% gross margin or higher, it makes a compelling case for the future of that contact lens business. So -- and it also gives us a little bit of brand lock-in. The reports from our customers when they switch out of one of the other products that's a legacy product into our own is that it's a very, very comfortable lens. The initial wear reports are excellent. And so people like the lens. They stay in the lens, they come back for the lens. We often see other people get into the contact lens business, not really understanding how important the initial wear comfort can be. And if you haven't spent the right amount of time or otherwise, you're going to have those customers coming back. So it can be challenging. But fortunately, the team here did all the work upfront, and it's growing at an impressive rate. So for me, that's kind of the key -- or one of the key parts of the contact lens business. And there remain lots of other interesting opportunities as we think about colors and other value adds that Kits can do from its own platform. Joseph Gonzalez: Got it. It's impressive to see and great to hear. And then just kind of my last question here. As you guys talked about the border procedural shifts in terms of the systems and everything that goes around there. Is that all behind us now in 3Q? Or should we expect that to continue into 4Q? Just what are your thoughts there? Roger Hardy: Yes, Joseph, I mean, great question. I think if anybody knows the answer to that, it's sometimes -- there have been a number of moving parts. I think the most important thing is that the Kits team here does complex things and does complex things pretty much on a daily basis, including taking an order for something with as many possibilities as our last calculation was 192 million possible variance when we make a pair of glasses. We start making it for the customer that orders minutes after they order, finish that order 30 minutes later and get it in the box to them the next day or 3 to 5 days. So the border is generally the least of our worries. So yes, we're not anticipating any changes, but the world is a dynamic place today. And so when facing a dynamic place, you're excited to come to work with a great group of people like we work with at Kits that love solving complex problems, that love serving customers, that get up fired up to make it happen every day. So that's the best way you can hope to address the unknowns, and that's kind of how I would think about it. Operator: Your next question comes from the line of Frederic Tremblay from Desjardins Capital Markets. Frederic Tremblay: Just maybe following up on that last question on the U.S. Just curious to get your thoughts on what specifically made you more comfortable to start reinvesting more heavily in the U.S. following the Q3 pause. Is there anything logistically or internally that evolved to spark that change? Joseph Thompson: Fred, thanks for the question. We -- I think maybe a couple of comments from our side. Every day, we get -- as -- I think as Roger said very well a few minutes ago, this team just gets better every day, every week on execution, and we learn more and more. And so what you see from us and you'll continue to see from us is a cautious start and then a relatively rapid scale up on everything that we do once we have confidence and once the data supports the decision. I think this is just another example of that for us. On one hand, we saw ample growth opportunities in the Canadian market, and we took it in the quarter from new customer acquisition, from a glasses growth, from an overall market growth at 38%. And we wanted to also learn more, which we did. And so the team now has that confidence. With regards to tariffs in general, no change to our thinking here. Every quarter, every month, the situation evolves, but it evolves for the whole category. And our view continues to be that if we have a lightweight infrastructure, if we stay lean, if we keep the layers out between raw material to customer, that offers us the ability to move fast and increase the value delta that we have to the market and offer customers continuous great value. Roger Hardy: Yes. And I'd probably just say last point on this is that over the last number of months, we -- I'm kind of reminded of Elon Musk in that kitchen sink or that sink, it's like everything in the kitchen sink has been thrown at kind of Canadian -- Canadian trade policy, and we've developed so many different contingency plans. At this point, we're quite comfortable that we can handle including the kitchen sink coming flying at us. We're quite ready. So it's really just a comfort that so many things have happened. We've handled them. And then we've got a contingency plan in place with the group here to tackle just about any problem. So yes, we look forward to reporting on that progress at the end of Q4. Frederic Tremblay: Yes. Great. No, that's great to hear. Maybe last one for me. We noticed in October that you had introduced a Canadian vision credit for Canadian customers, both new and existing, which was a bit of a change from the usual first pair free approach. So I just wanted maybe to get your thoughts on that promotion and any learnings or interesting feedback from that. Joseph Thompson: Sure, Fred. Yes. No, the toolkit continues to grow for the marketing team as they continue to lead with the product and the product experience. That's really where we're excited is more customers coming in, trying more frames and having more frames with Kits on them out in the market. And you've seen all kinds of initiatives that focus on emphasizing the product, the product experience, including the value, and this was another one that was productive in October. Roger Hardy: Yes. I mean I think you point out -- you make a great point that in terms of awareness, a company at our size is always really looking to get above the noise and find ways to reach new customers in an authentic way and form a connection with them. And that's part of what I talked about upfront is that we are trying to find out what resonates best for our customer, how can we create an emotional connection with them. We care about their vision. We want them to know it. And that's really what that campaign was designed around is bringing to life a compelling offering that -- for customers to give Kits a try. Who's Kits? Well, 99% of Canadians don't even know who Kits is. There's a small cohort in Vancouver that do. And like I touched on, we're -- north of $200 million business growing the way we are with word of mouth helping, but really only known well in Vancouver. So that's what that campaign was about, trying to share with others that our mission is to help improve their vision and improve their access to vision. And so yes, we tried to bring it to life there. And I'd say, like Joe said, the team is probably still evaluating how productive it was and whether it did resonate completely. And please feel free to ask next Q, and we'll have more feedback on it given that was a Q4 activity. Thank you. Operator: Your next question comes from the line of Gianluca Tucci from Haywood Securities. Gianluca Tucci: Just one question here. Could you walk us through how you're thinking about your marketing spend into next year, just given all the moving parts out there and at the business, what -- how should we be thinking about spend as a percentage of revenue next year, guys? Joseph Thompson: Gianluca, great to hear from you. Yes. So just probably, as you expect, more of the same from us, like with the product and product experience, maintain in the 13% to 15% range as we've done this year on a fiscal year basis and continuing to see strong traction, 37% new customer growth this year. We see no fade in that opportunity as we go into 2026. But let me just see, Roger, anything to add? Roger Hardy: No, I think that's it. Just consistent. That's one of the metrics we stay -- keep tightly controlled. And yes, we'll stick to Joe's guidance there of about 13% to 15% in that range. Operator: There are no further questions at this time. I will now turn the call over to Mr. Roger Hardy for closing remarks. Please go ahead. Roger Hardy: As we close out another record quarter, I want to recognize the incredible team behind these results. Every milestone from passing 1 million active customers to delivering our 12th consecutive quarter of profitability. These moments reflect the relentless focus and execution of our team. And while we're proud of what we've accomplished this quarter, what matters most is that we're setting up Kits to perform not just for the next few quarters, but for the years to come. We continue to build a business that's proving what's possible in technology, manufacturing and customer experience all come together. That integration is what sets Kits apart. Thank you to all our shareholders and customers for your continued confidence and support. Your belief in Kits allows us to keep investing in innovation and growth, allowing us to strive towards our mission of making eye care easy for everyone. Best chapters for Kits are still ahead. Thanks, everyone, for joining us today. We look forward to reporting on future quarters very soon. Thank you. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Thank you for joining us today. Certain statements made during the course of this conference call that are not historical facts, including those regarding the future financial performance and cash position of the company, expected improvements in financial and related metrics, expected ARR from certain customers, certain expected revenue mix shifts, expectations regarding seasonality, customer growth, anticipated customer benefit from our solution, including from AI, the extent of the anticipated TAM expansion and our ability to take advantage of any such expansion, our AI and our CCaaS revenue opportunities and current estimations regarding same, including the ability to leverage data in support of AI revenue opportunities, company growth, enhancements to and development of our solution, statements regarding our share purchase program, market size and trends, our expectations regarding macroeconomic conditions, company market and leadership positions, initiatives, pipeline, technology and product initiatives, including investment in R&D and AI and other future events or results are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are simply predictions, should not be unduly relied upon by investors. Actual events or results may differ materially, and the company undertakes no obligation to update the information in such statements. These statements are subject to substantial risks and uncertainties that could adversely affect Five9's future results and cause these forward-looking statements to be inaccurate, including the impact of adverse economic conditions, including the impact of macroeconomic challenges, including continuing inflation, uncertainty regarding consumer spending, high interest rates, fluctuations in currency exchange rates, lower growth rates within our installed base of customers and the other risks discussed under the caption Risk Factors and elsewhere in Five9's annual and quarterly reports filed with the Securities and Exchange Commission. In addition, management will make reference to non-GAAP financial measures during this call. A discussion of why we use non-GAAP financial measures and information regarding reconciliation of our GAAP versus non-GAAP results and guidance is currently available in our press release issued earlier this afternoon as well as in the appendix of our Investor Relations deck that can be found in the Investor Relations section of Five9's website at investors.five9.com. Also, please note that the information provided on this call speaks only to management's views as of today and may no longer be accurate at the time of a replay. Lastly, a reminder that unless otherwise indicated, financial figures discussed are non-GAAP. And now I'd like to turn the call over to Five9's Chairman and CEO, Mike Burkland. Michael Burkland: Thanks, Tony, and thanks, everyone, for joining our call this afternoon. We're pleased to report a solid Q3 with continued momentum in bookings, highlighted by enterprise AI bookings growing more than 80% year-over-year, contributing to healthy improvements in backlog. Subscription revenue, which makes up 81% of total revenue, grew 10% year-over-year, primarily driven by enterprise AI revenue growing 41% year-over-year in the third quarter. In terms of profitability, adjusted EBITDA grew 37% year-over-year to a margin of 25%. We also generated record free cash flow, which grew 84% year-over-year to a margin of 13%. The meaningful increase in profitability and cash flow is driven by the transformation initiatives we announced earlier this year. We continue to take action to drive operational improvements while investing in AI and go-to-market initiatives, maintaining a line of sight to our 2027 medium-term targets as we work toward the Rule of 40 and beyond. Turning now to our business updates. Today, I'd like to focus my commentary on 3 key areas. First, our significant and evolving market opportunity ahead. Second, how we believe we're uniquely positioned to win in this new market of AI-powered CX; and third, our momentum with strategic partners. We are in the early innings of an industry shift in CX, where our market opportunity is being driven by multiple growth vectors. For instance, Gartner forecasts the market for traditional CCaaS to grow at a 9% CAGR and the GenAI customer service market to grow at a 34% CAGR through 2029 to a combined annual spend of $48 billion. We believe this growth will create a powerful tailwind for category leaders like Five9 as we continue to execute against this durable multiyear opportunity. Furthermore, we believe Five9 is uniquely positioned to be the platform for orchestrating end-to-end customer experience across both AI agents and human agents. At the heart of our advantage is data. The contact center holds a brand's richest customer data, the full conversation history across every channel and every interaction. Our platform essentially remembers everything a customer has said, whether they spoke with a live agent or an AI agent through voice or digital. This creates what we call a relationship-based experience like when your favorite app [ reaches ] you by name, remembers your preferences and picks up exactly where you left off. Every engagement feels personal, contextual and connected. AI point solutions can't replicate that because they only see isolated transactions, not the full relationship. At its core, our platform is a real-time orchestration engine for every interaction across all channels, whether handled by a human agent or an AI agent. In addition to our suite of AI products, which you're all familiar with, we also infuse AI within our core platform. For example, we now have AI-based routing, which leverages AI to dynamically manage and route every interaction with context to the best human agent or AI agent regardless of channel. Additionally, our platform is uniquely positioned to deliver experiences that will allow human agents and AI agents to collaborate in real time. This can include experiences such as in queue self-service, where during a time a customer waits in queue for a live agent, an AI agent can proactively help resolve the issue, turning hold time into resolution time. Also, agent sidebar, where AI agents can quietly consult a human agent mid conversation to get help without interrupting the customer and AI barge-in, where a human can seamlessly step into an AI interaction to ensure the issue is resolved and the experience remains positive. These experiences showcase what only an end-to-end AI-powered CX platform can deliver. A continuous collaboration between human agents and AI agents, where each interaction enriches the next. That feedback loop compounds over time, creating a powerful data flywheel that strengthens performance, accuracy and personalization. In addition, we're being recognized by industry analysts for our platform-driven approach. For example, Five9 was named a leader in the 2025 Gartner Magic Quadrant for CCaaS for the eighth year, and we were also named a leader in IDC's inaugural MarketScape for European CCaaS. Analysts are recognizing us for strengths in our AI capabilities, cloud-native architecture, global scalability and strong European market presence. This dual recognition validates our strong market position, innovation and consistent customer satisfaction. These platform advantages are also driving momentum with our strategic partner ecosystem, including a major milestone we achieved in the third quarter. In September, we launched Five9 Fusion for ServiceNow, a turnkey AI-powered integration that unifies voice and digital interactions through real-time transcription and intelligent routing. This launch delivers 2 key capabilities. First, our transcript stream integrates directly with ServiceNow Workspace, enabling Now Assist to generate AI-powered summaries and resolution notes that dramatically reduce handle times. And second, our routing engine now directs ServiceNow digital channels and cases alongside Five9 channels for true omnichannel orchestration. This represents a significant milestone in our 8-year partnership with ServiceNow, and they're leaning in stronger than ever, demonstrated by our year-to-date ACV bookings with ServiceNow quadrupling with even greater acceleration in this third quarter. We are also seeing strong traction with other key technology partners, including Salesforce, where year-to-date ACV bookings grew more than 60% and Google Marketplace, where our pipeline has tripled since the announcement of that partnership in Q1. Our strategy of building meaningful partnerships remains a key strength as our long-standing alliances with key partners continue to differentiate us in the market. Additionally, we're seeing ongoing momentum, particularly upmarket, where enterprises are looking to create holistic customer experience strategies that seamlessly integrate with their core business systems. In conclusion, we're optimistic about the foundation we are building for the next decade. At our upcoming CX Summit, we will be announcing new innovations that we believe will set the stage for the next wave of growth as we continue to lead the AI-powered CX revolution with our end-to-end platform to orchestrate interactions across the continuum of AI agents and human agents to deliver what we call the New CX. Importantly, we're doing so with a balanced approach by driving operating leverage and investing in what we believe are the highest return opportunities to drive innovation and durable growth for our business. I want to thank our team of Five9ers for their unwavering dedication to strengthening our leadership position. I'm extremely excited about the future of Five9 and confident we have the platform and the expertise to drive long-term growth. Before turning it over to Andy, I'd like to provide a quick update on our CEO search. As you know, we're focused on identifying a leader with experience and a proven track record in product innovation, a commitment to operational excellence at scale and a growth mindset to further capture market share in this expanding TAM driven by AI. I'm pleased to report that the search is progressing well with our ongoing goal of announcing a successor by year-end. And with that, I'll turn it over to our President, Andy Dignan. Andy, go ahead. Andy Dignan: Thank you, Mike, and good afternoon, everyone. We were pleased to deliver another solid bookings quarter in Q3. We won the highest number of $1 million-plus ARR new logos in 2 years, and our installed base bookings hit another all-time high, driven by ongoing strength in upsell and cross-sell activities. For example, a major U.S. card servicer chose Five9 in a $3.7 million ARR deal. A multistate hospital system selected Five9 in a $2.7 million ARR deal. A leading European mobile and broadband provider partnered with Five9 in a $1.3 million ARR deal. And a global parcel delivery leader expanded their relationship with Five9 in a $3.5 million ARR deal. Looking ahead, we remain encouraged by the momentum of our business, fueled by pipeline and RFP activities sustaining elevated levels. In addition, we are increasingly winning competitive evaluation against AI point solution providers as enterprises recognize the value of our unified platform where AI is natively embedded across the entire customer journey. I'd like to talk about 4 examples of customers experiencing AI elevated CX because of the Five9 platform advantages. The first example is the global parcel delivery leader already on our core platform who is moving off an AI point solution in order to take advantage of our contextual data for hyper-personalization plus our deep integrations to their third-party systems. In addition, the efficiency gain for being able to have real-time insights across human agents and AI agents was another key reason they selected our AI-powered platform. The second example is a commercial vehicle financing provider who uses Five9 AI to support multilingual F&I servicing across North America, orchestrating seamless journeys from AI agents to human agents with deep CRM integration and omnichannel visibility. The third example is a regional digital bank who monetized their services with Five9 AI-powered routing, Agent Assist for banking integrations, enabling real-time orchestration of financial interactions while preserving full customer context across channels. And the last example is a major academic health system who replaced legacy IVRs with Five9 AI to improve patient access and scheduling, using our end-to-end platform to orchestrate voice and digital journeys with shared context between AI agents and human agents. And with that, I'd like to turn it over to Bryan to take you through the financials. Bryan? Bryan Lee: Thank you, Andy. Before we dive into our quarterly results, I'm excited to announce our inaugural $150 million share repurchase program, which is an important milestone that reflects a deep conviction in our long-term growth opportunity. We believe Five9's current valuation does not reflect our intrinsic value, particularly when considering the total platform opportunity for both our core CCaaS and AI-driven growth. The structure of the program includes an allocation of $50 million through an accelerated repurchase program, which we expect to complete before the end of Q1 2026 and the remaining $100 million balance open for up to 2 years. This program underscores our commitment to a disciplined and balanced approach to capital allocation and delivering strong returns to shareholders. Now turning to our financial update for the third quarter. Q3 revenue came in at $286 million, representing 8% growth year-over-year. Subscription revenue grew above total revenue at 10% year-over-year, driven by enterprise AI revenue growing 41% year-over-year, now making up 11% of enterprise subscription revenue. As anticipated, revenue growth was negatively impacted by approximately 5 percentage points due to a tough compare from our largest customer completing its multiyear ramp throughout 2024 and from minimal seasonal uptick compared to Q3 '24. As a reminder, subscription revenue reflects both customer growth and product expansion, including our AI solutions. Subscription revenue represented 81% of total revenue, up from 79% a year ago. And we expect this mix shift to continue as we focus on high-margin subscription dollars increasingly led by our AI solutions. Telecom usage represented 12% of revenue and professional services made up the remaining 7%. By design, these 2 categories are not growth drivers and steadily becoming a smaller percentage of total revenue. On an LTM basis, enterprise contributed approximately 91% of total revenue with the subscription portion growing 18% year-over-year. Our commercial business represented the remaining 9% and declined in the teens year-over-year as we continue to focus upmarket, which has better unit economics. The year-over-year decline in commercial is more pronounced than anticipated, but we're in the process of recalibrating and expect to get to historical year-over-year trends within the next couple of quarters. LTM dollar-based retention rate came in at 107% in the third quarter, down sequentially from 108% in Q2, which is within the small band we spoke about last quarter. This was driven by the tough compare I mentioned a moment ago regarding subscription revenue growth. In Q4, we anticipate DBRR to continue to be range bound, but expect upside in 2026. Turning now to profitability. Q3 adjusted gross margin was 63%, up approximately 100 basis points year-over-year, while adjusted EBITDA margin reached a record of 25%, up approximately 530 basis points year-over-year. This marks our fifth consecutive quarter of year-over-year expansion in both metrics. The consistent improvement is driven by our revenue mix shift toward higher-margin subscription revenue, combined with operating leverage as we scale and achieve cost efficiencies from our transformation initiatives. Additionally, we continue to boost productivity as demonstrated by our revenue per employee increasing 12% year-over-year. Q3 GAAP EPS was $0.21 per diluted share, representing 4 consecutive quarters of positive GAAP earnings, while non-GAAP EPS came in at $0.78 per diluted share. In terms of cash, both operating and free cash flow reached record highs. We generated $59 million or 21% of revenue in operating cash flow and $38 million or 13% of revenue in free cash flow. Turning now to guidance for the fourth quarter and full year 2025. For Q4 revenue, we're guiding to a midpoint of $297.7 million, which represents sequential growth of 4%. Despite our ongoing expectations of minimal seasonality, the 4% sequential growth is higher than our typical guidance pattern for Q4 due to revenue contributions from the backlog driven by both new logo and installed base bookings from past quarters that are starting to ramp. For full year 2025 revenue, we're maintaining our guidance at $1.146.5 billion, which represents double-digit growth for the full year. For Q4 non-GAAP EPS, we're guiding to a midpoint of $0.78 per diluted share, which reflects our ongoing disciplined cost management and an estimated 1.7 million shares being retired through our accelerated share repurchase, offset by lower interest income. For full year 2025 non-GAAP EPS, we're raising the midpoint by $0.06 to $2.94 per diluted share. Additionally, we're raising our full year 2025 adjusted EBITDA margin expectations to approximately 23% compared to our prior outlook of 22%. In summary, 2025 has been a year of transition, shaped by multiple financial and operational dynamics. However, I'd like to provide some perspectives on how we expect the business to inflect as we progress throughout 2026. It's important to understand the evolution we are seeing in how bookings convert to revenue, particularly for our recent installed base expansions, including more AI products. Deployment of these AI solutions and expansions into additional departments within existing customers have longer implementation cycles, typically converting to revenue over multiple quarters. This translates to a meaningful portion of the strong installed base bookings we've been achieving layering into revenue progressively throughout 2026 with the most significant impact in the second half of the year. And this is in addition to our new logos in the backlog ramping throughout 2026. Given these factors, we expect the sequential change in Q1 '26 revenue to be relatively flat, followed by momentum building quarter-over-quarter throughout the year. From a year-over-year perspective, we expect revenue to return to double-digit growth in the second half of 2026. As a result, we're comfortable with the current Street consensus revenue of $1.254 billion for 2026. On the bottom line, our historical pattern is for Q1 to step down sequentially, representing our lowest quarterly EPS of the year. And we expect that same pattern to continue in 2026. We anticipate sequential improvement in Q2 with more meaningful acceleration in the second half, particularly Q4. For the full year 2026, we expect to exceed the current Street consensus non-GAAP EPS of $3.14 per diluted share. Also, we expect annual adjusted EBITDA margin to expand by at least 100 basis points year-over-year to 24% plus in 2026. Lastly, we expect annual free cash flow to be approximately $175 million in 2026. In closing, Q3 reflects strong execution on our transformation initiatives, which are driving bookings momentum and meaningful operating leverage. We remain laser-focused on achieving the Rule of 40 in 2027 with a return to double-digit total revenue growth, driven by bookings strength in both core CCaaS and AI, coupled with ongoing margin expansion. The share repurchase program we announced today demonstrates our confidence in the team's ability to execute and create long-term shareholder value. Operator, please open the line for questions. Operator: [Operator Instructions] We will begin with DJ Hynes from Canaccord. David Hynes: Bryan, I'm going to start with you and just what happened in the quarter. I mean, look, Five9 has generally been known for being pretty measured with its guidance. I look at Q1 of this year, you beat the high end by $7.2 million. Q2, you beat it by $7.8 million. This quarter, we're only at the high end of the guidance range. So I guess it begs the question like what changed? What happened in the quarter? Bryan Lee: Yes, DJ, thanks for the question. So just a couple of points I want to make there. First of all, we're in the current growth environment that we're transitioning through. We do not expect big beats, number one. And then if you think about the quarter, I'm going to stick with subscription revenue that represents 81% of our revenue. There are 2 components. So it grew 10% year-over-year in Q3 versus 16% in the quarter before. So that 6 percentage point differential, 5 of those 6 is made up by the tough compares that we've been talking about all year long, right? We have the headwind from our largest customer who is finishing its multiyear ramp throughout 2024, making a tough comparison as well as our seasonal uptick that was very strong last year, that was very minimal at this time in Q3. And then there's a third component that was unanticipated in the sense that earlier, I mentioned the commercial revenue declining year-over-year in the teens. So that was more than what we anticipated. And there are really 2 key drivers there. One was we underallocated demand gen spend toward commercial during the quarter. And the other piece is that we had a gap in sales capacity as we promoted more commercial reps to enterprise than normal. So we're in the process of recalibrating that, and we anticipate over the next couple of quarters to kind of return the commercial revenue growth -- revenue year-over-year trends back to the historical norms. But those are kind of the puts and takes that went through the quarter. Michael Burkland: And DJ, I'll just add, promoting those reps from our commercial team to our enterprise team, that happens naturally. That's our farm system for talent internally. So again, from time to time, we get a lot of promotions that happen. And then what you have is in commercial, you've got reps that are ramping, right? So that was part of it. Operator: Our next question will come from Siti Panigrahi from Mizuho. Sitikantha Panigrahi: I just wanted to ask about this -- your installed base booking. Last quarter, it was record bookings. Again, another quarter of record bookings. Why it's taking so long to translate that to revenue? I understand it takes maybe a couple of quarters. But Bryan, based on your guidance, it appears now a little bit more like a year, like Q2 when we'll start seeing that. Can you help us understand and what can you do to further accelerate that? Bryan Lee: Yes, absolutely. So Siti, the installed base bookings, as you've heard in the last 2 quarters, have hit all-time highs, which is great. And a lot of that is through upsell, cross-sell of software, including AI and new business units that we're discovering within our existing customer base. So these kind of bookings, and we're having more and more of those each quarter, they have a ramp converting from bookings to revenue, very similar to new logos essentially. So that's why our Q4 guide, if you look at it, the sequential growth there is rounding up to 4%, which is higher than the typical guidance that we give for Q4. And that reflects the backlog of not just new logos, but installed base bookings that are starting to convert into revenue. And then not just Q4, but into 2026 as well. So this is a new dynamic, but one that we have taken into consideration for our guidance. Operator: Our next question will come from Ryan MacWilliams from Wells Fargo. Ryan MacWilliams: And look, we'd love to hear about what the bookings environment in the third quarter was like and how that's evolved with all the attention on AI now. And I know this is less a part of your business at this point, but I still have to check in just on the holiday season usage in terms of how we could see seasonal hiring for seats there, both for open enrollment and retail customers. Michael Burkland: I'll start, Andy, feel free to chime in and Bryan, too. But good to see you, Ryan. Look, some highlights for the quarter. AI bookings up 80% year-over-year. We're really, really pleased with that. And again, the momentum in AI is continuing. But I'll add that our non-AI bookings in enterprise was actually a Q3 record as well. And again, as these worlds come together over time, we're still breaking out kind of our AI products from our non-AI products for you all in terms of revenue and bookings commentary. But look, it's a good bookings environment. As we just talked about, there's a little lag in the engine given the character of the bookings. But look, highest number of $1 million-plus logos in 2 years, that's great and an all-time record for installed base bookings. So all in all, we're really pleased with the bookings momentum, but didn't mean to steal your thunder. Ryan MacWilliams: No, no, that's fully... Bryan Lee: Let me touch on seasonality real quick, Ryan. So -- it was actually quite a few interesting dynamics that we saw. And I'm going to focus -- if you recall, we surveyed our top seasonal customers back in July, and I'm going to stick with the consumer vertical with those customers because it's a good proxy. So on the subscription side, we saw that it was minimal seasonality as they had anticipated. But on the telecom usage side, we did see a slight uptick. And so we went back to those customers, and they actually observed the same in terms of volume of interactions coming into their contact center where they saw a small uptick. So they're in the process of monitoring that really closely to see if in the back part of November and December, we see a much stronger uptick then, in which case, they will, to the extent possible, expand their seasonal business with us. So right now, the way the guide is set up, we're still expecting minimal seasonality, but there is -- if there is that uptick, then that would be potentially a small upside for us. Operator: Our next question will come from Catharine Trebnick from Rosenblatt. Andrew King: Andrew King here on for Catharine Trebnick. Just wanted to double-click on the international really quickly. Good to see that IDC report out. Just wanted to hear what you see your differentiator as over in that market? And how is that BT relationship helping you progress over there? Andy Dignan: Yes. The BT relationship continues to be strong for us. I mean, obviously, they bring to bear sort of the reseller type market. They bring their services to bear. And so we continue to have a lot of success there. And look, we've been saying it, international has a lot of upside for us, and we continue to lean heavily on the partner go-to-market. We still have direct business. And so we feel good about how that's tracking and again, continue to invest in that space, both obviously, in our core business, but then AI and digital as well. As many of you might know, in the international space, digital is sort of a key technology area. So if we continue to expand that business, it's going to pay off for us. Operator: Our next question is from Terry Tillman from Truist. Connor Passarella: This is Connor Passarella on for Terry. Just wanted to kind of follow up on the Salesforce relationship, particularly on the drivers of the booking strength that you called out there. Is there a way to maybe frame the performance across the 2 opportunities that you have within that ecosystem being Agentforce and Service Cloud? Andy Dignan: Yes. What I would say would be -- so Service Cloud is obviously a key focus for Salesforce and us. We have over 1,000 joint customers, and we partner in every opportunity together with Salesforce to make sure that we're moving that forward. That's really why we came up with sort of the Fusion framework, which that Fusion framework is just sort of our framework for how we integrate the CRM, whether that's Salesforce, ServiceNow or others. And so we're having a lot of success in that route to market sort of the self-service arena. sorry, the Agentforce is the second opportunity. Look, I think it's still early days for Agentforce. And when we go into an opportunity, we want to win the core CCaaS. Obviously, Salesforce has CRM and like the best solution for the customers where we align on. And again, back to that Fusion, it's really about customers wanting to understand what they get, what's the benefit out of us coming together. And I think that's been -- has helped drive opportunity because our sales teams and Salesforce sales teams are all essentially saying the same thing in terms of the benefits to the customer. Michael Burkland: And I'll just add that the momentum with Salesforce and our joint customers is very, very strong. I talked about the 60% year-over-year growth in bookings year-to-date. Operator: Our next question will come from Raimo Lenschow from Barclays. Raimo Lenschow: A question from me. If I look into the data -- the call center space, sorry, there's a lot of -- there seems to be -- especially on the higher end, there seems to be still a lot of like on-premise old technology stuff. And I know everyone is focused on AI at the moment, but it does feel almost like we're doing step 2 before we do step 1. Can you see a little bit what you see in your conversations? Does that kind of -- are people realizing they actually need to move and you guys obviously have been moving kind of higher, you were a cloud vendor from the very beginning. Can you see that in the conversation and in the pipeline? Michael Burkland: Yes, for sure, Raimo. And again, I'll let Andy kind of chime in after me. But look, at a high level, you're right on. I mean, look, we're still 40-plus percent cloud, and that means 60%-ish on-premise. You're right on. There's still a ton of kind of core contact center that's on-premise that has to move to the cloud. But as you know, I mean, AI has become so front and center for every CEO. And therefore, all their CIOs are out looking at AI and sometimes AI first is the way they're making decisions. And we're -- we've now adjusted our go-to-market motions to actually be part of those discussions with an AI-first go-to-market motion where we may start a sales cycle with AI and then pull the CCaaS through as a second decision. It's just an evolving market. But in the end of the day, look, these enterprise brands know that they've got to go to the cloud to get all the benefits of AI, right? And so they go hand-in-hand. But in some cases, the order of the decisions might change. And it's playing out just pretty much as we expected and very favorable for us. Andy Dignan: Yes. I mean I think if you look at -- it's kind of like there's customers in 3 camps. You've got the ones who are already made the shift to cloud and they're looking at AI, then you have the customers that are -- they have an RFP from prem to cloud, looking at doing both, AI and CCaaS. And then some of the customers that we're seeing is they know they have to move to the cloud. But if they're looking to get that immediate benefit, to Mike's point, we do have an AI-first sort of strategy for those customers. Sometimes those customers go down that path and ultimately, they go, "Hey, look, it's just better to do this all at once." But again, we're starting to see more customers kind of lean in to say, "hey, let's do AI first" and we support that motion with a fast follow with CCaaS. And I think that's an exciting time for us because, again, we can support all 3 of those routes to market. Michael Burkland: And I'll add one more thing. We're winning because of that end-to-end platform. It's not like these are 2 separate things. We talk about them separately as AI and core CCaaS. But look, we've got one platform that orchestrates interactions, whether they're handled across -- it's across the continuum of AI agents and human agents, for example, right? So it's not a separate thing. It's really one platform that most enterprise brands are looking for. And that's why we're winning. That's why we're winning in this market right now, and it's why we believe we'll continue to win in AI. Andy Dignan: And sorry, to add one more. It's just like that parcel delivery company, right, that we -- they're a core CCaaS customer of ours, right? They chose a couple of years ago to go with an AI point solution. Here we are 3 years from now, replacing that solution. And that's again because they've got to the point where they see the value of, obviously, our AI kind of stand-alone. But to Mike's point, having that continuum of AI agents and human agents is the end-to-end platform that they're looking for. Operator: Our next question will come from Elizabeth Porter from Morgan Stanley. Elizabeth Elliott: I was hoping to get an update on just the competitive environment. I think we've seen Zoom up a little bit more in our mid-market checks and Amazon Connect reportedly just crossed $1 billion of ARR. We've seen several splashy headlines around AI native companies. So curious if you're seeing any sort of change in behavior or win rates or buyer dynamics as these players start to get more headlines? Andy Dignan: Yes. I mean in terms of the competitive dynamic, I mean, just pure CCaaS, it still continues to be us and our 2 biggest competitors. You mentioned the hyperscaler. We do see them. We like to say sometimes if we're in the same deal, one of us is probably in the wrong deal. Just 2 different kind of solutions customers are looking for. So not a huge change there. We do see Zoom in the mid-market, but our win rates continue to be strong, and we feel really good about where we're at in the core CCaaS platform. And obviously, when you look at both CCaaS and AI together and certainly our AI-first go-to-market, I think, we continue to have success. So not -- I wouldn't say any major changes in the competitive dynamic. Operator: Next question will come from Jackson Ader from KeyBanc. Jackson Ader: I had a question on the layering in, in of some of these -- of some of the -- either the enterprise deals or the AI deals. Is there anything that you can do? Is there anything within either your control or maybe partners' controls that you would say, all right, can we accelerate the time to actually get some of these products implemented and generating not just bookings, but revenue ahead of what's happening right now? Andy Dignan: Yes. So as Bryan mentioned and Mike, we have this situation where a lot of the changes we've made in our installed base, we're selling 2 quarters in a row of record bookings. There is still that lag, right? And I think we've -- and we talked about this previously, we've added some new functionality certainly within our AI products where you're leveraging generative AI to deliver faster, right? It's less about the work -- building the workflows and more about just doing essentially prompt engineering. And so we can move faster, and we're certainly doing that. We're seeing that within our customer base. A lot of times, though, we're part of kind of an overall AI transformation across the company. A lot of times they're doing -- they have to get their data to a good spot. And again, companies have gotten much better there. But we still see some of that dynamic where it is kind of like a new implementation. But I do think that as we get further into this, more and more customers are going to be more comfortable leaning further into that true GenAI agent versus some of the markets like health care and financial services that are still a little bit behind. But the good thing is we can service -- we talk about our trust and governance that the dial of trust. Some customers want to do just purely sort of workflow driven. We are seeing companies go faster towards the, let's go all in with generative AI. So I think we're well positioned for it, but that's going to be the #1 thing is sort of adoption of customers wanting to go faster and have trust in the platform. And we've done a lot of things within the platform sort of reducing hallucinations and things like that. The team has done a great job. And so that will demonstrate customers starting to move faster in terms of deployments. But we always hit those challenges and customers just aren't ready to fully ramp yet. Operator: Our next question is from Samad Samana from Jefferies. William Fitzsimmons: This is Billy Fitzsimmons on for Samad. Obviously, the business is still growing at a good clip. You're adding revenue. You called out record enterprise bookings. If we go back a handful of quarters ago, there was a period where you had a string of kind of several quarters where you announced a variety of mega deals. There's the health care one, the logistics one. And correct me if I'm wrong, but now it's been kind of another handful of quarters since that $50 million ARR financial services deal. And just wanted to get your view on why you think that is. Is there any impact at all from maybe like slower on-prem conversions or maybe even like decision fatigue because of AI? Or is this more just a function? I know there were some sales org changes about a year ago where -- and I'm paraphrasing here, there was more incentivization. You were incentivizing kind of dolphin sized deals over, call it, like the whales. And is it a function of, hey, we're just going after more dolphins now? Michael Burkland: Yes. Billy, I'll start. Look, the pipeline for megas is still very, very good. These take time. I mean that's the answer. They just -- the sales cycles are long, and it's really a function of that. We've said this all along that it's going to be lumpy. And therefore, let's make sure that we have this flywheel of dolphins that are coming through our sales funnel. And we talked about it. It was the record -- not record, but highest in 2 years number of $1 million-plus new logo wins. So again, the dolphins continue to be the more important metric, I guess, is the way for us to think about it. But look, there's a nice pipeline of megas out there, and we're very well positioned, in some cases, with very, very strategic partners of ours, too. Andy Dignan: And in terms of the sales changes, we didn't make any -- we put focus back on to the dolphins, but we kept a dedicated team. It's actually even bigger than it was before with not just salespeople, but solution consultants and experts and services team. So we continue to double down on the market. But to Mike's point, it's just lumpy and takes time. But we feel good about that space. Operator: Our next question will come from Will Power from Baird. Ioannis Samoilis: Yanni Samoilis for Will Power. So I noticed that Q4 revenue guidance is a $6 million range top to bottom, which is a bit wider than the range that you normally give or guide to for a given quarter. And I was just curious if there's anything that might be driving the wider range of outcomes that you're forecasting there. And then on the flip side, I appreciate the color on your early expectations for 2026. But what's giving you the confidence to comment on next year with that level of precision giving the wider guidance range for Q4? If you could just help juxtapose that for us. Bryan Lee: Yes, absolutely, Yanni. So the $6 million range for Q4 is mainly based on the fact that we beat Q3 by $1.3 million, and we actually held that back because of the commercial revenue decline that was bigger than what we anticipated. And so that was for prudent reasons. And while we're recalibrating and we expect the normalcy to happen over the next couple of quarters, and we're expecting some partial recovery in Q4, we just wanted to have a little bit of a wider range there to allow for that. Now going into 2026, we have built contingencies into our outlook there. But if you think about 2025, there's -- it's been a year of transitions and a lot of operational and financial changes, a lot of tough compares that we were going through, which we expect to lap fully by the end of the year. But then we're starting out with a strong backlog of not just new logos, but installed base bookings that Mike and Andy talked about as well. So with those ramping starting in Q4, but mostly in 2026, that gives us that comfort around that Street consensus of $1.254 billion. But we'll provide more details next quarter when we give formal guidance for next year. Operator: Our next question is from Rishi Jaluria from RBC. Rishi Jaluria: Nice to see continued AI adoption. Maybe I want to think a little bit one step deeper and think about kind of the current state of enterprise adoption. Look, I get that you have a lot of the tools to be the trusted AI partner in terms of governance and security and data privacy, and you've been a trusted partner with critical data over the years. So I totally understand your positioning. What we've been seeing, and I'd be curious to hear what you're seeing is a lot of enterprises are maybe slowing down the rate of AI adoption as they try to figure out the right use cases and one of those being customer support. But maybe just any color you can give in terms of what you're seeing broadly within your base of kind of the state of enterprise AI demand today versus how it had been maybe, call it, 6 months ago. And as we think going forward, right, getting that greater uptick in AI throughout your customer base, what are things that you have in your power and your control to work with those customers to just kind of get over a lot of those hurdles that are holding back AI demand in the enterprise? Michael Burkland: Yes, I'll start, Rishi. Look, the AI demand is so strong. I think what we're seeing is just a continued improvement, quite frankly, in appetite and demand and willingness by the larger brands out there to do more than proof of concepts to actually deploy AI. It's being proven. And there -- again, their appetite is also shifting toward the platform players like Five9 for that AI. I think they're realizing the limitations of these point solutions in some respects, right? So that's the flip side. But what they're seeing, and it's why Andy talked about that one case where one of our largest customers that had a point solution for AI basically is replacing it with our AI because it's all part of our platform. So I think there are 2 very different things happening here. I think the demand is very high across the brands for AI. They're getting more comfortable with it, but they're getting more comfortable with it from platform players like Five9, and that is a good thing for us. Andy Dignan: And in terms of what's in our control, we've talked about in the past our AI blueprint strategy. So we have the ability to go into our installed base, right? We're having a ton of success, right, as you see in the numbers in terms of installed base. We know the types of calls they have. They have their recordings, right? We're working with the customers. Obviously, they have access to all of this. So our teams can come in and take a very data-driven approach on, hey, here's the use cases that we see that would have high ROI upside. And we've done a lot of work on the back end to have essentially prebuilt type both go-to-market and implementations to deliver on those quickly, right? So I think that's an area where we continue to double down on. And we're -- the other thing is our product team and engineering team in terms of AI, they work closely with our services teams and our sellers and our customers to say, "Hey, like what are you seeing out of these blueprints? What are the things that we could build into the product to even accelerate some of that demand." So it kind of gets that flywheel going on the opportunity that we have the customers' data, right? Obviously, their data is their data, but we have the knowledge and working with them to be able to deliver that. So that's what we can control. Operator: Next question will come from Peter Levine from Evercore. Peter Levine: Maybe to piggyback off of an earlier question around the competitive landscape is, I mean, are you seeing any pricing pressure on your core live agent seats at renewal, meaning as you see some of these competitors come in, trying to gain share, are your customers at renewal perhaps maybe fighting or pushing back for higher discounts? So maybe the question is just like what's your discipline on pricing for core agent seats given just the escalation in terms of the competitive landscape? And then second, can you just remind us how you charge for AI and the revenue recognition behind that? Andy Dignan: Yes. So I'll take the front part of that. So what we're seeing at renewal time is we aren't seeing pricing pressure on our core business. What we are seeing with customers is they want to make sure that they -- that we have pricing models built in for them to take advantage of AI. Last quarter, we talked about a couple of big expansions to health care companies. And that was that renewal time where they said, "Hey, look, we've been leveraging our platform for multiple years, and we were able to renew at a higher level and then build into that renewal both AI and agents." So we don't see that kind of pricing pressure. But I don't know, Bryan, if you want to comment on the revenue side. Bryan Lee: Yes. Definitely on the revenue side, the pricing model for our AI products is either capacity or consumption-based. And whichever model it is, it's usually a block of units that you're getting and then overage if you go beyond that. So it works pretty much like a commitment model plus overage charges. Operator: Our next question will come from Arjun Bhatia from William Blair. Arjun Bhatia: Okay. Perfect. Just took some time. Can we just go back to the commercial business for a second? Obviously, it seems like that caught you off guard a bit. What is sort of the remedy? Is it just allocating more sales and marketing spend? And then how do you think that might evolve next year? Like can that get back to growth? Or is that a little bit too ambitious for 2026? Michael Burkland: Yes, Arjun, I'll start. Look, we did over rotate in terms of demand gen allocation to enterprise and majors, which, again, we're always trying to crack the code there because, look, it's 91% of our revenue is enterprise, and it's the bigger market opportunity and so forth. But I've encouraged the team to just be careful not to over rotate. We've already corrected some of that allocation of demand gen spend back to commercial. And the good news about commercial is it's kind of a real-time indicator, right? I mean it's -- things move -- deals move through the funnel quickly and they turn to revenue quickly. So while we had the impact of that in Q3, we've rectified that, and I believe we'll be right back to where we have been in commercial within the next quarter or 2. Now at the same time, just keep in mind, that is not a growth vector overall for the business. But at the same time, we don't want it to become a headwind like it was in the quarter. And this sales capacity that we talked about earlier in commercial is also something that we've got to just anticipate. Again, sometimes it's going to be a little lumpy. In this case, it was lumpy where we had several promotions. We just got to manage that a little bit better. So in our control. Operator: Our next question will come from Tom Blakey from Cantor. Thomas Blakey: Just wanted to maybe talk a little bit more about competition. I think there was a question earlier. Just looking at the dynamic growth of some of these conversational names like Sierra and Decagon. I mean, are you seeing these guys currently in the market? Are they disrupting in any way? I think just given the dynamic growth there, I think, we should address that. And just maybe a housekeeping item for Bryan. Was the 5-point headwind from the large customer from 3Q '24 like different from where you implied in the guide? Was it more of a surprise or kind of in line, that will be great? Bryan Lee: No, the 5 points, that was in line. So that was exactly expected. But I'll turn it over to Mike. Michael Burkland: Yes. And you can talk to Sierra and Decagon. I mean they're getting a lot of limelight these days, right? And limelight, they're not very large companies yet. But look, they're getting a lot of press. And this gets back to what I said earlier about kind of point solutions versus platforms. And most of these large brands, they want to look at the hot stuff, so to speak. They want to take a look. But in the end of the day, a lot of these decisions are made based on the end-to-end platform capabilities because providing that connected contextual personalized experience between AI agents and human agents is only possible. It's only possible if you have an end-to-end platform like ours. So again, I'll let Andy chime in, you want to talk about... Andy Dignan: I mean we see them, I wouldn't say consistently, but we come across them. A lot of times, there's pilots. And certainly, we're in there, like it could be in one of our own customers, right? They've just made their way in. Obviously, they're getting a lot of publicity in the market. But this is where we lean into what we've been talking about, right? It's that sort of continuum of being able to deliver to both AI agents and human agents. And if you look at where they've started, and again, I'm sure they'll comment on they're going to go down the voice path. It's largely been digital, right? That's been the focus of a lot of these point solutions. Voice, as we've talked about, is a strength for us, right, and a very big strength for us that's hard to replicate. So you add those things together, we feel strong about where we're competing on those use cases, and we're going to continue to get better. Operator: This concludes the Q&A portion of our call. I will now hand the call back over to CEO, Mike Burkland, for closing remarks. Michael Burkland: Thanks, everyone, for joining us. We look forward to keeping you updated as we close out the year and enter into 2026. Exciting times. Thank you very much for joining us.
Adriana Wagner: Good morning, and welcome to the ENGIE Brasil Energia's Third Quarter '25 Earnings Results Video Conference. I'm Adriana Wagner, Investor Relations Analyst at ENGIE Brasil, and I would like to make a few announcements. [Operator Instructions] It is worth remembering that this video conference is being recorded at our site, www.engie.com.br/investors, we have made available the results presentation and earnings release filed at the CVM, which analyzes financial statements, operational results, ESG indicators and progress in the implementation of new projects in detail. Before proceeding, I would like to clarify that all statements that may be made during this video conference regarding the company's business outlook should be treated as forecast depending on the country's macroeconomic conditions of the performance regulation of the electric sector besides other variables. They are, therefore, subject to change. We remind the journalists who wish to ask questions that they can do it through e-mail sending it to the company's press conference to present the results. We have with us today, Mr. Pierre Gratien Leblanc, the CFO and IRO; Guilherme Ferrari, Renewable Energy and Storage Officer; Marcos Keller, Director of Energy Trading; and Leonardo Depine, Manager for Investor Relationships. I would like to give the floor to Pierre to begin the presentation. Pierre Gratien Leblanc: So good morning, everyone. I will do it in English. So I hope it will be fine for everyone. So thanks for joining us in this -- during this hour. Always a very, very important moment for us to meet you and to explain you the financial results and the main highlights for the last quarter '25. So if we start with the highlights, it can be the main achievement we realized during this quarter are the following. First of all, regarding our project Assuruá and Assu Sol, we now almost complete the physical phases, and we are starting the operational commercial operations. So we are on time, and it's a very, very great achievement for us. Then we complete also the acquisition and the integration in our portfolio of the 2 hydro power plant, Santo Antonio do Jari and Cachoeira. So now there are -- the 2 assets are fully embedded in our portfolio management and since mid of August, and they are starting to contribute in our EBITDA. We won for the 15th time the trophy of transparency in accounting, Anefac, which recognize the transparency and the quality of our financial statements. And it's a very, very great job from teams and our accounting team. We also be certified as the Best Place to Work according to the GPTW, Great Place to Work Brazil. So good company and good achievement from our HR team. Then I have to mention that there is a subsequent event post from Q3. This is an increase of our social capital. So we decided because we need to comply with the law and our profit reserve was above our social capital in late '24. So we need to increase our capital through the profit reserve incorporation. So we will do it during November months, and we will do it through bonus shares. Then Q3 results in terms of finance is a very, very -- next slide, please. is a very, very good, robust and solid results. As you can see on the slide, our EBITDA grew by almost 12.54% compared to last quarter '24, which is good results. And if we look at year-end -- year-to-date EBITDA, of course, on a recurring basis, we increased our EBITDA in '25 by 6.4%. It's a little bit less true regarding the net recurring results because you can see that we decreased by -- in year-to-date by 8.4% our net income due to the -- mainly 3 factors. First of all, we see an increase of our depreciation of assets because we do have compared to last year, 3 big assets now in operation like Caldeirao Cachoeira. We also have an increase of our financial expenses linked to the high interest rate in Brazil in '25 much higher than in '24. And we do have an increase in our tax expenses also. But overall, very good results, robust. We deliver what we say. So ENGIE is a healthy company on that. Then regarding the ESG KPIs, well oriented to be fair, all of them, except maybe -- and unfortunately, we have to -- 4 accidents during the last quarter '25, 4 accidents with work stop days, some days. So we are still paying a lot of attention, a lot of focus on that. And we also support a lot the increase of the women in our leadership team. So we are on track. We are on the good way to achieve our results. We increased the percentage of women in our leadership team. And we continue to invest in innovation and in our responsibility, social responsibility even if we decrease a little bit our contribution on that. Now time to leave the floor to Guilherme in order for him to present the operation in renewables. Guilherme Ferrari: Very well, I'm going to explain what underlies these figures. Here, we have the availability of our wind, solar and electric assets. Our performance continues to improve, especially in wind and photovoltaic. We have a team that works closely with our suppliers so that we can have greater availability in our equipment. This is the effort of our team, of course, with the help of investment, always seeking good performance of our assets. Now the performance has been significant in these 2 technologies. In energy, we are subject to seasonality, but we're also following a very good availability standard. In transmission, also a very high availability. And of course, these are assets that are more predictable in terms of operations, except for unforeseen things, but we're doing well in transmission as well. Now regarding curtailment, the hot topic in the sector of renewable energy, it has been significantly impacting our generation. The impact is on wind, solar assets and very much aligned with what is happening in the system. We attempt, of course, to minimize this, optimize everything with maintenance, management of these curtailments. We hope that a solution for curtailment will come in the fourth quarter with operational adjustments that should come from ANEEL and the National Integration System. Now another important point that has already been mentioned by Pierre is the acquisition of Cachoeira Caldeirao and Santo Antonio do Jari. And I think you can go on to the next slide. No, perhaps not. If you could go back. Therefore, the organic growth in this quarter, where we added 680 megas additionally from [ Cerrado ] and additionally, the 2 hydroelectric plants mentioned by Cachoeira Caldeirao and Santo Antonio do Jari with 612 megawatts. Next slide, please. As has already been mentioned, we see a growth in generation. This comes from our organic growth and from the M&A operation we have just carried out. Once again, it's organic growth and an enhancement in performance. This year, the wind situation was above what we had expected, helping us to minimize the issue of curtailment. Operational enhancement, better natural resources, both solar and wind, all of these are helping us have an increase in power generation. Next slide. Keller, you have the floor. Marcos Amboni: Good morning to everybody. And I think this slide summarizes our trading activity for the quarter. It was an excellent quarter. And in the graph to the right, you can observe that we had very good sales during the quarter. Now this is a comment we made in the call of last quarter that some operations that were under negotiation are still not reflected in our balance. And this is the case of this quarter, where they are reflected, the variation is due to the accounting of new productions with high production levels, and we're showing the availability, new contracts for all the years until 2029. So we have good volumes, as you can see. And besides these good production volumes, you can see the number of our consumers. We have a good evolution in that figure of consumers when compared with the same quarter last year. 17.6% increase of consumers. We have 2,056 at the close of the quarter and a growth of 24% in consumer units served in the third quarter of '25 until the end. Once again, very positive figures in energy sold, volumes sold as well as in our consumer portfolio with a lower ticket perhaps, but with higher margin. We can see the position of our resources available until 2030 going forward. This means that we continue with that strategy of contracting through time, fine-tuning tactical adjustments, gradual growth, guaranteeing revenues and the predictability of our results. I think this is what I wanted to say regarding that slide, and I am at your disposal during Q&A. Well, to go back to the projects that are under implementation, the Assuruá Wind Complex, as Pierre mentioned, the physical progress has been concluded. It is 100% operational. We're waiting for ANEEL dispatch to enter commercial operations of 100% of this complex. And we're waiting for the decision of ONS that has created new procedures to obtain, well, the license and to test these assets. It's worth highlighting that the Assuruá Wind Complex, as you already know, has quite a bit of supply and the performance has been much above what is expected. It surprises us in terms of its performance. It's the largest wind complex in Brazil and also the part with the best performance throughout Brazil. This project was delivered within the forcing budget within the right time line with health and security fully complied with. And we're in the final stage of execution, the environmental part, the recovery of degraded areas and investment in social areas surrounding the assets location. Next slide, please. Assu Sol, we have concluded it. We are progressing in installation activities. And because of this new procedure of the ONS, we're waiting to signal all of the procedures to be able to enter commercial activity. This is an asset with very good performance, top line performance. Now in terms of CapEx, it's all according to what has been scheduled. It was -- it is in accordance to our scheduling. And the same holds true for health and security. We have a recovery plan for the degraded areas. These are activities that tend to take longer, but within what is foreseen and as part of the social work that we carry out. Next slide, please. Our first transmission project in this presentation is Asa Branca. The first stretch is between [ Shaffield 2 and Corso 3]. It's about to be concluded. This should happen in the fourth quarter. Now at the end of this year, we will have 33% of the project RAP, a relevant amount compared to what we expected in the auction. Now the second stretch is awaiting the license for the continuation. This should take a few weeks, and this should begin the coming year. The final stretch of the project will only come into operation at the end of 2027. Well, in Grauna, this comes from a recent auction at the end of 2024. It's still in the environmental phase, but going according to plan. Now that red line that you see, the brownfield on the map. At the beginning of July, we began to operate that line. We have 5% of the total RAP, not that much, but an important framework for us. It's the first brownfield that we take on with our own operation, not with third parties. And of course, this is important for ENGIE. Regarding Grauna, now if anybody would like to add something, please do. No great updates compared to the last quarter. We -- Well, we are fully mapping everything out in the graph that you see. And regarding the transfer, which is a frequent question that we receive, we're still awaiting the stance of the controller, and there's nothing new this quarter regarding that topic. And the last one, Guilherme, who will speak about expansion where there is nothing that novel. Guilherme Ferrari: Nothing new here. We continue to maintain our project pipeline. And we are awaiting and the market is reacting, of course. There are real demands. We hope this will not be impacted by curtailment. We continue to keep these in our portfolio, especially the wind assets so that we can follow on with their development. Expansions are always marginal, but highly welcome. And as part of this context, we have the possibility of the auction for capacity in the coming year. We have 2 of our assets, Santiago and others that will participate, but well, we will be able to take part in this auction. And another important point refers to the batteries. We're beginning to look at these with greater attention, the development of batteries to also take part in the auction that will take place in the coming year. Marcos Amboni: Well, thank you, Guilherme. We'll go to see our financial performance, return on equity and return on invested capital at satisfactory levels, showing how resilient we are. We invested more than BRL 38 million in the last years, which means that our asset base has increased. And of course, it is updated. The prices in the past were old. It seemed to be greater with this new updated base, the prices have dropped a bit. And some of these projects are not delivering 100% of their EBITDA. This will become more clear in 2026, Assuruá and others delivering their full performance. And so the levels will be more recurrent. Now for the 9 months of '25, we have a slightly higher share of transmission vis-a-vis 2024 as part of our strategy of diversification. 1/4 comes from transmission, gas transportation, 75% from generation. Here, we see our revenue changes at 31.8%. Most of this due to IFRS, BRL 22 million in transmission, but we do have an important organic effect in growth of revenue and volumes, inflation and new assets coming into operation vis-a-vis the same period last year. And if we look at EBITDA, this will become more clear. Now to go to the results of TAG that continues to deliver a very consistent performance, BRL 2.3 billion, and BRL 1 billion -- almost BRL 1 billion of profit this quarter of net income, very similar to the first quarter, somewhat below the second quarter where we had a nonrecurrent effect and doing very well. Here, we have a more complex graph for this presentation referring to EBITDA at one end, the accounting EBITDA that is published. Then we have the intermediate bar that is adjusted EBITDA. This quarter, there were very few adjustments, as you can see and in the middle, adjusted EBITDA and the effect of IFRS, all have a similar growth between 10% and 13%. Transmission, very stable, equity income of tax somewhat lower. So we're left with generation with an increase of BRL 287 million that we have called performance is price, volume and expansion and reduction due to costs associated to expansion, connection cables, material service and sundry costs. This is a positive result coming from generation. Now in the middle, we have a growth of 10.5%. Net income change, a very similar panorama in the center, an increase of 10% from BRL 666 million to BRL 738 million, most comes from adjusted EBITDA, income taxes, negative variations due to depreciation, new assets and partly due to financial results. Our indebtedness has increased a bit. And we have, of course, the interest rates that are higher than the third quarter last year, leading to a 10% increase. We'll speak about our indebtedness, balance debt. It's increasing, which is expected BRL 3 million for the acquisition of Jari and Cachoeira. We have BRL 600 million in debt, BRL 3 million impact on our debt. Only this acquisition changed the EBITDA. It was 2.7x last year. It has now reached 3.2x. This is still a satisfactory level that guarantees a AAA, which we would like to maintain in gross debt, 3.8x, a well-balanced debt, as you can see. Of course, as of now, we need to be more cautious in our coming steps, but a healthy indebtedness. Now in this slide, we show you the debt profile and maturity, a very smooth schedule after 2030. Therefore, this profile is BRL 2 billion a year in terms of debt payment, fully under control. We continue to be AAA, 1/3 in CDI and the rest in IPCA. The cost of the debt evidently has increased a bit, 6.4% on average compared to 5.6% in the same period last year. Of course, there is pressure from the financial conditions throughout the country. Regarding our CapEx, no significant changes, a detachment year-on-year, almost BRL 10 billion year-on-year. This year, BRL 6 billion, which means the BRL 3 billion from Jari and Cachoeira and the rest for the conclusion of Jari, the transmission companies, that is where our CapEx is going to. And in '26, '27, everything at lower levels. We will be left with maintenance and the 2 transmission companies. Grauna that extends to 2028 and Asa Branca until 2027. And finally, well, this slide, I believe, is the same as that of last quarter to show you our payment of dividend 2021, 100%. And since '23, we maintain this at 55% without significant changes. And that is it. Adri will now lead the Q&A session for us. Adriana Wagner: [Operator Instructions] Our first question is from Daniel Travitzky from Safra. He has 2 questions. I will pose the first question and put it together with another question from [ Huang ], an individual investor about the share of bonuses. Could you explain the rationale to do that now? And we have the question from Ruan on the bonus and other models for the payout of dividends and shareholder capital. Pierre Gratien Leblanc: I can take it, this one. You complement if you want. So why we are doing that? It's just because ahead of '24, our profit reserve was above the capital. And to be compliant with the law, we need to increase our capital -- social capital. This is the first point. The second point is we do have -- we had space until -- to increase our social capital until the authorized capital we do have. And this authorized capital was -- is today at BRL 7 billion. So we take the opportunity to go up to the limit or close to the limit. And we proposed to the Board yesterday, and it was approved to increase the social capital up to BRL 6.9 billion, and it will be done through a bonus action. Why? Just because we wanted to -- also to have a better liquidity of our shares in the stocks. And through these mechanisms, we will increase the liquidity of our shares without any financial impact at short term for our minority interest shareholders. Guilherme, if you want to complement or not, up to you. Guilherme Ferrari: No, that was perfect, Pierre, simply to complement the remuneration model besides the shareholder equity payment. In the future, we can alter the company's stock. I don't think this will be done in the short term. This is a model that will be analyzed to see if there's any advantage in doing that. Adriana Wagner: The second part of the question refers to your vision on the solution proposed for the curtailment in provisional measure 384. This is also part of Juan's question, who asks about curtailment and how to deal with it in the medium term? Pierre Gratien Leblanc: I would like to begin the answer, then I will give the floor to Guilherme or Keller. This provisional measure 304 was approved, but not sanctioned. We have to wait for it to be sanctioned. And we need to understand the regulation better. Perhaps Guilherme would like to comment on what is included in this provisional measure. Guilherme Ferrari: Well, this is simply to add information. We're faced with several uncertainties in terms of the real impact, which will be the reimbursement. We still have doubts if there will be reimbursement regarding power or if there will not be reimbursement. And there is an issue that we already mentioned, regulatory issues that could make investments in generation have a different technical condition to the ones we have presently, creating another obstacle to the incredible growth of generation companies. Now all of this strongly impacts our curtailment projections going forward. Marcos Amboni: Well, I don't have very much to add. Everything has been said. We would have to see the final version of provisional measure 304. There are 2 articles that we need to analyze before we can estimate what will be subject to reimbursement and those articles that refer to us and the impact, the effect that this causes on physical distribution and distributed distribution. These are points that need to be further assessed at the end of this legislation. Now there is a positive point in the midterm, and it is interesting for the long term better conditions to insert batteries into the system. This will help us overcome several difficulties that we face at present and physical curtailment can be mitigated if we make good use of these batteries. Now in the coming months and years, we will see how this plays out. To complete that topic and others, we're going to approach this in great detail in ENGIE Day that will be held in Sao Paulo at the end of November. If you can't be with us, we will record the session. Adriana Wagner: Our next question is from Joaquin. The question is will the company think of similar acquisitions compared to the assets recently acquired? Will this go in detriment of new assets in the renewable sector? Guilherme Ferrari: I will begin and then Depine and Keller, please feel at ease to add your comments. Now evidently, the market with this oversupply ended up thinking greenfield made no sense. And with curtailment massively impacting the results, greenfield has been put aside. Now this is a factor that will make us postpone our decision to invest in greenfields. And when we look at M&A for wind and solar operations, the curtailment factor is a fundamental assumption. Of course, the seller will try to insist on curtailment. The buyer will insist on a more realistic curtailment, and this leads to a great difference in values. Potential M&As for renewable wind and solar energy will have to wait until we have a clear vision of the impact of provisional measure 304 and the regulation that will come about to work with distributed generation. Now M&As in hydro plants, well, this is not only our desire, but that of other players, but it is scarce in the market. There are a few opportunities. Whenever an opportunity arises, we will look at it, of course, following the line that we followed for Cachoeira and Jari. We will see the quality of the assets, labor -- I think, labor qualification is fundamental, and that was a positive point in these 2 assets. We were able to maintain all of the employees that were already working there, bringing in the knowledge since the phase of conception until the beginning of operation. And we're adding ENGIE's knowledge to enhance the quality of these assets. We have to carry out an in-house analysis. And as I said, these assets are scarce in the market. There are not very many opportunities. Adriana Wagner: Thank you, Guilherme. The next question comes from Bruno Oliveira, sell-side analyst. Two questions. Any planning on TAG, a possible partial sale in the horizon? And as part of your investment projects, any outlook for a dividend payout of 100%? Or is it too early for this discussion? Pierre Gratien Leblanc: The answer is quite easy is no. Nothing planned in the very, very short term or short term or medium term for TAG. Depine, maybe you can take the second one. Leonardo Depine: Well, regarding the dividends, for the time being, no, our indebtedness continues to grow somewhat above 3 at present and will further increase because of the 2 projects under construction until mid-2026. I think Bruno asked about this. It doesn't make sense for the time being to go back to 100% of payout with indebtedness above 3%. I think we had already referred to this in the second quarter as well. Adriana Wagner: Very good. Thank you. To continue with the next question from Victor Brug, a sell-side analyst for JPMorgan. Any update in the revision of tariffs in the Northeast, TAG? Leonardo Depine: Well, from TAG and the regulator itself, we have heard that this tariff revision should happen in the first half of the coming year. The last information is that this review will be carried out in 2 stages. They're going to work on work and the asset base. So this process will be displaced through June, perhaps will be concluded in June. This is the last statement we heard from the regulator. We shouldn't expect anything very concrete in the short term. Adriana Wagner: Our next question comes from Bruno Vidal, sell-side analyst from XP Investments. Does the company have an outlook on participation in BP and which would be the modality, capital stock increase or increase of indebtedness? Pierre Gratien Leblanc: So we are still studying this opportunity to prepay our UBP topic. We are waiting for the ANEEL calculation. And then we will have until beginning of December to discuss with ANEEL. And then ANEEL will give us if we are interested to prepay the deadline to do the cash out. How we will do it? So it will be probably now in '26, not in '25, is still under discussion inside EBE. We do have a lot of different options. Increase of capital may be one, but it's not the only one. So we will take and choose the best option for EBE to finance the prepayment if we decide to do it. I hope that as Depine said earlier, I hope that end of December during our Investor Day in Sao Paulo, we could give you more and more detail on that. Leonardo Depine: Thank you very much. Our calculation in the time line, the payment should be until the end of March or the beginning of April. So we have the first quarter of 2026 to discuss these options. Adriana Wagner: Our next question is from Lorena, sell-side analyst from Itaú BBA. Our trading strategy, which is the outlook of maintaining part of the portfolio uncontracted considering the price of energy in the coming years. Leonardo Depine: I can answer that. If you could tell me the first part. Adriana Wagner: Our trading strategy, which is the outlook of maintaining part of the portfolio uncontracted, considering our viewpoint on energy in coming years. Leonardo Depine: We continue with that vision, with that strategy of having gradual uncontracting and we make tactical adjustments in terms of sales. This is the best for a company that is capital intensive and works with generation. We give ourselves the opportunity to make the most of higher prices in that long arm. Now we're thinking of year plus 1, year plus 2. We have future prices that are higher than years further ahead. So there is space for that long arm, while the market prices react in the upward position. It's important to make the most of contracting and not move away from this now. There's also a limit in liquidity in the market. So we can't contract everything on the spot with this very volatile price model, we know there are scenarios where the price will be much too low and spot prices will be low and we have to counterbalance our vision that there is room for future prices to improve vis-a-vis the risk in the short term, not allowing huge volume for the short term because we'll end up in the spot market. This is a bet, of course. Our profile is to have an appropriate management between results, our revenues and the risks that we take on. To summarize, we're going to continue following our broader strategy of gradually contracting future energy. Adriana Wagner: Thank you very much. At this point, we would like to end the question-and-answer session. I will return the floor to our officers and Mr. Depine for their closing remarks. Leonardo Depine: I would like to thank all of you for your attendance, and we hope to see you at our next events. We will meet at our event at the end of November, and we hope to have a better vision of the impacts of PM304. Thank you all very much. Have a good day, and we hope to see you in our next event. Pierre Gratien Leblanc: Thank you all. See you in late November in Sao Paulo. Adriana Wagner: We thank all of you for your attendance, the energy video conference and have a very good afternoon.
Operator: Good morning, everyone, and welcome to the Stabilis Solutions' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Now at this time, I would like to turn the conference over to Mr. Andy Puhala, Chief Financial Officer. Mr. Puhala, please go ahead, sir. Andrew Puhala: Good morning, and welcome to Stabilis Solutions' Third Quarter 2025 Results Conference Call. I'm Andy Puhala, Senior Vice President and CFO of Stabilis, and joining me today is our Executive Chairman and Interim President and CEO, Casey Crenshaw. We issued a press release after the market closed yesterday detailing our third quarter operational and financial results. This release is publicly available in the Investor Relations section of our corporate website at stabilis-solutions.com. Before we begin, I'd like to remind everyone that today's conference call will contain forward-looking statements within the meaning of the Private Securities Reform Act of 1995 and other securities laws. These forward-looking statements are based on the company's expectations and beliefs as of today, November 6, 2025. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. The company undertakes no obligation to provide updates or revisions to the forward-looking statements made in today's call. Additional information concerning factors that could cause those differences is contained in our filings with the SEC and in the press release announcing our results. Investors are cautioned not to place undue reliance on any forward-looking statements. Further, please note that we may refer to certain non-GAAP financial information on today's call. You can find reconciliations of the non-GAAP financial measures to the most comparable GAAP measures in our earnings press release. Today's call is being recorded and will be available for replay. With that, I'll hand the call over to Casey Crenshaw for his remarks. J. Crenshaw: Thank you, Andy, and good morning to everyone joining us on the call. We executed according to plan in the third quarter, capitalizing on continued demand for our integrated last-mile LNG solutions across our markets. Third quarter volume increased by more than 20% year-over-year, driven by strong demand across our growing base of marine, aerospace and power generation customers. We continue to see healthy demand trends across these sectors, supported by increased commercial space flight activity, seasonally strong demand for distributed power and robust throughput from cruise activity in the late summer months. Commercially, our team remains highly engaged with both new and existing customers, particularly in the aerospace and marine markets. We also see growing opportunity in the power generation as domestic investment in new data center capacity increases the need for on-demand distributed power solutions. As announced in October, we secured the largest customer contract in the company's history, a 10-year marine bunkering contract for LNG, produced at our proposed 350,000 gallon per day LNG facility in Galveston, Texas. Subject to the finalization of project financing, we expect to break ground on the Galveston facility in the first quarter of 2026 and are targeting the facility to come on stream in late 2027. In parallel, we plan to construct a Jones Act compliant LNG bunkering vessel to serve customers in the Port of Galveston, Houston Ship Channel, and surrounding areas, consistent with a focus on building a vertically integrated marine bunkering solution in the local market, and this will serve as a template for what we seek to replicate in additional markets over time. Beyond this initial bunkering customer, who will represent approximately 40% of the planned offtake capacity at the Galveston facility, we're in late-stage negotiations with another marine bunkering customer for an additional 20% of our planned production capacity. We expect to have approximately 75% of the total capacity sold under long-term customer contracts by the time we reach final investment in early -- final investment decision in early 2026. In recent months, we've worked closely with our engineering and design partners to secure long lead-time items and develop detailed engineering designs for the LNG facility and the related bunkering vessel. Additionally, we are finalizing contracts for equipment, plant and vessel construction and related items such as pipeline access, putting us on track for the final investment decision in early 2026. Stabilis has engaged a leading investment bank to arrange the financing for this project. We have evaluated a variety of potential financing options and intend to prioritize a structure that maximizes value creation for all shareholders. At this time, we intend to pursue a joint-venture structure, supported by project level debt and equity from third-party investors. Through this structure, we intend to retain operational control of the project, positioning us to realize meaningful economic upside and long-term returns on our investment. We intend to share periodic updates with our shareholders as key project development milestones are achieved. This is a transformational moment in the history of our organization, and we're excited to take this next important step in our company's growth. In the meantime, we'll stay focused on day-to-day execution required to deliver profitable growth. This means continuing to expand commercial contracts across our vertical markets, continuing to improve operational excellence and staying disciplined around how and where we deploy capital as we seek to maximize value for our shareholders. With that, I'll turn the call over to Andy to review our financial performance in detail. Andrew Puhala: Thank you, Casey. As customary, I'll begin with a discussion of our third quarter performance, followed by an update on our balance sheet and liquidity. Third quarter revenue increased 15% year-over-year, driven by a 21% increase in LNG gallons sold and higher average commodity prices, partially offset by less favorable customer mix and lower rental and service revenues. At an end market level, revenues increased in our three target growth markets with aerospace revenues increasing by more than 88% compared to the same quarter last year, and power generation and marine revenues increasing by 31% and 32%, respectively. This strong performance was partially offset by the scheduled end of an industrial customer contract that concluded late last year. During the quarter, approximately 73% of total revenue was derived from aerospace, marine and power generation customers, up from 60% in the prior year quarter, reflecting the continued strength and diversification of demand across these high-growth markets. Adjusted EBITDA was $2.9 million during the quarter compared to $2.6 million last year. Adjusted EBITDA margin was 14.3%, down from 14.6% in the third quarter of last year. The decrease in our adjusted EBITDA margin primarily relates to the roll-off of the high-margin industrial project previously mentioned. Cash from operations totaled $2.4 million for the quarter. Liquidity at quarter end was $15.5 million, consisting of $10.3 million of cash and approximately $5.2 million of availability under our credit facilities. We ended the quarter with $9.5 million of total debt and lease obligations, resulting in a net positive cash position. Overall, our balance sheet remains strong and provides ample flexibility to support our ongoing operations. Capital expenditures totaled $3.9 million, primarily related to early engineering and design work for the Galveston LNG facility and related bunkering vessel. We expect investment to accelerate over the coming quarters as we progress toward construction and a final investment decision in early 2026. Once project FID is made, we expect all project funding requirements to be met through project-level financing. In the interim, we anticipate investing an additional $3 million to $5 million in CapEx on the project. This concludes our prepared remarks. Operator, please open the line for the Q&A session. Operator: [Operator Instructions] We'll go first this morning to Martin Malloy of Johnson Rice. Martin Malloy: Great to see all the progress you're making on the Galveston LNG project. My first question, just on the permitting side here. Are there any key permits that we should be watching for, for you all to receive regarding this project? J. Crenshaw: Well, first of all, thanks for joining, Martin. We appreciate you being on this morning. And yes, it's a good question on the Galveston project. There's a number of different permits that we track and work through. We already have the export license, it is already in our possession for any gallons that need to be exported. So that's kind of an already a benefit. And -- but all the normal permits are being worked, and they're already being in process and being worked in our project today. So they're being progressed. Andrew Puhala: Marty, just to add a little bit to what Casey said, I mean there's a number of permits, as you could imagine, for a facility like this. We've got a detailed list of them all and we're tracking them and know what we need to do there. The main one is probably our Texas Railroad Commission for the facility and then the Coast Guard for the bunkering operation. J. Crenshaw: And we're tracking them all and we don't think that, that changes our timeline. Martin Malloy: Okay. Terrific. Just for my follow-up question, it's great to see the growth also in the aerospace and the power side. And I was wondering if you could maybe talk about what you're seeing there in terms of end market demand and potential capacity expansion to meet that demand. I think you all have a second LNG train to double capacity George West, some of the long lead time equipment that's there. Any plans for that? That would be great if you could talk about that. J. Crenshaw: Why don't I start, and I'll let Andy come in with any color or detail around it. I mean I think I really agree with what you're saying is that not only is the marine super exciting as one of our big verticals, but the aerospace and the power generation is just really exciting right now. And you're just seeing additional -- on the space activity, you're seeing additional launches and the primary fuel being used is now LNG as it relates to how they're operating those vehicles. Our demand there is expected to be up. We expect it to be up for 2026 from what we've seen in the past. And how that offtake happens there versus the need for power generation fuel versus what the timing of the plant in Galveston comes online are all things that we're working on in conjunction right now. So lots of demand for both space, lots of the -- when I say, it's aerospace for rocket launches, lots of demand power generation as it relates to distributed power needs for data centers or grid redundancy, et cetera. And most of those jobs are bridge or backup, but some of the bridge and backup is 5-plus year type conversation. So they're even talking about potentially needing that asset deployed in different spots. So we're basically waiting to see what the most customer-centric locations for that additional train is and just waiting on that demand to firm on who's going to contract it to make sure that capital has contracted offtake against it. But we're still working on it, both in George West and in other locations. Operator: [Operator Instructions] We'll go next now to Bill Dezellem at Tieton Capital. William Dezellem: A couple of questions here to begin with relative to the new marine facility. You referenced here in late-stage discussions with a prospective customer that will represent 20% of the capacity. What industry is that customer in? J. Crenshaw: With the marine bunkering client, and so they're in the -- this is a cruise customer. William Dezellem: And then that leaves an additional 15%, if our math is correct, to reach your 70% capacity being committed prior to or at FID with -- so with that remaining 15%, how do you -- how does that look like that will develop? Is it a single customer that represents 15% or is it multiple? And what industries would you expect them to be in? J. Crenshaw: Yes, Bill. So let me just touch on it from a macro. I mean those are plus or minus goals of us having 75% of that offtake, firm, 10-year, good credit quality customers because that generates the best structure for Stabilis in the project. We hope to have an even higher utilization at that time, but that's our goal by the first quarter to go FID. And so that customer could be anywhere from more clients related to cruise. It could be clients related to container ships. It could also be a third-party trader that's in the bunkering space. So those are all three options on that. We expect it to be one or two, and it could be north of the projected volume that we put out there in that target of 75%. That's just what we wanted to kind of give you on what our goals was at the timing for FID. William Dezellem: So essentially, that last 20% is a bit more fluid at this point and -- but you have options that you're working on. J. Crenshaw: Yes. Look, we're under discussions with multiple customers, and I think with what we have, the first contract and the second one that we're really close on, I think we can move on the project. I think it makes it a better project to have the balance of it taking off and then offtake there. And we're talking to a number of people. We've got advantage. Remember, we've got advantage of natural gas. We're going to have advantaged product on the water with a really well-developed facility and Jones Act vessel, so we've got a cost advantage. And I think when you have a cost advantage and an advantage like that, I think, makes the selling part of it easier. William Dezellem: That's helpful, Casey. And then did you -- changing gears here, did you all win additional marine business here this quarter to have that up 30-some percent and space up 88% and power gen at 30%? J. Crenshaw: Look, we're doing numerous marine clients, not just cruise, but we've got some other areas that we're servicing, offshore supply vessels, et cetera. There was a lot more throughput due it to being the late summer months through some of our existing clients. And so kind of a combination of both is to answer your question. William Dezellem: Great. And that's helpful relative to the marine. And how about in space and power generation, those strong growth rates. Were those a function of new contracts? J. Crenshaw: Power generation was a function of temperature and the existing contracts we had. Those are always -- we have some new ones and some falling off, and we have a number of them coming off in the fourth quarter. But the -- in the space, we did pick up another strong aerospace client, which increased volumes and opportunity in the third quarter. William Dezellem: And does that client -- was that a one-off or a temporary? Or is that now repeatable for many quarters going forward? J. Crenshaw: It's repeatable for many quarters going forward. And it's one thing, we work extremely hard with those customers. And I would say, all three of these customer groups, marine, aerospace and distributed power, they're all super sensitive to what they need and how they need it. The space people are specifically -- because it's propellent fuel, they're specifically intense around that. So we expect it to be a long-term additional new client that we look forward to doing a lot of work with over a long period of time. William Dezellem: Great. And kind of trying to tie that all together, was there any sort of a strategy change to use more third-party gas or is the growth that we saw this quarter in third-party gas really a function of having won these contracts, and longer term, you'll figure out how the most optimal way to serve those clients? J. Crenshaw: Well, I'm going to start and then let Andy kind of finish it up. I mean we ran high utilization on both of the company-owned facilities this quarter. And I think the answer is yes to all of that. We try to optimize ours first, but it also depends on logistics and some of the spec of quality depending on what type of client and where, but we like and have always, Stabilis has been in business for -- since 2012, acquired Prometheus share of interest. They've been in business for over 20 years. So in the whole history of our company, acquiring Encana's gas [indiscernible], we use third-party supply. That's all as a way to build demand and then figure out if we can drop a facility in there to do it ourselves. So consistent with what we've done, what's not -- I think our operations team worked really hard to optimize our current manufacturer supply and then third-party supply this quarter. And I think we're pretty proud of that. It's an ongoing process, and they did a nice job this quarter, and Andy, anything to add to that? Andrew Puhala: No, I think you covered it. I mean we -- as you mentioned, we try to prioritize our own molecules, our utilization was good this quarter. We use third-party molecules to flex up and down depending on customer demand and location. So that's pretty much it. Operator: [Operator Instructions] We'll go next now to Spencer Lehman, private investor. Spencer Lehman: Great news here in the last few weeks. And a couple of questions, just maybe on the stock share structure. I've been with you for many years, and it's always been an interesting little company because there's 80% inside control and it's very thin. And that's been -- there's an advantage and a disadvantage to that. And I've always sort of -- when that subject has come up in the past, there's always been a suggestion that some day, of course, you'd come out with some full-blown, not an IPO, but like a secondary and raise some money. And I'm just wondering this new project in Galveston, is this the project that might initiate that kind of development because, of course, that would be a great way to also to raise the financing for the project? J. Crenshaw: Spencer, thank you for being on the call. We appreciate your long-term engagement with the company and holding of your positions. So first of all, thank you for that and your supportive questions and intellectual thoughts and challenges on different things that we're working on. So we appreciate that, first of all. Certainly, yes. I mean we need -- we're a public company because we're hoping to have growth and either be distributing capital to -- distributing dividends to shareholders or needing to grow and raise additional capital to do that growth. In the current structure that we've got proposed here, we believe we can do this project without a large dilution or any adjustment to the current shareholder base in the parent company, Stabilis. However, this is an opportunity once the project is FID'd to go communicate with the market and shareholders about our different growth plans, what our activity is and some of the next stages of growth and what we're doing there. At that point in time, I think we have the company available to use all tools at our disposal to grow the company and meet our mission of providing clean LNG solutions to our clients. And we've got three markets that are dynamic and growing right now. And we've been working on this company for the past 13 to 20 years, this is not an overnight success, but our markets are coming on really strong right now, which may give an opportunity to do something around the capital structure there. But we don't want to commit or make any guarantees or anything of that nature. We're really focused right now, Spencer, on the customers and on the revenue and earnings and on the current projects. And once that has clarity, then we've got, with Andy and our team will absolutely bring in people and advisers to make sure that we're optimizing this for all the shareholders to create the right return for the shareholders. It's a long answer to the question, but I wanted to touch on it for you. Spencer Lehman: Yes. And I certainly like the idea of no dilution or very little dilution except at much higher prices, of course. And it would be a way of raising money, but not here. The -- just a small question, though, when you came out with the announcement, I don't know if you noticed it, Andy, you might have noticed a few days afterwards, there was a 100,000 share block at $5 that came on. And I've never seen that. I'd been watching, been involved with the stock. I was just curious if you knew what that's all about and it has been there. It stays there every day. And it's been nibbled out a little bit, so it's down -- it's down to 94,000 now. But any idea what that's all about? Andrew Puhala: Spencer, we don't know who that block is, who's offering that. Spencer Lehman: Yes. Because there could be an institution or a fund or something. But is this -- it's a little bit of a cap right now on the price, but just curious. Well, anyway, great, hope everything works out, and thanks for keeping us informed. J. Crenshaw: Well, Spencer, we appreciate you being a long-term holder. We're a long-term holder. We believe that the company will over time rerate what the future value is seen with the company, and we'll have some turnover of some of the shareholders during that period of time. And everybody has different bases for different reasons. But we're believers in the long-term value of the company, we're holders right now. As Andy stated, I can't help to be really positive on the company, the future of the company, the outlook for the value. And so I'm always -- I'm super long, super believer in it. And -- but have a long view and believe that these projects and growth and customers will drive that value over time. And that's what we're super focused on here is to those. Spencer Lehman: And just a quick second part of that is you don't mention data centers too much, but is that included when you say power generation? Is that what you're... J. Crenshaw: Absolutely. We call about distributed power, what we're talking about is the increased demand on the grid and on how power is distributed to projects. And where the LNG is really working is when they want the power closer to the project or they can't get grid, they can't get pipe and LNG comes into bridge that natural gas power solution. So data centers or computing demand on power are driving a lot of the increased needs. And secondly, I just think the reshoring and the increased manufacturing in the United States is also adding some increased demand and draw on the grid. The grid has been really stable for a long time. It's not shown a ton of increase, but we think it is coming. And from what we're seeing, distributed power is a good solution on both timing and cost for these projects. Spencer Lehman: Okay. Yes, I think energy is a great place to be right now, so good. J. Crenshaw: We like it. Operator: [Operator Instructions] And gentlemen, it appears we have no further questions this morning. Mr. Puhala. I'd like to turn the conference back to you, sir, for any closing comments. Andrew Puhala: Well, thanks, Boe, for everyone who joined us today. I appreciate your time and your support of the company. We look forward to giving you updates on some of these exciting projects in the future. If you have any questions in the interim, please feel free to reach out to me or our Investor Relations contact number, and we'll be happy to talk to you. Thanks a lot, everybody. This concludes our call. You can now disconnect. J. Crenshaw: Thank you. Operator: Thank you, Mr. Puhala. Thank you, Mr. Crenshaw. Again, ladies and gentlemen, this will conclude the Stabilis Solutions' third quarter earnings conference. Again, thanks so much for joining us, everyone, and we wish you all a great day. Bye.
Operator: Good day, and welcome to the Air Products Fourth Quarter Earnings Release Conference Call. Today's conference is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Megan Britt. Please go ahead. Megan Britt: Hello, and welcome to the Fourth Quarter and Full Year Fiscal 2025 Earnings Conference Call for Air Products. Our prepared remarks today will be led by Eduardo Menezes, Chief Executive Officer; and Melissa Schaeffer, Executive Vice President and Chief Financial Officer. We have prepared presentation slides to supplement our remarks during the call, which are posted on the Investor Relations section of the Air Products website. During this call, we'll make forward-looking statements, which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including, but not limited to, those discussed on this call and in the forward-looking statements and Risk Factors sections of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statements. Please note in today's presentation, we will refer to various financial measures including earnings per share, capital expenditures, operating income, operating income margin, the effective tax rate and ROCE, either on a total company or a segment basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our investor website in the relevant earnings release section. It's now my pleasure to turn the call over to Eduardo. Eduardo Menezes: Thank you, Megan. Hello, and thank you for joining our call today. Please turn to Slide 3. Earlier today, we reported our fourth quarter and full fiscal year 2025 results. Our numbers show consistent progress related to commitments we shared earlier this year. We delivered earnings per share of $12.03, which is above the midpoint of our full year fiscal guidance range. Our operating income margin of 23.7% and return on capital of 10.1% were also in line with our commitments for these metrics. Also, this year marks the 43rd consecutive year of increasing our dividend. In total, we returned $1.6 billion to our shareholders in fiscal 2025. I'm encouraged we are setting challenging but achievable targets and delivering on those commitments. We have taken several key actions starting in the second quarter to focus on the core industrial gas business and expect to unlock earnings growth through productivity, pricing, operational excellence and disciplined capital allocation. The last 3 quarters demonstrate that we are already making progress. Moving to Slide 4. We have 3 key priorities for 2026 that were part of the strategy we shared earlier this year. First, we expect to deliver high single-digit annual EPS growth. To be clear, our 2026 guidance anticipates additional helium headwinds in a sluggish macroeconomic environment. On our second priority, we will continue to make strides to optimize our large projects portfolio. We are working diligently to finalize our NEOM project and expect to improve our underperforming project portfolio with a goal of generating positive cash returns. On our third priority, we continue to take actions to balance our capital allocation and improve our balance sheet. We expect to reduce our capital expenditures to roughly $2.5 billion per year following the completion of several large projects. At this level of CapEx, we believe we can support our ongoing maintenance and invest in the traditional industrial gas projects while growing our dividend and longer term, returning additional cash to shareholders via share buybacks. In 2026, we expect our capital expenditures to be about $4 billion. In summary, we expect fiscal 2026 to demonstrate our commitment to continuously drive improvement in our core industrial gas business and growing alongside our customers. Please turn to Slide 5. We highlighted earlier this year that a portion of our productivity improvement will come from returning to an organizational headcount similar to what we had before we started several large clean energy projects. This slide offers a progress report on our actions in the savings that are being created. Since 2022, we have identified a total of 3,600 headcount reductions, which translates to [ 16% ] of our peak workforce. We expect these reductions to contribute approximately $250 million in annual cost savings or $0.90 per share in earnings once the reductions are complete. These cuts are not something we do lightly, but they are critical to offset inflation and adapt the organization to a lower level of CapEx spend. Our objective remains to return to staffing levels of 2018 adjusted for employee growth to support new assets, minus any other productivity we can find with new initiatives like AI. Moving to Slide 6. We have a summary of our expected CapEx expenditures after 2026. As we have previously said, we are also moving forward with several underperforming projects, giving our commercial obligations and project steps. We have roughly $2.5 billion remaining to be spent on these projects from 2026 to 2028. Though these products are not expected to contribute materially to operating income, we continue to work to improve their results through commercial negotiations, operational improvement and productivity. For our NEOM project, this slide reflects the CapEx related to our equity contribution to the overall project, which will be completed in 2027. Any further investments for ammonia dissociation in Europe will need to be approved separately. After we bring these projects on stream, we expect capital expenditures of roughly $2.5 billion per year, which can sustain both our future growth and ongoing maintenance. For our blue hydrogen project in Louisiana, we have halted making new commitments until an offtake agreement is reached. In this slide, our capital investment for this project in '26 reflects only prior commitments on the project and we have excluded any spending beyond 2026. Like in the case of NEOM downstream investments, they would need to be justified and approved based on firm offtake commitments. I'll talk more about the Louisiana and NEOM projects in our next slide. On traditional core growth, we expect to invest approximately $1.5 billion per year going forward. These are air separation hydrogen projects that we normally execute in 18 to 30 months, so there are always new products being added and completed products being removed from the list. The CapEx figures for fiscal year 2027 and beyond represents our expected average spend. Our focus will be, as always, on opportunities that meet our return thresholds with quality customers and contractual uptake. Moving to Slide 7. I wanted to close with a brief update on NEOM and Louisiana. Start with NEOM, the project is progressing well and is about 90% complete. Solar and wind power generation will be completed by early 2026, and we will start commissioning the electrolyzers and ammonia production. We expect to have ammonia production on stream with full product availability in 2027. We are, of course, following the regulatory developments in Europe. It is important to highlight that the scale of the energy transition is such that the volumes required to meet even the smaller mandates such as the Red III EU mandate to convert 1% of fuel sold to RFNBO fuels would create a green hydrogen demand equal to approximately 7x the total production of our NEOM project by 2030. Obviously, a significant part of the volume is expected to be supplied by local electrolyzers using renewable power, but it's important to highlight that our solution to bring green ammonia from Saudi Arabia for dissociation in Europe is competitive in terms of pricing and requires 0 public subsidies. As mentioned before, the market for green ammonia is also being developed, and that will be our main target for -- from the time the NEOM project starts. Additional feedback on the market development will be provided during 2026. Regarding our blue hydrogen project in Louisiana, we are evaluating proposals to divest the carbon sequestration, and ammonia production assets. We will only go forward with this project if we can sign firm offtake agreements for hydrogen and nitrogen from the facilities that will be owned and operated by Air Products. And of course, these agreements will need to comply with our return expectations with one or more high-quality counterparts. As previously committed, we expect to provide further updates related to this project prior to the end of 2025, so in less than 2 months from today. Let me finish by saying that I'm excited to launch my first full operating year with Air Products team. We have been working hard to right the ship and bring the company back to a position where we can deliver maximum value to our shareholders, customers and employees. Now I'll turn the call over to Melissa to discuss our financial results in greater depth and discuss our 2026 outlook. Melissa? Melissa Schaeffer: Thank you, Eduardo, and welcome and hello to those joining us on the call today. Please move to Slide 8 for a high-level summary of our financial results. We ended the fiscal year with earnings per share of $12.03, delivering our commitment to our shareholders and above market consensus. With respect to sales, favorable volume for on-site and non-helium merchant were more than offset by a 2% headwind from the prior year LNG divestiture as well as project exits. Volume was also lower due to the reduced global helium demand. Partially was favorable for non-helium merchant products across all regions. Operating income was down on volume and higher cost, partially offset by non-helium price. The higher costs were driven by depreciation, largely offset by productivity improvements, net of fixed cost inflation. Operating income margin of approximately 24% declined 70 basis points compared to the prior year, largely driven by higher energy cost pass-through. Return on capital of 10.1% was lower versus prior year as we continue to exit on our project backlog. Moving now to Slide 9. Our fiscal year earnings per share of $12.03 decreased $0.40 or 3% from prior year, driven by a 4% headwind from LNG divestiture and a 2% headwind from project exits. Without these discrete items, EPS would be up 3%. Additionally, we continue to see headwinds from helium, including unfavorable comparable volume and pricing across regions. Despite these headwinds, we continue to deliver on our base business with stronger non-helium pricing actions, ongoing productivity across our segments and favorable on-site and merchant contributions. Moving now to Slide 10. I will provide an overview of our results by segment for the full fiscal year. You can find additional details of the quarterly segment results in the appendix. For the fiscal year, America's results were down 3%. As a reminder, we reported a onetime asset sale associated with an early contract termination at the request of a customer in the prior year fourth quarter, which alone resulted in a 3% headwind in the Americas. Additional drivers include headwinds from project exits and helium and higher maintenance-related costs. These were partially offset by strong non-helium pricing actions, productivity improvement and favorable on-site contributions from our HyCO business. Asia fiscal year results were relatively flat, as lower helium was offset by favorable on-site, non-helium price and productivity. During the quarter, we made the decision to sell 2 coal gasification projects within Asia, which are now within assets held for sale. Europe's FY '25 results improved 4% as non-helium merchant pricing, productivity and favorable on-site contribution was partially offset by lower helium and higher costs associated with 2 depreciation and fixed cost inflation. The full year, Middle East and India equity affiliates income decreased 2% from prior year, primarily due to lower contributions from our Jazan joint venture. The full year results for the Corporate and Other segment were primarily impacted by the headwind from the prior year sale of LNG, partially offset by lower changes to the sale of equipment project estimates and lower costs with our continued focus on productivity improvements. Moving now to Slide 11. We continue to generate strong cash flows from our base business, supporting investments in both energy transition and traditional industrial gas projects. Additionally, we returned $1.6 billion in cash to our shareholders. We remain committed to disciplined cost control, a reduction in capital expenditures and strategic asset actions aimed at unlocking value and generating cash. Moving now to Slide 12. We will review our outlook for fiscal 2026. For the full year, we expect to deliver earnings per share in the range of $12.85 to $13.15, an improvement of 7% to 9% from the prior year. Despite a helium headwind comparable to FY '25, this growth is expected to be achieved through new asset contribution and continued focus on pricing actions and productivity. We also expect a 1% benefit from the rationalization of projects in large part due to the 2 Asia gasification assets we wrote down in fiscal 2025. We are focused on delivering these results in line with the 5-year road map we introduced earlier this year. For the first quarter of 2026, we expect to deliver earnings per share in the range of $2.95 to $3.10, representing a 3% to 8% improvement from the prior year. Our outlook assumes growth from continued pricing actions and productivity as well as a benefit from the rationalization of projects and lower planned maintenance, partially offset by lower helium. As a reminder, we expect our first quarter to be lower sequentially due to normal seasonality. With respect to capital, we expect to spend approximately $4 billion as we execute on our project backlog, including approximately $1 billion on traditional industrial gas projects and invest in ongoing maintenance. As we look to derisk our Louisiana projects and optimize our portfolio, we expect to be modestly cash flow positive in fiscal year 2026 and are committed to staying cash flow neutral through 2028 as we close out on several projects. Now we'll open the call up for questions. Operator? Operator: [Operator Instructions] We'll go first to Jeff Zekauskas with JPMorgan. Jeffrey Zekauskas: In your opening remarks, I think you said that you were evaluating proposals to divest the carbon capture piece of the Louisiana project, but you're still evaluating whether you would proceed with the project. So could it be that those 2 events would be linked, that is you would sell the carbon capture piece to a party, and then work with them to provide them hydrogen or hydrogen and ammonia? Eduardo Menezes: Jeff. Yes, let me try to explain that. The idea of this project is basically to transform into a regular hydrogen and air separation project where we supply hydrogen and nitrogen to someone that will produce the ammonia. The CO2 that is being produced by the facility has to be sequestered in order to -- for you to capture the 45Q credit, right? So what we're basically saying is that Air Products was developing by itself its own pore space to do that. And what we are trying to do at this point, we're evaluating proposals for someone to buy the pore spaces from us and provide the service of the CO2 sequestration or to just buy the pore space from us and provide the service from another location that this company may have. So that's the picture in terms of the CO2 sequestration. And yes, this is connected to the overall project, although if we decided not to go forward, of course, we still have this asset that is the pore space that we can try to monetize in the market. Jeffrey Zekauskas: And as for the Alberta project, because the cost overruns have been so high, why don't you simply stop the project? Or what impedes you from stopping it? And would that project have to be money losing on an EPS basis because the depreciation charges will just be so high from the cost overruns when it comes -- if it comes on? Eduardo Menezes: Yes, Jeff. This project, as I explained before, we have a long-term commitment for almost 50% of the volume with a major customer that depends on us. So we have a contractual commitment that we take very seriously. So we need to finish the project and supply the hydrogen to this customer. And we have some additional volume that we are working hard to find other ways to place in the market. As you probably know, we already have infrastructure in place in Edmonton. We have 2 other sites that are connected to a pipeline. And this third site will also be connected there. So we can move the product from these 3 sites to basically all the refineries that are located in that area. So that's the work we're doing with the additional volume, but our commitment to go forward is basically what we need to have in order to fulfill our contractual obligations. Operator: We will go next to David Begleiter with Deutsche Bank. David Begleiter: Eduardo, on the cost savings and the employee headcount, is the 20,000 headcount you're targeting a new base? Or could it go lower from there? Eduardo Menezes: Yes. This is what we are expecting to have at the end of this year. We continue to find ways to rationalize our workforce to make sure that we use all the technologies available. I think we demonstrate that we are reducing our SG&A year-by-year. And if I'm -- my recollection is correct, I think we said that our original number when we were in 2018 was close to 18,500 people. And our objective is to go back to that number plus the people that we absolutely need to operate some assets that we added since that date. So I would say that we still have some room to go, but it's an ongoing process to always optimize and make sure that you are as competitive as possible. David Begleiter: Very good. And just back on Louisiana. If you do move forward with that project with these offtaker partners you suggested, what would be the CapEx remaining to Air Products? Eduardo Menezes: Yes. We will provide that data, Dave, when we update the project. I think it's -- I hope everybody understands that what we are saying is trying to summarize that no offtake deals, no FID. So Air Products started this project without having an offtake deal. We paused the project. We're working hard to find solutions for that. The economics of the project, when you look at the natural gas price, the infrastructure that we have in place and the 45Q it is the right place to install green -- blue hydrogen and blue ammonia projects. I think both other ammonia producers and even our competitors that are doing similar projects in Texas and Louisiana saying exactly the same thing that you can be competitive even against gray ammonia in Europe. So we're working on that, trying to find a solution. I understand we are basically 45 days away from the end of the year. And if I really didn't think that we have a chance to have something, it would be much easier for me to say that today. But we still believe that we can find an interesting solution for this project, and we'll provide a full update before the end of this year. Operator: We'll go next to Duffy Fischer with Goldman Sachs. Patrick Fischer: Just want to get some insights into the growth into next year. So at the midpoint of your guide, you're up 8%, but there's a negative 4% from helium. So that's really 12%. Melissa called out one from the shutdown of the sale of the Chinese assets, which gets you to 11%. So of that 11% growth underlying, can you break that out kind of new projects, price, efficiencies, how you deliver that? And is that smooth throughout the year? Or are the oncoming projects back-end loaded? Eduardo Menezes: Yes. We expect contribution from new assets in -- both in Asia and the Americas. That can give us around 2%, 3% growth. And then the balance will come from price and productivity. I would say, half and half there. We are working very hard on the productivity side, as we mentioned on our headcount slide and on the pricing is a continuous work for us. The helium headwind that we have is very similar to what we had this year. I would say that when we say that this is the headwind for 2026 is basically agreements that we are reviewing and we're signing this year in 2025 or the previous year, now the fiscal year. Air Products, most of our volume comes from large liquid customers. As you know, our packaged gas business is basically limited to Europe. So we pretty much know where these agreements are going to be next year, and that's where they are at the fourth quarter of this year. So we're pretty comfortable that we understand well the headwind that we have in helium and in the base business, as I said, 3% of new assets and the balance coming from productivity and price. Patrick Fischer: Great. And I'm sure it's not your favorite subject, but helium was mentioned 29 times in your slide deck this quarter. What is your view on the helium industry going forward? Do you think we've stabilized at this point? So '26 will be the last year of headwind? Or do you think we continue to see headwinds in the '27 and '28 for that product? Eduardo Menezes: I didn't count the number of times, Duffy, but thank you for pointing that. Yes, it's -- we have a lot of debates on that. If we have a structural change in the market or just part of the cyclicality that you always had in helium, right? I would say that there were some significant changes in the way the market operates because of the disappearance of the BLM as a major source of helium globally and in the United States. And that took away a little bit of the inventory that you had that were able to regulate the market a little bit. I think most of the major players now, they are now installing their own storage. So we have our own cavern, our 2 competitors, they have their own caverns as well. So I hope that this will help regulate the market a little bit. And from what I see today, I see still some decline in '27, but not at the same level that we had this year. And the best guess that we have is that, that will be the lowest point and the market will stabilize. But we need to see how the sources develop and how the effect of this storage of helium will have in the overall marketplace. Operator: We'll go next to Patrick Cunningham with Citi. Patrick Cunningham: If you decide to forgo downstream investment in NEOM maybe based on unfavorable regulatory environment, whatever it may be, what do the commercial options look like? And would you expect to see any positive EPS contribution in 2027 under a scenario where you have to sell ammonia exclusively? Eduardo Menezes: Yes. We are still talking about the guidance for 2026, right? So we're going to work -- we are working on this issue. We're going to work during the year. And by the end of 2026, we'll be able to give you more guidance on that. Now, there is no question that in the beginning of this project, we'll need to commercialize the product as ammonia. The market for green and blue ammonia or low-carbon ammonia, whatever you want to call, it's developing. So I expect that we're going to have the ability to sell some of our production in the beginning of the operation as green, and that percentage will grow with time. What is exactly the numbers? As you know, ammonia, it's own market. It has different pricing dynamics. So we're going to need to wait a little bit more to give you a forecast for 2027. Patrick Cunningham: Understood. And then maybe just a quick one on equity affiliate income. We saw meaningful growth in the Americas this quarter. Can you provide some color on what was driving that and what we should sort of expect for step up or step down across all of the regions and equity income next year? Eduardo Menezes: Yes, I can ask Melissa to answer, but it's basically Mexico for us and they have been -- had a very strong second half of the year. Melissa Schaeffer: Yes. Thanks, Eduardo. So -- absolutely, so our Mexican joint venture did see improvements year-over-year. We do expect about a flat going into FY '26. However, we did see a slight decline in our Jazan joint venture in '25, and we actually look for that to be a pickup in '26. And obviously, interest rates do impact that. So as interest rates do decline, we will see improvement on the equity affiliate contributions from our Jazan joint venture. Operator: We'll go next to Josh Spector with UBS. Joshua Spector: Eduardo, I wanted to just ask you about the decision on Louisiana. I mean I think based on investor expectations, you might have had some license to maybe push out a decision there a little bit beyond year-end, but you're having the tax commitment to communicate something here in the next couple of months. So I'm just curious if you could talk about the range of scenarios there. Is that a go or no-go, meaning cancel decision? Or do you see a scenario where kind of some decision gets pushed out beyond the year-end time frame? Eduardo Menezes: Yes. I understand the curiosity, Josh. And I -- we would like to be able to communicate more at this point, but we really need to wait until the end of the year. Again, this -- I would say that if we are telling you that we believe that we have a reasonable chance to communicate something by the end of this year, it means that we have very advanced negotiations with counterparts on that, right? It is the largest project or would be the largest projects ever built or probably any other industrial gas company. So it's a very complex negotiation, and we have been working on that for several months now. I would say that from that perspective, it's going well. My main concern on this project really is on the capital estimate for the project. When you look at the slide, you can see a picture of coal box that we manufacture for this project. So we have all the major equipment done. We have all the engineering done, but we still need to do the construction. And the construction market in the United States is very hot at this point. A lot of competition from data centers and other people trying to build other structures and coming from different industries and able to pay different prices. I think this is affecting projects for the entire chemical industry. So we are looking at that very carefully, trying to understand what is real, what is not and what is a bubble with the point that if you look at our slides, you can see that we made a point about applying for a major air permit source -- air source permit there in Louisiana. And we did that because our potential counterparts asked us to have the flexibility of running the plant on a gray mold if something happens with the CO2 sequestration that we didn't expect to do or we still don't expect to do because the CO2 is a big contributor for the project. But -- it's something that the other projects are doing, and we decided to apply for that major permit. And that will take several months. It will probably take up to mid-2026. And from there, you need to do civil construction. So really, the peak of the mechanical and electrical construction would be like mid-2027. And the judgment that we need to make is how hot or not hot the U.S. construction market will be at that point. So that's where we have been working a lot of details behind that decision, and we will communicate clearly where we are in the project before the end of this year. Joshua Spector: Okay. And just a quick follow-up just with the guide for '26. Your comments are minimal volume growth to something to that extent. Just wonder if you could quantify minimal. Are we talking about near 0 growth. And basically, if we end up having a macro environment that looks like where we've been at the last couple of quarters, is that a risk to your guidance? Or is that largely baked in? Melissa Schaeffer: Yes, sure. Thanks for the question. So let's be clear. So again, as we stated, we do see several new assets coming on stream, both in the Americas and in Asia. Those will be ramping towards the back half of this fiscal year. So there is growth in volume associated to new assets. From a market volume perspective, we're not forecasting significant market growth at this time given the macroeconomic headwinds. However, if we see that improve, obviously, our results will improve. So definitely volume from new assets, but at this time, not forecasting significant market volume due to those headwinds. Operator: We will move next to Vincent Andrews with Morgan Stanley. Vincent Andrews: Just trying to reconcile the CapEx slide in this deck versus the one in the last one. It looks to us like your CapEx forecast for fiscal '26 has gone from about $3.1 billion to $4 billion. So first of all, is that correct? And secondarily, if it is, what's changed in that slide that's causing that? Melissa Schaeffer: Yes. Thanks, Vincent, for the question, and I'll take this one. So the CapEx guide that we gave in the second quarter, obviously was an estimate, right? So as we go through the year, we sit with all the regional presidents and really do a bottom-up forecast on the capital that we're going to spend over the next couple of years. So we've refined that -- we've adjusted based on new wins in all the different regions and are estimating around a $4 billion CapEx. Obviously, maintenance is a component of that CapEx. We're looking to improve on maintenance and take that down. So this could improve that CapEx number. But again, that's really a bottoms-up review that we do as part of our plan. So there was a small variance between the Q2 time frame CapEx forecast and what we're projecting right now. Vincent Andrews: Okay. And then just as a follow-up, separately in the corporate segment, which came in certainly better than what we had and I believe better than where consensus was. The slide -- and I apologize if you already spoke to this. The slide speaks to lower changes of sale of equipment project estimates. What does that mean? Melissa Schaeffer: Yes. Thank you. So we do have certain sales. It's a very small part of our business, but what we would call a sale of equipment. When we sell a project to a company that's not going to be a long-term sale of gas project. We have had some cost increases associated to certain projects that are sale of equipment that are again accounted on a percentage of completion accounting perspective. So as cost increases there, we show that in the P&L. We did have some smaller cost increases this year compared to last year, and that's really what you're seeing flow through there. Operator: We'll move next to Chris Parkinson with Wolfe Research. Christopher Parkinson: So let's talk about your base business a little bit, particularly electronics. Can you just go over kind of how we should be thinking about the intermediate to long-term growth algorithm that you have in your portfolio and how that exposure evolves with [ M.2 HBM ] growth and everything else. I'd love to hear your thoughts on that as well as where you think Air Products just broadly stands relative to peers in terms of what's embedded in, let's say, your non-large project outlook as it relates to your backlog? Eduardo Menezes: Thank you, Chris. Yes, electronics represents roughly 17% of our total sales in Air Products. It's a very important segment for us. We were really the pioneers in the area, initially with Intel, now with the other players. It's a market that is expanding very quickly. We have plants that we are commissioning right now. We have investments on other plants in Asia that we're doing, and we are in the process of participating bids for several others, right? As you know, the investment in this area has been very, very strong. So it's probably the brightest area we have for our traditional business, and it's an area that we have been focused a lot. I really -- on your point on the other products, I really would like to get a little more clarification exactly what you're asking other than the portfolio of new projects. Christopher Parkinson: Are you happy with where your existing electronics backlog exists relative to peers, given everybody has been wrong over the last few years? Or is that something you'd like to focus on as CEO? Eduardo Menezes: Yes. No, no. I will never be happy with that because I always want to have more than that. We're working very hard to get some new opportunities. We believe that there are some new projects that we will be able to announce in 2026. And I -- but I still believe that we have a very, very strong position in this market. And I have no other way to make comparisons with our competitors. I think our position on that market is stronger than it is in most markets. Melissa Schaeffer: And if I could add one point. So one of the assets that we spoke about is coming on stream this year is in the electronic space in Taiwan. So that's the starting of the ramp of that project. So that's one good example. But in the near term, where we're going to see improvements in the electronics space for Air Products. Eduardo Menezes: Yes. And the reality is in these places, it's like a continuous project because they have so many expansions and we are always building new plants in Asia, and hopefully, we will be able to move that to other regions as well as these customers, they start to invest outside of Asia. Christopher Parkinson: Got it. And just as a quick follow-up. To the extent that you can, can you talk about just kind of how we should be thinking about the run rates from Uzbekistan as well as like GCA and some of these other projects which have had some maintenance or kind of been more start and go. Could you just perhaps just give us a little framework on how we should be thinking about those as well. Eduardo Menezes: Yes. Uzbekistan is a very large syngas facility. It's operating well. We had a maintenance this year, but it was scheduled maintenance, this kind of plants you have to do that every few years. So no real issues there and the plant is running at very high rates at this point. And GCA is a project that we are still working on to basically bring to completion, and it's one of the projects that we expect to contribute this year in 2026. Operator: We'll go next to John Roberts with Mizuho Securities. John Ezekiel Roberts: Are you still anticipating doing ammonia cracking in Europe and building an ammonia cracker there? Eduardo Menezes: We are still waiting to see what the final regulation will be in Europe. As you know, they have this regulation to convert 1% of the fuels to RFNBO. This is for 2030 now. This has to be transposed by each country. There is other regulations that are probably not going to move. But this one, everything indicates that what you see in most countries, they are even proposing higher percentage than that. So I think Spain is 4%, Germany 1.5%. But all this has to be ratified and the expectation now is that we'll see this transposition of the regulations by March of 2026. So when the regulation comes out, then we're going to understand the size of the market with the best information we have today, it's not a huge percentage of the fuels. But when you think about green hydrogen volumes that are really, really small, that will generate a market. I think in our slides, we said that if the number is 1% is like 7x the volume of NEOM. At the current regulation levels that we see, that number is more like 20x. Again, these volumes, they can be supplied by local production using electrolyzers with renewable power or they can be supplied by cracking ammonia coming from a place like Saudi Arabia. So it's really a way to do some arbitrage on power prices and so forth. So we need to see how these ends. We need to see how the market develops and what opportunities we have. If the project makes sense, again, and if we have an offtake agreement, then we can do an FID and move forward with these projects. If not, will need to go in a different direction. But at this point, indications are that there will be a market, not a huge market, but very significant compared to the existing volumes in terms of green hydrogen and green ammonia. Operator: We'll go next to Laurence Alexander with Jefferies. Laurence Alexander: Earlier this year, when you put out the target of 6% to 9% growth through '29, what was your assumption around NEOM? Was it your predecessors' framework of realized prices will be roughly double the market price? Was it just a placeholder, 10% IRR? Was it -- can you give us some sense of what was embedded in that framework from the NEOM asset. Eduardo Menezes: No, we didn't add any kind of very large contribution from NEOM. At this point, we have the contribution from the JV point of view. The contribution from the product that we'll need to sell from there is something that, as I said before, we need to continue to work on to get a better understanding of what the numbers will be. But on our guidance for that high single digits between now and the '29, we count with a minimum contribution from that project. Operator: We'll go next to Matthew DeYoe with Bank of America. Matthew DeYoe: Two questions for you. I apologize, the first one is going to be a little long. So if I look at your performance versus Linde, Europe really shows the biggest opportunity for improvement. And notably, I think price there has kind of underperformed materially if you go back or look even to COVID or pre-COVID. I know helium is probably in there, but I think fundamentally, when electricity prices rolled over in '22 and '23, it looks like Air Products just like handed price back to customers and Linde didn't. And so net, you have a pretty wide margin differential between the two. I mean when -- do you kind of agree with that view, but is there an opportunity to catch up on the price differential? Or is raising price unilaterally like too difficult? And then, as my second, is there a world where you can just like monetize the $2 billion so cost in Darrow to another company that's looking to do a project along the Gulf Coast that might have maybe different strategic goals from Air Products. So I don't know, maybe you can get like 50% of that, right? Is there a way we can walk away with $1 billion and just say that's better than just a full project walk? Eduardo Menezes: Yes. On the -- we starting with the last question first, yes, absolutely. As I said, we have a lot of the critical equipment done for the project. the project has good economics. So that's definitely what would happen if we decide to cancel. We would try to monetize as much as we can. And I don't think your estimate of 50% is a bad estimate at this point. But again, this is something that you need to go and understand and see how much you can recover from that. On your first question, and I've seen your report on the prices in Europe and I think we're still trying to understand exactly the comparisons there because when you do comparisons quarter-by-quarter, not in an average for the year, you get to different results. And I think we can talk offline and explain a little bit of that to you. But when you look at performance in Europe. Yes, I understand our competitor improved a lot of their performance. I have a personal understanding for what exactly happened there. You always need to understand that Europe is -- it's easy to talk about as one market, but there are several different markets in Europe. It's easy to see that when you think about an island like the U.K. But the reality is, when you talk about industrial gases, Iberia is an Ireland, Italy is an island. And really the only large common market we have in Europe is the space between France and the Benelux in Germany. Eastern Europe also doesn't have the same geographical barriers, but the density also leads to the point that you have several different markets here. So when you think about that, and you forgot about Scandinavia, it's also a separate market. If you look at the positions that we have and the positions that our competitors have, the margins are little -- you can understand a little bit the differences in margin. I'd not say that we cannot improve our business in Europe. We're working to do that, to make it better on every line of business that we have. But I think the difference in performance is a little smaller than what you are -- you were calculating there just because of the positions that we may have or not in places like Scandinavia or Eastern Europe. But -- so that's the point I can guarantee you we're not giving -- we're not giving price back and we're working on our pricing day by day in Europe. And I look forward to have our group here reaching to you and talk about the difference on how you calculate that when you look at quarter results and annual cumulative results on pricing. Operator: We'll move next Arun Viswanathan with RBC Capital Markets. Arun Viswanathan: Just a clarification on the helium headwind. So I think maybe this year came in just slightly below your expectations. I think you're guiding at $0.55 to $0.60, maybe that's $0.49, so maybe that was a little bit better. Maybe you can just clarify that. And then on the helium headwind for next year, it looks like Q1 is maybe a negative 6%, but then the full year is negative 4%. So that appears to be projected to get better as you move through the year. What's your confidence in that, I guess? And is there a possibility that it could get worse? And then for my second question, just on CapEx, is there a possibility that maybe -- what kind of flex do you have there? Would you go down to maybe $3.5 billion if necessary for fiscal '26? And how soon you make those decisions? What kind of freedom are you giving yourselves to or time to make some more difficult decisions, I guess, if you need to? Melissa Schaeffer: Great. Thanks. I'll take this question. So let's start on helium. So you are right. We had forecasted between $0.50 and $0.55 headwind on helium for the full year. We came in at $0.49. So a little bit better than we had forecasted, but not significantly off. For FY '26, we're looking about the same run rate as what we saw in FY '25. Obviously, there are areas that we're going to continue to look to be able to push volume and price, but this is a difficult market. One of the things that I do want to remind everybody is that in Q1 last -- or this year, we had a bulk helium sale that we disclosed. That is causing a significant headwind as we lead into FY '26. So that is the difference in Q1 that you're seeing as a year-on-year comp that is giving us a little bit of a tough headwind. But again, full year, about 4% is what we're forecasting, 4% headwind coming into FY '26. Now on CapEx. So for CapEx, it's really a component of execution against our projects, right? So as long as we're continuing to execute against the projects that we have in our backlog, we will see that $3.5 billion to $4 billion. That is not something that would significantly change or that we need to make a decision on. Now as for Darrow, we obviously have commitments on purchase orders that were continuing to progress, but no new commitments are being made. So I don't see a significant variance or decision point that would change the FY '26 CapEx forecast. So between $3.5 billion and $4 billion is a number that I am pretty confident on. Operator: We'll go next to Kevin McCarthy with Vertical Research Partners. Kevin McCarthy: Can you elaborate on the decision to sell to coal gasification projects in Asia curious about what exactly you're divesting, whether you have any firm deals in hand today? If so, cash proceeds and any impact on your sales in Asia? Eduardo Menezes: Yes, Kevin. We -- as we explained, I think, 2 quarters ago, we have 3 major coal gasification in China -- projects in China where we own and operate the coal gasification part of the project. We have several others that we have the oxygen plant, but that's a different story. Out of these 3 projects, Lu'An is the largest one, and we have absolutely no issues with this project. It's operating. It's probably one of the largest coal gasification sites in the world, and this is continuing normally. We have 2 other sites that -- those are the sites we're taking actions that we have no operating issues, but we have customer issues. And we have been trying to work these issues for some time. These projects really -- they have been a drag for us in terms of operating profit. We have been booking only the sales that they have been able to pay. So the impact on sales is not exactly very large for us. And we decided to -- after several months of negotiation we decided to set these assets aside for sale. And we are in the middle of that process. I cannot give you specific data and value of when we can close this sale and the amount of money that we're going to be able to collect. But of course, we're trying to maximize the valuation. And we believe that the entire asset may have a better owner than us and the current owner of the syngas to methanol to olefins plant. So we hope that we'll be able to find that and monetize this asset better than what we would have if we keep running these plants. Kevin McCarthy: Eduardo. My second question is a bit of an unusual one. Would you comment on the market for rare gases, like crypton, xenon, neon, are you seeing any escalation of competitive intensity in Asia? And if so, is it meaningful? Or is it simply too small to matter given the small size of those markets. Eduardo Menezes: Yes. Air Products, unfortunately, is not a big player in this market, traditionally. So it's not something that we focus a lot. We have seen some degradation in pricing and increasing in the competition level from other players. But really, it's not something that affects us that much. So I don't think I would be the right person to give you a feedback on that. Operator: We will take our final question from Mike Sison with Wells Fargo. Michael Sison: One quick one on Louisiana. If you get to partners for sequestration pneumonia who want a similar return that you would want, is there still a good return on the hydrogen that you would do longer term? I suspect that -- that's kind of what the board of partner is looking for. So maybe just flesh that out as a scenario. Eduardo Menezes: Every -- we are looking at this, Mike, as a normal hydrogen project for us. So we have our criteria. The customer has its own criteria. And it needs to work for both sides for the product to move forward. That is all I can tell you. If it doesn't work for them, it's not going to work for us. And I believe there is a room today to get to the right returns. As I said, to get the right returns, you need to have a commercial negotiation on pricing, but we also need to have a firm estimate on the capital cost, and that's also part of the equation here. Operator: And that will conclude the Q&A portion of today's call. I would now like to turn the call back to Eduardo Menezes for any additional or closing remarks. Eduardo Menezes: I would like to thank everyone again for joining our call today. We appreciate your interest in Air Products, and we look forward to discuss our results with you in the next few quarters. Thank you, and have a great day. Bye. Operator: Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.
Todd Seyfert: Good morning, and welcome Sturm, Ruger & Company's Third Quarter 2025 Earnings Conference Call. I'm Todd Seyfert, President and Chief Executive Officer. Before we get started, I would like to turn it over to Sarah Colbert, our Senior Vice President and General Counsel, for the caution on forward-looking statements. Sarah Colbert: I would like to remind everyone that some of the statements we make today will be forward-looking in nature. These statements reflect our current expectations, but actual results could differ materially due to a number of uncertainties and risks. You can find more information about these factors in our most recent Form 10-K and other filings with the SEC. We do not undertake any obligation to update these forward-looking statements. Todd Seyfert: Thanks, Sarah. This quarter's results reflect both the realities of a challenging market and the early progress we're making as we continue to execute the strategic plan we began earlier this year. The broader market continues to face headwinds from tariff and interest rate uncertainty, inflationary pressures and a softening job market, all of which are affecting discretionary consumer spending and manufacturing costs. The firearms market is experiencing similar pressures. The overall market trending down 10% to 15% this year, while NICS checks, often used as a proxy for the market, down roughly 4% year-to-date versus 2024. Additionally, the market continues to be influenced by the availability of used firearms at retail. Despite these challenges, I am pleased with our top line performance for the quarter where we achieved year-over-year sales growth. As we continue to make progress on our strategic plan, we are actively focused on key operational initiatives and innovation activities. As top line performance trends upward, these disciplined actions are critical to accelerating return to sustained profitability and enhancing long-term success. Now Tom Dineen, our Chief Financial Officer, will take us through the financial results for the quarter. Thomas Dineen: Thanks, Todd. Net sales for the quarter were $126.8 million and diluted earnings were $0.10 per share. For the corresponding period in 2024, net sales were $122.3 million and diluted earnings were $0.28 per share. On a pretax basis, the company lost $2.1 million in the third quarter of 2025, driven by $1.9 million of acquisition and operating costs at the new Hebron, Kentucky facility that was acquired in July, increased costs associated with material and technology and increased sales promotional expenses. During the third quarter of 2025, we revised our estimated annual effective income tax rate for 2025, and recognized a $3 million increase to our year-to-date income tax benefit. This increased third quarter net income by $0.19 per share. Without this increase, our EPS would have been a loss of $0.09 per share. For the 9 months ended September 27, 2025, net sales were $395 million, and the company lost $0.48 per share. For the corresponding period in 2024, net sales were $389.9 million and diluted earnings were $1.15 per share. In the second quarter of 2025, the company rationalized and price repositioned several product lines, reduced the number of models offered and implemented an organizational realignment, which adversely impacted the results of operations for the 9 months ended September 27, 2025. On an adjusted basis, excluding the impact of these nonrecurring expenses, diluted earnings for the 9 months ended September 27, 2025, were $0.65 per share. On an adjusted basis, excluding the reduction in force expense of $1.5 million incurred in the first quarter of 2024, diluted earnings per share for the 9 months ended September 28, 2024, were $1.22. On September 27, 2025, our cash and short-term investments totaled $81 million. Our short-term investments are invested in United States treasury bills and in a money market fund that invests exclusively in United States treasury instruments, which mature within 1 year. On September 27, 2025, our current ratio was 3.5:1, and we had no debt. In the third quarter, we generated $13 million of cash from operations. In the first 9 months, we generated $39 million of cash. Year-to-date, capital expenditures totaled $28 million, including $15 million for the Anderson acquisition in Hebron, Kentucky. The company expects capital expenditures to total $35 million for the year for continued investments in new product introductions, expanded capacity for product lines in greatest demand, upgraded manufacturing capabilities and strengthened facility infrastructure. For the third quarter, we returned $13 million to our shareholders through the payment of $3 million of quarterly dividends and $10 million through the repurchase of 288,000 shares of our common stock at an average cost of $34.33 per share. In the first 9 months of 2025, we returned $36 million to our shareholders through the payment of $10 million of quarterly dividends and $26 million through the repurchase of 731,000 shares of our common stock at an average cost of $35.60 per share. The company also announced that its Board of Directors declared a dividend of $0.04 per share for the third quarter for stockholders of record as of November 17, 2025, payable on November 28, 2025. This dividend is approximately 40% of net income. Now back to you, Todd. Todd Seyfert: Thanks, Tom. When I stepped into the CEO role earlier this year, we began a comprehensive assessment of our operations and a full review of our product portfolio. Those activities continued into the third quarter where we realized top line growth from many of the actions taken in the second quarter while identifying additional opportunities to strengthen our foundation moving forward. Operationally, we are executing several key initiatives designed to improve efficiency and profitability across the organization. This quarter, we advanced into the next phase of that work with a rigorous evaluation of product line performance, conducting detailed line-by-line reviews of our portfolio and assessing profitability facility by facility to ensure our resources are deployed where they create the greatest value. This includes realigning our manufacturing footprint to maximize efficiency and reduce costs by balancing production lines across facilities to improve delivery and resource utilization. At the same time, we continue our product line analysis and rationalization to ensure that every product earns its place in our lineup and every facility operates efficiently and accountably. A great example of this is our newest facility in Hebron, Kentucky, which we acquired in July of this year. Following our product line review, we identified the need for additional capacity to support our modern sporting rifle category. We purchased Anderson to provide that capacity, which in turn freed up capacity in Maiden for one of our most in-demand products, the second-generation Ruger American Rifle. With the additional resources in Hebron, we are actively working to in-source components that were previously purchased, a move that will improve our cost structure, shorten lead times and give us greater control over quality and delivery. Additionally, product innovation continues to be the most important factor in remaining successful in a tough economic market. As I've said before, our greatest opportunities lie in delivering new relevant products that resonate with consumers and position us for sustained growth. For the quarter, new product sales accounted for $41 million or 34% of net firearms sales, which reinforces the popularity of our innovative products. As always, new product sales include only major new products that were introduced in the past 2 years. These are high-demand platforms that continue to resonate with customers across a variety of segments, including the award-winning RXM pistol, a modular polymer-frame striker-fired pistol developed in collaboration with Magpul. The second-generation Ruger American Rifle, an update to the American-made rifle that has been the benchmark for accuracy, durability and performance in bolt-action rifles for over a decade. Marlin lever-action rifles, which remain a staple for collectors, hunters and traditional enthusiasts. The Ruger 10/22 with carbon fiber barrel, a lightweight model featuring a stainless steel tensioned barrel with a carbon fiber sleeve. And the fourth-generation Ruger Precision Rifle, refined through years of feedback from competitive shooters. With that said, our pipeline remains strong and demand for new products continues throughout the channel. In Q3, we made meaningful progress to position ourselves for success in the future. Already in October, we have reintroduced Glenfield Firearms, an iconic value brand that offers hunters of all experience levels with a no nonsense American-made rifle; expanded the second-generation Ruger American Rifle line with the Prairie and Patrol models, the first Ruger American Rifles featuring a heavy barrel; and broadened Marlin caliber offerings with the launch of the first-ever 10-millimeter lever-action rifle in the market. These launches build on our most successful product families, and we're just getting started. Looking ahead, the coming months will bring even greater opportunity, including building out the popular RXM pistol family with new grip frames, sizes, accessories and configurations; launching a new line of modern sporting rifles manufactured in our Hebron facility; and bringing back the classic Ruger Red Label shotgun, making us once again a full-line manufacturer of firearms. As you can see, Ruger is well positioned for continued success. We remain focused on building a stronger, more agile company, one that consistently delivers value to our customers, employees and shareholders. I'm encouraged by the progress we've made and excited about what's ahead. With that said, we continue to take a disciplined and thoughtful approach to capital allocation, ensuring that every dollar deployed serves a clear strategic purpose and creates long-term shareholder value. Our priorities remain unchanged: maintain a strong debt-free balance sheet, invest in core product innovation and operational efficiency and return capital to shareholders responsibly. This disciplined capital approach ensures the company has the flexibility to invest when opportunities arise while continuing to reward shareholders over time. Ruger's future success will be measured by improved returns for our shareholders, and we are taking the right steps to get there, building a company designed for long-term strength rather than short-term reactions. Thank you for your time, continued support and confidence in Ruger. Operator, can we please have the first question? Operator: [Operator Instructions] Our first question comes from the line of Mark Smith with Lake Street. Mark Smith: I wanted to ask first just about gross profit margin and what was kind of putting downward pressure on gross profit margin here in the quarter, if it was a mix issue or if there's still some of the transformation things that are putting some pressure on gross profit margin this quarter. Todd Seyfert: Before I answer that, just apologies. It sounds like we had some technical difficulties with the video this morning, which we encourage you to go to the website. It will be posted after the call today. But there's a lot of good content there. So again, apologies for the issues for those of you that couldn't access it or see it this morning. So with that, Mark, in terms of margins, really, it's a combination of things. I would tell you, it's not a lot of the things that we saw in Q2. It's more about some of the volumes. And really, the biggest thing I would say is the Hebron, Kentucky, the work that we're doing there to get that facility up and ready for production. And so we had about $1.4 million of costs associated with that facility without any revenue coming out of it. And so that's really the driver. We continue to go through our product line rationalization and our SKU consolidation, but you're not seeing a lot of that in the quarter. Mark Smith: Okay. And I did want to ask about Hebron on just kind of an update on where you're at in getting that facility up and running and production in that facility. Todd Seyfert: Absolutely. We're making great progress, Mark. Our goal was to be in production with firearms by year-end, and we're on pace for that target still. Mark Smith: Okay. Perfect. And then can you just talk a little bit about mix and price. As we think about -- it looks like sales price on orders received was down a decent amount as well as some of the items that were shipped, but very good production and units shipped. But I'm curious just kind of where your mix came in if RXM had maybe higher mix at a lower-priced item. And then I'd love to hear your thoughts on -- as we think about the new line coming out here of Glenfield and kind of your thoughts around mix and price and how that fits within the strategy. Todd Seyfert: Absolutely. So I think really the way to think about it in the quarter, Mark, was heavy LCP orders and shipments. We did do a program. And so that was a thoughtful program in terms of the quarter. And so that's really the driver within the quarter. When we talk about the Glenfield expansion, that's actually an opportunity for us in terms of the facility in Newport. What we did there, Mark, is, as you know, that the original American Generation -- American Gen I Rifle was produced in that facility. It's been produced for over a decade, fantastic entrance for Ruger into the bolt-action marketplace, affordable quality, value. As we pivoted to the Gen II Rifle, obviously, there was some confusion in the market, why are you still producing both. So a decision was made. Listen, when we bought Marlin, we acquired the assets and the trademarks for Glenfield. So what we did is we said, listen, we've got this opportunity, we've got this capacity. Let's go ahead and figure out how we enter at a new price point where Ruger hasn't played, round out the product offering, good, better, best, and that's where we came out with the Glenfield. And so that will be produced on upgraded machinery and equipment on the Gen I line, we're in production as we speak. And I will tell you that the acceptance in the marketplace has been fantastic. Mark Smith: Perfect. And I think the last one for me. Just curious about kind of steel and other input prices, where they're at and any pressure on margins that we maybe have seen from rising input prices? Todd Seyfert: Yes. I would say fairly flat. The good news is, is we had some -- we bought ahead in terms of supply, in terms of how much we had on hand, Mark, with some of the uncertainty. So that helped us a little bit. There is some noise around aluminum right now. Obviously, with the continued tariff uncertainty, we're positioning ourselves to be reactive to whatever is happening. And as you know, following this, it seems to be either by the day or by the week, we're seeing new information. And so we track it very closely, but not a significant amount of pressure on our costs to date. Operator: And our next question comes from the line of Rommel Dionisio with Aegis Capital. Rommel Dionisio: Two questions. One, if I could just follow up to Mark's question on the Glenfield line. How do you guys think about the positioning of that brand and that product line going forward to not cannibalize existing sales of like Marlin or the other products that you have in place? Is it more just a pricing issue? Or is there kind of a different demographic you're targeting with that new product line, or sorry, revamped or rejuvenated product line for Glenfield that's got a heritage brand there. And the second would be on the Patrol line you just announced. I wonder if you -- is that towards law enforcement? I wonder if you could just give us some granularity on the type of consumer you're targeting with those two products? Todd Seyfert: Sure. Absolutely. So back to Glenfield first, Rommel, really, the whole idea around Glenfield was as we stratify our product line, we have the Marlin at the top of the pyramid, we have Ruger in the middle, and we didn't really have kind of the "opening price point." And so that is where Glenfield will play. It will be kind of the first gun. It will be the value to get into the Ruger brand and the Ruger company. And so our thought there was, again, we didn't have products at that price point. And so we created a variant of the Gen I with improved features and benefits at a price point that the Gen II does not play at. And so really focusing on attracting a new segment of the market, that's where we're focused on. And we're not cannibalizing anything because we don't have anything else near that price point. And so to us, this is kind of greenfield new opportunity, white space in the market. When it comes to the Patrol rifle, that's really a name. It's really not law enforcement focus, Rommel. It's really a variant of the incredibly successful Gen II. We've never had a heavy barrel version of the Gen I or Gen II to date. And so this really opens up that product line into categories in the marketplace that we have not gone to yet in terms of the Gen II rifle. So it's really a new variant, not focused on law enforcement, really focused on kind of that Western hunting general all around consumer, if you will. Operator: Our next question comes from the line of James Kostell with Cuyahoga Capital. James Kostell: Sorry, we had a little technical problem there. Yes, two unrelated issues. Firstly, 1976 was the 200th anniversary of the Declaration of Independence. Next year will be the 250th. And '76, Ruger imprinted on the barrels made in the 200th year of Liberty. And will you be doing something, a similar promotion for next year? And it's my perception when I go to sporting goods stores that in the aftermarket, firearms with that imprint on them trade at a premium. And do you agree with that? Furthermore, if you're going to be doing a promotion of this sort and you compare it to what happened in 1976 versus 1975, can you give us an idea of what sort of increase in unit volume you saw back then and perhaps may see next year? Todd Seyfert: Well, first off, thanks for remembering what we did, and we're excited about it. So we're in the process right now evaluating what is possible across the product families. As you know, technology has changed, our volumes increased. And so we got to be thoughtful about how we would imprint and what lines. And so we're going through that analysis. There will be something. We're just not exactly sure which and how many. And then in terms of the premium that we see in the marketplace, we have seen when Ruger does special make ups or special builds that it does create a premium in the marketplace, and we believe that helps build the brand over time. And so we're very happy and very excited when we can do these things because it does give that consumer, that Ruger consumer that's used to these special types of firearms and other options to come in and buy another Ruger. So we're excited about that very much. In terms of kind of the other, the last question. It's a little bit more about -- we have to be a little bit careful about forward-looking statements and what we can and can't say. But I will tell you, again, we're very excited about next year. We're excited about the opportunity for the country and the brand and how we bring those two things together. James Kostell: Can you help me with what unit volumes did in 1976 versus '75 and kind of what happened there? Todd Seyfert: Gee, I can't off the top of my head to be honestly. I wish I anticipated this question and I could have helped you out. But I don't have those numbers at my fingertips. James Kostell: Okay. Second unrelated issue. You're going to reintroduce the Red Label. Do you -- I mean, is that somehow related to your new large shareholder, which is sort of the elephant in the room? Todd Seyfert: No, actually. It really is, for us, upon my arrival, we have really talked about the product families and where Ruger is and where Ruger wants to go. And it was really important to all of us in the company to become, once again, a full-line firearms manufacturer. And the one area that we were missing was the shotgun market. And so really, it's our way back to being the only full-line manufacturer of firearms, and that was the impetus for the reintroduction, as well as I'm a big shotgunner and I'm excited about it as well personally, so. James Kostell: Well, I mean, looking at it across the industry, SKB as an example, and Mossberg both import their target guns, I think, mostly from Turkey. I mean do you -- would you have a problem with somebody else manufacturing the gun and you're selling it under the Ruger name? Todd Seyfert: No, we wouldn't. Ours are U.S. made. So that's I think the differentiator for us and what Ruger is trying to do is we stand behind, we're very proud that we're a U.S. manufacturer of firearms and we'll continue to be that. Obviously, if an opportunity came up, it's something -- obviously, if it makes sense for the business and it makes sense for our shareholders, we would look at it. But our focus right now is building guns here in the U.S. James Kostell: So you think the Beretta interest had nothing to do with the Red Label? Todd Seyfert: That was -- these things happened way, way before the Beretta investment in Ruger. So this was on our road map. This is something that the company had been working toward, and we're at the point now where we're ready for it to launch, and we're ready to have guns, which we are launching here shortly. so. James Kostell: Would you have any update on the Beretta situation that you'd like to share with us? Todd Seyfert: I mean I think the answer is, listen, we appreciate their investment and confidence in our company. We reported in our press release last month that we issued a shareholder rights plan to kind of preserve the status quo, what we try to engage. And we're happy to engage with anybody that wants to have a conversation. And so we're a public company. We're always for sale, and we look forward to engaging with them when they're right. Operator: I'm showing no further questions. So with that, I'll hand the call back over to President and CEO, Todd Seyfert, for any closing remarks. Todd Seyfert: Thanks, everyone. We appreciate your attention. Again, apologies on the video. Please go to the website. The team did a great job putting that video together, a lot of good content. We appreciate your investment in Ruger and your trust, and we look forward to speaking to you next quarter.
Operator: Good afternoon. Welcome to the Amprius Technologies Third Quarter 2025 Earnings Conference Call. Joining us for today's presentation are the company's CEO, Dr. Kang Sun; President, Tom Stepien; and CFO, Ricardo Rodriguez. [Operator Instructions] Please note that this presentation contains forward-looking statements, including, but not limited to, statements regarding our financial and business performance, our business strategy, future product development or commercialization, new customer adoption and new applications, our growth and the growth of the markets in which we operate and the timing and ability of Amprius to expand its manufacturing capacity, scale its business and achieve a sustainable cost structure. These statements involve known and unknown risks, uncertainties and other important factors that may cause Amprius' results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied in such forward-looking statements. For a more complete discussion of these risks and uncertainties, please refer to Amprius' filings with the Securities and Exchange Commission. This presentation includes a non-GAAP financial measure, which is adjusted EBITDA. This non-GAAP financial measure does not replace the presentation of Amprius' GAAP financial results and should only be used as a supplement to, not as a substitute for Amprius' financial results presented in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies. A reconciliation of adjusted EBITDA to net loss, the most directly comparable GAAP financial measure is included in our shareholder letter, a copy of which is filed with the SEC and posted on our website. Finally, I would like to remind everyone that this conference call is being webcasted, and a recording will be made available for replay on the company's Investor Relations website at ir.amprius.com. In addition to the webcast, the company has posted a shareholder letter that accompanies these results, which can also be found on the Investor Relations website. I will now turn the call over to Amprius Technologies CEO, Dr. Kang Sun, for his comments. Sir, please proceed. Kang Sun: Welcome, everyone, and thank you for joining us this afternoon. On today's call, I will begin with a brief company overview. After that, our President, Thomas Stepien, will recap our third quarter performance and the key accomplishments. Next, our CFO, Ricardo Rodriguez, will discuss our financial results for the period. I will share some closing remarks before opening the call for questions. Let's begin. Amprius is a pioneer and leader in silicon anode battery space with over a decade of development experience and a proven track record of commercial success. At Amprius, we develop, manufacture and market high energy density and high-power density silicon anode batteries with applications across all segments of electrical mobility, including the aviation and light electric vehicle industries. Today, Amprius has the most complete commercially available portfolio of silicon anode materials system in the industry and commands performance leadership with its combination of battery energy density, power density, charging time, operating temperature range and safety. Across our battery portfolio, we believe we offer unmatched performance among the commercially available batteries. Amprius has been delivering commercial batteries to the market with up to 450 watt hour per kilo and 1,150 watt hour per liter, 10C power capability and extreme fast charge rate of 0 to 80% ste of charge in approximately 6 minutes, the ability to operate in a wide temperature range of minus 30 degree up to 55 degrees Celsius and safety design features that enable us to pass the United States military benchmark nail penetration test. Each of these performance parameters is critically important to real-world electric mobility applications. Not only do our batteries empower certain drones, satellites and vehicles to maximize performance, we also enable our customers to achieve their economic targets as well. In addition, Amprius has developed a 500-watt hour per kilo and 1,300-watt hour per liter battery platform that has been validated by an independent third party. It's our belief that there are no other commercial batteries on the market that can perform at this level today. In the third quarter, we continued to execute against our strategy of developing leading battery performance, converting that innovation into customer wins and scaling our manufacturing through a capital-efficient contract manufacturing model. With that, I will now turn the call over to our President, Tom Stepien detail the highlights of our record quarter, Tom. Thomas Stepien: Thank you, Kang. Amprius finds itself at a very fortunate point in time at the intersection of a fast-growing electric aerospace market with an industry-leading set of battery products. This advantaged situation, coupled with strong execution by our team, allowed us to achieve record revenue in the third quarter. We attracted new customers, continue to optimize our operations and release compelling new products. Let's start with updates on our commercialization strategy and share execution details. In the third quarter, we shipped batteries to 159 end customers, 80 of whom are new to the Amprius' platform. The remaining 79 are repeat customers. Now to be clear, we don't ship to every customer in every quarter. We do expect to gain new customers every quarter, albeit not always 80 new ones, but we expect to gain new customers nevertheless. Since the first quarter of 2023, Amprius has built relationships with hundreds of companies and ship batteries to a total of 444 end customers. This strong and expanding customer traction comes from the superior performance of our batteries compared to traditional cells. As we continue to move new customers through the qualification process, you're also seeing that we have plenty of room for expansion orders within our existing agreements. In the third quarter, our revenue totaled $21.4 million, a 42% increase from the second quarter and up 173% from Q3 2024 a year ago. Our second-generation SiCore batteries led the revenue charge in Q3 with a greater than 4x increase in shipments compared to Q3 2024. SiCore is a proprietary silicon anode that uses standard lithium-ion processing equipment. In August, I visited a couple of our contract manufacturing partners. At one, they were making conventional graphite cells in the morning and in the afternoon, they were producing our SiCore silicon cells. Same line same equipment. SiCore standardization helped us enable a second consecutive quarter of positive gross margin. Ricardo will provide more context here when he reviews our financial highlights next. Looking at our customer base, about 75% of our revenue in the quarter came from the aviation segment, led by unmanned aerial systems, or UAS, market. Remainder of our Q3 revenue was primarily derived from the light electric vehicle sector, which remains healthy but has a lumpier profile due to the customer's variant product introduction cycles. The LEV market tends to have short design in cycles, and we believe our drop in replacement batteries can help us succeed in gaining market share in this growing market. From a geography standpoint, 75% of our revenue came from outside the United States on a ship-to basis. Our strong customer diversification supports steady growth even amid uncertainty driven by U.S. tariffs and customer delays related to the U.S. government shutdown. One of our major wins this quarter was a $35 million purchase order from a leading UAS manufacturer, which we announced in September. This order is a follow-on purchase from the same customer that placed a $15 million order earlier this year. While we continue to grow our customer base across geographies, applications and budgets these kinds of large repeat orders underscore the built-in growth engine that we have within our growing customer base. It also highlights a proven performance at scale of our batteries. During the quarter, we also deepened our relationship with another key customer AeroVironment. As a part of the U.S. Army's xTech Prime program we shipped samples of our ultra-high energy cells for evaluation in a variety of applications. These cells reach up to 520-watt hours per kilogram and vastly improved endurance, payload capacity and mission economics for high-altitude platforms. Another key Amprius partner in the drone segment is Nordic Wing in Denmark. In Q3, they chose our SiCore cells to power their UAV platform after an extensive qualification and evaluation period. Their Astero ISR is a fixed-wing craft with a wing span of about 2.3 meters. In its standard configuration, it weighs around 4.5 kilograms. ISR is an acronym for Intelligence, Surveillance and Reconnaissance. In drone speak, intelligence is the collection, processing and analysis of information to support decision-making. For example, drone cameras will see the beginnings of the forest fire and the built-in smart analytics will make a decision to send a dispatch signal to the appropriate firefighting equipment. Surveillance is the systematic observation of an area, person or activity over time, continuous monitoring of a border or a convoy route, for example. Reconnaissance is a specific mission-focused gathering of information, usually short term and targeted. Is the fire really extinguished? The Astero ISR with the Amprius SiCore batteries flies 90% longer than with standard cells, 90% improvement, almost twice the flight time. Astero stays airborne longer, covers more ground and delivers real-time intelligence without interruptions. This enhanced endurance doesn't just improve performance. We believe it redefines what's possible in every mission and can mean the difference between success and failure. Looking a bit further out, we continue to make inroads in our relationship with Amazon. After being selected for the inaugural Amazon Device Climate Tech Accelerated (sic) [ Amazon Devices Climate Tech Accelerator ] cohort in July 2025, we successfully advanced to the integration assessment phase. This stage involves comprehensive testing of feasibility, customer value proposition, sustainability impact and supply chain readiness. We are excited about this opportunity to continue working with Amazon in this next phase, and we'll share further updates as we are able. All of these recent customer wins further demonstrate our ability to scale up to meet volume purchase orders, which we believe will continue to increase as we expand our customer funnel, and continue to extend the state-of-the-art that our cells provide. State of the art includes external testing. We rigorously test new products both internally and send them to external labs where they are tested against international safety standards. These include United Nations 38.3 standards maintained by the International Electrotechnical Commission and for our customers in India, the Bureau of India Standards. This quarter, we introduced 2 new SiCore pouch cells and 3 new SiCore cylindrical cells that are optimized for unmanned aerial systems high-altitude platform systems and the electric airplane duty cycles. We call these balanced power and energy cells. Electric aerospace platforms typically require balanced cells. You need high power, high sea rate, capability for takeoff and landings and you need the high energy to enable long range. Products like these balance cells further differentiate Amprius from traditional battery players. Many of our end customers participate in shootouts and fly-offs competing for their own contracts. They need to demonstrate best-in-class performance. We help them win. Our batteries give them more kilometers, allow additional kilograms and provide more watt hours that support their onboard intelligent components. We believe that the electric aerospace is on the cusp of a multiyear transformation propelled by defense and commercial demand for a new era of AI-driven autonomy. McKinsey estimates this market is $40 billion to $50 billion today, growing to $80 billion by the end of the decade. About 10% of that market and 10% of the drone's bill of materials is for batteries. Recent regulations and policy changes appear to be market accelerants. The U.S. executive orders over the summer that promote domestic drones is one piece of evidence. A second is the proposed changes to the Beyond Visual Line Of Sight rules that the U.S. Federal Aviation Authority is debating. BVLOS is a significant unlock for drones. We expect these policy actions will accelerate adoption time line and open new opportunities across the board. We've already experienced strong traction from the defense market and expect growing interest from these customers in the year ahead. Estimates show that the more than $10 billion from the One Big Beautiful Bill will be allocated to defense and unmanned systems, and we believe that we are well positioned to benefit from this increased funding. Anecdotally, we have already seen optimism surrounding the government funding translating to strong buyer intent. Last month, we exhibited at the AUSA Conference in Washington, D.C. where we met with dozens of defense contractors that are either interested in or already using our products for their drones. We also attended U.S. and international conferences. Commercial UAV Expo in Las Vegas, Defense and Security Equipment International in London and the DroneX Expo also in London. At all of these events, we heard a similar message, "drones are an important part of the future, and Amprius batteries are at the forefront of innovation to power them." As a key component supplier for unmanned drone systems, we have had our own success working with the U.S. government. As we discussed during our August 2025 call, we are working closely with the Defense Innovation Unit. Our DIU contract gives us funds to increase the capacity of our Fremont, California pilot line to 10-megawatt hours and expand our capabilities to support quick turn SiCore customer prototypes. Since our last update, we have received an additional $1.5 million follow-on contract, bringing our DIU contract total to $12 million. Our program mandate includes qualifying individual lithium-ion battery components from National Defense Authorization Act, NDAA, compliance suppliers, which will allow us to work more seamlessly with the DoD. This includes considerations of the anode and cathode-active materials electrolyte and separator. This effort is part of a large momentum shift to U.S. domestic production of batteries. As we work on building out an NDAA compliant supply chain and production capacity for our customers that require it, we have continued to utilize our contract manufacturers to support our rapid growth. As a reminder, we have over 1.8 gigawatt hours of capacity available to us through our partners, including our most recent added partner in South Korea. Let's put that 1.8 gigawatt hours in context. Our SA08 cell is our best-selling battery. It has an energy rating of 38-watt hours. 1.8 gigawatts over 30-watt hours works out to be about 50 million cells per year. We have tremendous headroom on our manufacturing capacity. This capital-efficient model provides production-grade calls for qualification today and supports our ramp to volume while still allowing configuration control and aerospace aligned quality systems. We are also opportunistically sourcing additional partners to provide us with greater geographic diversification and operating flexibility. As we head into the tail end of the year, we've carried our momentum into the fourth quarter. A few weeks ago, we announced that ESAero another leading UAS company, chose our SiCore SA08 cell to power the group 1 and group 2 UAVs that support defense, security, logistics and public safety applications. They chose us because in their words, "Amprius offered the best combination of advanced battery technology, production readiness and cost competitiveness to meet the program demand." We have talked extensively about our defense applications for our batteries. We see a large and growing opportunity in the public safety markets also. According to a Police1 article, more than 1,500 U.S. police departments have DFR programs, Drone-as-First-Responders. Their systems are tied into the 911 emergency systems and are dispatched to help find a lost child, monitors smash and grab suspects and understand if a fire is a spark or an inferno. We look forward to continuing to support the drone sector as it scales and evolves into more mission-critical and business-critical use cases. On a final note, we also made the exciting announcement that Ricardo Rodriguez has joined Amprius as a new financial officer. Ricardo has a proven track record of driving growth with financial discipline in high-performance markets, and you will serve as a valuable guide as we expand our commercial reach, scale global manufacturing and reinforce Amprius' leadership in the advanced battery technology. Since he joined on October 6, exactly one month ago, we have aligned on objectives, agreed strategies and developed plans. He is a tremendous addition, the right person at the right time. I look forward to working with and learning from him. Ricardo, it's all yours. Please share our financial results for the third quarter. Ricardo Rodriguez: Thank you, Tom, and good afternoon, everyone. I'm really happy to be on board and reporting our quarterly results on behalf of our team for the first time. After several weeks on the ground working in Fremont, getting to know our team, meeting some of our customers at AUSA and reconnecting with many familiar faces in the investment community that are interested in supporting our company and strategy, I could not be prouder of wearing the Amprius shirt. In the third quarter of 2025, we delivered $21.4 million of revenue. This translates into 42% growth over the second quarter, following the previous quarter's 34% quarterly growth. This is also a 2.7x multiple of the team's revenues during the same quarter last year. Echoing Tom's remarks, our revenue growth was driven by the addition of new customers combined with larger orders from existing customers. Within our customer base, only one customer accounted for more than 10% of our revenues in Q3. Going forward, we plan to continue adding to our customer mix to diversify our revenue base. And we believe that as we develop more diversified contract manufacturing capacity, additional demand can potentially be unlocked. At the end of Q3, we had $53.3 million of orders, including the $35 million order that Tom mentioned, to be fulfilled in the near term. This backlog is 83% higher quarter-over-quarter and it highlights our team's ability to drive demand. Our cost of goods sold at $18.1 million in Q3 did not increase at the same rate as our revenue, thanks to a favorable product mix and higher volumes. This, in turn, enabled gross profit margins of 15%, which is a significant improvement over our gross margins of 9% in the previous quarter. As I discover what makes our team unique, I continue to be impressed by its resourcefulness to make the most with what we have, and that is evident in our quarterly operating expenses of $8 million in Q3, which were down very slightly relative to the previous quarter. The year-over-year increase in quarterly OpEx of $1.9 million was driven by targeted investments in our sales and go-to-market efforts along with the reallocation of some R&D expenses from cost of goods sold to OpEx as development service agreements are completed. These expenses bring our operating loss to $4.7 million compared to an operating loss of $6.8 million in the prior quarter, shrinking our operating loss by over 30% quarter-over-quarter. Our GAAP net loss for the third quarter was $3.9 million or negative $0.03 per share with 126.6 million weighted share -- weighted average shares outstanding. Our adjusted EBITDA in Q3 was negative $1.4 million compared to negative $3.8 million in the previous quarter, thus reducing our adjusted EBITDA loss by over 60%. We define adjusted EBITDA as net income or loss before interest, taxes, depreciation, amortization, stock-based compensation and other items that we do not believe are indicative of our core operating performance. In Q3, these adjustments included $1.2 million of depreciation, $1.8 million of stock-based compensation and $450,000 of interest income. As of September 30, we had 130.4 million shares outstanding, which was up by 5.4 million shares from the previous quarter. The change includes approximately 2.2 million shares issued from option exercises and RSU vesting along with 3.2 million shares issued under our at-the-market offering program. Now turning over to cash flow and the balance sheet. We ended the third quarter with $73.2 million in cash and no debt. The main drivers of cash flow in the quarter were $9.2 million used on operating cash flow, which was mainly driven by a near-term $11.2 million increase in accounts receivable at the end of the period due to our increase in sales, $400,000 of CapEx invested at our facility in Fremont, California and lastly, $28.7 million from financing activities consisting of $25.9 million from the issuance of common stock under our aftermarket sales agreement and $2.8 million of proceeds from option exercises. We still have approximately $20.1 million left available on the at-the-market offering facility as of September 30, 2025. Before I turn over the call to Kang, I would like to take a moment to discuss our outlook for the remainder of the year. We have made a decision to strategically invest in diversifying our supply chain and expanding manufacturing capacity within our Fremont facility to include electrode manufacturing. We are doing this in collaboration with the U.S. Government Defense Innovation Unit and have secured a contract for $12 million awarded in the third quarter of this year. With what we know today, we expect this funding to cover the majority of our capital investments over the next several quarters as we work to develop a growing and resilient source of supply in a dynamic trade environment. As we previously stated regarding the Colorado facility, the designs for the project are effectively complete and we are continuing to monitor the larger industry dynamics associated with building a factory in the United States. Changes in demand, supply, battery cost structure, government incentives, trade tariffs and other considerations, including the timing and availability of funding, will influence our decision on next steps and near-term timing. We have secured adequate capacity for the foreseeable future through our contract manufacturing network and plan to further expand that without deploying additional capital. We also believe that our current revenue levels and even slight improvements from these can put us on a path to mainly consume cash for working capital versus funding operating expenses in the near term. With that, I'm happy to turn the call over to Kang for his closing remarks. Thank you very much for your attention and continued support. Kang Sun: Looking ahead, we remain focused on delivering next-generation lithium-ion battery performance that raises the bar for energy density and the sustained power without compromising safety or reliability. We are also broadening our product portfolio to better align with the customer requirements and unlock new market opportunities, while converting a growing number of customer engagements into formal qualification and the deployment, particularly across mobility-centric platforms. As demand scales, we will continue to leverage our contract manufacturing partners' capacity to efficiently translate that demand into revenue with disciplined quality and minimal additional capital investment. We are excited about the future ahead and looking forward to meeting and reconnecting with many of you as we attend several upcoming investor conferences. Thank you for your continued interest and support of Amprius Technologies. With that, I will turn it back to the operator for questions. Operator: [Operator Instructions] And the first question comes from the line of Colin Rusch with Oppenheimer & Company. Colin Rusch: Congratulations on all the progress. Just on the U.S. capacity. Could you talk a little bit about the cadence of how that will come up and how much capacity it will actually be and where that electrode will ultimately end up getting turned into batteries? Are you looking at potentially qualifying some incremental contract manufacturing in the U.S.? Or will that electrode end up getting shipped overseas and return back to the U.S. as batteries? Thomas Stepien: Yes. Thanks, Colin, this is Tom. The answer is that we will have in the future, both a U.S. contract manufacturer and contract manufactures in what we are -- what are called NDAA compliant countries, and that includes Korea. We have a contract manufacturer already today in Korea. We announced that in May. So you will see over time both for pouch cells and cylindrical cells additional partners in this network as it continues to expand. Colin Rusch: That's super helpful. And then being able to qualify different configurations of performance, whether it's through different electrolyte or different balances within these cells is pretty substantial accomplishment. Can you talk a little bit about the cycle time and how much work you've done previously to be able to get some of those different battery configurations? And just so we have a sense of how quickly the platform is evolving from a technology perspective going forward. Thomas Stepien: Yes, to fully qualify the 11 major components that make up our battery, it will take us -- we've started that already. It will take us to next summer. That's largely being done in cooperation with the $12 million DIU contract that we have. We are turning up. As of today, we have 5 of those 11 components fully qualified NDAA compliant. We're turning the knob on the other 6, and we think we'll do that between now and next summer. Colin Rusch: And just one last one from me. Just in terms of the cadence of how you're moving customers through the sales funnel, as folks have had these batteries for a fairly substantial period of time here? And you guys have talked about kind of roughly 18-month qualification period sometimes longer, sometimes shorter for customers and you've been sampling now for about 7 quarters out of some of these facilities. Are you seeing folks move towards purchase orders a little bit faster than they have in the past or moved to larger purchase orders? Just want to get a sense of how we can think about some of this pipeline moving into backlog and production? Thomas Stepien: It's pretty distributed, some qualification happen within 2 quarters. Some take more than a year. It really depends on the complexity of the components at the end and some are larger, some are [indiscernible] per yacht and the other one. So it did across all the 400-some-odd customers that we have. Operator: The next question comes from the line of Mark Shooter with William Blair. Mark Shooter: Congrats on the great execution this quarter. The new customers was a big way and a nice jump. It's almost doubled the normal cadence in the past few quarters. So I guess I'd like to dial in on what led to that big step-up in new customers this quarter. Did we get a capacity or a yield breakthrough at the silicon supplier or your battery contract manufacturers that allowed you to ship to more cells? Or did you see an actual 2x increase in demand this quarter from last quarter? Thomas Stepien: We're definitely seeing an increase in demand as the awareness of Amprius gets out there as we attend more conferences, as we have more wins like we talk about. It gets the attention of other folks. The 80 that we have -- the 80 new that we added this quarter was a little bit of timing. Some of those seeds were planted, as I said to Colin's question, more than a year ago and now are coming through and turning into real purchase orders, other ones were planted earlier this year. So it's a combination of those factors that's leading to the uptick. Mark Shooter: Great. That's very helpful, Tom. Ricardo, one for you. Congrats on joining Amprius, especially this quarter. Ricardo Rodriguez: Thank you. Mark Shooter: I'm hoping if you could just -- of course. Question for you. I'm hoping you could shed some light on the gross margin. The improvement this year has been great, specifically this quarter. Going from 9% to 15%, could you try to break that down to maybe how you see the improvement if you put in the buckets? Is it -- and as I'm thinking about a higher revenue or product mix? Or are you able to maybe raise price in this quarter, seeing the performance of your batteries and the demand for your batteries in the marketplace? Ricardo Rodriguez: Yes. I mean I think mix was the main driver of the increase from 9% to 15% quarter-over-quarter. If you look at the 15%, I mean, it's in no way where we believe it needs to be, right? A lot of the battery peers even at higher scales are above 20% on the gross margin line. And our goal is obviously to get there and even higher. On pricing, I do feel pretty good about where the pricing levels were for the SiCore product. And that in combination with just a larger share of our revenues being SiCore is what drove the increase, plus, of course, the run rate itself contributed to that. But I think the biggest contributor was really mix because of our contract manufacturing model, right? Operator: The next question comes from the line of Derek Soderberg with Cantor Fitzgerald. Derek Soderberg: My congrats to Ricardo as well. I'm just hopping on the call just now, so my apologies if any of these have been asked. The second-generation SiCore, what's the margin profile of that battery? Ricardo Rodriguez: We haven't laid out explicitly, but the goal is to get that north of 20% at closer to 80% of our capacity, which we still haven't reached, right? So -- but our goal is to just keep pushing that and we're, frankly, testing where that should be as revenue materializes. Derek Soderberg: Got it. And what are some of the trade-offs between the first gen and the second gen, what might slow down that path to 80% mix of the second generation? What are some of the trade-offs from your customers' perspective? Kang Sun: We refer first gen the SiMaxx -- SiMaxx is our first-generation product and SiCore is our second-generation product. We don't have... Derek Soderberg: Okay, so it's not second generation SiCore. Kang Sun: No, we don't have -- we keep improving. We could say we have second generation, but we may have a third generation already in the lab, but we don't separate it that way, okay? We consider SiMaxx is the first-generation Amprius product and the SiCore is a second generation. Derek Soderberg: Got it. Okay. That's helpful. And then could you just give us an update on the time line to cash flow breakeven? I think, previously, you guys were expecting that to happen sometime in 2026 potentially or maybe even early '27. But it feels to me like the company is growing faster than expected. You've got quite a bit of scale to work with here and it seems like the customer growth is quite a bit ahead of at least my expectations. Can you just provide an update on path to cash flow breakeven? Ricardo Rodriguez: Yes. I mean, I think it's tough to pin down a specific quarter for that. But if you take our results from here the most recent quarter, with another $10 million of revenues, we would have had positive EBITDA. And our EBITDA is a very good proxy for cash flow, right, given that it's pretty clean. D&A is not huge and in essence, only the stock-based comp, and we have no I and not T in there. And so it's really just a matter of time for us to get that incremental revenue. And at that point, we can be not just EBITDA positive, but also pretty closely behind cash flow positive as well. Operator: The next question comes from the line of Ryan Pfingst with B. Riley Securities. Ryan Pfingst: I'm jumping around calls, so apologies if anything repetitive. But on the margin side, Ricardo, another nice jump quarter-over-quarter here in the second quarter. Just curious if you could give some color on what you expect as we continue to see revenue expand on the margin side? Ricardo Rodriguez: Yes. I think it's again echoing my earlier point, it's really more driven by mix. We do believe that incremental revenue, depending on the mix of that and the customers that it goes to could be accretive beyond where we're currently at the gross margin level. I'd love to get the company 20% and above here as soon as we can, but obviously, understanding that there are quite a few puts and takes, especially as we look to make a larger portion of our revenues come from the SiCore product versus SiMaxx. So I think as we manage that transition, you'll see us pick up a couple of points of gross margin here. One thing to note is that this is -- this will be lumpy, right, given the not just the customer diversity, but also the product diversity. I do think it's -- we're not totally out of the woods of having fluctuating gross margins. And so I would caution here on modeling something that's just straight up into the right on gross margin as we pick up incremental revenue because there are quite a few puts and takes within it, mainly mix driven that we certainly keep in the back of our minds to make sure that these expectations are realistic, right? But kind of going back to what I said earlier, like, frankly, I'm more focused on the EBITDA margins. And even if gross margins stayed where they were with another $10 million of revenues, we would have had positive adjusted EBITDA, and that's very meaningful progress. And I think it puts us well ahead of our peers, well ahead of anybody scaling a similar product, and this is a testament to the team's focus on having the leanest cost structure possible at the OpEx level. Ryan Pfingst: Appreciate that detail. And then turning to your manufacturing capacity update, which I know you touched on in the prepared remarks. But curious how important it is to establish contract manufacturing capacity in the United States for certain customers, maybe on the defense side or otherwise related to national security. Does that make it more of a near-term priority for you guys? Or are you able to be patient here with establishing something in the U.S.? Thomas Stepien: It is important [Technical Difficulty] so they don't have again, sort of ahead of [indiscernible] certain data in 2026. But we know we're [indiscernible] domestic batteries and we [Technical Difficulty]. Kang Sun: Since you cannot hear from Tom clearly, let me elaborate a little bit more. Develop -- we have a fraction of the customer that demand the product made in United States. Currently, the driver for our activity in the United States, primarily from this DIU program. So the DIU program, the Department of War, grant up certain -- $12 million contract require us to build advanced battery silicon anode-based battery pilot line, okay? You can call pilot line, you can cause small production line by next summer. Majority of our customers still oversee customers. Operator: The next question comes from the line of Chip Moore with ROTH MKM. Alfred Moore: I wanted to ask maybe on the $53 million in orders, near-term orders. Maybe you could put a finer point on that? Should we think about next couple of quarters potentially on that? And then Ricardo, to your point, around mix and potential for some lumpiness or margin impacts, just anything to call out there? Ricardo Rodriguez: Yes. I mean, maybe I'll start with the second part of the question, if that's okay. I mean really nothing much beyond what I've already mentioned, Chip. I think we have to work through this backlog, obviously, and that will keep building up. But at the same time, we also need to have the supply in place to fulfill it, right? And that will ultimately be the decade of what the revenues can be in the near term. And on the gross margin side, I'll just echo what I said before, right? I think you can still be lumpy. We do expect progression as we sell more scores a proportion of total sales. And I mean if we would have had another $10 million of revenue that we could have fulfilled, we would have had a breakeven or slightly positive adjusted EBITDA in the quarter. Thomas Stepien: On the first part of the question, Chip, hopefully, I'm coming through here, is a -- the large purchase order is for a year. It's not necessarily in year that they don't want $35 million divided by 4 every quarter, but there's these different layers of revenue that we're building in, and the backlog is going in the right direction. So that's -- so we like to see that versus some of the quick turn purchase order comes in and we ship within the quarter. So we're building some customer-facing muscle, and we're getting into these longer-term contracts. And they're really synchronized with the customers' end use, right? They have deliveries to their customers of their crafts, and that's really what sets the rhythm of when we deliver cells. Alfred Moore: That's great. That's helpful. And maybe, Tom, just a follow-up there, sort of the flywheel effect of repeat orders. You had a nice 1 year. It feels like you're starting to hit critical mass. Just understanding things will still be lumpy, but how are you thinking about potential for these repeat orders to keep coming in and get bigger? Thomas Stepien: We are incredibly optimistic, right? I mean we have a great product. It's industry-leading. The market is strong. There's a number of data points there. So we feel good about what we've got. We feel good about where we're going. This is a tricky quarter because of Thanksgiving and Christmas here in the U.S. Next quarter, we'll have some lunar holidays. So we got to work through some of that, but we feel good about where we are. Alfred Moore: Perfect. If I could maybe ask one last one, related. I guess you talked about some funding anecdotally seen some interest out there on defense and drones. Just any more detail there and then government shutdown. Is that another thing you have to navigate that could slow things down? Thomas Stepien: Yes, we're seeing some announcements. One of our customers announced today that they won an Air Force shoot-out, and we're obviously very excited to hear that. So it's starting. And if you take apart the Beautiful Bill as a couple of analysts have, these numbers are 4x, 5x in 2026 budget on what they were in previous years. So that bodes well for the future, and we're trying to make sure that everyone is aware of what we got, doubling flight time, extending payloads, that all is very meaningful in the eyes of our customers. Ricardo Rodriguez: And if I may add just one last thing there, addressing your point on the shutdown, Chip. Our DIU contract has been getting paid on schedule even through the shutdown. So we feel confident about that. Operator: The next question comes from the line of Sameer Joshi with H.C. Wainright. Sameer Joshi: It was good color in the prepared remarks and some good questions as well. I would just like to dig into the pipeline -- dig a little bit deeper into the pipeline over the next, say, 4 to 6 quarters? And see whether it is mostly UAS-related or LEV is part of that mix as well? And then in relation to that, how does the margin profile -- the gross margin profile change? I know Ricardo, you had very exhaustive discussion about the lumpiness that we can expect over the few quarters. But does this product mix or end customer mix make a difference in the gross margins? Ricardo Rodriguez: Yes. So maybe I'll address that latter one, and then I'll let Tom address the points on the pipeline. I mean I think I would look at the current gross margin that we have as a good base to build on with much of the variations are happening above this level, especially if we're able to get incremental revenue. So we're not concerned on falling below the current levels on mix above the current revenue levels, right? But definitely, some of the longer, larger volume agreements have different pricing than shorter-term very specialized applications. And that's what will drive the potential fluctuation in the gross margins. And then at the same time, we're managing obviously a pretty dynamic tariff and logistics environment where fortunately, we're able to price for a lot of the stuff but that can drive lumpiness in this as well. Thomas Stepien: Yes. On the first part of your question about the complexion of the pipeline, it's strong, as we mentioned, and it's growing. This quarter, we said it was 75% aerospace, right? That includes these high-altitude platform systems, drones, electric aircraft, both the conventional wing and the vertical takeoff. That 75% was actually down a little bit on a percentage basis compared to Q2, but the revenue was up by the 42% that we talk -- that we spoke of. So I look at that as a better balance between some of the other segments that we're serving, especially light electric vehicles. So it will be similar, maybe a little bit higher, a little bit lower in terms of that 75% next quarter, but better balance, I think, would be my main message there on the pipeline. Sameer Joshi: And just to make sure, the margin profile for these 2 sectors is different, right? Or is it -- are you maintaining the margins for the LEV as well? Thomas Stepien: The margins are similar for the LEV as for the aviation market. Yes. Sameer Joshi: Yes. And then just a clarification or maybe a little bit color on this Amazon Devices Climate Tech Accelerator program, how significant should we consider this to be for you as a company going forward? Thomas Stepien: It's a multi-phase program that we're in, and we've made it to the second, third round. We're actually up in Seattle today, as a matter of fact, talking to them again. We think of it as having a seat at the table. It's sometimes hard to break into some of these large companies. But when you get invited in, as we have, you get quick access to the engineering folks and you're able to tell your story more efficiently. So look, we still got to do a lot of work, and we still have to win their trust and their business. But we have a seat at the table. Sameer Joshi: Ricardo, congrats on joining the company. Ricardo Rodriguez: Thanks so much. Happy to be working together. Operator: The next question comes from the line of Ted Jackson with Northland Securities. Edward Jackson: I'll try to run through a quick. I know we're coming to the end of the call. Just a housekeeping one. With regards to revenue, did you have any design service or government grant revenue in the quarter? And if so, what was it? Ricardo Rodriguez: The government grant was actually in our other income, and it was roughly $400,000. Edward Jackson: You introduced 5 new SiCore sales during the quarter. I mean the last time you gave any kind of color with regards to the number of SKUs the company had was at 14. Where are you at with the SKU count right now? Thomas Stepien: We have 20 SKUs, more coming, but the catalog today shows 20. Edward Jackson: You kind of backed into your capacity saying that you had about 50 million cells of capacity based upon your most popular cell which begs the question with -- I don't know if we could talk about the quarter, year-to-date, however, kind of what's your run rate with regards to that capacity? If you can make 50 million -- theoretical 50 million cells like your, call it, $21 million of battery products that you sold in the quarter, what would that be on an annualized run rate? Thomas Stepien: Yes, I don't think... Ricardo Rodriguez: Yes, that one is tough to pin explicitly because given the different SKU count, right, and the fact that... Edward Jackson: No, I'm asking if you assumed that it was just the same battery. You see what I'm saying like -- I'm just trying to get a sense with regards to you've got this much capacity, like where are you in terms of filling it, where we get to the thing that your margins are going to be north of 20%, you're at 80% of that capacity. You see where we're going in terms of the thought process. So how far -- where you are right now? How far are we to getting to that 80% because then it gets -- kind of when you think about well, that's where we can think about your margins. So I'm not asking -- I'm just kind of asking like if you assume that you were -- I don't know, but you keep on going. Ricardo Rodriguez: Yes. I mean it's a highly theoretical question because in reality, it's not working that way, but it would be a couple of hundred million dollars, right? Thomas Stepien: Yes. I remember we said -- Yes, I think we said, it was the Kang in our May call that if we actually utilize that 1.8 gigawatt hours of capacity, we'd be a $1 billion company. Kang Sun: Right. You use our ASP today times the capacity availability, we are going to be a $1 billion business. Edward Jackson: Okay. A little nuance question with regard to the gross margins. You're at the point now where you're taking a lot of your engineering work at a cost of goods and bringing it down engineering. It's just kind of part of the process of the growth of the company. That happened this quarter. Do we have to see -- are we going to see more of that in periods to come? And was that something that we're not going to see as much of an impact with regards to the margins? What kind of noise will we see with that in the coming quarters or the coming year? Ricardo Rodriguez: Very little. I mean, that adjustment here quarter-over-quarter was just a couple of hundred thousand dollars. It was not -- it didn't cross the $1 million line within our cost of revenue. Edward Jackson: Okay. And then I'll ask one more that's more front because these are all kind of little pivot ones. With regards to -- you're being funded to build a pilot line with this DIU contract. And then what's the end game with that? So then you have this pilot line that you put together, done a proof of concept for the government that you can make, what does they want? I mean is that something then that they have the process and then they're going to fund you to make a bigger factory that then they're going to go out and bid for someone else to do it. I'm saying like where does that -- what's the vision for that, assuming that it goes forward and you get success? Thomas Stepien: Yes. Let me take that. So the DIU, a couple of points here. First and foremost, it was a competitive solicitation. I think there were 7 or 8 other companies that took a swing and they chose Amprius. We have a pilot line in Fremont. The dollars that we have received helps increase the capacity of that pilot line. And then, as Ricardo mentioned in his part of the script, also the capability, we are adding electrode manufacturing. That part of the factory of our pilot line did not exist. Their interest, the DIU's interest is domestic batteries. And they see us as in the front of the pack, and they want to encourage us to make those available. There are certain sizes that are very popular. I mentioned the SA08, that's a very popular size. They want us to make those and the idea of a pilot line, of course, is that we have those capabilities for many of the defense customers and whether it's primes or the folks who the companies that serve those primes. Edward Jackson: But I mean like -- I mean a pilot line is still not making -- it's not a production level facility. I mean the goal is for them to -- goal that clearly is for them to develop a domestic battery production capability. I mean do you ever have any discussions with them with regards to what that might look like as they go forward with a larger factory? Does Colorado come into play? Would they -- if you go proof all this out, would they want you to go license your capabilities, you see them going like what's the kind of the longer end game with it? I mean unless you don't... Thomas Stepien: Sure. Yes. We're very close with the DIU and the DoD generally. Their interest is, as you say, domestic batteries. They have said publicly that there are solicitations that are coming out early in this fiscal year, probably delayed here because of the shutdown, but I think we'll see some specific additional solicitations related to domestic production. Edward Jackson: Okay. Well, it's 5 O'clock. I could keep going. Congrats on the quarter. Super exciting to cover you. So talk to you on. Thomas Stepien: Thank you. Operator: Thank you. At this time, this concludes our question-and-answer session. If you have any additional questions, you may contact Amprius' Investor Relations team at IR@amprius.com. And now I'd like to turn the call back over to Dr. Sun for his closing remarks. Kang Sun: Thanks again, everyone, for joining us today. As a reminder, you can find out more about our company, receive additional updates and learn about the upcoming events from the Investor Relations section of our website. We look forward to updating you on the exciting progress we are making in transforming the electrical mobility market. Finally, I'd like to thank our employees, partners and the shareholders for their continued support. Operator: Thank you for joining us today for Amprius Technologies Third Quarter 2025 Earnings Conference Call. You may now disconnect. Have a good day.
Operator: Good day, everyone, and thank you for standing by. Welcome to the Quebecor Inc. financial results for the third quarter 2025 conference call. I would now like to introduce Hugues Simard, Chief Financial Officer of Quebecor Inc. Please go ahead. Hugues Simard: Ladies and gentlemen, welcome to this Quebecor conference call. My name is Hugues Simard. I'm the CFO. And joining me to discuss our financial and operating results for the third quarter of 2025 is Pierre Karl Peladeau, our President and Chief Executive Officer. Anyone unable to attend the conference call will be able to access the recorded version by logging on to the webcast available on Quebecor's website until January 5. As usual, I also want to inform you that certain statements made on the call today may be considered forward-looking, and we would refer you to the risk factors outlined in today's press release and reports filed by the corporation with the regulatory authorities. Let me now turn the floor to Pierre Karl. Pierre Péladeau: [Foreign Language] and good morning, everyone. So more than 15 years ago, recognizing a huge opportunity in Quebec and across Canada, Quebecor set out on a growth strategy based on wireless. First, launching as an MVNO, then building our own network and further acquiring Freedom Mobile. We have never wavered in our resolve or direction. We invested wisely and established ourselves as a better alternative to the big 3, a solid market disruptor with the best growth momentum and the strongest balance sheet in the Canadian telecom industry. As proof that our strategy is paying off, we continue to outperform our competitors, and I'm proud to report our strongest quarterly wireless service revenue growth since the acquisition of Freedom Mobile. As well as an impressive loading performance of 114,000 net addition in the quarter with more than 323,000 new lines year-over-year despite a generally softer market. Collectively, Videotron, Freedom and Fizz now have over 4,328,000 mobile active lines, a significant milestone achieved in quite a short time in a competitive market. Each of our 3 brands continue to improve its performance quarter after quarter, resonating more and more with Canadians across the country with innovative and affordable product and services. We have created a healthy competitive environment, giving Canadians more choice, lower prices and a better experience, all the while improving our profitability, growing cash flow and continuing to reduce our leverage to maintain the lowest ratio in the Canadian telecom industry. We will spare no effort as we press on with our strategy of sustainable, profitable wireless market share growth. I will now review our operational results, starting with our telecom segment. So our telecom segment continued to deliver strong operational and financial results both in wireless and broadband, reflecting the disciplined execution of our growth initiatives, the strength of our brand portfolio, and our commitment to provide innovative and reliable services to our customers. Our service revenues are up for a second consecutive quarter at 2%, fueled by a 6.4% increase in mobile and 1.1% in Internet. Our mobile service revenue grew by $27 million in the quarter, surpassing our Q2 performance and our best since we completed the integration cycle of Freedom Mobile results. This results from our adding 323,000 new net line over the last year despite the Canadian market affected by lower immigration levels and organic growth, but also from our effective pricing strategy with a balanced and cohesive positioning of our brand. Our consolidated mobile ARPU continued to improve its performance, recording its best since the acquisition of Freedom Mobile, which bodes well for the next few quarters despite a market that remains unpredictable and highly competitive, especially in Quebec where discounting is comparatively and, in our view, irrationally heavy. At this point, we expect current market conditions to continue through the upcoming holiday season's promotional period, but we intend to maintain our disciplined approach, focusing on the quality of our products while continuing to rapidly improve our network. Specifically, on ARPU, we are very pleased with our second sequential quarterly increase, reaching $0.35 and $0.05 compared to $0.34 and $0.76 last quarter, a $0.29 gained in the 3 months. Our year-over-year performance continued to improve with a $0.66 decrease this quarter compared to a drop of $2.30 in Q2 as compared to the same period last year. Our effective mitigation of the dilutive impact of the prepaid services of Fizz and Freedom was an important contributor. As you will have noticed, we adjusted our wireless subscriber base by 51,000 to eliminate 0 revenue accounts, which translated into an approximately $0.40 ARPU pickup. To be completely transparent and contrary to our competitors, we adjusted our ARPU numbers retroactively. With our ever-improving network quality and stellar customer service, more and more Canadians enjoy the richness and peace of mind of our plans, which continues to strengthen our market position and share. Freedom's marketing plans are honest and transparent without any fake employee purchase program, new customers only or B2B offers. We have been upfront with all Canadians since day 1, offering them better services at everyday best prices. Canadians have clearly embraced our approach as evidenced by our significant churn improvement, ARPU and market share growth. An internal survey even reveals that the global satisfaction score of Freedom customers approaches that of Videotron. We are very proud to have successfully transposed the key contributors of our great success in our own market to the other regions of Canada. In terms of new adds, as I alluded to at the beginning of my address, we delivered 114,000 new net lines to our mobile customer base in the third quarter, a strong growth considering the softer market this year. This performance is also attributable to our effective retention strategy, which kept our consolidated churn among top of the industry and thus helped to defend Videotron's solid market position in Quebec and to continue to improve Freedom performance. In wireline, our service revenues continue to improve as we recorded for a second consecutive quarter our lowest decline in year-over-year. Fueled by Internet revenue growth of $3.3 million and net additions of 10,500 in the quarter, these results are very encouraging as we are only still scratching the surface of the opportunity with new services like Freedom home Internet and Fizz TV. We are also counting on the expansion of our Helix technology-based Internet and television services in new territories where they will complement our wireless services already available. Since the end of the second quarter of 2025, Videotron has announced the expanded coverage of more than 180,000 new households in Drummondville, Magog, Rimouski, Saint-Hyacinthe, Trois-Rivieres, Salaberry-de-Valleyfield and Huntingdon, as well as in many cities in Saguenay–Lac Saint-Jean region. Customers will now be able to benefit from a full complement of telecommunication services in competitive packages. We intend to enter these new markets with a disciplined pricing strategy in line with our pricing elsewhere in Quebec, counting on state-of-the-art Helix solutions and our second to none client experience to make ourselves a strong contenders in this territory. In addition to our wireline footprint, we are also expanding our wireless coverage and services areas in the Haute-Mauricie region in partnership with Ecotel and with the support of the Quebec government. This will significantly improve mobile communications in this region of Quebec, making it possible for more than 10,000 residents to subscribe to Videotron mobile services and enhancing connectivity along several highways. Freedom Mobile is also continuing to increase its service coverage now in the Ontario region of Chatham-Kent, where the resident of this large and growing region can now access our fast and reliable wireless network. These expansions reflect our continued progress in delivering on our ongoing commitment to always give our customers more with state-of-the-art advanced technology. This is but one reason why Videotron was ranked as Quebecor's preferred telecommunication provider in a recent Leger survey. Videotron stands out for its remarkable results, confirming its position as an undisputed leader in customer service among telecommunication providers in Quebec, while being recognized as the most reliable and trustworthy telecommunication company in Quebec. Turning now to our Media segment. TVA Group generated EBITDA of $18.5 million in the third quarter of 2025, an increase of $6 million compared to the same period in 2024. This favorable variance is primarily attributable to the impact of streamlining initiatives undertaken over the past 2 years as well as certain favorable nonrecurring retroactive adjustments. These measures are helping, but are in no way sufficient, to mitigate the impact of the structural crisis threatening the sustainability of Quebec television industry, particularly due to the accelerated decline in advertising revenues compounded by the negative impact on the absence of foreign blockbusters in MELS' studios. Having acted recently and respondly over the years by implementing numerous measures and a number of major restructuring plans to address the crisis, TVA Group has done its part. It is high time for our government to take the necessary action on their end. After countless advocacy efforts, hearings and meetings with successive CRTC chairpersons, Canadian heritage ministers and Quebec culture ministers over the years, we can only repeat yet again that we urgently need real action and long-term solution to protect our industry. It was particularly disappointing that the federal government in its budget deposited this Tuesday completely ignored our industry and turned a blind eye to the crisis that is hitting television broadcasting so hard. There is no tax credit for television journalism, no tax incentive for advertising in Quebec and Canadian media, and no information about when the digital services tax already paid by private broadcaster will be refunded. Furthermore, CBC/Radio-Canada annual funding had been increased by $150 million without any requirement to eliminate advertising on its platform and to curb its unfair commercial competition with Canada private television broadcasters. Regrettably, this new government has missed an opportunity to support an industry facing ever-growing challenges and job losses at an alarming rate. Regarding the Quebec government, we reiterate that it must quickly introduce concrete measures to implement the recommendations in the report of its task force of the future of Quebec audiovisual industry filed in October 2025. I will now let Hugues review our detailed financial results. Hugues Simard: [Foreign Language] On a consolidated basis in the third quarter of 2025, Quebecor recorded revenues of $1.4 billion, up 1%, EBITDA of $628 million, up $34 million or 6%, resulting from improvements across all of the corporation's business segments. Cash flows from operating activities increased $36 million to $582 million or 7% compared to the same quarter last year. In our telecom segment, total revenues grew by 1% or $13 million, a first favorable variance since Q1 of last year when we completed the integration cycle of Freedom Mobile results. This positive delivery is largely attributable to our strongest mobile service revenue growth of 6.4% fueled by a significant customer growth, but also by the favorable improvement of our mobile ARPU in the last quarter, resulting from strategic market positioning of our multiple brands and our pricing strategies. This quarter, mobile revenues were offset by our lowest wireline services revenue declines in more than a year, resulting from our effective strategies and mitigating the impact of organic declines of these services. Combined with rigorous cost management initiatives, our EBITDA reached $602.5 million, increasing by $16.6 million or 2.8%, our highest EBITDA growth since Q1 2024. As a result, our EBITDA margin improved by 0.8%, ending at 49.5% compared to 48.7% in the same period last year. Telecom CapEx spending was up by $13 million in the quarter, regulating the timing difference explained in Q2 for wireless equipment deliveries required for our 5G and 5G-plus network expansions and subscriber equipment rentals. Even with that regulation, we still anticipate higher investment levels in the last quarter to stay on track with our objectives, mainly expanding and improving our mobile network. Accounting for these investments, our quarterly adjusted cash flows from operations increased $3 million or almost 1% due to our solid EBITDA growth. Our Media segment recorded revenues of $152 million or 2% decrease, an EBITDA of $23 million, a $9 million favorable variance compared to the same quarter last year. Our Sports and Entertainment segment revenues increased by 7% to $68 million, and EBITDA was up by 28% to $15 million. We reported a net income attributable to shareholders of $236 million in the quarter or $1.03 per share compared to a net income of $189 million or $0.81 per share reported in the same quarter last year. Adjusted net income, excluding unusual items and losses on valuation of financial instruments came in at $242 million or $1.05 per share compared to an adjusted net income of $192 million or $0.82 per share in the same quarter last year. For the first 9 months, Quebecor's revenues were down by 0.3% to $4.1 billion, and EBITDA was up by $4 million to $1.8 billion, partly impacted by a $44 million increase in stock-based compensation charges. Excluding this factor, EBITDA would have increased by $48 million or 3%. EBITDA from our telecom segment grew 2%, an improvement of $38 million over last year, excluding the impact of stock-based compensation. At the end of the quarter, Quebecor's net debt-to-EBITDA ratio decreased to 3.03x, still the lowest of all our telecom competitors in Canada. We remain committed to further deleveraging in the coming quarters and intend to continue operating in this low 3 range, consistent with our current financial strategy. Our balance sheet remains very strong with available liquidity of over $1 billion at the end of the third quarter. I would also like to highlight the success of our recent refinancing where Videotron issued $800 million of senior notes yielding 3.95%. This demand -- the high demand from investors, it was very strong with a book more than 3x oversubscribed, and we were able to negotiate very favorable conditions, most notably the lowest 7-year credit spread seen in the Canadian telecommunications sector, a convincing testament to the strength of our financial foundation, our disciplined management and our growth prospects. The net proceeds will be used for the redemption of our -- or Videotron's rather 5.125% senior notes maturing on April 15, 2027. During the first 9 months of the year, we also purchased and canceled 3.7 million Class B shares for a total investment of $140 million. We thank you for your attention, and we'll now open the lines for your questions. Operator: [Operator Instructions] First, we will hear from Maher Yaghi at Scotiabank bank. Maher Yaghi: [Foreign Language] I would like to first ask you the strong performance in wireless, you mentioned that it came from lower churn and also improved gross loading. Can you maybe dissect a little bit more what drove that strong performance in the quarter? Q3 usually is a strong quarter for Freedom, but how are you thinking about Q4 so far? And which markets -- which submarkets in wireless you still haven't been able to gain market share from that you think over time could provide you more growth down the line? Hugues Simard: Thanks, Maher. So in wireless, yes, I mean, as you said yourself, the Q3 and the back-to-school period is -- has historically been a very strong quarter for us. These are the target markets that we -- that particularly resonate well with us. And again, even though organically and in terms of immigration and all the things we've talked about, the market is a little softer, we've been able to maintain our performance. And why have we been able to maintain our performance? It is because we are increasingly resonating with other cohorts whereas the freedom of the past used to be very strong with first-time buyers and immigrants and people looking for a deal or the cheapest deal. We are now able to attract and retain customers that are willing to -- they want a bit more, that want better performance. We have an increasing number of 5G-plus customers because we have been expanding the access to 5G-plus to many more of our customers. Fizz is also continuing to perform increasingly well quarter after quarter, which should not be a surprise because you will remember us telling you that Fizz was created with a very specific objective -- with very specific objectives in mind, and that was to go after and to target the younger, more urban, more digital savvy generations, which are representing the future. And I think we are showing that we're better than our competitors at reaching out to these people, to these customers. In terms of going forward in the following quarters, I think you will see if you look back that we are very -- not stable, but very consistent in our penetration, in our growth. We are continuing to retain our customers more longer, so churn is down. Our ARPU is going up. So this is really the story in this one. Look at our wireless service revenues, $27 million more in the quarter, which flows down to margin with -- considering our very disciplined cost containment. That's basically how I would call the story of -- the wireless story of the quarter, which bodes, as we said in our -- as Pierre Karl said in his note, bodes very well for the historically competitive Q4, where we intend to continue to perform very well. Pierre Péladeau: That's a pretty good answer, ain't it? Maher Yaghi: It's a very good story for sure, very good story. Maybe just one… Pierre Péladeau: May I add just one thing, is -- well, we all know that when Freedom was under the previous ownership for whatever reason, I mean, historically, the weakness was the network, the quality of the network. And I think it's important to mention that we are investing in the network. And we've been always Videotron an enterprise culture, considering that we need to deliver the best product in our available customers. So we inherit a good brand and certainly also some very good people in this organization. But now I think that we've been doing what is appropriate to improve our product by investing in the network. We will continue to do so and we will continue to do it on a disciplined basis as we've been doing, obviously, in Quebec for the last about almost 15 years now. Maher Yaghi: Yes. And maybe just to touch on the improvement in the cable segment revenue growth rate with the pricing that you passed last December starting to really kick in. But I'm trying to gauge that with Karl's -- your prepared remarks. You specifically called out the very aggressive pricing competition happening in Montreal and Quebec in general on the combo plans, very low prices. Is it easy to pass another price increase this year like you did last year amidst the competition that we're seeing right now in the marketplace? Pierre Péladeau: Well, obviously, you can easily expect that you're going to have an answer for that. But I'll tell you, we're used to that. We've been always in the same kind of environment. So there is nothing new for us. And what we're doing to make sure that we're for this situation is by being as much as disciplined as possible, watching our core cost. And we've always been in that kind of business and we will continue to do so. Historically, pricing between Quebec and all the other areas in Canada for whatever product, it was the same for cable, it's the same for wireless had been lower. So is our competitor, our main competitor, the blue guys have been trying to get market share by having lower prices than elsewhere. They certainly, in the past, being able to benefit from a higher margin elsewhere. Are they using this to compete even more aggressively in Quebec? It's not impossible. But they can do whatever they want. At the end of the day, we're going to continue to be the preferred supplier of Quebecers for many reasons, one of which is that we're offering better customer service and our products are of higher quality. Operator: The next question will be from Stephanie Price at CIBC. Sam Schmidt: It's Sam Schmidt on for Stephanie Price. I wanted to ask a question about ARPU. The declines have been improving sequentially for the last few quarters. How do you think about the timeline to return to positive ARPU growth? And it was strong in this quarter. Any onetime items to call out there? Hugues Simard: I'm sorry, I missed your first name. You're replacing Stephanie, right? Sam Schmidt: Yes. Sorry, it's Sam Schmidt on for Stephanie Price. My first question was just around the ARPU declines that have been improving sequentially for the last few quarters and how you're thinking about a timeline to return to ARPU growth. Hugues Simard: Yes. It's -- you saw our performance. We're very confident. ARPU is turning the corner, and I would expect that corner to be very, very soon. Sam Schmidt: That's helpful. And then just one more for me on mobile equipment revenues. How are you thinking about device financing heading into Black Friday? Hugues Simard: With discipline, how would I say, continued disciplined, reasonable offers. We've said this in the past that Black Friday is a time of the year where we can easily go crazy and lose our shirt, as we say, on equipment device -- on equipment or device subsidies. And we certainly do not intend to do that and to continue to be, as I said, disciplined and reasonable in our equipment offers for the rest of the year. Operator: Next question will be from Matthew Griffiths at Bank of America. Matthew Griffiths: Just on churn, firstly, if I could. It seems as though across the industry, everyone is reporting churn being lower this quarter on a year-over-year basis. I was wondering if you had any comments about how much of your churn benefit in the quarter is just kind of that halo effect of industry churn falling. Or were there things that you were doing that you kind of can see that there's -- that would have been responsible on your side for reducing the churn? And then secondly, if you can make any comments on the kind of decision and how you evaluate the network expansion question. Specifically, you mentioned this quarter expanding the wireless network into the Chatham-Kent area. So if you could share kind of just how you evaluate it, how many more opportunities you see for this going forward, it would just be helpful on our side. Hugues Simard: Matt, thanks for your question, Matt. On churn first, probably a little bit of both, to be fair. Our churn, as you know, started from very high with Freedom, the highest in the industry by far, and is now fairly equal to the lowest of the industry. And that was mostly due to the improvements to our network, its performance, its coverage, its reliability, roaming packages, marketing agility, customer experience. I mean it's a -- who knows -- and bundling opportunities. There are so many factors that collectively contributed to this lowering or this decrease in our churn. Now that it has reached, as I said, a very competitive level, then obviously, it becomes naturally a little bit more affected or more influenced by maybe more market-related metrics. And it is our goal to maintain that churn through the various improvements. I mean we're nowhere done. I mean it's not as if we're at the end of the -- of our plan here in terms of improving everything that I've talked about and going after different cohorts, as we said earlier. And as our experience keeps getting better with our customers, we're very confident on the churn level that we have not only reached the industry's best, but that we will maintain the industry's best. Of course, there are the investments that Pierre Karl talked about that will continue. We're taking this very seriously. When we relaunched -- when we bought and relaunched Freedom, we said very clearly that we went about very diligently about fixing all the pain points and making sure that the experience was quickly very much better. And we still have work to do. This is a never-ending work, and we certainly intend to, as Pierre Karl said, continue to invest in our networks and also in our marketing agility to make sure that we continue to resonate with Canadian customers. As to the network expansion, this is the -- these decisions are made on a -- it's a bit of a -- how would I say, it's a bit of a balance between going after strong and interesting regions with -- and balancing it with the investments needed in these regions. So this is something we have a plan, and we're continuing to be very diligent and very disciplined about our network expansions going forward. Focusing on the MVNO areas where we're starting to resonate well, where we're building the business, you will remember us saying that we're not going to build and hope that people come. We will launch MVNOs and where it will make sense for us, we will prioritize network investments. And I think that's the good business way to do it, and that's still what we intend to continue to do. Operator: Next question will be from Jerome Dubreuil at Desjardins. Jerome Dubreuil: The first one is on the free cash algorithm. We were seeing a bit of EBITDA growth, but also CapEx increases. So I'm wondering if you're seeing a potential for free cash growth in the coming year or if value is going to be created more through deleveraging and buybacks. I appreciate there was the share-based comp situation this year. But essentially, will absolute EBITDA growth outpace CapEx growth in the next few years? Hugues Simard: Thanks Jerome, [Foreign Language]. I think you're seeing it in the numbers. We look at our performance in terms of generating margin, generating cash, which provides us with the opportunity to continue to invest in the network, which we had said we would. And from -- I think you will remember, again, us saying from the beginning of the year or even last year that we were going to maintain very strong, stable cash flow, even though we were intending to invest more in our network. So in terms of buybacks, as you know, we flexed in the past on this, and we will continue to do so. And dividends will be -- we will continue stay true to our dividend increase, reasonable increase that we've had in the past. We're still in the soft in the -- not in the soft, in the best spots that we announced between 30% and 50% of our payout. So we feel pretty comfortable with our continued capability to generate cash, very strong cash flows that then give us the leeway to continue to invest in the network and the -- eventually in the network builds. Jerome Dubreuil: I'm just going to push a little bit on the capital allocation point here. You said in the prepared remarks that you're probably happy with leverage in the low 3s. It seems like you're getting real close to destination here on the balance sheet side. So does that mean that we should be expecting a ramp-up in the buybacks probably? Or is that a fair assumption? Hugues Simard: It's not an unfair assumption, but I wouldn't necessarily agree to it now this morning. Pierre Péladeau: And Jerome, I think that we should say it's a prerogative of the Board of Directors. And look at the sequence previously where we've been changing our balance sheet policies. I guess that we should -- that would be a good example or a good illustration of what we can expect being the situation in the future. Operator: Next question will be from Vince Valentini at TD Cowen. Vince Valentini: Let me spin that free cash flow question just more specifically to the near term. Hugh, you've done $1.06 billion of free cash flow through the first 9 months of the year. In the fourth quarter of last year, you did over $300 million in free cash flow. Is there something material in terms of timing issues we should be thinking about for the fourth quarter? Or are you going to -- like, you're going to smash through $1.2 billion or $1.3 billion of free cash flow for the year? Hugues Simard: Vince, no, we've talked about this, I think, last quarter. There are some timing issues. Our CapEx did increase a little bit in Q3, as you've seen, but there still is some timing ahead of us -- timing issues ahead of us in terms of CapEx, which you should expect to be higher in Q4. So I wouldn't go all out in our expectations of us breaking the bank in terms of cash flow. It will be a very strong cash flow and we will more than deliver what we had said we would deliver, Vince. But yes, there definitely is going to be a catch-up in CapEx towards the end of the year -- between now and the end of the year, yes. Vince Valentini: But you would definitely expect to have positive free cash flow in the fourth quarter? Hugues Simard: For sure. For sure. Yes, yes. Vince Valentini: Okay. The second thing, your Internet adds were a bit better than I expected. Is this in Quebec in your core Videotron business? Or are you starting to see some benefit from Freedom Internet in the rest of the country using TPIA? Hugues Simard: Well, a little bit of both. It is in Quebec, but it is also in Freedom home Internet is performing well. Fizz Internet is performing well. So it's -- we are in a very competitive situation and an ever-increasing competitive situation in Quebec. But we've talked about the quality of our services and network. And so we've been performing well essentially everywhere in terms of broadband. Vince Valentini: Okay. And last one, I don't know if there's any materiality to this, but as you know, I'm a happy customer. These roaming SIM cards that you guys have and people on other carriers are allowed to use them when they're traveling, how are you counting those? Are they being counted as a subscriber in the third quarter sub adds? Hugues Simard: No, no. No, they're not -- if you've turned on that SIM card, as I know for a fact that you were finally successful in doing, Vince… Vince Valentini: Yes, I did. Hugues Simard: After some help, you are not counted as a subscriber, no. Vince Valentini: So that is actually -- it is obviously service revenue. So it's going to be helping your ARPU even more than just the underlying trends in the business going forward? Hugues Simard: Yes. That's correct. And by the way, it's high time that you do become a customer of Vince. We're counting on you. Vince Valentini: I'm waiting for your Black Friday offer. Pierre Péladeau: Thanks for your business, Vince. Operator: Next question will be from Aravinda Galappatthige at Canaccord Genuity. Aravinda Galappatthige: Just a couple of quick ones from me. Hugues, you mentioned that one of the reasons for the success of Freedom sub trends is because you're kind of going into other cohorts that the old Freedom did not. I mean should we translate that comment as suggesting speaking to sort of the prepaid-postpaid mix? Any comment around how that mix has changed as you sort of progressed with gains on the subscriber front? And then secondly, just a small follow-up. The wireless ARPU redefinition, can you just clarify what that was? Hugues Simard: As to your first question, Aravinda, postpaids and prepaids for us, we're continuing to perform well on both. We have -- we're a bit agnostic, to be honest, and have continued to work well. So on all the cohorts that I talked about, I think that was more of a general comment applying to both to both postpaid and prepaid -- not specifically a move from one to the other. But we -- to be quite transparent, we're continuing to perform well on postpaid. And your second question, sorry, I've forgotten was to do with what? Aravinda Galappatthige: The ARPU redefinition. I think it was a small definition change of $0.40. Hugues Simard: Yes. Yes, it's about $0.40. We've restated it. But as those were $0 accounts, you'll see that it's almost consistently $0.40 over the last so many quarters that we restated. Operator: Next question will be from Drew McReynolds at RBC. Drew McReynolds: So a couple for me. Maybe for you, Hugh, on the CapEx trajectory in telecom. It looks like you're running a little hotter than the initial kind of $650 million or so of CapEx. Just wondering, and I think your commentary from Q4 would say you come on above that. Is there any kind of change overall to the kind of medium-term trajectory on CapEx from your perspective? And then just tied to that, we are seeing a pretty efficient kind of cable CapEx intensity come down from -- with some of your cable peers. Just wondering your cable CapEx, how you expect that to trend again through the medium term? Hugues Simard: Thanks, Drew. So on medium-term CapEx, both wireless and wireline, we will -- as I said earlier, we will, in Q4, be a little bit higher. That doesn't necessarily change our midterm -- what we said about the midterm that we are -- and we've said this before, that we're in a -- we're continuing to invest, and we're continuing to improve and ultimately expand as well our networks. And as such, it will be -- you should expect a gradual CapEx increase over the medium term. Nothing -- again, gradual, nothing -- no CapEx wall. I have some of your colleagues unfortunately use the term in the past. I don't think there's anything to be worried about, but just very reasonable and very sensible investments in both of our wireline and wireless network going forward. So no change to our midterm CapEx trajectory. Drew McReynolds: Just in the MD&A, you alluded to some favorable kind of provisioning in Q3 within telecom. I'm assuming the 2.8% year-over-year telecom EBITDA growth ex the provisioning is still a reasonably good growth rate. Can you just comment on quantifying those provisional -- favorable provisions? Hugues Simard: I won't give you the number, obviously, Drew, but it's -- no, I think your statement is fair. There's no -- yes, there was some provision adjustments as we do in a number of quarters and almost all quarters and as everybody does, but it's not material enough to impede or to change the conclusion on our increase in profitability for the quarter. Drew McReynolds: Okay. No, that's great. And last one for me, just the usual fixed wireless impact in Quebec, just how that's kind of contributing to the competitive environment, if at all? And that's it for me. Hugues Simard: To be honest, nothing significant. It is -- and by that, don't misread us. We're not saying that this is something to be dismissed. As we said in the past, fixed wireless is -- we're not saying it's not a thing. It may very well become a thing. And we are certainly in our own shop, looking at opportunities for fixed wireless. But certainly, to your -- in answer to your question, so far the impact on us has been very limited in our home turf of Quebec. But we are definitely -- and we've got the teams already lined up to start reflecting on how we will turn that into an opportunity for us in our various markets outside of Quebec. Aravinda Galappatthige: And congrats on great wireless results. Operator: Our last question will be from Tim Casey at BMO. Tim Casey: Hugh, just one modeling question and a couple of others. Working capital is running very positive so far this year. Should we expect a reversal in Q4 or maybe into Q1 next year? And what's driving that? Is that cash management or is it just timing? Hugues Simard: Tim, no, you should -- the answer your question, there should not be -- I don't see any material difference in Q4 or Q1 of next year in terms of working capital. It is -- to be honest, it is something that we've been focusing on for the past year or so, 1.5 years, where we recognized -- I think sometimes you have to be -- you have to question yourself on various occasions. And we weren't as efficient in working -- in managing our working capital as we should have been in the past. And we've tightened up a lot of things and I think it's showing. But we certainly intend to continue to perform well on working cap. And I wouldn't expect -- I mean, there's no bump either way that you should expect in the next quarters. Tim Casey: Okay. Just 2 for me. On the 50,000 subs you removed out of the base, can you give us any color on why they were $0 subs? Was this an aggressive promotion from the relaunch of Freedom? Were they -- was it an enterprise deal? What was happening there that they were so poor ARPU? And second one, as you think about expanding out of footprint on wireline, do you expect to retain similar type economics maybe on a margin basis? I would -- or should we assume that it will be dilutive to ARPU on the wireline side? Hugues Simard: Tim, to your first question, the 50,000 or 51,000 were $0 accounts. It's basically people who had opened an account but never -- or had a SIM card, mostly from before the acquisition and who never really bought a package. So they -- we had them as an account, but they weren't active and they weren't generating any revenue. So we just took them out. In terms of our out-of-footprint wireline, we -- again, our intent is to remain very disciplined and very -- I think that was your question. If I'm not answering the right question, you can ask me. We certainly -- as we've said in our notes today, both Pierre Karl and I, we intend to -- whether it's out of footprint wireline or eventually fixed wireless, whatever, it is our intent to remain very disciplined. And I think if I may make the point right now, we have been and for quite some time, been very disciplined and very predictable in our approach. We say what we're going to do, and we do what we said we were going to do, which I don't think can be said for everybody in telecom in Canada. But we certainly, in terms of wireline, intend to continue to apply that philosophy, if I can call it that. Pierre Péladeau: So we would like to thank you all attending this conference call and expect the same for our next quarter that will be our year-end. So don't miss Hamilton game, the Alouettes against the Tiger-Cats on Saturday. Hugues Simard: And you should root for the Alouettes, right? Pierre Péladeau: Sure. Thank you very much and have a nice day. Hugues Simard: Thanks, everyone. Operator: Thank you. Ladies and gentlemen, this concludes the Quebecor Inc.'s financial results for the third quarter 2025 conference call. Thank you for your participation and have a good day.
Operator: Good day, and welcome to CoreCivic's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call may be recorded. I would now like to turn the call over to Jeb Bachmann, Managing Director, Investor Relations. Jeb Bachmann: Thank you, operator. Good afternoon, everyone, and welcome to CoreCivic's third quarter 2025 earnings call. Participating on today's call are Damon Hininger, CoreCivic's Chief Executive Officer; Patrick Swindle, CoreCivic's President and Chief Operating Officer; and David Garfinkle, our Chief Financial Officer. We are also joined here in the room by our Vice President of Finance, Brian Hammonds. On this call, we will discuss financial results for the third quarter of 2025 as well as updated financial guidance for the 2025 year. We will also discuss developments with our government partners and provide you with other general business updates. During today's call, our remarks, including our answers to your questions, will include forward-looking statements pursuant to the safe harbor provisions of the Private Securities and Litigation Reform Act. Our actual results or trends may differ materially as a result of a variety of factors, including those identified in our third quarter 2025 earnings release issued after market yesterday as well as in our Securities and Exchange Commission filings, including Forms 10-K, 10-Q and also 8-K reports. You are cautioned that any forward-looking statements reflect management's current views only and that the company undertakes no obligation to revise or update such statements in the future. Management will discuss certain non-GAAP metrics. A reconciliation of the most comparable GAAP measurement is provided in the corresponding earnings release and included in the company's quarterly supplemental financial data report posted on the Investors page of the company's website at corecivic.com. With that, it is my pleasure to turn the call over to our CEO, Damon Hininger. Damon T. Hininger: Thank you, Jeb. Good afternoon and thank you for joining us for CoreCivic's third quarter 2025 earnings call. On this afternoon's call, I will discuss our near-term and long-term outlook and recent contracting activity. Following my opening remarks, I will hand the call over to Patrick Swindle, our President and Chief Operating Officer. Patrick will review the performance of our core portfolio, discuss in further detail our operational activities relating to facility activations during the quarter and how we are preparing for additional demand from our government partners. We will then turn the call over to our CFO, Dave Garfinkle, who will provide detail on our third quarter financial results as well as our updated 2025 financial guidance and provide an update on our capital allocation strategy. I will then conclude with some closing remarks before we open up the call for Q&A. First up, an update on our activation activities, where we've made substantial progress on contracting several idle facilities. Since our last earnings call, we announced new awards at the 600-bed West Tennessee Detention Facility, the 2,560-bed California City Immigration Processing Center, the 1,033-bed Midwest Regional Reception Center and the 2,160-bed Diamondback Correctional Facility. In aggregate, these 4 new contract awards are expected to generate annual revenue of approximately $320 million once we reach stabilized occupancy. Our updated full year 2025 financial guidance reflects significant earnings growth from 2024. Although these recently announced new contract awards negatively impact our financial guidance for the fourth quarter for start-up related activities, which Dave will review in detail, these new awards set us up nicely for an even stronger 2026. Once we reach stabilized occupancy for these new awards, which we expect to occur during the first half of 2026, we expect our annual run rate revenue to be approximately $2.5 billion and annual run rate EBITDA to increase by $100 million to over $450 million, and this is not counting any additional contract awards. While staffing ramp continues at each of these facilities with some already accepting detainees, the intake process at our Midwest facility has been delayed by a lawsuit filed by the City of Leavenworth. And although we are optimistic, we cannot predict if or when a favorable resolution will be achieved. Patrick will provide further details on the progress of these activations. Moving to a discussion of the business climate. At the end of September 2025, nationwide ICE detention populations were at historical highs of around 60,000, an increase of a couple of thousand from the end of the second quarter. U.S. Immigration and Customs Enforcement or ICE, has been our largest customer for over a decade. From the end of 2024 through the third quarter, ICE populations in our facilities increased 3,700 to almost 14,000 or 37%. We believe that enforcement activity could gain additional momentum in the coming months as more agents are hired to meet ICE's 100,000-bed detention target. Nationwide populations from the United States Marshals Service, our second largest customer, have remained relatively flat, although we expect Marshals populations to increase in 2026 due to an anticipated increase in enforcement activities and as more U.S. attorneys are put in place. Our Marshals populations have declined slightly to just over 6,300 at the end of September. Many of our state partners continue to face complex correctional challenges either because of staffing shortages, overcrowding or outdated infrastructure. Our year-over-year state populations were up about 600 people driven most notably from new contracts with the State of Montana and increased populations in Georgia. We are in conversations with numerous existing and potential state partners to accommodate their additional demand. As we continue to look for additional ways to meet our government partners' needs, we believe that we can make available substantial capacity to meet future demand. Even after the earlier mentioned activations, we own 5 idle corrections and detention facilities containing approximately 7,000 beds. Along with surge capacity we have made available at certain facilities, partial capacity we have in facilities that are currently in operation and capacity we can make available through third-party leases like our great partnership with Target Hospitality I previously mentioned, we have close to 24,000 beds that we have informed ICE could be available. We continue to believe that detention beds like these represent the best value and are the most humane, most efficient logistically, have the highest audit compliance scores in their system, are more secure, weather-proof and are readily available. One final comment before I pass the call over to Patrick. As you all know, the company has a authorization for a share repurchase program for up to $500 million in the aggregate. During the 9 months ended September 30, 2025, we purchased 5.9 million shares of common stock under the share repurchase program at an aggregate cost of $121 million or $20.60 per share. Since the share repurchase program was authorized in May of 2022, through September 30, 2025, we have purchased a total of 20.4 million shares of our common stock at an aggregate cost of $302 million or $14.81 per share, excluding fees, commissions and other costs related to the repurchases. As of September 30, 2025, we had approximately $198 million of repurchase authorization available under the share repurchase program. Looking at the current stock price and our historical EBITDA trading multiples, the market is assuming a $300 million EBITDA run rate for the company, which is clearly a misalignment with our recent operating performance and anticipated forecast for 2026. With that, we expect to be executing an aggressive buyback plan this quarter, likely to be more than double the amount we have done in previous quarters. With that, I will pass the call over to Patrick Swindle for further review of our operations activities during the third quarter. Patrick Swindle: Thanks, Damon. I'll start with a high-level overview of our top line revenue and third quarter operational performance. Federal partners, primarily Immigration and Customs Enforcement and the U.S. Marshals Service comprised 55% of CoreCivic's total revenue in the third quarter. Revenue from our federal partners increased 28% during the third quarter of 2025 compared with the prior year quarter. Further breaking down our federal revenue, revenue from ICE increased $76.2 million or 54.6%, while revenue from the U.S. Marshals Service decreased by 5% versus the prior year quarter. Some of this decline is simply a shift mix where ICE and Marshals share a contract. As Damon mentioned, we expect increases in U.S. Marshals populations later in 2026. Revenue from our state partners increased 3.6% from the prior year quarter. This increase includes additional revenue from the State of Montana, resulting from the 2 new contracts we signed with the state since the second quarter of 2024 and population increases in Georgia. Total occupancy for our Safety and Community segments for the quarter was 76.7%, up 1.5 points since the year ago quarter. As we noted on our last quarter earnings call, total occupancy reflects the transfer of our 2,560-bed California City Immigration Processing Center from our Property segment, which isn't included in these occupancy statistics to our Safety segment. Although this facility recently transitioned from a letter contract to a definitized contract, we have not yet begun receiving any detainees until late in the third quarter. Therefore, if we exclude this additional capacity from the calculation, making a more apples-to-apples comparison with prior periods, our reported occupancy would have been 79.3%. The average daily population across all of the facilities we manage was 55,236 during the third quarter of 2025 compared with 50,757 in the year ago quarter. This increase was driven by more demand for our services and new contracting activity. Our teams continue to be successful in working with our government partners and managing the additional people in our care, which we are focused on every day. Our third quarter results exceeded our internal projections for adjusted EPS and normalized FFO per share by $0.03 and $0.04, respectively, and adjusted EBITDA by $4.8 million. As Damon alluded, the third quarter was a very busy quarter with reactivation activities at several previously idle facilities. We resumed operations in March at the 2,400-bed Dilley Immigration Processing Center under a new 5-year agreement and reached full operational capacity in September. Shortly after the second quarter earnings release, we announced a new IGSA contract for our 600-bed West Tennessee Detention Facility. This contract has a 5-year term and is expected to generate $30 million of annual revenue once fully activated. Full ramp is expected to be completed by the end of the first quarter of 2026. Effective September 1, 2025, we transitioned from a letter contract with ICE to a definitized contract at our 2,560-bed California City Immigration Processing Center. The new contract is for a 2-year period and is expected to generate annual revenue of approximately $130 million once fully activated. We began receiving detainees at the facility on August 27 and expect the activation to be completed in the first quarter of 2026. Effective September 7, 2025, we transitioned from a letter contract with ICE to a definitized contract at our 1,033-bed Midwest Regional Reception Center. This new contract is for a 2-year period and is expected to generate annual revenue of approximately $60 million once fully activated. However, the intake process continues to be delayed by the lawsuit with the City of Leavenworth that Damon mentioned earlier. Given the facility's centralized location, ICE is eager to begin fully utilizing this facility, and we're optimistic about successfully resolving the dispute. The recent entrance into the lawsuit by the Department of Justice could help expedite a favorable outcome. Effective September 30, 2025, we entered into a new IGSA between the Oklahoma Department of Corrections and ICE to resume operations at our 2,160-bed Diamondback Correctional Facility. This new contract has a 5-year term and is expected to generate approximately $100 million in annual revenues once fully activated, which we currently forecast to occur in the second quarter of 2026. In aggregate, these 4 recently announced contract awards are expected to generate annual revenue of $320 million. Despite visibility into annual run rate EBITDA, we do not believe the current stock valuation reflects the cash flows of our business, particularly considering these new contracts and our growth potential. Therefore, we plan to accelerate the pace of our share repurchases in future quarters, taking into consideration stock price and alternative opportunities to deploy capital, among other factors, as Dave will discuss further. The substantial progress made during the quarter in reactivating previously idle facilities couldn't have been accomplished without the hard work of our employees and the strong relationship with our government partners. However, we know there's more work to be done. Activations are complex and activating 4 idle facilities simultaneously is particularly complex. But I'm confident we have the right plan and the right teams in place to be successful both in these and future activations. In the meantime, we continue to remain focused on effectively managing our core portfolio and ensuring we meet our high operational standards as well as those of our government partners. Without this focus and performance, these additional opportunities may not exist. And so as I turn it over to Dave to discuss our third quarter financial results in more detail, our capital allocation activities and assumptions included in our updated 2025 financial guidance, I'd like to again express my appreciation to our 13,000 employees for their focus and commitment to our mission. Dave? David Garfinkle: Thank you, Patrick, and good afternoon, everyone. In the third quarter of 2025, we generated GAAP EPS of $0.24 per share and FFO per share of $0.48. Special items in the third quarter of 2025 included a $2.5 million gain on the sale of assets, a $1.5 million asset impairment and $0.8 million of M&A charges, including our acquisition of the Farmville Detention Center on July 1, reported in G&A expenses. Excluding special items, adjusted EPS in the third quarter was $0.24 compared with $0.20 in the third quarter of 2024, an increase of 20%. And normalized FFO per share was $0.48 per share compared with $0.43 per share in the prior year quarter, an increase of 11.6%. Adjusted EBITDA was $88.8 million compared with $83.3 million in the third quarter of 2024, an increase of 6.6%. Adjusted EPS and normalized FFO per share exceeded our internal forecast by $0.03 and $0.04 per share, respectively, and adjusted EBITDA exceeded our internal forecast by $4.8 million. The increase in adjusted EBITDA from the prior year quarter of $5.5 million resulted from higher federal and state populations as well as higher average per diem rates across much of our portfolio, partially offset by start-up activities in the third quarter of 2025 and some one-time benefits in the prior year quarter. The number of ICE detainees in our care followed national trends, which remained at or near record highs throughout the third quarter of 2025. As Damon and Patrick both mentioned, the third quarter was a very busy quarter for idle facility activations. We completed our reactivation of the Dilley Immigration Processing Center in September and are now generating revenue under a fixed monthly payment for the full 2,400-bed facility. During the third quarter, however, this facility accounted for a net decrease in facility net operating income of $3.4 million or $0.02 per share compared with the third quarter of 2024 as the facility was fully operational during the third quarter of 2024 until the contract with ICE was terminated effective August 9, 2024. As we previously disclosed last year, we also accelerated recognition of deferred revenue of $5.7 million in the third quarter of 2024 due to the contract termination. Shortly after last quarter's earnings release, we announced a new contract under an IGSA between the City of Mason, Tennessee and ICE to activate our previously idled 600-bed West Tennessee Detention Center, where we began receiving detainees on September 8. In September, we announced that we transitioned from short-term letter contracts at our 1,033-bed Midwest Regional Reception Center and our 2,560-bed California Immigration Processing Center into newly signed longer-term contract structures. We began receiving detainees at the California City facility on August 27. While obviously good news, we did incur facility operating losses at these 3 facilities during the third quarter of $3.4 million or $0.02 per share for start-up related activities. Although not impacting the third quarter, on October 1, we announced a new contract award under an IGSA between the Oklahoma Department of Corrections and ICE to activate our 2,160-bed Diamondback Correctional Facility, which commenced September 30. Other factors affecting EBITDA and per share results included higher G&A expenses, the favorable impact of our share repurchase program and the acquisition of the Farmville Detention Center on July 1, 2025. Operating margin on our Safety and Community facilities combined was 22.7% in the third quarter of 2025 compared to 24.9% in the prior year quarter. Excluding the aforementioned operating losses at the 3 facilities in various stages of activation, operating margin was 24% for Q3 2025. Again, margin in the prior year quarter was favorably impacted by the accelerated recognition of deferred revenue at the Dilley facility and a ramp down of populations at the facility in July 2024 despite generating a fixed revenue payment for the full facility through the August 9 termination date. Turning next to the balance sheet. During the third quarter, we repurchased 1.9 million shares of our common stock at an aggregate cost of $40 million, increasing our year-to-date repurchases to 5.9 million shares at an aggregate cost of $121 million. As of September 30, we had $197.9 million available under our $500 million Board authorization. As mentioned last quarter, on July 1, 2025, we acquired the Farmville Detention Center, a 736-bed facility located in Virginia for a total purchase price of approximately $71 million, including the acquisition of working capital accounts at an attractive return. After taking into consideration these share repurchases and this acquisition, our leverage measured by net debt to adjusted EBITDA was 2.5x using the trailing 12 months ended September 30, 2025. At September 30, we had $56.6 million of cash on hand and an additional $191.4 million of borrowing capacity on our revolving credit facility, which had a balance of $65 million outstanding, providing us with total liquidity of $248 million. Moving lastly to a discussion of our updated 2025 financial guidance. We expect to generate adjusted diluted EPS of $1 to $1.06 compared with $1.07 to $1.14 in our previous guidance and normalized FFO per share of $1.94 to $2 compared with $1.99 to $2.07 in our previous guidance. We expect adjusted EBITDA of $355 million to $359 million compared with $365 million to $371 million in our previous guidance. Our updated guidance reflects the favorable results for the third quarter, updated occupancy projections consistent with current trends as well as updated assumptions for start-up activities related to new contracts signed during the third quarter at our West Tennessee Detention Facility, our California Immigration Processing Center, our Midwest Regional Reception Center and our Diamondback Correctional Facility. Our revised guidance reflects a reduction in EBITDA at these 4 facilities of $10 million to $11 million compared with our prior guidance. In other words, the reduction in our guidance is essentially attributable to the updated assumptions for the start-up activities at these 4 facilities. These start-up activities will also negatively impact Q4 margins. We are currently preparing our 2026 budget and expect to provide financial guidance for 2026 in conjunction with our fourth quarter earnings release in February. However, as Damon mentioned, upon reaching stabilized occupancy at these 4 facilities, we currently expect our run rate EBITDA to be no less than $450 million. We currently expect to reach stabilized occupancy of the last activation of these 4 facilities in the second quarter of 2026, so we will not reach a full year run rate in 2026. Also keep in mind, activating facilities is a complex and challenging process with certain factors like the pace of intake and resolution of the legal dispute at our Midwest facility, to name a couple, not always within our control. We still have 5 remaining idle facilities containing 7,066 beds. And we believe incremental demand for more idle facilities will likely be needed once ICE absorbs the recently contracted beds. With historic funding levels for border security and immigration detention obtained under the One Big Beautiful Bill Act, ICE's publicly stated intention to reach 100,000 detention beds nationwide as well as growing demand from existing and potential new state government partners, we believe there are numerous opportunities to activate additional idle facilities we own. We also believe there could be opportunities to manage additional bed capacity not currently in our portfolio. These opportunities would be incremental to the aforementioned run rate EBITDA levels after considering any start-up expenses. We plan to spend $60 million to $65 million on maintenance capital expenditures during 2025, unchanged from our prior guidance, and $14 million to $15 million for other capital expenditures increased primarily for preplanned investments at the newly acquired Farmville Detention Center. Our 2025 forecast also includes $97.5 million to $99.5 million of capital expenditures associated with potential facility activations and additional transportation vehicles, up from our prior guidance for requests from ICE in connection with the new contracts at the California City and Diamondback facilities. During the first 3 quarters of the year, we spent $51.6 million on potential idle facility activations and additional transportation vehicles. Finally, with respect to our capital allocation strategy, we do not believe the price of our common stock reflects the value of the cash flows of our business, particularly considering recent contract wins, and therefore, expect to accelerate the pace of our share repurchases in future quarters. Our Q4 guidance contemplates double the space of the previous quarter. Our share repurchases will take into consideration our stock price, liquidity, earnings trajectory and alternative opportunities to deploy capital. We expect adjusted funds from operations or AFFO, which we consider a proxy for our cash flow available for capital allocation decisions such as share repurchases and growth CapEx such as facility activations to range from $210 million to $219 million for 2025. We expect our normalized annual effective tax rate to be 25% to 30%, unchanged from our prior guidance. The full year EBITDA guidance in our press release provides you with our estimate of total depreciation and interest expense. We are forecasting G&A expenses in 2025 to be approximately $167 million, excluding expenses associated with M&A transactions. Before we turn the call back to the operator for Q&A, I'd like to turn the call back to Damon for his closing remarks. Damon T. Hininger: Thank you, Dave. Well, as you all know, in August, we announced that Patrick will succeed me as CEO effective on January 1, 2026. I've had the great honor and the privilege of holding the CEO title for over 16 years, and I'm humbled by the opportunity to have served this great company since I started my career as a correctional officer in the summer of 1992. I still clearly remember working my first post, which seems like yesterday. And I never would have, in my wildest dream, think that I would be someday the CEO of this great company. It has truly been an amazing ride. And so as I close out my prepared remarks for my 65th and last quarterly earnings call, I want to express my gratitude to you, our investors, both new and long term for your confidence, support and ideas. Also to our government partners, to my fellow Board members, mentors and colleagues, both current and retired and all the other people with whom I have had the honor and privilege to work with, many of whom I call very dear friends. My sincere thanks to each and every one of you. I am tremendously excited and very proud of Patrick, and I know he will steer our company to new heights and tremendous success. Beyond my transition agreement, I do not know yet what the next chapter in my life will bring. But I do know it will be shaped by my experiences at CoreCivic, which has ingrained in me a call to continuous public service and improving people's lives. Best of luck to each and every one of you. And with that, I turn the call over to operator for questions. Operator: [Operator Instructions] Our first question comes from Joe Gomez with NOBLE Capital. Joseph Gomes: Before I start, let me just say, Damon, it's been a pleasure working with you, and good luck on your future endeavors. And Patrick, I'm looking forward to seeing you fill Damon's shoes going forward. Damon T. Hininger: Thank you, Joe. It means a lot. You've been a tremendous friend and always grateful for your advice and support perspective. So I'm going to miss you my friend. Joseph Gomes: So to the questions. We obviously, in the news is the government shut down ICE looking to hire 10,000 people. And I think there's some concern out there that the level and pace of ICE detentions has slowed significantly from where originally people were thinking they would be. I think at one point, 3,000 a day they were talking about. And I just wanted to kind of get your thoughts, Damon, on where the pace of ICE population detentions are for you guys? Is it meeting your goals or how far below has it been your expectations? And how you see that maybe playing out the rest of this year? Damon T. Hininger: Great question, and I'll probably tag team with Patrick a little bit on this. But the shorter answer is that, as you know, we're a 24/7 essential service for the government. And so on our side, on the contractor side, I mean, we're seeing the pace, admissions, discharges and activity in our facilities pretty much status quo, I mean, pretty much what we expected. In fact, I'd say, it's increased a little bit not just on the detention side, but we're also being asked to do a lot more transportation. We are expecting that with the demands and expectations and the priorities for this administration after the inauguration. But I'd say, even that's picked up a little bit more than what we expected. And not quite to your question, but I would say also on the contracting side. So again, we've had probably the fastest clip of 4 contracts in a period of time that I've ever seen in the company history with the 4 that we've announced here in the last 90 days. And so all the activation activities around those 4 facilities, obviously, a lot of that's on our shoulders. But I'd say, on the government side, clearances, helping people getting situated that are obviously going to be monitors and other support staff that are going to help the mission of these facilities, I'd say none of that has slowed down at all. But Patrick, add and amplify to that, if you don't mind. Patrick Swindle: Sure. The only thing that I would add, Joe, is that really 2 things. One of them is the scale of increase in enforcement activity that has been implemented is really unprecedented and it's of a level that we really have not seen previously. And the consequence of that is you're going to see, I'll call it, an uneven or non-linear growth path. And so I wouldn't expect that you're going to see steady increases progressively. But what we do know is our Department of Homeland Security has been very committed to hiring additional officers to help them implement the mission. We've seen no indication that there's been any change in terms of policy or policy approach that would cause us to believe that what we've experienced more recently is anything other than the natural ebb and flow of ramping up to a scale that, again, we haven't seen previously. And so as a consequence of that, I think it's really difficult to predict exact timing. But to Damon's point, we've signed 4 contracts. We're executing those and ramping them very quickly. We're going to be bringing those online but certainly wouldn't interpret pace as being an indication of any indicator of a lessening of long-term demand potential. Joseph Gomes: Okay. And then just -- I don't know if you can provide a little more color on when you talk about the guidance and updated occupancy projections, we talk about those are less than what you originally were projecting. And same with the assumptions for start-up costs, assuming they might be higher than what you were originally projecting. And I'm just trying to get a little more color on those comments and how they relate to the updated guidance. David Garfinkle: Yes, Joe, I'll take the second part of that question. Our updated guidance really reflects the start-up activities in Q4 relative to our last guidance. So last guidance, remember, we hadn't signed the West Tennessee contract. We didn't sign the Diamondback contract. So neither of those 2 contracts were in our guidance for the year, the fourth quarter. So incorporating those new contracts into our guidance does result in some operating losses at those facilities as well hire staff, continue to ramp up staff before we start receiving detainees. Now we have started receiving detainees at the West Tennessee facility, but the Diamondback facility is really just beginning its ramp-up. So that did take the guidance down in Q4, which I don't take as bad news. I mean, I'd rather have the contracts with start-up activities than leaving the guidance where it was without those contracts. And what was the first part of your question, Joe? Joseph Gomes: Just we talked about some of the updated occupancy projections... David Garfinkle: Yes, occupancy, we expect that to increase because we are ramping up California City, our West Tennessee facilities, as I mentioned, are both taking on detainees. I would say that the rest of the core portfolio is at or near capacity. So I wouldn't expect a large increase from existing facilities. So as we ramp up additional idle capacity, the only opportunity is really to bring on new capacity and activate additional facilities with higher populations. Joseph Gomes: And Dave, maybe I can follow it up with the increased CapEx spend for ICE ask. What is ICE asking for that is going to increase the CapEx that you weren't originally anticipating? David Garfinkle: Yes. So Diamondback and Cal City, both asked for renovations to parts of the facility. That was really the increase in our CapEx guidance. I think it was intake areas. They want to expand the intake areas because ICE is a transient population. So typically, you have a higher volume of activity compared with a state population, which is what we had previously at both of those facilities. Joseph Gomes: Okay. And then one more for me, if I may, on the buyback. You have your leverage goal of 2.25 to 2.75. I think you said 2.5 at the end of the quarter. We see where the stock price is. You already said you're looking at getting more aggressive. Would you consider exceeding your leverage goals given where the stock price is on that -- to even acquire additional shares? How aggressive would you be? David Garfinkle: My short answer is yes, but I see we've got a couple of other people anxious to answer that question. So I'll flip it over to Damon and Patrick. Damon T. Hininger: Joe, we're all nodding yes. Yes, yes, yes. I mean, if you think about it this way, and this is a pretty sweet way to end as a CEO. I mean, we look at our forecast next year, as I said in my script, $2.5 billion forecast in revenue, over $450 million in forecasted run rate EBITDA. And you look at the stock price, and that's ridiculous. I mean, so I think absolutely, we are looking at this quarter and then going into next year. If the price is going to sit around this level, this is a tremendous opportunity to buy back shares. And so I'm saying it obviously as CEO, we've got obviously the management team here, but I know I'm very confident our Board feels the same way, and this will be a conversation we'll have in the coming days and weeks, not just the aggressiveness of the plan, but also if we need potentially more authorization. But anything to add to that, Patrick. Patrick Swindle: The only thing that I would add is our leverage target has been based on a trailing leverage basis. And so when you look at the growth that we're expecting for 2026, it's one of the fastest growth years year-over-year that we've experienced in a very long time as a company. And so when you think about that scale, we have to consider trailing leverage, but we can also look at it already identified cash flows. And so it's awarded contracts that would drive us to a $450 million or greater run rate. So it's not speculative in terms of our ability to achieve that level of cash flow. And so certainly, we have to consider trailing leverage. We're not going to not think about that. But we also do have to compare that with an expectation of rapid known and cash flow growth that gives us the ability to be more aggressive on the margin. Operator: Our next question comes from M. Marin with Zacks. Marla Marin: I want to follow-up on something you touched upon in the script -- in your scripted remarks. We're all hearing a lot with the government shutdown about how payments to various entities are not being processed or not being processed as quickly as they were prior to the shutdown. Can you just give us some color on what that means for you in terms of when you finally do collect the cash in that you're expecting? Will it be a flat lump sum? Will you get interest on that? How will that work for you guys? David Garfinkle: Yes, I'll take that one, M. Thanks for the question. Yes, we expect when the government resumes operations that we will get paid in full for all the services that we've provided in the past. I don't exactly know the mechanics of how they process those. I imagine it goes into a queue. As we submitted our invoices, there'll be in a queue at ICE and Department of Homeland Security and they'll process those invoices according to due date. But I don't have visibility into exactly how they process them. But when they do process them, they do pay with interest. I think that interest is in the low-4% today. So that's not something we have to ask for. It's automatic under the Federal Acquisition Regulations of the Prompt Payment Act. So we will collect interest with the payments when they resume operations and make their payments to us. Marla Marin: Okay, great. And you have a lot going on and there's a lot of noise in the third quarter numbers, as you indicated, with start-up costs, reactivating idled facilities. So you still have a handful of idled facilities after you reactivate the ones that are currently in the process of reopening. And in the earlier comments, you did say something about future activations and that you wouldn't be surprised if there were demands that warranted reactivating additional facilities. Is it right to think that there have been any kind of -- not negotiations, not at that point yet, but any kind of like early, early, early discussions about some of these other facilities? Damon T. Hininger: Absolutely. Yes, this is Damon. I'll take that question. And the short answer is absolutely. So if you rewind the last quarter, we were looking at the rest of this year, there was a couple of facilities we didn't talk about on the call, but we were having conversations. One of those is Diamondback, the one in Oklahoma. So obviously, those things happen discretely with the partner based on kind of what their needs and expectations and timing and how much capacity and whatnot. So we're having similar conversations today. So I think that's one question that's important to answer right now because you got the government shutdown, and I think there's probably assumption that all that activity is shut down. That's not the case. We're still seeing active requests for information on facilities where we could expand, where we've got maybe a small allotment of vacant beds that they may want to contract for and then vacant facilities. We still have people or still have customers indicating interest not only about those facilities, but actively going out, touring, inspecting the facilities, determining how we can meet their mission. So all that activity is still very active even though with the government shutdown. Operator: Our next question comes from Kirk Ludtke with Imperial Capital. Kirk Ludtke: Damon, congratulations on a great run. Damon T. Hininger: Thank you, Kirk. It's been a real blessing. I appreciate that. Kirk Ludtke: And best of luck. I guess with respect to the 100,000 beds, I'm hearing less -- we're hearing less about fewer alternative sites being opened by ICE. But can you just maybe comment on -- are you competing with those alternative sites of military bases, et cetera? And if so, how many beds are available at those locations that you think you might be competing with? Damon T. Hininger: Yes. Great question. And I think we've indicated or have alluded to anyway in the last couple of quarters, we think it's kind of the all of the above approach. So clearly, there's been some activity of both DHS leadership and ICE leadership to look at some of these alternatives for various different reasons. But indicating our value proposition here last 90 days, again, we signed 4 contracts with facilities where we had vacant capacity. So the value proposition and the location of our facility is obviously very attractive with these new contract awards. And so I think to get to 100,000, I think, as I said earlier, I think it's going to be a little bit of all of the above approach. And I think it's also going to be a case of as they look at our capacity being more secure, but I think also maybe a little longer-term solution and then these alternatives, especially the soft side of ones where they're more short term in nature, again, I think it will just be determined on the mission and the location. But anything to add there, Patrick? Patrick Swindle: The only thing I would add is 100,000 beds is really a guidepost more than a hard target. And so it's going to be really somewhat dependent also on enforcement. And so if you were to look at all of the beds available in the sector today and you look at the potential demand opportunity that can result from the higher enforcement rate activity, all of our beds could be used and you could still have a scenario where many more beds are needed. And so we've talked on past calls about our having thought about how we might provide capacity in addition to our existing facilities of the 7,000 beds that we talked about being available. And again, we want to be flexible and nimble and help our partner meet the need that they have at any moment in time. And I certainly wouldn't interpret all of our facilities not having been contracted for as an indication that, that may not be coming, because again, growth isn't going to be linear. And as the number of officers are put in place and out in our communities enforcing the law, you would expect you're going to see an ebb and flow in demand that will ultimately result in more bed need. And so I would say, from our perspective, we think that it is a both end solution. Kirk Ludtke: Got it. That's very helpful. And have you staffing issues, any issues there finding people to work at your facilities you're ramping up? Patrick Swindle: No, we're having a very strong experience from a hiring perspective. As you can see in the broader economy, there has been some broader economic weakness, and we're certainly experiencing that as we hire. And so the backdrop that we've encountered as we've gone out to activate these facilities has helped us activate very efficiently approaching our staffing targets ahead of schedule in most all cases and really don't see ourselves inhibited by our ability to hire. Kirk Ludtke: Got it. Great. And then last one. Are there any limitations on share repurchases in your credit agreements? David Garfinkle: No. Operator: Our next question comes from Raj Sharma with Texas Capital. Raj Sharma: My first question is around how much -- your guide -- your sort of soft guide that you just gave on fiscal '26. How much of the revenue embedded in 2026? What is the reactivated of the 5 facilities? How much are they contributing in revenues and in EBITDA to that fiscal '26 guidance? David Garfinkle: Well, the -- if you're talking about the 4 we just announced in the third quarter is about $321 million in -- yes, that's about $320 million in revenue. I would say, if you look at '26 versus '25, that's probably about $250 million of incremental revenue because we are generating some revenue at these facilities and did generate some revenue at Midwest Regional Reception Center and Cal City under the letter contracts earlier in the year. So yes, I'd say the increment in revenue is about $250 million. It'd be hard to estimate. I don't think we're ready to put out a number on EBITDA of those facilities. But I think it's fair to say the margins would be comparable to other margins we have for other contracts that we've announced, taking into consideration both the geography and size of the facility. Raj Sharma: Right. Is it also fair to say that those margins on the reactivated facilities are higher than the overall company EBITDA margins? David Garfinkle: Well, I'd say, we've got some state contracts that we've had for a long time and perhaps haven't kept up with per diems. In a portfolio of our size, you don't have all contracts that are as profitable as they would be if you're entering into a new contract. So I'd say, on average, across the whole portfolio, when you're taking into consideration state contracts, local contracts and so forth, they're probably slightly higher. Raj Sharma: Great. And then -- so we're assuming that these reactivated facilities are definitely all fully functional and normalized mid of 2026. What occupancy levels would you be -- are you targeting for mid-'26? David Garfinkle: Well, I'd say -- yes, we're still in the process of preparing our 2026 budget. So I wouldn't put a number out there just yet. I mean, the frame of reference, we were at what, -- I'm sorry, Q4 occupancy combined safety at 76.7%. So that includes all of our idle capacity, including the facilities that we're activating. So I could easily see getting in the low-80s and perhaps mid-80s in 2026 on average. Raj Sharma: Great. That's super helpful. And then just the idle facilities, your 7,000 idle facilities, what level of ICE demand do you see there or is it only going to be ICE to reactivate those remaining 7,000 or would there -- you think there could be some state demand, especially given the federal -- the shutdown impacting operational matters? Patrick Swindle: So this is Patrick. Much of the focus in this conversation so far has been ICE because ICE contracted for the 4 additional facilities that we're presently ramping. But our pipeline is much broader than just ICE. And so we're having ongoing conversations with state customers and other federal partners around potential bed utilization. And so we are not a single customer story. And again, going back to the outlook that we talked about in terms of our run rate, that's only reflective of contracts that have already been awarded. And so when you look at the discussion around EBITDA run rate in excess of $450 million, utilization of any additional capacity would certainly be in excess of that. And so again, we think we have opportunities with ICE. I don't want to diminish that, but we do also have a much broader pipeline than conversations that we're having with non-ICE partners. David Garfinkle: And looping back, Raj, on the question you asked regarding revenue, I was talking about the contracts that we announced in the third quarter. Don't forget, we also have the Dilley Immigration Processing Center. That one became fully ramped as of September. So there's probably another, I don't know, $70 million, $60 million in incremental revenue in 2026 versus '25 since it will be on a full run rate basis here beginning in Q4. But Damon, back to... Damon T. Hininger: Patrick makes an excellent point. I just want to underline one of his comments. On the state side, we've got probably about half a dozen states that are engaging us. Some of them are existing, some of them are potentially new ones that are looking for capacity. And that's probably the strongest kind of engagement we've had from our state partners or at least state portfolio in probably 12 or 24 months. So absolutely, it's a story that touches both federal and state opportunities. Raj Sharma: Great. That's very helpful. I had a question on the -- any indication of rising -- given rising labor costs, how are your wage trends tracking across activated facilities? Do you have rate escalators with ICE or state contracts? Patrick Swindle: We do have rate escalators in many of our contracts, but the wage environment is very much moderating across our markets. And so if you were to look at the staffing environment that we're experiencing today, I would say, it's the most favorable that we've experienced since before COVID. And so it's not something that we take for granted, and we're out actively working to hire additional employees. So we're very actively in the market. But at this point, we do not see either market pressure or wage pressure that causes us concern. Raj Sharma: Great. And just lastly, on any cash collection delays. I know that you addressed this question a little earlier due to the government shutdown. I know you mentioned credit line availability. Could you comment on that again, please, how long you're good for and what the working capital impact? David Garfinkle: Yes. We're probably -- yes. So it's -- given a revenue from the federal government, it's probably about $40 million per month. So who knows how long the government shutdown is going to last. Lord help us. We hope it doesn't go through all of November. But if it does, I know we've got a very supportive bank group. We do have an accordion feature on our bank credit facility. So we could always exercise that. I've been in contact with banks as I always have been in contact with our banking group, and I know they would be very supportive. Operator: Our next question comes from Greg Gibas with Northland Securities. Gregory Gibas: Damon, I wanted to wish you luck on your future endeavors. Damon T. Hininger: Yes, sir. Thank you very much for that. Let me know if you know anybody is hiring. Gregory Gibas: Well, I was going to ask about capital allocation but really appreciate your commentary on accelerating share repurchases given the stock's valuation. I had a few kind of modeling-related questions. And I guess, first, maybe, Dave, like to what degree do you expect start-up costs from the ramping up facilities to carry into the first half of 2026, if at all? David Garfinkle: Well, there definitely would be some carried over into '26 because we don't have -- like Diamondback is I think the last facility expected to complete stabilized occupancy, and that's in Q2. Now our Midwest Regional Reception Center, we're kind of on hold pending the resolution of the legal matter. So don't know how long that will extend. We're optimistic that we can get that favorably resolved in the fourth quarter, but don't really know and don't have complete control over the timing of that. So there'll be a little bit of start-up in Q1. As I think about start-up, when I talk about start-up, I'm also talking about an operating loss at the facility. So we will be generating revenue, because like at Cal City, we're already accepting detainees and West Tennessee as well. So that will flip to profitability. I would imagine at least at those 3, Midwest aside, sometime during Q1 -- yes, probably during Q1. Gregory Gibas: Okay. That's fair. And probably fair to say the majority of the, I guess, impact of these start-up costs for those 4 awards in Q4? David Garfinkle: I'm sorry, what was the question? How much is it in Q4? Gregory Gibas: Well, I guess, I was just kind of curious like the majority, I guess, of the impact from those start-up costs is recognized in Q4? David Garfinkle: Yes, more so -- yes, exactly right. Gregory Gibas: Yes, makes sense. Great. And then I guess I would just ask, what is a fair EBITDA run rate exiting the year, excluding those one-time and start-up costs? I think last quarter, you previously spoke to expectations of close to $100 million run rate ending the year. And wondering if any assumptions have changed around that. David Garfinkle: No assumptions have changed other than adding a couple of new contracts because the $400 million did not include our West Tennessee facility and did not include our Diamondback facility. Diamondback facility is a 2,160-bed facility, so a large facility. So yes, I mean, I don't -- I would -- it's going to be -- again, we gave the soft guidance of no less than $450 million once they reach stabilized occupancy. That's probably the best number I could give you at this point. Gregory Gibas: Yes, makes sense. And yes, that's what I was asking kind of prior to those awards. So great. And I guess, just to clarify from your previous commentary, you were saying that about $250 million or so of the $320 million expected to be recognized in 2026, excluding Dilley? David Garfinkle: No, no. That was the increment in '26 over '25 because we recognized some revenue from those activations in 2025. So I was talking about the 4 facilities that we announced in the third quarter. So that revenue is probably $250 million 2026 over 2025 and then another $60 million if you include the Dilley facility, incremental revenue 2026 over 2025. Operator: Our next question comes from Ben Briggs with StoneX Financial. Ben Briggs: Damon, congratulations on a very successful career. And I hope you enjoy a well-deserved time off before whatever it is you decide to do next. Damon T. Hininger: Thank you, sir. I appreciate that. Yes, sir. Ben Briggs: Great. So the vast majority of mine have been asked and answered. I think one that I would get in here is, I know you referenced kind of a longer-term $450 million adjusted EBITDA, call it, run rate. Obviously, as you guys have discussed on the call, there are CapEx investments that are required upfront as you sign contracts that result in that longer-term increased EBITDA. Do you know -- I mean, I know you may not have an exact number, but any kind of range or just the best way to think about what the CapEx costs kind of all in, in aggregate to get there are going to be or is it just too much of an unknown with not all the contracts finalized and just too many moving pieces? David Garfinkle: Yes, that's a really good question. Again, let me just through a little bit. So our guidance for 2025 was $97.5 million to $99.5 million. There'll probably be a carryover of another $20 million or so in 2026. That does include CapEx associated with some facilities that we have not announced new contracts on. So if you recall at the beginning of 2025, we began -- we leaned forward on CapEx because we wanted to prepare all of our facilities to accept detainees as quickly as possible. So that number that I just gave you all in would -- I won't say it will cover every one of our facilities. And then whenever we activate a facility, there's always some stocking of equipment that we have to add to the -- in addition to the hard infrastructure renovation type assets. So I'm not sure if that answers your question, but it's probably $150 million-ish all in for all facilities. Operator: Our next question comes from Daniel Furtado with PhillyFin. Unknown Analyst: I was a little bit late on the beginning, but did you give any -- are you willing to give any update on PECOS? Damon T. Hininger: We did not say anything about that, and there's really no update today. Again, we always continue to have a dialogue with not only as our partner with ICE, but also with Target about what the needs are there in the Southwest, notably in Texas. So no real update to share today. Unknown Analyst: Okay, great. And then my follow-up is simply this discussion about the share repurchases. And I know this -- clearly not trying to put you on the spot, but have you given any thought to potentially a tender considering what the stock price has done and your desire to repurchase shares? Damon T. Hininger: Yes. Probably it wouldn't be appropriate to go into kind of the weeds of what we discussed with the management team with the Board. But I guess the message is that we clearly think the stock is undervalued based on the forecast. So we'll be looking at every opportunity to deploy capital and buy back shares. And so always looking at potentially different ways to do it and maybe more efficient ways, but I wouldn't say anything more than that. We clearly see the opportunity. Operator: Our next question comes from Edwin Groshans with Compass Point Research & Trading. Edwin Groshans: Damon, congratulations and enjoy your retirement. I just have -- I guess my question kind of focuses on -- you saw a lot in the press changes at ICE management. This seems to be the third swing at it. You've mentioned on the call the hiring of new agents, which appears that that's going to take some time. Can you just discuss like as ICE appears to get more aggressive or gets more agents, how much impact that has on your facilities and how quickly it improves activation or even if you can give some sense of bed count? Damon T. Hininger: Yes, great question, and I'll probably tag team with Patrick a little bit on this. But as Patrick alluded to earlier, it's been -- and I shouldn't say just this year, it's really kind of our business. It's a little lumpy. And I think that's probably the case in this situation with ICE. So on their side, they're looking at additional 10,000 agents. They're looking also at lawyers, judges, other support staff to help with the mission. And obviously, that's going to impact the enforcement operations, both on the interior and on the Southwest border. And then in turn, obviously, that's going to impact the tension. So I would say, as you look at kind of last 60, 90 days, I think they have been going very aggressive on hiring, but it does take some time because -- and we appreciate it on our side to get them through training, get them through the screening process and get them to where they're able to go out and affect the mission of ICE. And so I think as that continue to kind of ramps up -- and again, I'd describe it as lumpy. As they got kind of more bandwidth on their side to do more enforcement operations, then obviously, that's going to impact the need for detention capacity. So the conversation is just real time. It's been like that for basically the last year. They're telling us kind of what the needs are, where the priorities are, where the capacity potentially is going to be needed as they kind of ramp up operations. And then obviously, we'll move on a parallel path to meet the need if we've been given the opportunity to provide a solution. But anything to add to that, Patrick. Patrick Swindle: The only thing that I would add is that I think it's important to note that as we open a facility during activation, all beds aren't immediately available on day 1. And so we have ramp schedules that we have built into our contracts at a pace at which we believe we can safely accommodate ramps in population. And so as we continue to open new facilities, we're seeing those beds utilized at a pace that's consistent with what we initially expected. And so I think to the point that Damon just made, I think what you're going to see is a little bit of ebb and flow. And so more beds have been contracted for both with us and with others. Those beds are progressively being utilized, and absorption is occurring, but there are beds available. As you see a further step-up in enforcement, you would see further bed need manifest. And so again, it's not a linear growth path either for populations or for enforcement or for contracting, but the direction it appears to be very much intact. And again, as we provide beds on schedule, they're being utilized. Edwin Groshans: Great. I appreciate that. And I know you mentioned earlier in the call, a surge capacity. Is that surge capacity available as activation is occurring? And then once activation is up and running, the surge can then leak into the new facilities or is that separate? Patrick Swindle: That capacity generally is consistent in terms of the ebb and flow of what we might see on a surge basis versus inactivation. And so new beds being brought online are going to be utilized. There are still going to be times at our facilities, particularly depending on the field office where surge beds may be needed. And so it's going to be somewhat geography dependent and it's going to be somewhat facility dependent in terms of whether surge capacity would be used, when it would be used. But it is still available and in addition to the new beds that we would be bringing online. Edwin Groshans: And then just my last one on this is, there's been a lot of discussions about deportations. You mentioned the judges, which I appreciate. There's going to be work to do mass deportation. Are you seeing in your model yet, are deportations having an impact on detentions or is detention still running ahead of deportations, i.e., intake is greater than outflow? Patrick Swindle: Well, we see -- there is variation as enforcement occurs. And it really is very dependent on the field office, the country of origin that the individual is being transported to. And so I would say there's not really a universal answer to that because it really is dependent on, again, where the enforcement action occurs, where the individual is placed, the agreement that we have in place with the country of origin, all of those are going to impact the amount of time that someone would spend in detention. We do see a strong motivation for speed of deportation. But certainly, we see a lot of variation as individuals manage their way through the court process. Edwin Groshans: And last one -- I promise, this is my last one. I guess there was a lot of talk about ICE was tending to move people to different regions because of legal actions that's happening. Have you seen that or is most of the business still happening in the region where the people are picked up? Patrick Swindle: Well, I guess what I would say is -- and this has historically been the case. ICE -- so some customers have very tight geographic footprints. And so for many states, what you find is they want to stay within the border of that state. For some federal agencies, they want to stay within a particular district. In the case of ICE, we see -- we've always seen movement across the country. And so I've not seen broadly what I would describe as purposeful intent to move folks around the country for that reason. But we do see lots of movement around the country, which is really driven by the staging aspects of managing populations and aggregating individuals in certain locations in advance of deportation. Operator: Our next question comes from Jason Weaver with JonesTrading. Jason Weaver: At this point, just a couple for me. I'll try to be quick. Looking past your idle capacity and the facilities that are in various stages of reactivation now, can you update us a bit on what you're seeing or looking for in the long end of the pipeline to add ICE beds? That is, if we're trying to move to 100,000 capacity or greater? Damon T. Hininger: Yes. I'll tag team with Patrick on this. This is Damon. Part of that conversation has been ongoing where they'll say, ICE will say, hey, we've got a certain need for capacity today in a certain region. But in the next, say, year or 2 years, we might have a need for more capacity. So the way we look at it, and obviously it's the most efficient way to do it is to look if we've got a base of operations in a certain location, can we add capacity both short-term and long-term. So it's a 2-way conversation. ICE says, hey, we may have a little bit of a higher population for a period of time, for 12, 24 months. So that would lend us to say we probably don't want to do a very large capital investment to meet that need. So we'll look at more kind of short-term solutions that we can maybe add to a facility and kind of leverage the base operations. So those conversations are ongoing. It's kind of alluded back to my earlier comments and what I said in my script, which is where we can either expand capacity in existing facilities or and/or go to a third-party like Target where they could meet the need either with a standalone or again maybe add capacity to an existing operation. So it's kind of all of the above approach. Jason Weaver: Okay. That's helpful. And then just as it pertains to Midwest Regional, do you have any upcoming hearing dates or events scheduled where we might see some developments there? Damon T. Hininger: Yes. There's a couple of hearings. I don't have the exact dates in front of me, but there's a couple of hearings here in the next probably 30 -- I think, 30 to 45 days. I think there's at least a couple before Christmas. Operator: There are no further questions at this time. I'd like to turn the call back over to Damon Hininger for closing remarks. Damon T. Hininger: Thank you so much. Well, this has been a really fun call. Thank you for all the well wishes. And again, as I kind of wrap up, 16 years of service as CEO, almost 33 years as a member of this great company. I'm deeply grateful for all of you on the call and also previous investors that have given me a lot of support and guidance over the years. I also want to say to every single employee in our company, 14,000 strong and also the ones that have worked with us previously, I'm deeply honored and grateful to work alongside you all during these 33 years. You all have inspired me in so many different ways and it has made me a better person and have made this a better company. And really going into this year has given us a very strong 2025. I mean, this year, it is really breathtaking the amount of activity we've seen in the organization to meet the needs of not just one customer, also we've talked a lot about ICE, but also other federal partners and a lot of activity on the state side. So 2025 has been a great year. But boy, as I said earlier, next year with a forecast of $2.5 billion in revenue, over $450 million in annual run rate and EBITDA. Those would be 2 record numbers for us as an organization. So again, thank you for the organization, for the company, employees and also for our customers to give us that trust and confidence to provide that type of service to have these type of milestones. So with that, we adjourn. Enjoy the rest of your day. Thank you for calling in today. Operator: This concludes the program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Teknova Third Quarter 2025 Financial Results 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, Senior Vice President of Marketing, Jennifer Henry. Please go ahead. Jennifer Henry: Thank you, operator. Welcome to Teknova's Third Quarter 2025 Earnings Conference Call. With me on today's call are Stephen Gunstream, Teknova's President and Chief Executive Officer; and Matt Lowell, Teknova's Chief Financial Officer, who will make prepared remarks and then take your questions. As a reminder, the forward-looking statements that we make during this call, including those regarding business goals and expectations for the financial performance of the company, are subject to risks and uncertainties that may cause actual events or results to differ. Additional information concerning these risk factors is included in the press release the company issued earlier today, and they are more fully described in the company's various filings with the SEC. Today's comments reflect the company's current views, which could change as a result of new information, future events or other factors, and the company does not obligate or commit itself to update its forward-looking statements, except as required by law. The company's management believes that in addition to GAAP results, non-GAAP financial measures can provide meaningful insight when evaluating the company's financial performance and the effectiveness of its business strategies. We will therefore use non-GAAP financial measures of certain of our results during this call. Reconciliations of GAAP to non-GAAP financial measures are included in the press release that we issued this afternoon, which is posted on both Teknova's and the SEC's website. Non-GAAP financial measures should always be considered only as a supplement to and not as a substitute for or as superior to financial measures prepared in accordance with GAAP. The non-GAAP financial measures in this presentation may differ from similarly named non-GAAP financial measures used by other companies. Please also be advised that the company has posted a supplemental slide deck to accompany today's prepared remarks. It can be accessed on the Investor Relations section of Teknova's website. And now I will turn the call over to Stephen. Stephen Gunstream: Thank you, Jen. Good afternoon, and thank you, everyone, for joining us for our third quarter 2025 earnings call. We were encouraged by our third quarter results. Revenue increased by 9% compared to the same period last year, making it the fifth consecutive quarter of year-over-year growth. That growth was driven by strength in sales of our Lab Essentials products, revenue from which grew 16%. We also executed extremely well operationally. I'm pleased with the progress we have made to prepare Teknova for long-term sustainable above-market growth. Through investments we've made in distributor management, purchasing integration and price optimization, we have succeeded once again in growing revenue double digits in catalog products, which represents the majority of our Lab Essentials revenue compared to the same period last year. We have also increased and diversified our Clinical Solutions customer base, which we believe will translate to significant revenue growth as these therapies and diagnostics move towards commercialization in the next 2 to 3 years. Operationally, we continue to execute extremely well. Key projects to drive operating efficiency and reduce costs such as moving to electronic batch records, automating high-throughput dispensing lines and adding larger batch size capabilities are on track and expected to be operational in 2026. We are already seeing the results from previous investments through improved operational metrics such as on-time delivery, which allow us to further differentiate Teknova from other reagent suppliers in the marketplace. The progress made operationally over the past couple of years has given us more confidence in our ability to scale Teknova to more than $200 million in annualized revenue without significant additional capital investments. We also remain active in pursuing potential tuck-in acquisitions and collaborations to bolster our capabilities, reduce our time to profitability and accelerate top line growth. Now I'd like to turn my attention to the broader market. As a reminder, we do not have material exposure to the geopolitical environment given that our sales are predominantly in the United States. only about $1 million annually of our raw materials we estimate are imported and less than 4% of 2024 revenue was directly attributable to government research institutes and academic institutions. Nonetheless, we do have exposure to changes in biotech funding levels because approximately 25% of our total revenue is derived from purchases of custom products by biopharma customers, most of which are supporting therapies in preclinical or early-stage clinical trials. While the value of catalog products purchased by customers in this segment remains steady and growing in 2025, we have seen continued delays in larger purchases of custom products. Though we observed a sequential uptick in biotech funding in the third quarter, unless we see sustained improvement in the biotech funding environment or advancement through clinical trials of the therapies we already support, we expect only modest improvement in this end market in 2026. Fortunately, the other 75% of our revenue from sales of catalog products and custom products across all other market segments has grown in the low double digits for the year-to-date period, and we are seeing an uptick in demand for custom reagents in these other segments of the market, such as animal health, life science tools and diagnostics. Taken together, we remain very confident in our strategy and are optimistic for the long term. First, we have a foundational business that is predictable and growing that can support the company until the biopharma market returns to historical growth rates. Second, we have demonstrated our ability to execute operationally and commercially. And finally, we continue to attract and onboard new Clinical Solutions customers, which we believe, in combination with our Lab Essentials products will allow us to achieve a sustainable 20% to 25% top line growth as therapies and diagnostics migrate from research to commercialization. I will now hand the call over to Matt to talk through the financials. Matthew Lowell: Thanks, Stephen, and good afternoon, everyone. Overall, we delivered great financial results for the third quarter of 2025. As Stephen noted, revenue was $10.5 million, a 9% increase from $9.6 million in the third quarter of 2024. Once again, strong sales from the catalog portion of our Lab Essentials products drove our revenue growth in the quarter. Lab Essentials products are targeted at the research use only or RUO market and include both catalog and custom products. Lab Essentials revenue was $8.3 million in the third quarter of 2025, a 16% increase from $7.2 million in the third quarter of 2024. The increase in Lab Essentials revenue was attributable to higher average revenue per customer and to a lesser extent, a larger number of customers. Clinical Solutions products are made according to -- Good Manufacturing Practices, or GMP, quality standards and are primarily used by our customers as components or inputs in the development and manufacture of diagnostic and therapeutic products. Clinical Solutions revenue was $1.7 million in the third quarter of 2025, a 13% decrease from $2.0 million in the third quarter of 2024. The decrease in Clinical Solutions revenue was attributable to lower average revenue per customer, partially offset by an increased number of customers. We expect revenue per customer to increase over time as a subset of these customers ramp up their purchase volumes as they move through the phases of clinical trials. However, this metric can be affected by the addition of newer clinical solutions or GMP catalog customers who typically order less. Just as a reminder, due to the larger average order size in Clinical Solutions compared to Lab Essentials, there can be more quarter-to-quarter revenue lumpiness in this category. On to income statement highlights. Gross profit for the third quarter of 2025 was $3.2 million compared to $0.1 million in the third quarter of 2024. Gross margin for the third quarter of 2025 was 30.7%, which is up from 0.9% in the third quarter of 2024. The increase was primarily driven by $2.8 million of nonrecurring and noncash charges during the third quarter of 2024 related to the disposal of expired inventory and write-down of excess inventory. Excluding those nonrecurring and noncash charges, the gross profit would have been $2.9 million and gross margin would have been 29.8%, respectively, in the third quarter of 2024. The improvement in gross margin from 29.8% to 30.7% was driven primarily by higher revenue. Operating expenses for the third quarter of 2025 were $7.2 million compared to $7.5 million for the third quarter of 2024. The decrease was driven by an overall net reduction in general and administrative spending. At the end of the third quarter of 2025, we had 161 total associates compared to 165 a year earlier. Net loss for the third quarter of 2025 was $4.3 million or negative $0.08 per diluted share compared to a net loss of $7.6 million or negative $0.15 per diluted share for the third quarter of 2024. Adjusted EBITDA, a non-GAAP measure, was negative $1.6 million for the third quarter of 2025 compared to negative $2.2 million for the third quarter of 2024, excluding the impact of the $2.8 million charge related to inventory. Now for cash flow and balance sheet highlights. Capital expenditures for the third quarter of 2025 were $0.4 million compared to $0.3 million in the third quarter of 2024. Free cash outflow, a non-GAAP measure, which we report as cash used in operating activities plus purchases of property, plant and equipment was $2.4 million for the third quarter of 2025, which was the same as the third quarter of 2024. Turning to the balance sheet. As of September 30, 2025, we had $22.1 million in cash, cash equivalents and short-term investments and $13.2 million in total borrowings. Now for our outlook. We are reiterating 2025 total revenue guidance of $39 million to $42 million. Based on persistent softness in demand for our Clinical Solutions products from biopharma customers, in particular, we now expect to finish slightly below the midpoint of that range. Revenue from sales of our catalog products, which represents the majority of our Lab Essentials and a small portion of Clinical Solutions revenue was up at a mid-teens growth rate in the third quarter of 2025 as spending on discovery work continues to be robust in certain pockets of the market. On the other hand, growth was minimal from custom products, which represents a modest portion of Lab Essentials and the large majority of Clinical Solutions revenue as the macro environment remains favorable for early-stage small to midsized biopharma customers and for their clinical work in particular. As we look ahead to next year, we expect modest growth in custom biopharma products, representing about 25% of our total revenue and low double-digit growth in the remaining 75% of total revenue, which is not as impacted by the weak biotech funding environment. Gross margin was up over the prior year quarter and down sequentially. As we explained at the time, during the second quarter, several cost categories that normally fluctuate skewed favorably, whereas this quarter, the effect was more balanced. Our gross margins are very sensitive to the effect of these fluctuations due to the size of our business. We still believe that over longer periods of time, approximately 70% of incremental revenue will flow through to gross profit. Our gross margin target for fiscal year 2025 remains in the low 30s. Although we ended the third quarter below target spending levels, partly due to timing considerations, we continue to expect operating expenses of at least $8 million in the fourth quarter, allowing us to moderately increase our investment in sales and marketing compared to last year, positioning ourselves for the market's broader recovery. At these spending levels, we continue to believe we will become adjusted EBITDA positive in the range of $50 million to $55 million in annualized revenue. The company continues to expect free cash outflow of less than $12 million for the full year 2025. As we have communicated previously, based on reasonable assumptions about future growth and spending plus current liquidity, we believe that we do not need to raise additional capital to execute on our organic growth strategy. With that, I will turn the call back to Stephen. Stephen Gunstream: Thanks, Matt. We believe the long-term outlook for our end markets remains positive, and we are committed to helping our customers accelerate the introduction of novel therapies, diagnostics and other products that improve human health. We will now take your questions. Operator: [Operator Instructions] The first question comes from the line of [ Mac Etoch ] of Stephens Inc. Steven Etoch: Maybe just to start, just given the recent rhetoric around MFN pharma tariffs and just the subsequent announcements around onshoring capacity and pharma production, how have customer conversations trended thus far into the second half of this year? Stephen Gunstream: Yes. Thanks, Mac. So I would say we like the idea of these leading indicators, whether it's biotech funding or the MFN results, but we're not yet seeing the impact from the customers. So I think there's optimism across the board, but the actual actions of maybe purchasing more ramping up purchases, we have not yet seen, which is why we've been here before, and we want to make sure that we're cautious and seeing that when these things start to happen, if they're sustained for an extended period of time, we believe it will impact the sort of the emerging therapy side. At this point in time, I would say we're seeing some nice growth in the large pharma. We're actually seeing some nice growth in some of the emerging therapeutic companies that have been purchased by larger companies, but those that are still constrained by capital are operating in a way that they're rationalizing the pipeline or slowing things down at the moment. So at this point in time, Mac, there's been pretty limited conversations about ramp-up there. Steven Etoch: Okay. Fair enough. I'd also like to get a little bit of an update on the RUO+ initiative. It's been, call it, a little over a year since that's been put into place. Is there any update on how the efforts are trending there? Stephen Gunstream: Yes. It's an important part of our portfolio, and it filled a really nice gap for us and that we put a lot of effort and investment into this new facility. We have a lot of customers that want to use the new facility but are not quite ready for GMP, and it's a great landing spot for them, where they can get their products made in the facility. They get a lot more flexibility in their formulations. They get sort of improved quality that is very similar to GMP, but not quite all the way to GMP at a price that's not the exact same as GMP, right? So for us, it allows us to get a little bit of a price premium for using that facility, but not actually committing them to some more controls around the changes they want to make and get their products to them sooner. So this is a really nice landing spot. We're seeing customers come in there. Those will sit in that Lab Essentials business because it's part of their research use only. And the goal there is obviously to migrate them to GMP, and we see a lot of customers actually sitting in that pathway right now. Operator: Our next call comes from the line of Brendan Smith of TD Cowen. Brendan Smith: I appreciate all the color on actually the funding environment impact or potential impact into next year. Actually, just wondering if you could maybe give really any more color there on actually the expected product mix that could kind of come in some of these different scenarios that might help drive that compensation you're talking about the possibility of a more protracted biotech slowdown. I guess really just wondering if there are any specific products within that custom portfolio that you're seeing particular interest in and what maybe your expectations are for those into next year? Stephen Gunstream: Yes. So Brendan, if you're asking about like what type of product mix we typically sell into the custom biopharma, is that correct? And how we see that changing over time? Brendan Smith: Yes, more specifically like into next year, if you're confident that the rev mix that you're seeing now could kind of compensate for any potentially protracted biotech funding slowdown, just kind of wondering if there are specific products within there that you're kind of seeing special interest into next year that could help drive that. Stephen Gunstream: Yes. Maybe I'll -- I think what you're after is sort of, obviously, there could be -- and we expect some continued conservation of capital in the biotech environment, particularly around emerging markets over the next, I don't know, say, 6 to 12 months. We're very fortunate that 75% of our business is growing double digits. And we're actually seeing it almost entirely across the board, across every market segment and actually all 3 of our primary product lines of agar plates, cell culture media and buffers. So we're pretty excited about actually that side of the business and how well we're performing there. We do see an increase in interest on actually the tools and diagnostics side, where we supply a number of products, both for the discovery, but also in that custom into clinical trials. And so, the combination of having this sort of increased number of clinical customers right now as we go through this period with this predictable baseline growth that is in the double digits. And I will say that -- that is very similar to the business that was here before we made a lot of these investments that grew between 2009 and 2019, 12%. We're back to that level, if not higher at times. So we feel like we're in a really good spot to let the rest of our strategy play out on the therapeutic side, and we're working on bringing on more of these customers in these other market segments. Operator: Our next question comes from the line of Matthew Larew with William Blair. Matthew Larew: Matt, your comments on 2026, if you've got 75% of revenue growing low double digits and modest growth of 25%, that seems to suggest something around 10% as a starting point. So I guess, is that math right? And then on the Clinical Solutions side, you've called out a couple of times this year the growth in the number of customers. I know that's a metric you update annually, but maybe just if you can help us how that is tracking new customer acquisition relative to perhaps years past and your own expectations this year. Matthew Lowell: Yes. Thanks, Matt. Yes, obviously, it's a little bit early to be really commenting with precision on 2026, and we'll certainly do that in our next call when we report year-end earnings. But I thought it might be useful to provide some high-level thoughts about where we see things today. And you're right, kind of in the -- we've kind of focused on these 2 components of the business, the 25% we've been talking about in custom biopharma and the 75% of the rest basically. And as Stephen outlined in his comments, we have -- the market environment has been relatively stable the last couple of quarters in that custom biopharma or also known as bioprocessing in our business. And we are not seeing any strong indicators yet that, that's going to be changing in the near term, but we'll be, of course, updating that view every quarter, and we will have some more data points here by the time of our next call, obviously. But on the other hand, we -- as Stephen just highlighted, the rest of the business is performing really well. And then similarly, don't see that changing in the near term. And that's a great thing to have the diversity in the portfolio to have these 2 pieces even though they're working in different directions at the moment. But yes, I think in general, that's kind of the math that we see at the moment. And in terms of the overall development of the Clinical Solutions business, we have been adding customers there, and we will be reporting at the end of the year kind of where those numbers land for the year once we're done. We continue to see increases of the larger-sized customers, although the mix can sometimes change between the end markets, as Stephen was pointing out, could be some differences in life sciences and tools and DX, of course, versus biopharma, for example. But in either case, we're happy to onboard those customers and have them as customers with significant revenue potential going forward. So yes, it's looking good and the makeup of it is maybe changing a little bit, but we'll see how we finish the year. Stephen Gunstream: Yes. I'd just add, Matt, that on that particular thing, when we talk about increasing, I think it's particularly a positive statement that we're increasing despite companies that we supported last year are really no longer in existence in many ways, right? So we have to overcome that barrier and then add new ones. So I feel like the team is executing really well there. Of course, there's always more we can do. And at the end of the year, we'll give you guys a better update on that. Matthew Larew: Within kind of the new modality world, cell and gene therapy, there's been, I'd call like a, kind of a grab bag of clinical updates throughout the year, some quite positive, particularly in some recent gene therapy indications, some perhaps more negative. And obviously, we're now a bit a year or so into some of the fast-track efforts, whether it's Fast Track or RMAT, whatever it might be. Just within your customer group, what's your exposure like to those various type subgroups? And do you have customers that have an opportunity to participate in these programs? And how has that affected either their demand or how they're working with you? Stephen Gunstream: Yes. I think it's also fair to say it's been a grab bag for us where we have some that have done quite well and have participated in some of those programs and some that are really constrained recently. I know at the end of 2024, we did talk about the number of clinical customers we have was 48, of which 39 were biopharma related. Of those 39 that were biopharma, 23 were cell and gene therapy, right? So that kind of gives you the idea of the exposure that we had at the end of 2024. I don't think it's changed drastically, Matt, but I think there are some there that are later stage that are actually executing to plan. There are some that have been acquired and the new party is actually running those and executing those. And there are some there that I would say they are more sensitive that are more in mRNA or some of the sort of sensitive gene therapy areas that have been both positive and good -- positive and negative over the past year. So we're kind of -- as a company, because our specialty is making these custom small batches of reagents that are not specifically tied to a therapeutic, we're kind of participating in all sides of the market, if that makes sense. Matthew Larew: Just the last one for me. Gross margins year-to-date are up about 600 basis points, and that's despite Clinical Solutions being flattish, slightly down year-to-date, so largely scale driven. You referenced, Matt, a number of, I guess, both completed in process and planned projects to continue to improve efficiency. I know scale is a big piece. Is that kind of the right gross margin improvement trajectory to think about? Or are some of the projects you referenced more or less impactful in terms of go forward? Matthew Lowell: Yes. I think -- thank you for highlighting those initiatives, Matt. We are working on a lot of things we already completed and things we're still working on for next year. I would say the key driver for margin performance over multiple quarters, not just in a single quarter, is this high fixed cost, low variable cost mix in our cost profile that we have, where again, we've talked about this 70% of incremental revenue flowing through. The projects will change that a little bit. But I would say, overall, that is going to be still thematically the strongest piece. So as you can see, though, from quarter-to-quarter, there is variation against that 70%. I would say that the 70% is most realizable in the -- when we talk about cash, 70% of cash dropping through, sometimes due to other types of accounting for inventory and production, we can see some of the variations that we've seen this quarter and the last quarter as 2 examples in each way. But I think overall, we still have a very high fixed cost makeup, and that is going to allow us to continue driving strong performance into next year, commensurate with the growth that we're expecting. Operator: Our next call comes from the line of Tollef Kohrman with Craig-Hallum. Tollef Kohrman: You talked about process improvements taking effect in '26. Are there any other areas you're looking to drive more efficiencies? Stephen Gunstream: Yes, of course. I mean, this is a constant theme here. Since we started on this journey about 5 years ago, we mapped out a lot of these processes that we felt like are inefficient. And now we put the IT infrastructure and the systems in place that we can really track and identify those areas. So we're always looking at efficiencies. Now there's a couple of different kinds, right? So on the operational side, you can look at labor and direct labor savings. But of course, if we can get more output with the same fixed cost, right, that drives a lot to the bottom line and will allow us to keep the same number of, say, headcount as we ramp up in revenue. And in fact, you heard in the transcript, we have 161 employees at the end of Q3. Now there was a time where we were actually over 300 with a similar revenue amount. So significant work has gone into driving efficiency across the board, and we won't stop that as we go forward. So there's efficiency in the operations, but then there's efficiency in all the other supporting functions as well. So a lot of IT infrastructure here, a lot of processes being optimized around metrics and then even rolls all the way to the commercial side, right? How do we do more with the same number of people. And so it's just a mantra here more than anything else and probably -- it would take us a long time to go into all the details here, but I think you can kind of see that from a company, we have like 2 major focuses. One is how do we drive top line and continue that going forward as we wait for these customers to come all the way through the therapeutic pipeline as well as then how do we continue to optimize our processes, whether it's operations, commercial, HR, you name it. Operator: Our next question comes from the line of Mark Massaro of BTIG. Vidyun Bais: This is Vivian on for Mark. I'll actually just keep it to one. So I think you touched on briefly maybe some incremental spend on the sales force, just trying to get ahead of a recovery in funding. Could you just remind us where your sales force sits today and kind of at what levels you might feel rightsized? Stephen Gunstream: Yes. And we will often talk to us about how many people you have in the field, and we think about it much more broadly as a commercial organization. So -- we're talking about modest increases here, as we said, since the beginning of the year, where we're talking maybe a couple of headcount here and there. But again, back to the last comment, a lot of these are process improvements that we're driving efficiency. So I think what you'll see over the course of the next year is less than 10 headcount increases overall for the entire commercial organization, including customer support and marketing and field sales. Operator: I'm showing no further questions at this time. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Thank you for standing by. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to the PublicSquare Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. William Kent, Head of Corporate Affairs. You may begin. William Kent: Thank you, Angela, and good morning, everyone, and welcome to PublicSquare's Third Quarter 2025 Earnings Conference Call. Joining me today are Michael Seifert, Chairman and Chief Executive Officer; and James Rinn, Chief Financial Officer. Before we get started, we want to emphasize that the information discussed on this call, including our outlook and guidance, is based on information as of today and contains forward-looking statements that involve risks, uncertainties and assumptions. We undertake no duty or obligation to update such statements as a result of new information or future events. Please refer to today's earnings press release and our SEC filings, including our 2024 10-K for factors that may cause actual results to differ materially from our forward-looking statements. We'd also like to point out that we present non-GAAP measures in addition to and not as a substitute for financial measures calculated in accordance with GAAP. I'll now hand the call over to Michael. Michael, please go ahead. Michael Seifert: Thank you, Will, and welcome, everyone, to our third quarter 2025 earnings call. We appreciate you all joining us today. And to get us started, I would like to share some of our most notable highlights from the quarter. It was a big one for us. First, we beat our previously issued revenue guidance by 10%, and we are proud to reaffirm fourth quarter 2025 as well as full year 2026 revenue guidance. Secondly, our fintech revenue increased 28% quarter-over-quarter with our payments revenue increasing 50% quarter-over-quarter and our credit revenue increasing 22% quarter-over-quarter. Third, 1 year ago, we spoke about how the investments we made in 2024 paired with the restructuring of our business that took place in November of 2024 would lead to a drastic improvement in our ability to generate more revenue while reducing our spend. Today, I am proud and grateful to report that our efforts have paid off resoundingly. Our net loss has decreased by 33% compared to the prior year period, and our operating expenses decreased 13% compared to the prior year period. I'm incredibly proud of the way our team has executed. We're continuing to leverage strategies to increase our efficiency, and we are excited for this positive momentum to continue. Finally, our third quarter performance emphatically affirms our decision made earlier this year that we spoke about on the Q2 earnings call to streamline our focus and double down on fintech. We continue to see rapid growth in our payments business as we onboard new merchants who are passionate about our commitment to economic liberty and technological excellence. And we expect this momentum to carry into the fourth quarter with our robust onboarding pipeline and anticipated Christmas shopping activity. Additionally, our credit business remains healthy and is positioned to benefit from these same trends as we exercise the power of our bundled checkout offering that we speak about often. Looking to 2026, we plan to take advantage of significant opportunities to build upon our 2025 success. We're expanding our fintech platform with new services our merchants and customers have sought after, including private label credit cards, innovative fundraising tools, crypto payment capabilities and digital asset treasury management solutions. I will now pass the microphone to our wonderful CFO, James Rinn, to provide a deeper financial overview on our performance in the third quarter. James, please take us away. James Rinn: Thank you, Michael, and good morning, everyone. Let's walk through the key financial highlights from the third quarter and year-to-date 2025 results. As a result of our decision announced on August 12 to monetize our Brands segment through the sale of EveryLife and to monetize our Marketplace segment through a sale or strategic repurposing of the Marketplace IP to complement our fintech offering, we are accordingly showing the results of both those segments and discontinued ops throughout our financial statements. In regards to revenue growth and financial performance, we reported net revenue from continuing operations of $4.4 million for the quarter ended September 30, 2025. That's a 37% year-over-year increase compared to $3.2 million in Q3 of 2024. As Michael mentioned, Q3 revenue beat our most recent revenue guidance of September of 2025 by $0.4 million or 10%. The breakdown of revenue illustrates the strength of our current revenue streams. As stated, fintech financial technology, which includes payment processing via PSQ payments and credit offering via Credova earned $4.4 million in net revenue, which, as stated, was a 37% increase over the prior period. This includes $1.5 million from our recently launched PSQ payments, an increase of 50% from Q2 of 2025. Year-to-date fintech revenue was $10.9 million, which equates to an increase of $4.3 million or 66% from the prior year. As noted, our credit business revenue increased by $0.5 million or 22% quarter-over-quarter to $2.9 million in Q3. The company enhanced the quality of its credit portfolio performance through greater use of AI-driven underwriting and machine learning. Our portfolio has demonstrated consistent improvement in early payment performance with first payment default rates declining and doing so in a challenging market environment. Regarding operating expense controls for continuing operations, I'd like to highlight the following. The company maintained strong expense discipline in Q3 and continued to optimize capital allocation. For Q3, general and administrative expenses reduced by $2.3 million or 22.3% compared to the same period last year. And year-to-date, G&A expenses decreased by 33% or $10.1 million year-to-date 2025 compared to 2024. R&D expenses for the quarter increased by $0.8 million over the prior year and $2 million year-to-date compared to 2024. We continue to invest in internally developed software. These actions drove this increase in expense, and we allocated $2.3 million in capital for ongoing enhancements to our fintech platforms that are key to our future success. Ultimately, this resulted in a notable improvement in our operating loss of $8.1 million compared to the prior year and a $24.2 million operating loss year-to-date 2025. Transitioning to margin and profitability. Fintech non-GAAP gross margin for Q3 was 68% compared to 97% in Q3 of last year. The decline is primarily related to revenue mix and the growth in our lower-margin payment processing revenues. Our GAAP operating loss from continuing operations for the quarter was $9.7 million, a $0.6 million improvement from the $10.3 million in the same quarter of 2024. Moving on. Net loss for the quarter was $12 million compared to a loss of $13.1 million for the same quarter of 2024. The net loss on a per common share basis was $0.26 per share, a 37% per share improvement compared to a loss of $0.41 per share reported in Q3 of 2024. For continuing operations, the net loss improved from $0.27 per share to $0.22 per share in the current quarter. For discontinued operations, the net loss improved from $0.14 per share to $0.04 per share in the third quarter of 2025. Discussing cash flow and liquidity. As of December 30, 2025, PublicSquare had $12.3 million of cash and restricted cash, which included $1.3 million related to discontinued ops. Net cash used for operating activities decreased by $9.7 million during the first 3 quarters of 2025 as compared to the same period of the prior year. On our revolving line of credit that we utilized to finance our Credova credit products, we had $4.6 million outstanding on our $10 million line of credit. We made a strategic decision to retain consumer financing receivables on our balance sheet, representing approximately $3.4 million of cash flow year-to-date in 2025. We executed on this strategy to improve financial results and enhance yield of fund capital. This capital will be cycled back to cash based on the payment terms and with healthy returns. Discussing our ATM, at-the-market offering, which was established May 23, 2025, I will note that we did not utilize the ATM during Q3. Transitioning to discuss the monetization of our Brands and Marketplace segments, the company has engaged an investment bank to conduct a robust sales process of its Brands segment business. This process, I'm happy to report, is on target to reach a purchase agreement by the end of the fourth quarter of 2025. We are continuing to explore a sale or strategic repurposing of our Marketplace segment, and we will provide updated disclosures as appropriate. Coming back to expenses, we're happy to report that the company has experienced better-than-expected operating expense reductions results in its reorganization announced in the fourth quarter of 2024, realizing approximately $11 million of its expected $11 million in annualized savings. So we're well ahead of schedule in 2025. Moving on to discontinued ops. Brands driven primarily by EveryLife earned $3.7 million in revenue in Q3, which equates to 42.7% increase or $1.1 million increase compared to the prior period. Trailing 12-month revenue for EveryLife exceeded $13.4 million. Marketplace earned $0.2 million during the quarter, which was in line with management expectations. The business outlook and guidance is unchanged from our September 25, 2025, Analyst and Investor Day. Fourth quarter 2025 revenue is expected to be approximately $6 million, comprised of $2.4 million in payment processing revenue and $3.6 million in credit product-related revenue. Again, we affirm our full year 2026 revenue guidance of greater than or equal to $32 million in revenue. And so to summarize, we are growing revenue at a strong pace, maintaining healthy margins and significantly narrowing operating losses in part due to reducing operating costs year-over-year. We believe we are well positioned to deliver long-term shareholder value as we grow market share, maintain operational discipline and scale the business. Now let me hand it back to Michael for more about the exciting path forward for PublicSquare. Michael Seifert: Thank you, James. As we mentioned, Q3 was a monumental quarter for us as a company. We have focused our business and doubled down on our fintech charter with our mission-first model in order to build a parallel economic ecosystem that serves a vast network of merchants and customers who value economic liberty. With our bundled checkout offering, including payments, credit and digital asset treasury management, paired with our leveraging of AI, DeFi, and proprietary economic modeling, we are firmly positioned to lead the values-driven next gen of fintech that is growing rapidly amid systemic distrust of legacy finance. Today, roughly 5 weeks into Q4, we are positioned exactly where we want to be. The business is exceeding expectations, and we anticipate a significant Christmas shopping season for our merchant and customer community. We will have quite a lot of exciting developments to announce over the next 7 weeks, especially regarding our soon-to-launch fundraising platform, PSQ Impact, as well as our private label credit card program. We're packing a ton into Q4 as we seek to end the year on our highest note ever, so be sure to stay tuned. We are grateful you're on the journey with us. Onward and upward. Now let's move on to Q&A. Operator: [Operator Instructions] Your first question comes from the line of Darren Aftahi with ROTH Capital. Darren Aftahi: Congrats on the progress. Just two questions, if I may. Just in terms of the bundling, can you talk about both the attach rate of customers bundling and then how that's benefiting retention? And then second, on your '26 revenue guidance, can you speak to in a little bit more detail what's assumed as kind of existing products to drive that growth versus new products? I guess, said another way, how much kind of line of sight do you have in that 32% versus some of these call options on new products you're introducing? Michael Seifert: Great questions. Thanks for joining us today. To address your first question, I will say that the majority of our enterprise clients are utilizing our bundled services. So the majority of our payments revenue is actually coming from payments clients that are also leveraging our credit offerings at checkout to drive conversion as well as our marketing services. Because that's really the trifold beauty we bring to the transaction is that we're able to not only secure your transaction via our payment processing capabilities, provide conversion tools via our credit offerings that lend to the entire credit spectrum. But also, we -- as we mentioned on our Analyst and Investor Day back on September 25, we want to help you elevate your brand message, utilizing our brand, creative storytelling and marketing capabilities. So again, the majority of our revenue generated through payments is actually with merchants who are also using our credit offering and the suite of marketing services that we leverage. And to go a little bit further on that, you asked the question of kind of what that does to retention. This makes our product incredibly sticky because we are far deeper ingrained in your business and in the operations layer of your transaction than a typical payments company would be. We are meeting with your CFO. We're having conversations with your marketing department about how to drive conversion. And when you, as a consumer, go to checkout on these sites, these merchants that we work with, you actually see multiple payment options that are all housed underneath our umbrella. And it leads to a deepening of a relationship with our merchants and ultimately, a stickiness that is hard to replicate without that bundled service. So Darren, I just reaffirm that this is truly key to our success as we move forward. Regarding revenue for 2026, I would say that the guidance that we have issued is really focused on our business as it stands today. We don't want to factor in too much of new verticals that we've talked about over the last 2 months. We're conservatively projecting those into our revenue guidance for 2026 and really want to feel confident in issuing guidance that is based on the foundation of the business as it stands today. James, I don't know if there's anything else you'd add there, but... James Rinn: Yes. I would reiterate that our $32 million 2026 guidance is based on kind of the product set and revenue sources that we have today related to private label credit cards and some of the development in those areas. We'll update forecast accordingly in the quarters ahead as we have better visibility, but that's not really baked into the current forecast. Operator: Your next question comes from the line of Francesco Marmo with Maxim Group. Francesco Marmo: Congratulations on the quarter. Kind of like big picture, you already kind of touched on this, but I was curious if you could give us a bit more color around the momentum in top line. I was wondering whether it is primarily new customer addition, new customer being onboarded? Or is it more higher transaction volume from existing customers or greater adoption of your bundled offering? Michael Seifert: Great question. Thanks, Francesco. I would say that the majority of our top line growth, the strong majority is from new customer acquisition. We've really turned onboarding on in the second half of the year. We've gotten far more efficient in our ability to move folks through the pipeline in a much more expedited manner. So the growth in top line that we have seen over the last 2 quarters as well as the growth we anticipate seeing in 2026 that we've guided towards is largely an effect of our expedited onboarding capabilities. And we are grateful that we've barely scratched the surface on our pipeline. So being able to move through that pipeline more efficiently is going to be key to our success over the next 12 months. And thankfully, we've already started to see that prove itself out. The only other thing I'd add here is that obviously, in Q4, many of our merchants are in the retail sector. So it's exciting that we get to have these newly onboarded merchants as we head into Christmas shopping season, help them elevate their brand and some of the deals they're offering for events like Black Friday or Cyber Monday, Christmas shopping season. This is sort of their Super Bowl, and so we're honored that they would invite us into the transaction layer with our bundled offering to help them drive sales toward the end of the year here. Another reason why we anticipate a strong Q4. So that's how I'd answer that. Will? James? Great. Thank you, Francesco. Operator: At this time, I will be handing the call over to Mr. William Kent for submitted questions. William Kent: Thank you, Angela. As the quarters passed, we've taken questions through the Say Technologies platform before the call, and we'll answer a couple of questions that were submitted. The first question is, what is the utilization level of PSQ's payment processing service? Has there been growth? And is the client base mostly staying with niche, i.e., firearms dealers? Or are you seeing more diverse businesses that are making a switch over? Michael Seifert: Yes, I love this question. Thank you to whichever shareholder asked this. We're grateful you're on the journey with us. I would say resoundingly that our base of merchants that have joined us in our fintech offering is actually more industry diverse than I would have anticipated at this stage. We've had a wide-ranging network that has joined us in this mission, primarily focused on retail. So online retail e-commerce is our bread and butter certainly. But we've really expanded into more B2B SaaS services as well. We focused a lot on our ACH product, allowing for these business-to-business relationships to strengthen. We've really focused on the nonprofit space, and we've been able to provide a bunch of value there. We've had great opportunities in firearms adjacent verticals as well that have been referred to us by the firearm space. So our pipeline and existing merchant mix is more diverse than I would have anticipated at this stage. And I think that's a testament to the scalability of our payment stack and our multiple payment methods bundled into the checkout offering and the expansion of our TAM ultimately. We are really excited about the merchants that we get to serve. And we've built a strong foundation that we believe will catapult us to reaching that broader audience. So stay tuned on this, too. We'll continue to update The Street as we onboard new material merchants from these other verticals to kind of showcase what's possible in these spaces. And so far, we're really pleased with the progress. William Kent: Thank you. Next question. PublicSquare stock has been volatile, suggesting investor uncertainty around long-term strategy and profitability. How is management balancing new initiatives such as crypto Treasury as a Service with the goal of achieving steadier earnings and long-term growth? Michael Seifert: This is a great question. Thank you for asking it. So we certainly acknowledge that as we mentioned on the Analyst Day back on September 25, that from our perspective, our stock is undervalued. We really believe in the upside potential of our equity as our business continues to execute. And regarding new initiatives, our focus is to maintain the principles that guide Q3 to success. And ultimately, we believe will guide Q4, all of 2026 and our future to success, which is operating efficiency that is tied with an executional focus to drive this fintech business forward in such a way where we are able to substantially increase revenue while actually decreasing our losses and expenses. This is what we proved out in Q3, and it's what we anticipate proving out in the quarters to come. So our focus is anything that complements those principles, tight execution, lean efficiency of our operating business, constantly finding ways to improve our offering in order to drive an increase of revenue while reducing expenses, that is our focus. And to the extent that these new initiatives help to complement that and the investments we can make in these new initiatives drive value for our shareholders in alignment with those principles, those are the things that we prioritize. And so as I mentioned earlier on in this earnings call, in my comments, we are packing a ton into Q4. We've been strategically placing investments incrementally that will complete the full picture of our fintech offering, and we'll have quite a lot to announce over the next 7 weeks regarding those new initiatives but know that all of those initiatives are being deployed on the foundation of sound unit economics and a tight operational focus. William Kent: Thank you, Michael. And for our last submitted question, back on August 12, which was our second quarter earnings, you said that you were monetizing EveryLife via strategic sale and either selling or repurposing the marketplace IP. Later, you announced crypto Treasury as a Service and partnership with IDX and said you'd implement it for your own treasury. Do you have an update on those? Michael Seifert: Absolutely. So James touched on this a little bit in his comments, but everything we articulated on August 12 as well as September 25 is humming right along. We are indeed in the process of monetizing EveryLife via strategic sale, and we anticipate that we will be in the purchase agreement stage by the end of the year as previously affirmed. And we are pursuing the path of either selling or repurposing the marketplace IP. We are talking to multiple interested parties and also exploring the world in which we repurpose the marketplace IP and technology for the go-forward fintech business, and we'll provide announcements or updates on that process as relevant. And then regarding IDX and our overall positioning on crypto, absolutely, we are in the process of establishing our own treasury via our strategic partnership with IDX. And that ball is rolling right along anticipated time lines. So we're happy with the progress that we articulated 6 weeks ago. We've made leaps and bounds since then. And as I mentioned, Q4 is going to be big for us as we leverage these different strategies and updates to do two things: Number one, end 2025 on an incredibly high note, but also set up for a clean 2026, where our fintech focus is dialed in and that we have these monetization efforts significantly progressed upon so that we can focus on the go-forward business as we head into Q1 and Q2. James, anything you'd add? James Rinn: No. I think you covered it well. Michael Seifert: All right. Well, ladies and gentlemen, I believe that concludes our questions. So with that, we can't tell you how much we appreciate you joining us this morning. We are grateful that you're on the journey with us. We appreciate your interest in PublicSquare, and we hope you have a fantastic remainder of your Thursday. Thank you all. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Stevanato Group Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Lisa Miles, Chief Communication Officer. Please go ahead, madam. Lisa Miles: Good morning, and thank you for joining us. With me today, I have Franco Stevanato, Chief Executive Officer; and Marco Dal Lago, Chief Financial Officer. A presentation to accompany today's results is available on the Investor Relations page of our website under the Financial Results tab. As a reminder, some statements being made today are forward-looking and based on current expectations. Actual results may differ materially due to risks outlined in Item 3D, Risk Factors of our most recent annual report on Form 20-F filed with the SEC. Please review the safe harbor statement included at the beginning of today's presentation and in our press release. The company undertakes no obligation to revise or update these forward-looking statements, except as required by law. Today's presentation may include non-GAAP financial information. Management uses these measures internally to assess performance and believes they may be helpful for investors in evaluating the quality of our financial results, identifying trends in our performance, and providing meaningful period-to-period comparisons. For a reconciliation of these non-GAAP measures, please refer to the company's most recent earnings press release. And with that, I will hand the call over to Franco Stevanato. Franco Stevanato: Thank you, Lisa, and thanks for joining us. Today, we will review our third-quarter performance, share updates on our investment projects, and discuss the current market environment. We delivered another solid quarter of financial results, driven by revenue growth, a record mix of high-value solutions, and continued margin expansion. Our third-quarter financial results exceeded our expectations. We benefited from favorable timing of some product shipments in the BDS segment that were previously scheduled to occur in the fourth quarter. Relative to the same period last year, we also faced headwinds from foreign currency and certain tariff costs that were not mitigated, which tempered margins in the third quarter. These impacts were already assumed in our guidance. As a result, we remain on track to meet our 2025 guidance. This underscores the momentum we are experiencing from executing our strategic road map as we leverage and scale up our growth investment in capacity expansion to meet the increased demand for high-value products. Third quarter revenue increased by 9% year-over-year, driven by the continued strong performance of our BDS segment, which grew by 14%. This was primarily fueled by demand in our core drug containment business. As expected, revenue from Engineering segment declined as we continue implementing our business optimization plan. Our solid performance in the third quarter was underpinned by a remarkable 47% growth in high-value solutions, driven primarily by Nexa syringes and to a lesser extent, EZ-fill vials. The Nexa platform is optimized for sensitive biologics, and its high mechanical resistance makes it ideal for the seamless integration of auto-injectors. Our core pillar of our long-term strategy is built around meeting the demands of a high-growth market, such as injectable biologics, which require premium containment and delivery solutions. These are often sensitive drugs that require specialized glass or ready-to-use containers to maintain stability, and integrity, and ensure patient safety. Our EZ-fill portfolio and our ongoing investments in growth capacity are intended to support customers' innovation programs in drug development and life cycle management. As the pharma industry shifts to ready-to-use platforms that deliver superior quality, simplify processes and enhance operational flexibility, our EZ-fill cartridges are setting a new standard. Most recently, they were selected by a leading manufacturer for use with a GLP-1 biosimilar for type 2 diabetes, one of the first to receive FDA approval and launch commercially in United States. Engineered for optimal performance in handheld injection devices, EZ-fill cartridges offer seamless compatibility with pen injector systems, helping accelerate time to market while ensuring reliability and patient convenience. The continued growth in biologics, rising pharmaceutical innovation, and the increasing trend towards self-administration of medicine remain strong secular tailwinds for our business. Solid demand for high-value solutions and collaboration with customers on ready-to-use products illustrate why we believe we are well-positioned to meet evolving industry demands and support patient-centric solutions. Turning to the Engineering segment. The team continues to make meaningful operational progress against our business optimization plan. Over the past year, we have been squarely focused on executing effectively and meeting our customer commitments. While the steps we have taken have yielded operational improvements, our financial performance is below our expectations. We believe that getting the segment back to historical performance levels is going to take more time as we refresh the workload with new projects and reposition the segment for stronger profitability. We have a healthy pipeline of new opportunities across the Engineering segment. However, converting that pipeline into new orders has been slower than we anticipated. First, as I mentioned during the last call, we are strengthening the sales organization with fresh expertise and refining our commercial processes. We expect to harvest the benefits of these initiatives in the coming quarters. Second, several pending opportunities in our pipeline are repeat orders from existing key customers. The good news is that we have received positive feedback on the performance of recently installed manufacturing lines. So we are cautiously optimistic that the current slowdown in order flow is only temporary. We believe the long-term demand landscape for our manufacturing technologies remains strong as the industry expands its capacity to satisfy growing demand for injectable biologics and devices. Customers are investing in new capital projects as they onshore more core operations in the United States and upgrade their technology to meet higher quality standards and more stringent regulations, such as Annex 1. Many major pharmaceutical players have announced extraordinary investments dedicated to the U.S. manufacturing operations. This, coupled with organic growth from on-cycle investments and growth in emerging markets, provides us with added confidence in the demand outlook. Let's turn to an update on our capital investment projects in Fisher and Latina. In Fishers, we have several syringe lines running commercial production at various stages of ramp-up. At the same time, we will continue to install additional syringe lines and validate customers for the rest of this year and throughout 2026. Our first vial lines are being installed and qualified, with customer validations expected to begin in mid-2026. We are also advancing the build-out for contract manufacturing activities in support of a couple of large device programs. The new clean room is nearly completed. The first injection molding machines are on site and scheduled for installation in the coming months. We still expect commercial activities to begin at the end of 2026 or early 2027. In Latina, we are scaling commercial production for Nexa Syringes, which will continue into 2026. Preparations are underway for the next phase of EZ-fill cartridge production to meet the rising demand for ready-to-use cartridges. This next phase will be powered by our new R400 EZ-fill cartridge lines. They have a fully automated, ready-to-use process designed to ensure aseptic integrity, increase production capacity, and provide superior container quality. Our capital investments are helping us meet the rising market demand for our core drug containment products amid the growth in biologics, which continue to become a large portion of our portfolio each year. Before closing, I would like to thank our teams around the world on our important ESG milestone. We were recently awarded the EcoVadis silver medal. This puts us in the top 15% of companies assessed globally and the 92nd percentile in our industry. This recognizes our strong performance and reflects our commitment to embedding sustainability into our operations and strengthen our ESG practice. I will now turn the call over to Marco. Marco Dal Lago: Thanks, Franco. Before I begin, I want to clarify that all comparisons refer to the third quarter of 2024, unless otherwise specified. Let's start on Page 9. Revenue for the third quarter of 2025 grew 9% to $303.2 million, driven by a 14% increase in the BDS segment, which offset a 19% decline in the Engineering segment. As Franco mentioned, foreign currency translation was a headwind, and on a constant currency basis, revenue grew 11%. Overall, financial results were better than expected in the third quarter, primarily due to a favorable timing of product shipments in the BDS segment, which were previously anticipated to occur in the fourth quarter. Revenue from high-value solutions grew 47% and represented 49% of total company revenue. Strong performance in the BDS segment led to a 240 basis point increase in consolidated gross profit margin, reaching 29.2% in the third quarter of 2025. This was due to a favorable mix of more accretive high-value solutions, the expected financial improvements at our Latin and Fishers facilities as we scale our multiyear investment plan. While both sites are currently margin dilutive, we expect to continue to gain operating leverage as volume and revenue growth, and the ongoing recovery in vial demand as the effects of destocking abate. These positive trends were partially offset by a lower gross profit from the Engineering segment and to a lesser extent, the impact of currency translation and certain tariff costs that were not mitigated. In the third quarter of 2025, operating profit margin increased to 17.4%. And on an adjusted basis, operating profit margin rose 220 basis points to 18.5%. This improvement was driven predominantly by an increase in gross profit. Net profit totaled $36.1 million with diluted EPS of $0.13. On an adjusted basis, net profit was $38.5 million and adjusted diluted EPS increased 17% to $0.14. In the third quarter of 2025, adjusted EBITDA increased to $77.8 million, and the adjusted EBITDA margin improved 280 basis points to 25.7%. Moving to segment results, starting with the BDS segment on Page 10. In the third quarter of 2025, our BDS segment delivered strong results with revenue rising 14% to $266.7 million. On a constant currency basis, BDS revenue grew by 17%. The segment outperformed our expectations by approximately $10 million in revenue from product shipments that we previously expected to occur in the fourth quarter. Top-line growth was driven by a record level of high-value solutions, which reached $147.9 million and represented 55% of segment revenue for the third quarter. This was underpinned primarily by strong demand for high-value Nexa Syringes, along with the continued recovery in EZ-fill vials. Meanwhile, revenue from other containment delivery solutions decreased by 10% to $118.8 million due to a decline in low-value syringes and in vitro diagnostics as we transition to a larger portfolio of high-value projects. This was partially offset by growth in bulk vials and contract manufacturing activities for drug delivery devices. In the third quarter of 2025, gross profit margin increased 400 basis points to 32%. Margin expansion for the BDS segment was driven by the favorable mix of high-value solutions, the financial improvements in Latin and Fishers as the site scale, and the market recovery in vial demand. These tailwinds were partially offset by the impact of foreign currency and certain tariff costs, which were not mitigated. As a result, operating profit margin for the BDS segment rose to 22.1%, up from 16.9% in the same period last year. In the third quarter of 2025, revenue from the Engineering segment decreased 19% to $36.4 million. This was driven by lower revenue from glass conversion and assembly lines. This offset revenue growth in visual inspection and after-sales services. As expected, the segment's gross profit margin declined year-over-year to 10.4% due to a lower revenue and the current project mix, which included a higher proportion of revenue from the complex legacy projects in Denmark and fewer new orders. In the third quarter, operating expenses were higher due to certain R&D activities. This was tied to the ongoing development and launch of our next-generation EZ-fill cartridge lines at our Latina plant. As a result, segment operating profit margin was negative 1.1%. Please turn to the next slide for an overview of the balance sheet and cash flow. As of September 30, 2025, the company had cash and cash equivalents of $113.3 million and net debt of $333 million. For the third quarter of 2025, capital expenditures totaled $54.9 million. Net cash from operating activities increased to $47.2 million. Cash used for the purchase of property, plant, equipment, and intangible assets totaled $48.4 million for the third quarter of 2025. The improvement in net cash flow from operating activities and lower capital expenditures in 2025 led to a positive free cash flow of approximately EUR 260,000 in the quarter and EUR 16.9 million on a year-to-date basis. We believe we have adequate liquidity to fund our strategic priorities and satisfy our working capital needs through a combination of cash on hand, cash generated from operations, available credit lines, and our ability to assess additional financing. Please turn to the next slide for guidance. Despite the larger unfavorable impact from currency, we are reiterating our fiscal 2025 guidance and still expect revenue in the range of $1.16 billion to $1.19 billion, adjusted EBITDA between $288.5 million and $301.8 million, and adjusted diluted EPS between $0.50 and $0.54. I want to call out a few updates to our assumptions for the full year guidance. First, with the strength of high-value solutions, we now expect the revenue from high-value solutions will range between 43% and 44% of total revenue compared with our prior assumption of 40% to 42%. Currency translation was worse than anticipated in the third quarter, and we now expect that the impact from currency will be approximately $15 million to $16 million compared with our prior range of $12 million to $15 million. We have fully offset this with higher organic growth. Thank you. I will hand the call back to Franco. Franco Stevanato: Thank you, Marco. In closing, our year-to-date performance demonstrates the strength of our long-term strategy and business fundamentals. We continue to deliver solid results, driven by growth in high-value solutions, innovation in drug containment delivery, and meaningful progress across our investment projects. While challenges remain within the Engineering segment, we've taken decisive steps to improve execution, reinforce our commercial teams, and unlock long-term value. Our commitment to supporting the evolving needs of our customers, especially in high-growth areas such as injectable biologics and [indiscernible] medicines, positions us well to meet the rising demand and deliver differentiated value. The strategic investments we have made, the innovation we have delivered, and the trust we have built with our customers are the foundation of the strong momentum as we look towards fiscal 2026. With a healthy pipeline, strong market tailwinds, and our clear strategic focus, we are confident in our ability to drive growth, enhance patient outcomes, and deliver lasting value for our customers, employees, and shareholders. Thank you again for your time and continued support. Operator, we are ready for questions. Thank you. Operator: [Operator Instructions] First question is from Larry Solow, CJS Securities. Lawrence Solow: This is Charlie Strauser for Larry. Could you perhaps give us some more color on the $10 million outperformance in the quarter and on the top line, and then also talk a little bit more about the mix? Marco Dal Lago: Yes, sure. Marco speaking. Thank you for the question. So the $10 million is an acceleration to accommodate customer supply chain needs of sales that were previously expected in Q4. So basically, based on the needs, we decided together with the customer to ship in Q3. Everything is BDS, predominantly in high-value solution, high-performance syringes. Lawrence Solow: And then high-value solutions. What drove the strong growth in the quarter? And how does the trajectory look going into next year? Marco Dal Lago: I will start with saying that we see strong demand in high-performance syringes, particularly Nexa, as Franco was commenting. Also Alba has good traction, and also important to underline the fact that we can see some recovery in sterile vials following the last year destocking. We see traction in physical vials that is improving compared to the same period last year. Those are the main drivers for high-value solution growth. And this is also the main reason why we decided to update our guidance with respect of high-value products. We now expect high-value products share between 43% and 44% of company revenue. Franco Stevanato: This is -- if I can complement, Marco, we see that the trajectory is robust. Our big international clients, in particular, the bio customer, also many relative biosimilars. They have a strong demand, in particular, on EZ-fill products like Nexa syringes. We see more and more interest and traction on Alba syringes. And more and more, we see a lot of increase in demand for the cartridges ready to fill on the different format from 1 ml up to 10 ml because they are perfectly fitting for their self-administration for their auto-injector or wearable devices. Operator: Next question is from Matt of William Blair. Matthew Larew: On the margin improvement story here, last quarter, you referenced that Latina was positive gross profit margins, but Fishers was not yet those seeing quarter-on-quarter improvement in both. I was wondering if you could update us as to where those stood today, if Fishers had crossed over to gross profit margin positive yet. Franco Stevanato: Well, overall, we are happy about the execution of the 2 plants. We keep on improving quarter after quarter. As you remember, we started commercial production in Latina in Q4 2023. While in Fisher, we started about 3 quarters later. In Latina, we keep on improving also the financial performance beside the operational KPIs, and we are getting closer to a normalized gross profit margin compared with the segment, still dilutive. About Fisher, as mentioned, is we started commercial production 3 quarters after Latina is a bigger plant, is a greenfield. We are keeping on improving every quarter. We are not positive yet in Fishers in Q3. We are continuously improving also the financial performance, installing more line and better leveraging our fixed expenses. And we plan to go to positive gross profit margin towards the end of this year. Matthew Larew: And then on engineering, last quarter, you called out sort of a KPI site acceptance has significantly increased. It seems like maybe a positive indicator. I think now you're saying it's going to take more time to get back to historical performance. What's the right timeline to think about a return to growth? Can that segment grow in 2026? And if not, does the recovery period look like flat revenue? Or does it look more like the down 20%-ish that you guided to in the back half of 2026 -- 2025? Marco Dal Lago: Yes. If I can start from -- on the bigger picture of the engineering on the Q3 of last year, we shared with all of you that the engineering was coming from a big record high in terms of orders. This has also generated also an increase in complexity. So immediately with the leadership team, we launched a sort of what we call optimization plan, in particular, in order to resize the 2 operation plants. One is related to Italy, other one was related to Denmark because at that time, we received a lot of orders for Cal in Denmark. So today, we continue to make meaningful positive operational progress from operational point of view. We further enforced the leadership. We increased the execution on supply chain after service, in particular on project management. So this was translated in Q1, Q2, and Q3 in evidence increase of number of positive site acceptance tests that we have delivered to our customers that have outpaced the number compared to last year. Even more the positive signal that our customer, once they're starting to run the line, they see -- they give a very positive feedback to all of us today, where we are. The pipeline that we have with our clients, both on historical clients and also new clients is healthy, all the pipeline. What we see, however, that is a slow delay in the conversion into orders for mainly 2 reasons. To our big clients, key customers, they were waiting the final positive acceptance test of the line #1 before to place the order #2 and #3. Second, also, we start to see some of our customers that are taking a little bit more time to reevaluating their manufacturing footprint. So all overall, this temporary headwind of the engineering, we see that is month after month progressing even more from execution point of view, also looking the pipeline that we have with our customers is giving very positive feedback for the future. Just to underline the last comment, the industry in this moment is very dynamic. We see more and more big customers expanding capacity. We see even more -- a lot of clients all over the world upgrading their technology because the new reglementation mostly linked to our next one. And also, we see this we want to take even more benefits. So thanks to the onshoring in United States, some customers are going to add even more investment. So this is a good environment where we continue to grow in the next quarters. Operator: Next question is from Michael Ryskin, Bank of America. Michael Ryskin: In your prepared remarks, I think you made a callout about a biosimilar opportunity or essentially winning some biosimilar business, specifically for GLP-1s. I was wondering if you can talk bigger picture about biosimilars and how you see that opportunity contributing to Stevanato's growth in the coming years. Specifically, if you could talk to what part of the portfolio benefits that? Does that tend to be high-value Nexa? Or does that tend to be more bulk products or more routine products, standard products, whether that's incremental margins or top line? And just broadly, how important are biosimilars to you today? Franco Stevanato: Yes. So usually, when biosimilars are entering into the market when the product is going out of patent, usually is a benefit for a company like Stevanato because this can help to enlarge revenue in the single therapeutic drugs. So on the strategy of Stevanato always was extremely important to be part of the originator from the very beginning. This was valid on insulin, on heparin, anesthetic, mass, and also even more on GLP-1s that our big historical insulin customer engaged us many years ago, and we are deeply engaged with all our product portfolio with our originator. But also in parallel, Stevanato is extremely active with all the -- with our tech center, both here in Italy and Boston to try to maximize the validation in all the biosimilars. In fact, today is exactly what is going to happen. We are deeply involved with all our EZ-fill high-value product platform. We have a program of Nexa syringes. We have a program on cartridges ready to fill. In fact we were just sharing that we win a big program. Even more, we have on biosimilar on JP-1, new program on pipeline for our Alina Pen. So to your question is, yes, biosimilar helping to further increase the revenue. Usually, when the product is going out of patent, 70%, it will be revenue around originator, 30% historically revenue that will move inside of the biosimilar is exactly the strategy of Stevanato to be present in everything that is injectable, originator, and biosimilars. Michael Ryskin: And then a follow-up, if I can, on the guide for the year, and you called out FX currency is a little bit more of a headwind by, I think, EUR 2 million at the midpoint. It sounds like our assumptions for engineering should be a little bit worse, and you talk about organic offsetting it. So just kind of means that BDS is coming out a little bit better. You saw the pull forward into 3Q, but am I interpreting correctly that we should expect a little bit of a better pull forward and better result in BDS 4Q as well, even despite the pull forward just to offset currency in engineering? Marco Dal Lago: Very good points, Michael. We are reiterating our guidance. Nevertheless, there are some moving pieces. You mentioned a couple of million more headwinds in currency effect because Q3 was average EUR 1.17, the euro-dollar exchange rate, a little bit higher than our expectations. We are doing better in high-value products. We expect now to have high-value products as a range of overall revenue between 43% and 44%, so significantly higher than after second quarter. On the other side, we are giving priority to high-value syringes rather than accelerating the non-value syringes. And this is also moving the mix. As Franco mentioned, orders intake in Engineering is not at the speed that we were anticipating. So in our model, we took into account of the risk of softer second quarter, but we prefer to adjust our model with a couple of million less. So all overall, we see impact from currency, some slowdown in engineering, and acceleration in high-value products, bringing more margin to BTS segment. Operator: The next question is from Paul Knight, KeyBanc. Paul Knight: Could you tell us what is utilization rate in Fishers and utilization rate in Latina? And with it how many years to get to full capacity, if that's possible to answer? Franco Stevanato: In Latina, we are continuing -- sorry, in Fishers, we are continuing to install high-speed line for syringes. Practically, we install the line. We do the internal validation. We do the customer validation, we start to ramp up. And this installation of the line, we will continue throughout also 2026 to '27. On the top of this, we are starting also to add capacity for Via in both bulk EZ-fill configuration and next year, we are adding capacity. We will add capacity for Alba technology. And like we already mentioned to you, we are extending a big program in our building for hosting a production of auto-injector in the next year. So in the next 1 to 3 years until end of 2028, we will continue to ramping up capacity. The goal is to be in the full potential at the end of 2028. You remember, we -- the goal was to invest $0.5 billion to translate end of 2028, $0.5 billion of revenue. Paul Knight: And the -- you're mentioning onshoring quite a bit. I guess what you're hearing is that because of tariffs and pricing, et cetera, your customers are evaluating where their factories may be in the future, but it seems like it's a step higher, I guess, possible demand? Franco Stevanato: Yes. We start to see starting from -- after this year was end of March of 2025, many clients that came in to raise interest to our U.S. facility with 2 type of interest, or because they were reevaluating their footprint, because maybe the region they were looking to produce in a different region of the world. And now they are thinking to put capacity in the United States, they are even more interest to boost and speed up the validation of our plants. And this is, let's say, what was already inside of our guidance. The good news is that we see more and more clients that are looking to totally change their supply chain, and this is going to become more new opportunity for Stevanato because we are already in a very advanced stage of ramping up capacity in Fisher, and they like the idea to speed up the validation of our plans in Fisher in particular for our EZ-fill product. Operator: Next question is from Mac Etock, Stephens Inc. Steven Etoch: Maybe just a follow-up on the order pull-through. Can you confirm if that's a single customer that's pushing forward $10 million in orders? And secondly, as you look towards 4Q, do you expect those volumes to continue from there? Or is that more of a onetime item? Marco Dal Lago: No, we are not confirming that. We are not so concentrated as a customer revenue. It's a bunch of customers in the -- especially in high-value products that are accelerating some supply chain needs, but it's not a single customer. Lisa Miles: I'm sorry, Mac, I missed the second part of your question. Steven Etoch: I was just curious if those orders are going to repeat in 4Q, just given the pull forward. Lisa Miles: I see. No, that's not expected. It's a pull forward from Q4 into Q3 on that batch of orders from those customers. Steven Etoch: And then secondly, on engineering. You mentioned the United States manufacturing announcements. I'd just like to get a sense of what you're hearing within your Engineering segment and the customer conversations you have there, and when that might translate to more meaningful order growth for engineering and maybe also the BDS segment as well. Obviously, these are longer-dated opportunities, but I just want to get a sense of what you're hearing. Franco Stevanato: On Engineering segment, what we see that certain -- there are, again, very similar to the question that Paul asked to us. Certain clients, they are reevaluating their footprint. Maybe originally, we were looking to invest capacity in Europe or through certain CMO, and now they are seriously reevaluating or they have already approved to extend their capacity in the United States. And this is why also one of the reasons why we are taking a little bit more time to confirm the order and the specifications. Other customers, they are also changing their type of supply chain. Maybe they are starting to further increase the outsourcing through U.S. CMO, or to use to further increase the capacity of their existing plants. So all overall, we see a positive trend in the United States where customers are starting to more and more increase their platform for fill in United States. Automatically, once they will build the factory, there will be even more opportunity for our Fisher plants because automatically, we will have more opportunity for syringes Nexa, syringes Alba via EZ-fill devices. Operator: Next question is from David Windley, Jefferies. David Windley: I wanted to follow up on Paul's question on capacity, put maybe a slightly different spin on it. On the HBS guidance for the year, the previous guidance for the year at, I believe you said 40% to 42% and 1Q started off pretty favorable to that. And I think at the time, the commentary was that your ability to see HBS continue to rise as a percentage from that first quarter favorable level was somewhat gated by capacity and when lines were coming on. So this quarter, obviously, you were able to pull that $10 million forward. The trends have been pretty favorable. I guess I'm coming back again to Paul's question about capacity and utilization. Are lines in place to continue to support HBS outperformance, but for the pull forward, I guess, in the near term? Or are you kind of in a position where you have to wait for additional lines to be validated before you can see HBS continue to move higher? Franco Stevanato: Today, David, the demand -- let's say, in the last years, most of our investments were just fully dedicated to build capacity in high-value product, both in Italy in the 2 plants in the United States. Today, is it true? We -- the demand is really driven by the capacity that we have put in place in all the locations. And most probably, we will continue in this way. What is important to know that there is an intense program continues to install capacity in all the format just to translate in fact. In Latina, we continue to install capacity for syringes Nexa. In Latina, we will install capacity for syringe with double chamber. We have this huge program to install several hundred million for capacity for cartridges ready-to-fill. In Fisher, it is the same. We continue to add capacity for Nexa syringes. We will add capacity for Alba, and we will adding capacity also via Ready-to-Fill. This is only for EZ-fill. On the top of this, in Germany, we are launching a new big-sized clean room that is going to host produce Alina Pen. And also, we have space to further duplicate in the future in the United States. So we are so focused to intensively execute all our investment. We will add several hundred million of additional capacity in the high-value product until 2028 in order to really meet all the program and execute the contract that we have with our customers. David Windley: Follow-up question around vials. So you had highlighted that the particular pressure on vials, I believe, if we go back to '24 was acute on your margin and kind of post the pandemic and post the decline in vaccine-related activity. You're seeing recovery in that. I'm wondering what the drivers are of recovery in vials. Is it kind of the recovery of orders from your traditional clients? Or are you seeing new products, perhaps participation in GLP-1s or something like that, that are driving an uptick in vial orders? Franco Stevanato: Yes. David, let's make a parallel. Bulk via, you have to consider like a big ocean with several hundred customers that in the last 2 years, they started to normalize their inventory. And today, since the last 4 quarters, we continue to see positive signal to go back on the normalization. And in fact, I think throughout 2026, most probably we can say that we'll be back to pre-pandemic period for Bulk via. EZ-fill via is more a niche. It's more, let's say, we have some big commercial customer, but it's where we see new molecule launching on the ready-to-fill vial. So we also have seen a positive traction with particular also increase of orders with new customers on EZ-fill via because remember, we shared that the customers were looking to clean the inventory of bulk via, and then because they have the EZ-fill flexible line for filling EZ-fill vial, they are starting to place new orders. So all overall, bulk, we are moving to a normalization. On EZ-fill, we see also a new molecule that are going to use this type of primary configuration, EZ-fill. Operator: Next question is from Doug Schenkel, Wolfe Research. Douglas Schenkel: So you had a really strong high-value solutions quarter that was partially offset by standard bulk coming in a bit light of our model. I'm just wondering, based on your commentary, it seems like this is just timing. Is that right? Or is there some other more durable shift in mix and demand that we should be contemplating as we update our models? Marco Dal Lago: Besides what Franco just said about the long-term view and the adoption of the sterile configuration for the year, there are a couple of factors to be mentioned. First of all, we mentioned the acceleration in the BDS volumes previously expected in Q4. This is mainly in high-value products. So it's a pull forward from Q4 to Q3. Then in Q3, we mentioned also the fact that other containment delivery solutions are going down compared to the same period last year. And this is mainly driven by in vitro diagnostic and non-value syringes. More specifically, on syringes, we have some flexible lines. So our priority is to switch the production and the revenue to high-value syringes rather than staying in the low-value syringes. So we have this type of acceleration in Q3 with the Nexa syringes and EZ-fill vials recovery compared with the same period last year. Franco Stevanato: If I can add a little bit more in a broader picture, the goal of Stevanato in the next 5, 10 years is to become a fully solution provider to our customer, where we want really to sell the fully integrated system. This is the reason why, for example, the Planto Fisher is a campus that is going to provide multi-capability all in high-value product. Also, this is in combination with the fact that in the last year, most of our investments are fully dedicated to high-value products. So you can see some fluctuation quarter-by-quarter, but the clear goal of Stevanato in the next years is really to be laser focused on serving the full system on high-value products to our clients. Douglas Schenkel: I was trying to parse out trend versus transitory. So that's great. An unrelated follow-up. There have been a number of recent headlines around large pharmaceutical companies essentially making deals with the U.S. government around drug pricing. And recently, it's been speculated that Lilly and Novo may announce a deal as soon as today. Is it logical to assume that a significant price drop and thus some elastic response in terms of market expansion via Medicare and Medicaid could be an absolute good guy for packaging suppliers? I'm just wondering, as you think about these settlements potentially leading to an increase in volume, wouldn't that, by extension, be good for Stevanato? Franco Stevanato: Yes. We saw this announcement also today, we letter today, there will be further announcement. What we can say is very similar to the question that we received before about the biosimilar. Every time that biosimilar is coming on board, this can help to further enlarge revenue for all the industry. Usually, what we say, just to put in the Stato position, with our clients, we have a long-term contract in place. The cost of primary packaging also is product or auto-injector is really minor compared to the overall cost of good of the drugs. So usually, this we see more like a net positive effect for company like Stemato because it will translate in more orders for our products. Operator: Next question is from Patrick Donelly, Citi. Patrick Donnelly: Franco, maybe to follow up on Dave's question on the vials. Can you just talk about where we are on the inventory side? I mean it feels like destocking far less of an impact. Are we fully past that? What's the latest you're hearing from customers on that front, and confidence on the go forward there? Franco Stevanato: What we see that all overall, they are starting to normalize their inventory. In fact, this will translate in more normal forecast to -- from our customers. Usually, with our customers, we work with what we call 3 to 5 years agreement. Then we have 12 months forecast, 3 months confirm order if more bulk-related, 6 months confirm order if it's more EZ-fill related. So today, all overall, we see that clients are starting to normalize. One KPI that I can share with you, if you really compare last year with this year, the revenue around vial, if you can take a blend between bulk and EZ-fill, we increased 12% compared to last year. So we see continued month after month positive signal practically everywhere. We are talking about Europe, United States, Latin America, and Asia. We have a portfolio of 700 customers, but all overall, the macro trend is moving slowly in a good normalization direction. Patrick Donnelly: And then I guess looking at next year, I know you guys LRP is out there at kind of that low double-digit range. It sounds like throughout this call, it's been a lot of positives between some of the regulatory stuff, obviously, destocking behind you guys. The new facilities ramping. Any reason why next year wouldn't be in that low double-digit range? I think the Street is around 10% next year. I just wanted to take your temperature on that. Marco Dal Lago: As you know, we will be providing our detailed guidance for 2026 next quarter. Nevertheless, what we can tell you is that we see today positive trends for high-value solution adoption. We see Fishers and Latina ramping up in the right way, in line with our plan. We are executing our plan in engineering. So we have a positive approach towards 2026. We need, obviously, to finalize our internal budget and objectives, but this is what we can tell you today. Operator: The last question is from Curtis Moiles, BNP Paribas Exane. Curtis Moiles: So first, I wanted to just maybe get a little deeper into the High Value Solutions guidance for the year. On my kind of rough math, I think it implies for Q4 a range of 39% to 42% of revenue versus 45% year-to-date or so. So could you maybe just give a little more color around the assumptions you have there? And is that kind of based on customer orders or anything else to be aware of? Marco Dal Lago: Yes, correct. Our guidance are implying 40% to 41% in Q4, and this is driven by the backlog we have in our hands, and by the fact that, again, we have been able to accelerate some revenue in Q3 that were previously expected in Q4. So as Franco was saying, there can be some quarterly fluctuation or acceleration depending on the mix of orders we have in that specific quarter. Nevertheless, in the medium term, both in the in the past, we saw a steady growth of the share of our high-value products, and we expect to keep on installing capacity and keep on growing in the share of high-value products. Franco Stevanato: If I can also maybe add a little bit more color from product customer, and therapeutic area point of view, we see that we are growing in biologics a lot. And inside the biologics, we see traction on Nexa syringes where clients is using some autoinjectors. We see more and more increased demand from product in Phase II and Phase III, but also commercial on Alba. This is where we are extremely excited because they have a superior performance in the result of reduction of release of visible particles, Cartridges to fill on different formats from 1 ml up to 10 ml are good because it's very easy to be insert in the complex device cartridges. Also our Alina Pen is starting to feel good pipeline, new prospect on particular on biosimilars. So what I would like to share with you that the pipeline is spread with a very nice number of clients and therapeutic drugs in all our product portfolio. We are not just localized in one product or one customer. Curtis Moiles: And then quickly on contract manufacturing. I know the press release called out strong growth in Q3. And then you mentioned Fishers should start commercial activities for contract manufacturing, I think, end of '26, early '27. So can you maybe just give some high-level thoughts about how we should think about this going forward? Is that going to become a more meaningful growth driver for the business? Franco Stevanato: So we are building in Fisher this production department dedicated for one high runner for auto-injector for one of our big customers that already buy from us the Nexa syringes. Today, our strategy, our approach on drug delivery system is our main goal is to deliver our IP product to our Alina, Aidaptus, and Vertiva products. This is why we're building this big clean room in Germany that we have already -- we have to execute the pipeline with our customer. It's also true that we have going to -- we have already contracted in a selective way that we can provide the auto-injectors or some pen to some customers that they own the AP and when we are already the supplier with our Alba syringes of cartridges to fill off syringe Nexa, practically in order to have more bigger contract, we are also serve this product in a form of CMO business model. Operator: There are no more questions registered at this time. Thank you. Lisa Miles: And that concludes our call for the day. So thank you for joining us, and we appreciate the support. Have a great day. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Thank you very much. Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the MPS Group Third Quarter and 9 Months 2025 Results Presentation. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Luigi Lovaglio, Chief Executive Officer and General Manager. Please go ahead, sir. Luigi Lovaglio: Good morning, everyone. Thank you for joining us today for the presentation of our third quarter and 9 months 2025 financial results. This is a landmark moment for Monte Paschi. At the end of September, we successfully completed the acquisition of Mediobanca, a strategic move we have always believed in. And 86.3% of Mediobanca shareholders confirm that belief by tendering their shares. That's a clear endorsement of the industrial strength and the long-term value of this combination from both core shareholders and from Italian and international institutional investors. So first, let me thank all of our shareholders for their trust and confidence in our vision and in our ability to execute. I also want to thank our people. Our teams at Monte Paschi have stayed laser-focused through intense months, and they continue to serve clients, deliver strong commercial momentum and produce another solid quarter. They showed what that commitment to performance and integrity looks like. I also want to acknowledge our colleagues at Mediobanca as well. Their results this quarter demonstrate the resilience of their business model and the strength of their client relationship. That is exactly the kind of excellence we want to build with. Finally, thanks to our clients. Your continued trust is the foundation of everything we do. Together, shareholders, employees, clients, we made this possible. With Mediobanca, we have created a new competitive force in Italian banking. This combination brings together strong brands with deep client loyalty, exceptional professionals across both organizations, complementary business strength across Commercial Banking, Wealth Management, Corporate & Investment Banking, Consumer Finance and cutting-edge and scalable technology. This is an accretive combination financially, strategically and commercially. It accelerates growth and value creation. Our combination process with Mediobanca with more than 20 ongoing work streams is structured on track and is going smoothly with discipline. And I'm pleased to start working closely with Vittorio Grilli and Alessandro Melzi d'Eril, who will be key in ensuring that together, we reach new heights as an integral part of this project. We will present our group business plan in the first quarter of next year, that will be the moment to outline the full strategic and financial road map and potential power of the combined group. In the meantime, as you can see from the third quarter results, Monte Paschi continues to perform very well, thanks to the strength of our franchise and disciplined cost management. I am especially pleased to note that our people were not distracted by the Mediobanca transaction. Across the organization, they were able to stay focused and deliver on their business target to achieve profitable growth. We reached net profit at about EUR 1.4 billion, up by 17.5%, excluding net taxes. Our balance sheet as a consequence of the combination with Mediobanca continues to be stronger and stronger. We maintain a very solid level of core Tier 1 at 16.9%, including the preliminary impact of Mediobanca. This is higher than we expected when we announced the transaction in January. For the 2025 full year, we are setting new guidance on pretax profit. We now expect to well exceed EUR 1.6 billion. Let's move on to the 9-month results, which testify our capability to build sustainable value and deliver high returns to our shareholders. We closed the first 9 months with a net profit of EUR 1.366 billion, up by 17.5% year-on-year, excluding the positive net taxes in both periods, sustained by the solid growth fees, thanks to the clear focus on commercial activity. Third quarter net profit was EUR 474 million, up by 16.5% compared to the third quarter last year, confirming the solid progression while the quarterly comparison quarter-on-quarter was affected by the typical third quarter seasonality on revenues, while confirming a high level of profitability. Net operating profit increased by 3.7% year-on-year, reaching about EUR 1.4 billion in 9 months, thanks to resilient revenue sustained by fees, offsetting rate impact on net interest income almost totally, operating costs under control and improved cost of risk. Third quarter net operating profit at EUR 453 million, up by 2.4% year-on-year and decreasing by 7.3% quarter-on-quarter due to the seasonality. After 9 months, gross operating profit reached EUR 1.643 billion, almost stable year-on-year, thanks to the resilient revenues in a declining interest rate scenario sustained by fee income and cost well under control. Third quarter gross operating profit at EUR 532 million. 9-month cost-income ratio at 46%, stable year-on-year. Strong progression on bank's commercial performance in 9 months driven by the clear focus of Monte Paschi's franchise on key strategic areas. Wealth Management with gross inflow close to EUR 13 billion, up by 18% year-on-year. We granted mortgages to families worth EUR 4.8 billion, more than doubling last year volumes. New consumer loan showed a 17% increase compared to the same period of last year. These are tangible signs of bank deeply connected to its client and to the real economy. Our cost of risk dropped to 42 basis points in 9 months from 53 basis points last year. Gross NPE ratio 3.7% and net NPE ratio at 2% and NPE coverage at 48.7%. The combination with Mediobanca will lead to a further enforcement of the balance sheet structure of the new group. With a sound liquidity position with counterbalancing capacity above EUR 53 billion. Core Tier 1 fully loaded at a solid level of 16.9% including the preliminary impact of Mediobanca transaction, confirming best-in-class capital buffer and providing strategic flexibility. With the successful completion of Mediobanca tender offer, we are opening a new chapter in 553 years history of Monte Paschi. The 86.3% acceptance gives us clear governance from day 1 and the strategic flexibility to move quickly in implementing the combined industrial project. The new Mediobanca Board appointed on October 28 marks the start of the new phase of development for the combined group. But before we move forward, a warm welcome to our Mediobanca colleagues as we begin this new journey together. We are now one team, building the future. Now on third quarter and 9 months results. As I mentioned, net profit for the first 9 months reached EUR 1.366 billion, up by 17% year-on-year, excluding the positive net tax in both periods. We reported as well a solid quarter contribution for EUR 474 million, up by 16.5% year-on-year. Net operating profit after 9 months amounted to EUR 1.389 billion, showing a positive trend, growing 3.7% year-on-year, with resilient revenues, sustained by fee income. The net operating profit in the third quarter amounted to EUR 453 million, showing a 2.4% increase versus a year ago. Now let's move on to gross operating profit. We reached EUR 532 million in this quarter, showing resilience year-on-year. And cost/income ratio at 47%, basically stable year-on-year. Gross operating profit after 9 months reached EUR 1.643 billion, almost stable year-on-year, thanks to resilient revenues, again, driven by net fee income. All this confirms our disciplined approach to both costs and revenue generation, ensuring steady performance. For the first 9 months of 2025, we maintained the cost/income at 46%. Now I think it's important to underline the strong commercial performance, as you can see, after 9 months in this slide. Total commercial savings crossed EUR 174 billion and were higher by almost EUR 10 billion since September 2024. And Wealth Management gross inflows amounted to almost EUR 13 billion in 9 months, up by 18% year-on-year. new retail mortgages granted in 9 months reached EUR 4.8 billion, 2.2x compared to 9 months of 2024. As well, new Consumer Finance flows amounted to almost EUR 1 billion with a 17% year-on-year increase. I believe these are a confirmation of capability and effectiveness of our commercial network. And I would like once again to thank you, my colleagues, for the excellent results achieved. Now let's move on to the net interest income evolution. In the third quarter, it amounted to EUR 544 million, down by 1.3% quarter-on-quarter, confirming a certain resilience also in terms of overall spread. In the first 9 month of 2025, net interest income reached EUR 1.638 billion with an early trend in line with the guidance given to the market at the beginning of the year. Net loans dynamic in 2025 has been strong with the growth in retail and small business component by almost EUR 4 billion with a positive trend also quarter-on-quarter despite seasonality. The same performance we are observing in total savings with total commercial savings in September crossing the level of EUR 174 billion and are up by more than EUR 3 billion quarter-on-quarter, supporting an increase year-on-year, exceeding EUR 10 billion, with EUR 7 billion from the beginning of the year. Now on portfolio govies. As usual, this is stable, almost stable with a small decrease in fair value through OCI and with credit spread and sensitivity confirmed a very low level and slightly longer duration, reflecting reinvestment of maturities. Now let's move on to fees and commission income. If we look at the quarter, we reported an amount of EUR 382 million with a solid 7.4% increase versus third quarter 2024, with an excellent performance on the Wealth Management component, up by 10.6% year-on-year. And the positive dynamic also on the Commercial Banking component, up by 4.5% year-on-year. The quarterly evolution is affected, as I was already mentioning, by the typical third quarter seasonality on both Wealth Management and Commercial Banking Fees. If you look at the performance after 9 months, you can see that thanks to the excellent work of our commercial network, the total fees reached the level of EUR 1.185 billion, up by 8.5% year-on-year, with Wealth Management and Advisory Fees up by almost 13% year-on-year. And the positive dynamic also in Commercial Banking Fees increased by 4.4%. In the third quarter, operating costs amounted to EUR 468 million and were marginally lower quarter-on-quarter, driven by non-HR component decrease. Costs were flat year-on-year with the increase in HR costs related to labor contract renewal and increase in variable remuneration pool was completely offset by the effective management of non-HR costs. After 9 months, total operating costs amounted to EUR 1.411 billion and were higher by 1.4% year-on-year. As I mentioned, again, the growth was driven by the HR component due to the labor contract renewal and the variable part of the remuneration. And part of this increase was offset by effective cost management of non-HR costs. Now let's move to asset quality. The stock of nonperforming decreased to EUR 3.1 billion, reflecting a reduction of EUR 400 million in the quarter, mainly due to the sale of NPE portfolio completed in August. The gross NPE ratio is 3.7%, and the net NPE ratio at 2%, in line with the business plan targets. Cost of risk for 9 months was 42 bps, down versus 53 bps of full year 2024, confirming the good status of our asset quality. The breakdown on NPE stock shows a low incidence of bad loans on total NPE at about 30% (sic) [36%], and that's why this portion -- this proportion should be considered in analyzing the coverage that anyway is a very good level of 48.7%. You can see from the slide the solid liquidity position of Monte Paschi, leading to a more diversified funding structure and a lower ECB funding weight on total liabilities. Moving on capital. I believe that this is a very interesting set of figures. The strong capital position of the bank is confirmed also in this quarter. We have common equity Tier 1 ratio fully loaded at 16.9%, already reflecting the preliminary impact of the Mediobanca transaction. This ratio incorporates the net profit of the period and is calculated net of dividend, assuming 100% payout ratio on net profit. As you can see, the Mediobanca transaction is impacting around 2 percentage points, in line with our preliminary estimates. It is worth mentioning that we are not fully incorporating the purchase price allocation. As for example, we have not yet factored the valuation of financial asset and liability fair value. The capital ratio are, therefore, very strong with a large capital buffer compared to regulatory requirements and also our management target that we were indicating at the level of 13%, and that gives us strategic flexibility going forward. Now I would like to spend just a few words on the results that were already published of Mediobanca. I think it's important to underline the positive trend and the potential that is deriving from the combination. The commercial momentum remains solid with EUR 2.5 billion on net new money, robust merger acquisition activity in Corporate & Investment Bank division and EUR 2.3 billion of New Consumer Finance volumes, very remarkable results. The diversification of the business has supported resilient revenues even in a challenging macroeconomic environment. Now let's again go through some key important message regarding our combination. So we have really transformed into a new leader in Italian banking with the scale and credibility to compete at the European level. This transaction was driven by a clear conviction that Italy deserves a stronger, more innovative, more diversified financial institution, one capable of supporting families, SMEs, and large corporates across the country. On this slide, you see some of the key financial metrics of the combined group, EUR 8 billion in pro forma revenues and around EUR 3 billion in adjusted net profit. I would like again to underline the strong industrial rationale of our project. From the get-go, the industrial rationale has been clear and consistent. Monte Paschi and Mediobanca are different and therefore, complementary. Together, we combine leading capabilities in Retail & Commercial Banking, Consumer Finance, Asset Gathering and Wealth Management, Private Banking, Corporate & Investment Banking. The result is a more resilient, diversified and innovative group with a balanced source of profitability and multiple engines to invest, to grow and to better serve clients. On this slide, you can see an overview of our combined operating model and the strong industrial merits of the transaction in each business line. In Retail & Consumer Finance, we bring together Monte Paschi nationwide network encompass best-in-class product and risk expertise. In wealth and Private Banking, we now operate with greater scale and higher advisory capability, spanning Monte Paschi Premium, Banca Widiba, Mediobanca Premier, Mediobanca Private Banking Company, Compagnie Monégasque de Banque, Monte Paschi Family Office. This will allow the group to deliver more sophisticated solutions and attract high-value clients. And in Corporate and Investment Banking, our clients benefit from a stronger balance sheet, a deep adviser expertise in Italy and abroad through Messier Maris and Arma Partners. Insurance and Asset Management and stability -- add stability and optionality, diversifying our revenue base and supporting loan lifetime value creation. The combination creates a more resilient, diversified and innovative group. Then on the slide, the figures that you see represent a preliminary illustration of the pro forma business line on the basis of historical numbers and not including synergies. From revenues mix composition, asset gathering and Wealth Management represent almost 30% of the total revenues. Retail & Commercial Banking stands around 31%. Consumer Finance, 17%. And Corporate, Investment Banking, including the lending business for Mediobanca and Monte Paschi, large corporates represent almost 15%. While the Generali insurance contribution represents 7%. This is a first snapshot of what the combined entity will look once that we have complete our project. And we are working with our colleagues at Mediobanca to further optimize the target business model. Clearly, we will provide additional information and all details in the new business plan. We began the combination process immediately. We structured work streams and join teams across both organizations coordinated through regular cross-functional governance. The plan covers all key business and support functions with clear accountability, senior leadership oversight and the focus on maintaining business continuity and exceptional client service throughout. As a part of our integration strategy, a dedicated HR work stream has been established, focused on retaining key managerial talent. This initiative reflects our deep commitment to preserving and enhancing brand value during this transformative phase. We want to ensure continuity, safeguard institutional knowledge and support long-term leadership stability. Our objective is to build a solid, efficient operating model step-by-step, with disciplined project management and transparent communication. A detailed analysis, for example, is already completed on IT architectures, operating models and development priority, aiming at enhancing, the best solution for each area and planned IT investment for digitalization to ensure resilience and efficiency. And this is just an example of how the work is progressing at full speed. The EUR 700 million industrial synergies target we communicated is now in this preliminary assessment, reconfirmed on the basis of this work we are performing. Mediobanca remains a distinctive and highly valuable franchise within the group with its brand, client relationship and professional capability preserved and strengthened. The ambition is to unlock new opportunities for our growth across both organizations. The group will increase productivity, expand its product and service offering, invest in technology and digitalization and continue to attract and retain top talent. So Mediobanca is an accretive combination from all perspectives. Return on tangible is expected around 14%. We expected to confirm our payout ratio of 100%, and the capital position remain best-in-class in Europe, providing strategic flexibility. Now a short update about the process and indicative timeline. I have to say that our approach is quite methodical, step-by-step and transparent. All key milestones have been met, demonstrating disciplined execution and strong project management. In the first quarter of next year, we will present a combined business plan that reflects the full potential of our group. We will hold the Capital Market Day to present it to the market. Now going back to Monte Paschi stand-alone. Again, we reported another solid quarter with almost EUR 1.4 billion after 9 months, strong commercial performance, strong capital position with core Tier 1 at 16.9%. We are further improving our 2025 full year guidance with the pretax profit expected to be well above EUR 1.6 billion. The capital position is expected to be about 16% at the end of the year, a very sound level, which provides confidence in ensuring a 100% payout for the coming years. Monte Paschi plus Mediobanca creates a third competitive force in the Italian bank industry with potential to increase its European scale. We have organized teams with people from Monte Paschi and Mediobanca working together with a common strategic vision and spirit of collaboration, each bringing their skills, know-how and sense of responsibility to bear. The values are aligned around integrity, respect, customer focus and accountability. Now it is clear that together, we are capable of making things happen. Our goal is clear and within reach, to play a leading role in Italian and European banking with vision and the desire to create sustainable value for all our stakeholders. Thank you very much, and we are ready to answer to your question. Operator: [Operator Instructions] The first question comes from Antonio Reale of Bank of America. Antonio Reale: It's Antonio from Bank of America. Just a couple of questions from my side, please. The first one on distribution. Your capital ratio at 16.9%, as you said, incorporates the new dividend policy of up to 100% on net profit, which is a big change, I think, for you and as you were not previously paying the tax reassessment out. Now does this mean that you're now looking to pay out on a reported net profit basis, so including potential DTA write-ups and similar? Just trying to get a sense and better understand what this means for your dividend per share going forward. I remember during the tender offer, I think you mentioned that you wanted to try not to deviate too much from the DPS of last year. And related to that, if I may, pretty much if I look at all your peers, they pay dividends on an interim basis. I think it was the case also for Mediobanca. Do you think it's something you would look to consider for 2026 fiscal year? That's my first question. And then my second one is really trying to get a sense of how you're thinking about the reorganization of the new businesses that you plan to sort of reorganize following the deal with Mediobanca, both from a divisional and a legal entity standpoint, if I may. Your Slides 27 and 28, I think, show very clearly how -- well, in one go, you bought back all the product factories that Monte Paschi had lost over the years and more. So the question is, how do you plan to integrate all these businesses and at the same time, monetize Mediobanca's strong brand and achieve the synergies that you targeted? Luigi Lovaglio: Okay. I will try to be very clear. So yes, we confirmed that we expect to distribute for this year a dividend with the dividend per share, broadly in line with the one of previous year, ensuring to our shareholders yield among the highest in Europe. And afterwards, we are committed to deliver a growing DPS while preserving our strong capital position on which we want to leverage for industrial projects and additional remuneration for our shareholders. As far as interim dividend, it's clear that is one of the options we are -- we will consider, and we will be very precise once that -- we are going to present the business plan in the first quarter next year. Now as I was mentioning regarding the integration, yes, in our project, we were quite clear saying that we would like Mediobanca to be focused on Corporate & Investment Banking and high-level Private Banking. Let's simplify, as we believe there is a strong competency there, excellent capability in dealing with customer and a huge potential on which we can leverage in order to enrich our total level of profitability. And I have to say that from these few days where we are already working together, I feel even more comfortable that this is the right direction because we can create and build up a really unique potential additional powerful institution that will support the Italian economy with the competencies in terms of advisory capability to which we are going to add the balance sheet of Monte Paschi. On Private Banking, Mediobanca is a top player. Strong and excellent professional team is over there. And I strongly believe we have room for significantly increasing our total asset and our penetration in the overall Italian landscape. Now it's clear that the approach we want to use in order to be very effective is already from the day 1, a sort of divisional approach. And already, we are setting our overall way in managing this opportunity in this way. Then we are going to consider, again, once that we have a clear view about the business plan, how we can optimize in terms of also legal structure, this exercise. Clearly, Mediobanca will be a legal entity with its brand because it's too important to preserve the value and the peculiarities that Mediobanca has that are, in some way, different necessarily from Commercial Banking. And we want to leverage on this diversity in order to increase the value and to be a player that is unique in the Italian landscape for the balanced approach we can have on the market compared to other big players. Antonio Reale: Very clear. Just maybe on the interim dividend, if I may, just follow up on that as part of the question. I don't know if you have any early thoughts on that. Andrea Maffezzoni: Antonio, Andrea speaking. Can you share again the follow-up question because we missed it? Antonio Reale: It was just, if you had any early thoughts on your interim dividend and observations.. Operator: Mr. Reale, we cannot hear you. Can you please speak closer to the phone? Luigi Lovaglio: I think I mentioned, right, that is an optionality we are going to consider with the business plan. When we are going to present, we will be clear on that. But clearly, we have a positive attitude towards the opportunity to have an interim dividend. Operator: The next question is from Marco Nicolai of Jefferies. Marco Nicolai: First question on -- again, on the DPS. Your comments about this year DPS broadly in line with last year, and growing DPS from this level. I'm just trying to understand the moving parts for the 2026 DPS because clearly, this year with the big positive one-off you will have at the end of the year in terms of DTA write-up, you can pay pretty much -- if I look at the amount of net income that will bring, you will be able to pay pretty much the DPS you want. But for 2026, I'm just trying to understand the moving parts there because the DPS you had in 2024 seems relatively high. So I was just trying to understand in terms of synergies, what do you expect, already coming through in '26, if any? And also how you plan to split the restructuring costs between this year and next year and in general, all the moving parts that can bring us to DPS in '26 above -- broadly above the one of 2024? So this is the first question. And the second question is if you can update us on your Asset Management partnerships. So my interpretation of Banco BPM management comments yesterday is that they are relatively open to a merger and/or any way to do something with you. And obviously -- so these comments were kind of at the crossroad with the -- with Anima as well as with the stake that they have into BMPS. So I was just trying to understand what's your view on this topic? And if you can help us understand what are the future plans in terms of M&A. So these are my two questions. Luigi Lovaglio: Okay. So thank you. We will provide clearly quite detailed information once we are going to present the business plan. Now we wouldn't like to go too much too deep in providing early drivers now in order to get this growing dividend, right? What -- we are confident that our level of synergies is even conservative starting from the first outcome from these work streams that we are practically developing together with the Mediobanca team. And so at least the level we already plan are, in our understanding, ensured, and then we will be, as I said, more precise one that we are going to finalize the business plan as well as on the integration costs on which we are now analyzing how to split them. But anyway, we believe that what has been planned from the very beginning when we launched the deal, is confirmed. And as I said, we are even more confident that we can get our goal. And also at the time, we will be speaking about growing DPS per share. Now Anima is for us an important partner. We are keeping growing in offering this product. And I believe this is also reinforcing our relationship with Banco for this common pattern that we work with and, clear for us, has an important value and also strategically is important to keep reinforcing this cooperation. Now anyway, we are completely focused in delivering this combination -- industrial combination. I'm not using the word integration because this is not an integration. It's a combination of two excellent institutions. And we believe that the more we are focused on this implementation, and the sooner we will get the results that we committed by launching the tender offer. So full speed on making all what we plan, implemented and effective. Operator: The next question comes from Ignacio Ulargui of BNP Paribas Exane. Ignacio Ulargui: I have two questions. One is coming back a bit to Antonio's question on the integration and your comments, Luigi, about Mediobanca being a legal company. I wanted just understand a bit better how do you think the listing is going to go, whether you will plan to further integrate by taking over the minorities and integrating that? And what would be the impact if you don't do that in synergies? Because I think it will be a bit more difficult to go ahead with all the planned cost savings. The second question is on the commercial activity of Monte Paschi in the quarter, has been super strong in lending and deposits. Just wanted to get a bit of a sense of where you're gaining market share in lending. And in terms of deposits, you mentioned in 2Q results that you were focusing on transactional deposits. And I think that -- I just wanted to get a bit of color on how do you think about your NII implications after the good quarter into coming quarters? Luigi Lovaglio: So let's start by saying that the success of the tender offer at the level of 86% acceptance rate is ensuring us effective governance from the very beginning. In the presentation, in some way, we already provided the first glance how we see this combination. We are working, as I said, with our Mediobanca colleagues, and the deep dive on the target business model we will provide, as I said, in the context of Capital Market Day in first quarter, next year. What is important to underline is that we will maintain and leverage the two strong brands, Monte Paschi and Mediobanca, with the respective entities focused on what we say the core business. On the current listing of Mediobanca, let me say that with the 14% free float, we see reduced volumes and liquidity on the stock. However, it's too early to take any decision of a potential delisting. That is part of the assessment in the context of the new business plan, as I was mentioning. As far as net interest income dynamic, I think that we expect in the fourth quarter to keep almost the level of the third quarter and then to have, again, a level of 2026, almost in line with the one of this year. We can have some positive upside, if you will, capable as we are now aiming to increase the level of our lending, thanks to the combination of -- with Mediobanca capability in advisory and the balance sheet of us. Clearly, the expectations are as well to keep under control the cost of deposits that are growing. But as we were mentioning, we are really intensifying our commercial efforts, leveraging on the very positive attitude that we have now observing in the network, that are very well motivated, we reinforce our capability in managing. We are getting continuous feedback, very positive, in new meetings with customers. So this will enable us also to keep growing in deposits without compromising the spread. So that's why we are very positive that we can continue. Clearly, we have to think that part of this deposit are collected with the scope then to convert in Asset Management product. So we can have some fluctuation just depending on the capability to make this kind of conversion, at the same time to replace what we are converting in Asset Management product or Bancassurance product with regular deposit. But anyway, we are, really, at this point, enjoying a very positive moment of all our network, our franchise. And so it's not only deposit that we see a good pace without compromising the spread, but also, as you saw in the presentation, inflows of Asset Management product, Bancassurance product. Overall, it's a very positive momentum for Monte Paschi. Operator: The next question is from Giovanni Razzoli of Deutsche Bank. Giovanni Razzoli: I have just one question. Sorry for asking you this detail, but in the broader context of your capital position and dividend policy is important in my view. So you have reported a 17.9% CET1 ratio, which includes a part of the PPA. I was wondering whether you can share with us what was the impact of the PPA. You've mentioned that there could be more in the coming quarter due to the fair value of assets and liability of Mediobanca. So if you can help us understanding what was the impact of the PPA in this quarter, and what could be the impact in the next quarter? I'm wondering, for example, whether the PPA this quarter includes or not the revaluation of Mediobanca real estate assets. Andrea Maffezzoni: Giovanni, Andrea speaking. Good morning to everybody. So as mentioned, the PPA as of 30th September '25 was partial and preliminary. So not including, for example, as mentioned by the CEO before, the valuation fair value of financial assets and liabilities. It includes mainly the revaluation of Generali that is anyway not impacting the capital position and a few hundred million regarding what you mentioned, the real estate, which is in line with the projections that have consistently been delivered throughout the public offer. Operator: The next question is from Hugo Cruz of KBW. Hugo Moniz Marques Da Cruz: I have a few questions, if I may. So first on, can you be a bit more clear on the CET1 ratio impact? So the impact coming in Q4. Do you expect that to be positive or negative? So that's my first question. Second, on -- related to this, so the DTAs, I thought all the DTAs would be fully brought on balance sheet on day 1. You still have EUR 1.1 billion off balance sheet. So why is that still off balance sheet? When do you expect that to come on balance sheet? It will be Q4 or not? Then a third question on clarification on your comments about the dividend for 2026, so out of 2026 earnings. So you still have a lot of DTAs, very strong capital ratio. So is there any possibility that you can manage the DPS to show that growth versus 2025 DPS? Or will it be just mechanical DPS out of 100% of payout? And then a final question on the bank tax. Some of your peers, BPER and BAMI have given a bit of an indication of the potential impact. Can you comment what could be the impact for you? Andrea Maffezzoni: Okay. So thank you for your questions. So on the first question, i.e., capital ratio -- common equity Tier 1 ratio end of the year. This will depend on the final impact of the PPA, that it is under assessment. What we can, let's say, confirm now is that we expect that it would be higher than 60% anyway. So that's the answer. Then about the DPS in '26, is what was mentioned by the CEO, so it's too early to give a guidance on net profit. What we can already confirm is that we expect to achieve a good chunk of synergies already in '26. Then on the tax law, the impact is definitely manageable in '26. '28, we expect based on the current draft of the law, an impact on the combined perimeter. So let me reiterate, on the combined perimeter, of around EUR 100 million per year. And then on top of this, this year, there might be the impact of the taxation of the so-called profit reserve that we expect would be accounted anyway directly into equity. The fourth question I missed. Hugo Moniz Marques Da Cruz: It was on the DTA. Andrea Maffezzoni: Sorry, the DTA. Sorry, the DTA. The DTA. No, actually, we have still EUR 1.1 billion of DTA of balance sheet when we update the new business plan. So end of the year, we expect that this amount will be basically written up. We expect in full. Hugo Moniz Marques Da Cruz: And sorry, if I may, a clarification, the EUR 100 million impact on the tax, that would be through P&L? Andrea Maffezzoni: The yearly one in '26, in '27 and '28, yes. It's additional tax, so yes. Operator: The next question is from Luis Manuel Grillo Pratas of Autonomous. Luis Pratas: My first one -- I have essentially a bunch of clarifications. The first one is on the -- so you essentially mentioned that you didn't include any fair value adjustments on the Mediobanca balance sheet. And if I'm not mistaken, the 2025 annual report of Mediobanca included a large positive effect there. So I wanted to hear any comments whether we should expect a positive in Q4 coming from this. And then you just mentioned to Hugo that maybe in Q4, we shouldn't expect any meaningful DTA capitalizations. Can you confirm that? So essentially, the large one, the EUR 1.1 billion will only happen when the business plan is released next year? And then I also wanted to ask you about the -- your comments on the combined entity. So it seems that you are not going to the approach of doing a merger buying corporation, if I read that correctly. I wanted to confirm if this has any impact on your synergies execution. I'm thinking, for instance, on the funding side, if there could be any MREL dis-synergies for maintaining both entities separate? And yes. Luigi Lovaglio: Okay. So I think I'm just confirming that we were very, very much conservative on this preliminary assessment of PPA. And as Andrea was mentioning, overall, at the current stage, being very much conservative and wanting to go deeper in making the analysis, we are hopefully expecting to complete this process for the main item within the end of the year. At the current stage, we are also confident that we can have a positive impact. But let's complete the work before being much more -- giving much more detail on that, right? Then regarding the reorganization and the combination, I want just to underline that we will implement actions in order to get all the synergies, and I was mentioning, even at the level that we expect now to be even higher than what we plan. The fact that we are speaking about legal entity doesn't mean that we cannot exploit all the potential we can have from the combination. But as I said, it is a work in progress and hopefully, will be soon completed. And as I said, in the first quarter, we'll be very precise about the option that we are going -- the target model we are going to implement. What should be clear that in our preliminary estimation, we see only positive upside in whatever we are going to implement in terms of synergies. Andrea Maffezzoni: And then there was a clarification requested on the DTA write-up since I mentioned the approval of the new business plan. Anyway, we expect to be able to write up the DTA already in Q4? That was your question, potentially also based on preliminary projections. So the expectation is that the write-up to the best of our current knowledge happens in Q4. As regards to MREL, we do not expect the synergies. We're expecting such synergies because the new entity will be a single point of entry. Operator: The next question is from Lorenzo Giacometti at Intermonte. Lorenzo Giacometti: So the first one is on your excess capital, which is seen growing year-by-year due to DTA's compensation and potentially even more with the merger or with the Danish compromise treatment. And so do you intend to distribute it to your shareholders? And if yes, do you see distribution via dividends or buybacks as more likely? And the second one is a more strategic one. And are you planning to expand abroad with some of your businesses? I was mainly thinking about Consumer Finance, but also Wealth Management and Investment Banking. Luigi Lovaglio: Okay. So let's start from, what is for me even more exciting that is the expansion of the business? So we strongly believe that Compass with this merger has the full potential to expand the business outside Italy. They have expertise. They have a very good technology, and they have a proven track record in terms of scoring. So I believe that this is an option that we are going to explore very quickly. And my personal view is also that for some part of the business as well Private Banking, investment bank already is there. We have a strong opportunity because once the Mediobanca will be completely focused on Corporate, Investment Banking and Private Banking, there will be additional opportunity to expand business not only in Italy, but also abroad. So that's why it's a nice project, because we are opening a new market and new potential revenue generation for the benefit of all the stakeholders. Yes, we have a nice excess of capital. And as you were mentioning, starting from this year, we will have also the EUR 500 million of DTAs that we are going to contribute to the increase to the overall capital level. As I was already mentioning, for us to have an important buffer of capital is an opportunity, and we would like to use in the best way or getting opportunity to expand additionally, our business, or we can say, and eventually further reward our shareholders with even high level of remuneration. Then, if it's through buyback or if through extraordinary dividend, whatever, is something that we evaluate time to time. What is important that this is a strong opportunity. And I believe, today, by showing the revenue stream with almost 1/3 of revenues coming from asset gathering and Wealth Management, it's clear that this part of business deserve a significant rerating as well the other component. And this is an additional evidence that our valuation deserve to be much more in line with our fundamentals and the potential of value that we can generate. And this kind of approach in exploring all the opportunity for better extract value from the combination will materialize. I believe, even earlier than what we plan. I think we have a strong expectation and again, confirmation that we are really representing an attractive case of investment. Operator: The next question is from Andrea Lisi of Equita. Andrea Lisi: The first one is on, if you can provide us a bit more update on the integration charges. If -- from your preliminary analysis, clearly pending the business plan presentation, you are still confident with what you have initially indicated. And if you can provide us some preliminary indication at least of how many years these integration charges will be split? If it is reasonable to see already a big portion in the last quarter of this year and then the rest through 2026 and maybe some portion also in 2027? And the other question is on capital. If you can confirm that your preliminary indication of kind of 50 bps additional contribution in case of obtainment -- in case of regulatory treatment of the insurance component like in Mediobanca? And last question is regarding, if you can provide us a further update on the management of the stake in Generali? Luigi Lovaglio: Okay. So integration charge is something that we are assessing, clearly, looking at what now -- we are considering. We are going to invest money clearly in retention package. And then it depends how we complete the assessment, particularly on IT. That is one of the main area where practically we are going to have some cost. But overall, we are confident first that we can -- the estimation we fixed when we launch a transaction is absolutely actual. And the second is that given the work of the teams that are now analyzing the combined business, we believe that we are going to have even room for having even a positive outcome from the overall cost we plan. The impact on core Tier 1 regarding the potential Danish compromise is 50 plus. And on Generali, we are focused on Mediobanca. And as I was mentioning, the Generali is for us, a nice, correlated bulk of revenues. And for the time being, we are, as I said, completely involved and committed to deliver what we were mentioning earlier regarding the combination of the two entities. Operator: [Operator Instructions] Mr. Lovaglio this time, there are no questions registered, sir -- excuse me, we do have a follow-up question from Luis Manuel Grillo Pratas, the Autonomous. Luis Pratas: Sorry, just a quick clarification on the Generali treatment. When do you expect to receive those more than 50 basis points impact? Luigi Lovaglio: No. As I was saying, we like to be very conservative. All the figures we were mentioning are without this benefit. So we are working in order to have this kind of benefit. Honestly, it's difficult to predict when this can be completed. But I believe we deserve it. So we will do our best in order to get as quick as possible, but it depends not exclusively on us. For the time being, we manage everything without considering this benefit. That should be obvious and should come to us. Operator: Gentlemen, there is a final question from Ignacio Ulargui of BNP Paribas Exane. Ignacio Ulargui: I just was wondering whether you could consider entering a total return swap as BPER has done on their own shares given the confidence that you have about integration and the strength of the franchise and the combined franchise. Could that be a possibility or is something that you don't explore at this stage? Andrea Maffezzoni: Sorry, Ignacio, I have not understood what do you suggest we can consider. Ignacio Ulargui: So whether you could consider doing equity derivative buying your own shares like BPER did on the 9.9% of the capital. If that could happen? Luigi Lovaglio: We are focused on what we know better, that is doing banking, honestly. So we -- for the time being, we are not considering any kind of transaction like that. And we want to be really focused in getting the best from the two entities. Operator: Gentlemen, at this time, there are no questions registered. Back to you for any closing remarks. Luigi Lovaglio: No other questions, right? So thank you very much. And see you in next presentation. Operator: Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.
Operator: Good day, everyone, and welcome to the PDF Solutions, Inc. Conference Call to discuss its financial results for the third quarter conference call ending Tuesday, September 30. [Operator Instructions] As a reminder, this conference is being recorded. If you have not yet received a copy of the corresponding press release, it has been posted to PDF's website at www.pdf.com. Some of the statements that will be made in the course of this conference are forward-looking, including statements regarding PDF's future financial results and performance, growth rates and demands for its solutions. PDF's actual results could differ materially. You should refer to the section entitled Risk Factors on Pages 16 through 30 of PDF's annual report on Form 10-K for the fiscal year ended December 31, 2024, and similar disclosures in subsequent SEC filings. The forward-looking statements and risks stated in this conference call are based on information available to PDF today. PDF assumes no obligation to update them. Now, I would like to introduce John Kibarian, PDF's President and Chief Executive Officer; and Adnan Raza, PDF's Chief Financial Officer. Mr. Kibarian, please go ahead. John Kibarian: Thank you for joining us on today's call. If you've not already seen our earnings press release and management report for the third quarter, please go to the Investors section of our website, where each has been posted. Bookings in the third quarter were strong as we continue to realize the benefits from our investments in product development and customer support. As we announced in the September press release, we signed an extension contract with a large customer that involves bringing our characterization vehicle infrastructure, Exensio characterization software and eProbe machines to their manufacturing sites as well as expand usage at their R&D site. The eProbe machines under this contract are provided under a subscription. Expanding beyond the machines they have in their R&D facility, we now have shipped 2 additional machines that are in the process of being installed at their first production site. Also in the quarter, we announced that we licensed Tiber AI Studio from Intel. With this license for source code, we are integrating the Tiber AI Studio's award-winning data science operations platform directly into Exensio. Tiber AI Studio enables engineers to build and manage hundreds of thousands of AI models. Coupled with Exensio's existing ModelOps, which enables model deployment in the fab and test floors, this integration is designed to enable engineers to use Exensio to both train models as well as deploy them. On a stand-alone basis, Tiber AI Studio already had hundreds of users. As we talk with our customer base, we are hearing the same message. They have great proof of concepts using AI, but scaling and maintaining large deployments remains elusive. We believe the integration of Tiber AI Studio with Exensio, which we call Exensio Studio AI is an important capability required to close this gap. Among the Exensio contracts signed in the quarter, notably, we signed an 8-figure contract with a large IC manufacturer. We are honored this customer selected Exensio as their data analytics platform, the primary repository of manufacturing data and the platform on which to integrate their internal systems using Exensio's big data APIs. As part of this contract, they will leverage Exensio Studio AI to manage their AI deployments in production. We also closed an 8-figure contract for secureWISE with one of the largest equipment OEMs in the world, which extends and expands their existing licensing. Finally, contributions to revenue from our Cimetrix connectivity and control software were the strongest since the acquisition closed at the end of 2020. Historically, the large equipment OEMs make their own control and connectivity software, however, as our market share has expanded and more equipment is now -- as our market share has expanded, more equipment is now shipped with our software installed on it than internally developed software of any single equipment vendor. This means, our software -- our customers enjoy software that is proven across more applications in the fab, test floor and assembly facilities. As we integrate Cimetrix, secureWISE and AI-enabled monitoring, we aim to enable equipment vendors to more easily deliver smart tools and value-added subscription services. Now, I'd like to turn to the environment. The industry is making significant investments in 3D manufacturing in front-end fabs and packaging facilities as well as product design. There is an increased geographic diversification of manufacturing locations. As those investments are ramping up, we see customers working to make the new processes, products and facilities economically viable. It is well understood that diversifying manufacturing comes with the risk of driving up production costs and slowing innovation. We see AI-driven collaboration as a critical capability to enable cost-effective and efficient manufacturing in many of these new locations. Last month, we were invited to present our vision of AI-driven collaboration at SEMICON CEO Summit in Arizona. My comments, which appear to resonate with the audience, outlined how the industry can leverage our secureWISE network, Sapience orchestration products, and Exensio AI to collaborate with their customers and suppliers. We have also noticed that our equipment, fab and fabless customers are looking for ways to move from human-driven collaboration to AI-driven collaboration, in part to enable more efficient production around the world. As we look to Q4, we are preparing for our users conference and Analyst Day. Since 2020, when we acquired Cimetrix, and began the journey to be a comprehensive analytics platform for the industry, we have driven results equal, or exceeding the long-term revenue growth, non-GAAP gross margins, and non-GAAP operating margin goals we set in 2019, and also have exceeded the revised goals we established in 2023. Before 2020, we had approximately 150 customers that were primarily fabs and fabless. We had few equipment companies and almost no cloud suppliers as customers. Today, we have over 370 customers, including most of the equipment industry and multiple cloud providers. It is a unique customer base as we bring analytics capabilities to every aspect of the semiconductor supply chain. Today, our cloud systems manage petabytes of data and secureWISE network transmitted exabytes. Our systems are used to control tens of thousands of tools. We believe the success we've achieved to date is due in large part to the relentless investments, including the acquisition of secureWISE and the build-out of our eProbe machines, both of which required us to use our balance sheet this year as investments were ahead of the growth they enabled. We expect the profits generated from these investments in 2025 will enrich our balance sheet in 2026 and beyond. Finally, I encourage you all to attend our Analyst Day and Users Conference. There you will see our customers, partners and PDF folks talk about the needs and opportunities for AI and analytics and manufacturing. We are honored to have Mike Campbell, SVP of Qualcomm; Aziz Safa, Corporate VP of Intel; Tom Caulfield, Exec Chairman GlobalFoundries; and Jean-Marc Chery, CEO of STMicro, among others, share their perspectives. Now, I'll turn the call over to Adnan. Adnan? Adnan Raza: Thank you, John. Good afternoon, everyone. Good to speak with you all again today. We are pleased to review the financial results of the third quarter and to bring you up to date on the progress of the business. We posted our earnings release and management report on the Investor Relations section of our website. Our Form 10-Q has also been filed with the SEC today. Please note that all of the financial results we discuss in today's call will be on a non-GAAP basis, and a reconciliation to GAAP financials is provided in the materials on our website. As you saw from our press release, with our Q3 results, we achieved another record for quarterly revenue. Our bookings for this quarter totaled over $100 million, as a result of multiple large deals signed across our product portfolio of leading-edge Exensio and secureWISE. During the third quarter, our bookings were greater than the prior 2 quarters combined. On a year-to-date basis, for the 3-quarter period, our bookings were 49% higher than the comparable period of last year. With the contracts John mentioned as well as additional business closed in the quarter, we ended Q3 with backlog of $292 million, which is 25% higher than last quarter and 22% higher than the same period a year ago. We are pleased that we were able to grow our backlog while delivering record quarterly revenue. Our total revenue for the Q3 period came in at $57.1 million or 10% higher than last quarter and 23% higher on a year-over-year basis. Our Analytics revenue came in at $54.7 million or 12% higher versus the prior quarter, and 22% higher on a year-over-year basis. The growth in Analytics compared to the prior quarter was driven by business from leading-edge customers and equipment software. Integrated Yield Ramp revenue was 4% of total revenue in Q3 and was lower by $0.5 million compared to the prior quarter and up on a year-over-year basis by $0.8 million. On gross margins, we reported 76%, or slightly ahead of last quarter, and down 1% versus last year's comparable quarter, which had meaningful perpetual software revenue in that quarter. As you will recall, our long-term target for gross margin is 75%. We're pleased that we were able to be ahead of that target for this quarter. Our operating expenses in Q3 grew 3% compared to the prior quarter, primarily due to spend related to development improvements for our platform and increased variable compensation accruals due to strong results. On EPS, we were able to deliver $0.25 per share for the quarter, our strongest quarter for the year. For the first 3 quarters of 2025, our EPS of $0.64 is now $0.06 ahead of the comparable period of last year. We generated positive operating cash flow of $3.3 million this quarter and $6.7 million for the first 9 months of this year. We ended the quarter with cash, cash equivalents and short-term investments of approximately $35.9 million compared to the prior quarter's ending cash balance of approximately $40.4 million. We repurchased $0.2 million of our stock this quarter at a per share price of $19.55 per share. During the quarter, we invested $6.3 million in CapEx, which is lower than the $8.5 million in Q2 and the $8.2 million in Q1 of this year. 2025 has been an important investment for us, like John said, as we use significant cash on the acquisition of secureWise and related integration expenses while only benefiting from a partial year of ownership. During the year, we also invested in building eProbe machines to meet customer demand in 2025 and 2026, without the benefit of full subscription run rate return on the investment within the year. Now with 2 additional machines shipped and going through qualification on a subscription model as well as the integration cost of the secureWISE acquisition largely behind us, we anticipate cash to grow over the next year. Given the strong business activity, the growth in our backlog and the customer opportunities in front of us, we reaffirm our prior guidance of 21% to 23% annual revenue growth range for this year. As we get ready for our Analyst Day and user conference on December 3, we look forward to sharing more details about our long-term targets for the next phase of PDF growth with you at that time. We are also thankful to our customers and partners for supporting the growth we delivered this quarter and look forward to growing sequentially again in Q4. With that, I'll turn the call over to the operator to commence the Q&A session. Operator? Operator: [Operator Instructions] Our first question comes from the line of Blair Abernethy from Rosenblatt. Blair Abernethy: Nice quarter. I just -- I wanted to just ask you a little bit about the BFI. I see that [indiscernible] more machines. The machines that are under the lease model, when does that start to generate revenue? Is that some point next year? Or is that first half of this year? Adnan Raza: Yes. We are going through the deployment and qualifications of those machines. Blair, as you know, those can take anywhere from 1 quarter or a little bit plus or minus on that time frame. So given that we have shipped, we expect within the next quarter or the quarter after, depending on the timing of those qualifications and the customer acceptances to start converting and generating the revenue. Blair Abernethy: Okay. Great. And how does the pipeline of opportunities look for the DFI right now? John Kibarian: Quite strong, actually. This is John, Blair. We do have other places where we would like to be able to ship machines. That's why if you did notice, we did spend some on CapEx this quarter in part to continue building machines, which we expect shipping in the first quarter of this coming year. We are hoping to squeeze in one more shipment this year, but it may be tight, just given the timing and what we're doing to bring up the machines already. So quite strong across a handful of customers. It's not a huge market for eProbes, but there's probably between 5 and 10 customers in the world, and we do have probably closer to 5 where we are actively engaged in discussion. Blair Abernethy: Okay. Great. And then just on the secureWISE, you won a large contract there this quarter. How is that -- how is the go-to-market there now that you've had it for a couple of quarters? Just kind of a sense of how that is building. John Kibarian: Sure. Yes. We actually had -- at SEMICON, right after SEMICON last in Phoenix this year, we had a little, what we called Connected Summit because in the past, the secureWISE team had had our users conference in conjunction. What was different about that was we had not just equipment companies come, but also fab companies attend. And in that conference, Intel presented how they are using secureWISE as their standard connectivity platform for both internally as well as to support the equipment vendors. We had felt that the way secureWISE had been run, it really only focused on the needs of the equipment vendors. And when we -- because of our DEX network, because of our work with the fabs and our -- just our general footprint, which, as I said in my prepared remarks, goes from everything from wafer makers through to system companies, we thought connectivity to the fabs was actually desired by lots of folks. In fact, when we announced that acquisition, the first congrats I got was from one of our largest fabless customers, who was very intrigued with the ability to get remote access at the OSATs and fabs. And so the Intel contract was a way of us, saying, okay, we're going to provide base capability on every machine at Intel. They announced that they're going to put this on every machine front end, back end and test facilities for their use as well as to make it available for some modest level of usage at every equipment vendor. When we talk to the equipment vendors that use secureWISE, one of their elements was not secureWISE itself, but the fact that they were not able to get it on every factory in the world, even if it was actually already installed at some factories, that factory may not give a specific equipment vendor access, maybe only the largest equipment vendors in the world typically got access at every factory in the world, and the smaller equipment vendors didn't feel like they were getting access, but they would much -- very much like it. They knew it makes them a lot more efficient, both for human-level collaboration as well as for AI-driven collaboration. So now that we've had this company in our hands for the product in our hands, for maybe 7 months now, if I think about it, what we started doing is selling it much more broadly into the fabs as well as into the equipment vendors, creating collaboration across them, which is what I talked about at SEMICON West. And we started piloting it at the OSATs and really merging it with our DEX network because the security and some of the features that secureWISE enables are very desirous, more broadly. So it becomes an integral part really within the first quarter, we were selling combined contracts, if you look at that first contract that we announced in Q2, which is really now that it's been announced, was effectively the Intel contract. And we see a lot more of that coming down the pipe. Operator: [Operator Instructions] Our next question comes from the line of Clark Wright from D.A. Davidson. Clark Wright: Quick question just around the customer concentration mix. Your Customer A that you guys referenced year-over-year went from 19% to 38%. I'd love to understand kind of how you're winning bigger and as well as how you're looking at using secureWISE as a potential point of the spear to expand the overall customer base? John Kibarian: Yes, that's a great question. If you look at our business, really, we kind of think about it in 3 categories. There is the fabs. They tend to buy almost everything from us. If you look at just the discussion I had around secureWISE as well as the test vehicles, the eProbe, Exensio, et cetera. And those are very large contracts, typically multiple contracts with the same account. And hence, you see the customer concentration. It's really not often of one contract, but of many contracts that gets those customers. They represent typically between 40% and 50% of our business in any given quarter, just looking at how things work. The fabless and system companies are around 35% to 45% of our business, and that's about 100-something, 150-ish companies. We are seeing more interest in AI on Exensio, the Exensio Cloud, the secureWISE connectivity and some of the what we call orchestration products, Sapience products. There, we've had a number of wins over this past year and continue to drive business there. And then lastly, about 15%, and we think in the long term, closer to 20% are the equipment vendors. We have about 200 of them with the acquisition of secureWISE that certainly grows our business with those customers. And they have access -- they have desire for the same access points that the fabless did. So the way we think about it over the long-term clock, you can think about fab customers as a nexus point. And they run factories and they control the data, but they need collaboration with their customers to get qualified, and their equipment suppliers to be able to reach effective use of the machines that they purchase and put into use in their factories. And so secureWISE, as you pointed out, is the point of that spear because it allows us the collaboration across a number of those customers. And the Exensio contract that we did this quarter, it has an element with regard to secureWISE because they want to be able to reach their customers through secureWISE on the Exensio platform from a collaboration standpoint. So this is how we see PDF becoming a platform for the industry rather than a platform for each individual company. And secureWISE is a very important element to that. Clark Wright: Awesome. Appreciate that color. And then just as it relates to the announcement made in the end of September around the landmark contract, you reaffirmed your guide for this year. Is there anything we should be considering as it relates to kind of the 2026 picture and what you can say so far around how that deal potentially sets up the company for kind of the next leg of growth? John Kibarian: Yes. We haven't given guidance for 2026 yet, and we'll do that as we get through Q4 and we do our Q4 call. But obviously, as we grow backlog, you asked a question about other, we do see a number of other opportunities on the horizon for the company over the next couple of quarters. We hope to have a strong 2026 on top of a very good bookings 2025. Operator: Our next question comes from the line of Gus Richard from Northland Capital Markets. Auguste Richard: I'm just curious on the systems you're sending to the production site. How many tools per fab do you think the customer is going to need? John Kibarian: Yes. I think it's early to say, Gus. Obviously, we've put two in the first site. Two is a good number because at least as these things are used in mission-critical manufacturing, if one were to go down, you would want to be able to at least route critical material to the other. So I think very rarely would it be one? I think the minimum number is two. And then the question is, with any inspection capability, how much of the dance card can you fill up? What we've noticed as we've installed machines around the world is it gets very quick to get these things filled at very high utilizations in part because they can see things that are very hard to see or maybe nearly impossible with other systems. So we'd like to go beyond the two, but right now, we think two. Auguste Richard: Okay. So these are near production, but not necessarily in line, not -- there's not... John Kibarian: Not in product, that's in your words. No. I said the reason why they want to is if one goes down, they want to be able to continue production, right? Auguste Richard: Okay. I just want to get it clear. And then of the -- you have several systems going out end of this year, beginning of next. I just want to understand, are these evaluation systems or are they for revenue? John Kibarian: These are mix. It will be a mix and then the next set of machines. There'll be a couple on eval and the remainder will be revenue machines. Operator: [Operator Instructions] We have a follow-up question from Blair Abernethy from Rosblat. Blair Abernethy: John, I just wanted to follow up on the Hybrid AI studio. Can you just -- you said there's 100-or-so customers for that. I'm just wondering if you can give us some sense of the time line of when that can go to market with the Exensio platform, i.e., when is the integration sort of ready for customers? John Kibarian: Sure. And I said actually hundreds of users. It's actually a very, very small number of customers, Blair. And -- but thanks for asking that clarification. We will have an integration at the end of this quarter. We actually signed this contract quite a long time ago, but due to timing of other contracts, we needed to wait before we could announce it. And we had had discussions with them going all the way back to 2024 around this opportunity, we had evaluated it in early Q1. As you can imagine, we were pretty busy in early Q1 because we're also closing secureWISE and then signed contract towards the end of Q1, then executed some activities in Q2 and announced in Q3, but we do -- so as a result, we've been working out with this code base for -- since all of Q3 and into Q4, and we expect to release some first level of integration with Exensio at the end of this quarter for some early access customers. Blair Abernethy: Okay. Great. Great. And then just on the Exensio Analytics business, what is the -- what's the renewal book look like as we kind of head into the end of 2025 here versus last year? And are you -- and maybe in recent contract signings, what sort of any changes in the term length of Exensio contract? John Kibarian: Yes. Typically, term lengths are 3 years. There are some that go as long as 5 and some that are short as 1 or 2. Our book is quite robust. The large contract we signed, the 8-figure contract we signed this last quarter was probably one of, if not the largest, stand-alone Exensio MA contract in the history of the company, as other larger contracts tended to have test operations or other components included in there. What we are seeing, we're going to talk about this at our user conference. Customers really want to have a scalable AI-first analytics capability. We're going to show our road map and what we're doing to have kind of analytics with AI-first, and what that means in terms of parallelization, the advances we're making around how to get to very large data sets interactively. They want the human interactivity with data still, but they want to be able to operate on data where you've got 1 million parameters and 10 million data points. And you really can't do that with conventional business intelligence tools, right? If you look at Exensio or any of the tools out there, you're limited by the compute. And -- we're going to show what we're doing to break through that problem. Studio AI is a very -- is an element to that, a very critical element to that because even when you're interacting with 1 million parameters, you need to use AI methods to screen and to tell you what part of that data set you should look at. And so what we'll demonstrate in December is ways of being able to operate interactively, leverage AI first and move -- work with data sets that you really couldn't do anything, but a batch mode in the past by leveraging basically a native AI approach and a natively parallel approach. You can think of a lot like moving algorithms from CPUs to GPUs, you get to scale with compute. What we will show is how you can leverage GPUs and other computing elements in an interactive analytics capability. And we are hearing from our customers that this is what is desired. We have a number of renewals that are coming up this year, and primarily next year that I think will benefit from this capability. Blair Abernethy: Okay. Perfect. Great. Yes, excellent. The other question I just had was around Sapience. Anything to report there or any progress with the partnership with SAP? John Kibarian: Yes. We've got a number of activities going on, on Sapience contracts. We do expect to announce something related to Sapience in Q4 in terms of customer -- additional customer business. And you'll see us announce something in the Sapience family at our user conference that's really building on top of Sapience some capability targeted to the fabless and system company that we expect to announce at our user conference. Operator: Our next question comes from the line of Clark Wright, D.A. Davidson. Clark Wright: Awesome. Appreciate the time. Look, any findings from SEMICON West in terms of how the end markets and the health of those sound relative to the beginning of the year or your expectations? John Kibarian: Yes. Clark, it's a great point. It was an interesting SEMICON, I think, because it's the first time SEMICON West was not in San Francisco, people couldn't go in and out. You're kind of stranded in Phoenix. So there was a lot more informal conversations. And we did meet with also a lot of our -- not just our equipment customers, but I would say our fabless customers and a lot of our fab customers. And what we heard were a few things. Yes, the build-out on AI is continuing to go on. All the equipment customers participating in advanced packaging, everything around advanced nodes, on logic side do see and on the DRAM side, do see a pretty rosy outlook for 2026. I do think they're in a pretty strong position. Our customers selling into automotive, industrials and communications, the ones with very differentiated products do seem to be talking about a robust 2026, I think that's still a mixed bag. There are customers in that sector that have some challenges to work through, but I would say for the first time, the kind of ones that have very differentiated products that are much more bullish. So I would say you start seeing kind of a more broad base of enthusiasm within the customer base, than, I would say, 3 months ago or 6 months ago, where it was really limited to just the people on the very advanced nodes and advanced packaging. So I do think it was more broad, not fully, I would say, not fully broad to everybody, but definitely more broad than where it was in terms of positiveness than where it was 3 or 6 months ago. And then lastly, I would say, our fabless customers as they are becoming more and more embracing advanced packaging are recognizing they're becoming a manufacturer. And that means ability to communicate with the OSAT, more complex test data feed forward and other test flows. We had a lot of dialogues with customers on that topic and how can they effectively become more aware of what's going on in manufacturing. In the past, they would order a wafer from the foundry. And once they hit wafer sort, there wasn't a lot to worry about. But now they've got everything from operationally make sure they have organic substrates available and manage the supply chain of that -- of the production post the wafer sort as well as having many more test insertion points and needing to be efficient in how they leverage. And we've heard a lot of dialogue from customers in that regard. And I think that will be a growing area, as we move from just the very few high-valued, not terribly high-volume chips driving advanced packaging today to a much broader set of customers trying to leverage these advanced packaging test flows. Clark Wright: Got it. And then in terms of Cimetrix and kind of the shadow backlog, last quarter, you kind of referenced the fact that tens of millions there, has that upticked as well this sequentially? John Kibarian: Yes. As I said in my prepared remarks, we had a very strong quarter. We referred to it as revenue because the booking and the revenue happened in the same quarter on the runtime licenses with secureWise. In other words, we get designed in on the SDK and then they ship. What we noticed is, as I said in my prepared remarks, at the end of 2024, and we see it again this year, is more equipment is shipping with our software than with any of the proprietary software systems that the companies build. And I think that's really giving our software the reputation of being very robust and very applicable. A lot of our equipment companies that used to be on the front end are now trying to bring in tools to the back end. Our software is already proven in back-end assembly facilities. Our tester companies are doing much more sophisticated system-level tests with more robots, and our software is very proven with that capability, too. So we do see a fair amount of activity, design activity in some of the customers evaluating our SDK. Net, when you look at our runtime licenses, Q3 was very significant. It was a good quarter for us, a very good quarter for us. We don't get a lot of visibility. So we hope to sustain that in Q4. We don't have as much visibility because we only see it when they ship. But overall, while quarter-by-quarter may be difficult to predict on an annual basis, the trend is quite positive as more and more equipment ships with our software, and they use our software for more functionality, which means they buy more of the Cimetrix modules. Operator: Our next question comes from the line of Andrew Wiener, Samjo Capital. Andrew Wiener: I wanted to maybe follow up on, I think you touched on it a little bit in the last answer, but I noticed that 2 of your partners in the test space, Advantest and Teradyne both posted very strong results and outlooks. And you've talked in the past about Advantest and the complexity around test being a strong secular driver for the company. Can you maybe elaborate a little bit on what you're seeing and how the opportunity for us? Is it coincident with -- as they see strong shippings, does our bookings or opportunities lag theirs and sort of any other color you could provide? John Kibarian: Sure, Andrew. Thank you for the question. Yes, you're right, it tends to lag. We see that, by the way, with our yield ramp business over the years, too. And kind of my prepared remarks saying we've seen lots of people building out 3D production and test and assembly with -- and now they're trying to figure out how to get a good return on a lot of these investments. We see that with -- that's part of what's driven our characterization vehicle and eProbe bookings over this year and a lot of our evals that are ongoing are folks recognizing they've got to get a return on what they've just put on the ground. So we would expect on the advanced test for advanced packaging, we will also lag our partners in that regard. The biggest application we see, and we've got a number of pilots going on with customers is data feed forward. And what this means is they have -- as there's many more packaging steps, they have a lot of test insertion points. So they test more than once at wafer sort, more than once at final test and once at system-level test. There's multiple wafer sort tests, multiple test points package, even sometimes as part of the package flow. And then finally, system-level test. And they do these at different temperatures and different conditions for these very large data center chips. The nature of that is they want to see forward data. Typically, they take the raw data, run an AI model, extract features and send it downstream to another test insertion point. And as the data is coming off that test, they will use that as a basis to decide to test more or test less. Our original strategy on this, Andrew, was to not be in the modeling business at all, but provide them the infrastructure for kind of orchestrating the data up and down the supply chain. We've got pilots ongoing with that. We actually have a customer deployed using that on tens of tools now over a year in production across multiple OSATs. And even that customer has come back to us and said, "Hey, we need capability to be able to build and maintain the models, not just move the data around." And that was really the Tiber studio -- Tiber AI Studio, I forget the name, right. We thought our customers would be able to do that on their own, or there were systems to do that on their own, but the reality is there's a lot of friction to getting that work done, too. And so the integration with Exensio Studio AI with Exensio ModelOps is to help them not only run the model in production, but manage the model through the build and through the life cycle in their central servers. So I don't think this is a 1-quarter bang and everything is going great. Andrew, we're going to see win by win by win with customers, but I would say we have a handful of pilots going on in data feed forward at this point. We've got some in production already, and we do anticipate that to becoming an increasingly important part of our Exensio test business. Andrew Wiener: Okay. And would you think that would be like a 2026 sort of time line? John Kibarian: Yes. I mean, the majority of that business impact will be in 2026, to be honest. This year, there may be some additional contracts won, but the revenue impact will be de minimis. Andrew Wiener: And then following just -- I want to clarify something. So the 2 tools -- 2 DFIs that were shipped and are in the process of qualification, it sounded like the way you described it, they could get qualified this quarter, or maybe not. Is it then fair to say that, Adnan, I think in the past, you've talked about multiple ways to get to guidance. You guys feel comfortable with the guidance, even if there -- these tool qualifications slip into Q1? Adnan Raza: Yes, Andrew, exactly. I mean, any time we're looking at a quarter, particularly when we're speaking to comments such as the ones that we put in my prepared remarks about, sequential growth for Q4, and also both in John's and my remarks about the reaffirmation of the 21% to 22% guidance, you're absolutely right. We're thinking about this and then other ways to get there. So look, if the timing happens this quarter, great, but like John said, there's many other opportunities we're working on across the product platform portfolio that we have. Andrew Wiener: And then maybe... John Kibarian: this is a little bit our timing. The timing on qualification would be towards the end of the quarter in any case. So the in or out is not a tremendous amount. Andrew Wiener: Okay. So again, the qualification of those tools regardless would be more of a tailwind to 2026 versus the earlier question about, correct. And then maybe just a little more color on -- I mean, obviously, you talked about rough engaged with 5 customers or potential customers on DFI. How -- is there memory customers in that bucket? Or are we still primarily focused on logic? And to the extent it's logic, is it -- you have 2 sort of other customers that have accepted tools? Are they looking at what your lead customer has done and the conversations around sort of a similar broader deployment along those lines? John Kibarian: Yes. It's actually all of the above. So with our existing customers, we see interest in more machines as they see the value, including the value of putting these in manufacturing and using these to monitor lines. They -- with new customers that are in the same areas our earlier customers, maybe at different feature sizes, but logic manufacturers. We do -- we started getting ongoing pilots with customers where they're sending us wafers and showing them what you can do. And it is a very unique capability. So we're able to show usually within a wafer or a few what you could see that's hard to see elsewhere. And then lastly, as I've said throughout the year, we have interested in doing pilots on DRAM for just about 12 months now, maybe 13 months. And you got by sending wafers to our facility here in California. And we're getting ready to be able to ship. I think the limiter on shipping is really us not at least one of those customers being in a position to ship given what we've been doing to bring up these machines and manufacturing this year. And at the engineering level, there's a lot of similarities to what we're doing in the logic side, but it's very, very different process technology, if it's memory versus a logic technology. But also exploiting the unique capability of the machine and the software. Andrew Wiener: Okay. And then just lastly on the Tiber. So just to be clear, like -- so it didn't -- we didn't come over with existing revenue. But in the press release, it said something about like supporting customers through this transition. Anything you -- sort of that contributes will be going out and selling once the integration is complete? John Kibarian: Yes, that's correct. The majority of the customers were not in semiconductors. Some have interest for us to support. And we may -- we are talking to only a very small handful about having them be supported on the stand-alone version of the product. Obviously, we licensed this from Intel. Intel itself was an internal user of the product. And for them, we will support it -- offer to support it both ways, both stand-alone and with Exensio. There's a lot, a lot of value getting it integrated in Exensio for a semiconductor customer, because it didn't really support any visualization of the data, the model, the results, just really visualization on running the models and algorithms. So Exensio and you didn't have a database for storing the data set you want to use. And then once you're done, you want to be able to store all of that information, so you could always go back and recreate it, and Exensio has capability for that model registration and things like that. So I think for that -- the user base, which is primarily at Intel, that was in semiconductors and using it, I think it's quite advantageous for them to use the integrated version. For the small number of non-semiconductor customers, they may use a stand-alone version. Operator: [Operator Instructions] There are no further questions. Ladies and gentlemen, this concludes the program. Thank you for joining us on today's call.
Operator: Good day, and thank you for standing by. Welcome to the PureCycle Technologies Third Quarter 2025 Corporate Update Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Eric DeNatale, Director of Investor Relations. Please go ahead, sir. Eric DeNatale: Thank you, Kyle. Welcome to PureCycle Technologies Third Quarter 2025 Corporate Update Conference Call. I am Eric DeNatale, Director of Investor Relations for PureCycle. And joining me on the call today are Dustin Olson, our Chief Executive Officer; and Jaime Vasquez, our Chief Financial Officer. This evening, we will be highlighting our corporate developments for the third quarter of 2025. The presentation we'll be going through on this call can also be found on the Investor tab at our website at purecycle.com. Many of the statements made today will be forward-looking and are based on management's beliefs and assumptions and information currently available to management at this time. The statements are subject to known and unknown risks and uncertainties, many of which may be beyond our control, including those set forth in our safe harbor provisions and forward-looking statements that can be found at the end of our third quarter 2025 corporate update press release filed this afternoon as well as in other reports on file with the SEC that provides further details about the risks related to our business. Additionally, please note that the company's actual results may differ materially from those anticipated, and except as required by law, we undertake no obligation to update any forward-looking statements. Our remarks today may also include preliminary non-GAAP estimates that are subject to risks and uncertainties, including, among other things, changes in connection with quarter end and year-end adjustments. Any variation between PureCycle's actual results and the preliminary financial data set forth herein may be material. You're welcome to follow along with our slide deck or if joining us by phone, you can access at any time at.purecycle.com. We are excited to share updates from the previous quarter with you. With that, I will now turn it over to Dustin Olson, PureCycle's Chief Executive Officer. Dustin Olson: Yes. Thanks, Eric. Thank you all for joining today's call. It's been another quarter of meaningful progress for PureCycle across all parts of the business. We're ramping operations, we're starting to ship to key customers in Q4, and we're excited about the growth ahead. I'd like to begin with the recent board changes that we announced. I'm very pleased to welcome our newest Board member, Dr. Siri Jirapongphan. Dr. Siri has an impressive resume and I believe he is going to be instrumental in PureCycle's future success. He's the former Chairman of the Board for IRPC, this is our partner in Thailand and is currently serving as an independent director of Bangkok Bank, the largest bank in Thailand by assets. Dr. Siri is an incredibly bright individual. He's got degrees from both Caltech and MIT and chemical engineering, and he has already made an impact when interacting with the Board and the PureCycle team over the last few weeks. His polymer expertise has deep network in Southeast Asia and passion for PureCycle is bringing good energy and perspective to our decision-making process. He will serve a key role in our debt financing activities as well as support our technical and project teams. I'm excited to have him join the team. I'd also like to personally thank Jeff Feeler for his service on the Board over the last 4 years. He has been an instrumental part of getting PureCycle to where we are today. And from a personal perspective, he has taught me so much about how to think about our business, our activities and how to lead this organization effectively. His departure coincides with Dan Gibson of Sylebra Capital joining the Board 3 months ago. Operational performance has shown steady improvement. Ramp-up activities underway at both Denver and Ironton further reinforcing our confidence in the business trajectory. Q3 was one of the highest quarter of production in the company's history. September was the highest month at 3.3 million pounds and was limited by fee. At the end of Q3, we successfully added a second shift in Denver during the quarter and plan to add a third in Q4. This will bring Denver's capacity to approximately 100 million pounds annually. The compounding expansion at Ironton continues to be on track, and we expect this to significantly reduce complexity of supply chain, improve our product offering, lower our cost and meaningfully widen the market for available sales. On the commercial front, we continue to make a lot of progress. We scheduled to ship material in Q4 to P&G's converter for application production that are scheduled to the shelves in early '26. Additionally, we are working to finalize and ship for other P&G applications in Q1. We continue to add to the P&G funnel. We have made major strides on the operational front, and we believe we have alignment to meaningfully grow their volume in 2026. We have also made standout technical progress on numerous applications and are beginning to narrow the focus to high-value applications. One of the biggest successes have been with white thermoform coffee lids, this led to progress with 3 of the top 5 quick service restaurant companies or QSRs and we expect to be shipping into stores for a top 5 QSR group in the fourth quarter and ramping in 2026. We've made tremendous strides in the commercial and general trajectory is very positive. We've also made -- we also have a much better sense of what our customer volume expectations and needs are for the next year. While the timing of any ramp is always hard to pinpoint with certainty, we do see initial volume indications between Emerald, Procter & Gamble, QSR coffee lids and other converters in the range of about 40 million to 50 million pounds annually. To put a blunt point on it, we see significant volume converting from just 4 to 5 projects, and we have another 75 to 100 projects churning through the hopper. Given our technical successes and the product line that we've developed, we feel confident about the long-term demand for Ironton. The sales funnel continues to be very strong and successful conversion of only some of these would be large enough to sell out Ironton many times over. The focus has shifted more towards converting these large applications into sales and less towards growing the funnel. Even in a challenging consumer spending and petrochemical environment, we continue to see robust demand and pricing in line with the unit economics we have previously laid out. Our growth plan continued to progress during the third quarter. The personnel in Thailand continues to grow, and I'm excited about the team that is being put in place. The Antwerp permitting process continues on schedule, and it is extremely good news that our proposal to the EU Innovation Fund or EIF, was accepted. We expect to receive final grant approval of up to EUR 40 million by the end of Q1. We continue to progress our Gen 2 purification design work through Augusta and beyond and expect this to be completed in the first half of 2026. Overall, this has been another quarter of extreme progress. Branded shipments are moving. We're in the final stage of commercial negotiation with a number of very large potential applications, and we are accelerating. We are doing something that has never been done before. The operation Ironton and Denver continued to show progress during the quarter. Ironton produce 7.2 million pounds in this quarter and 3.3 million pounds in September, both new records. Denver continues to ramp as well, processing 9.4 million pounds of feedstock in Q3 and 4.4 million pounds in October. This was possible due to strong reliability performance and successfully adding a second shift in Denver. We have plans to add a third shift in the near future, and this will allow Ironton to continue to ramp to higher rates of production in coming quarters. We have developed a really strong relationship with our feedstock providers and are taking product from numerous locations, some of which are among the largest waste companies in the country. These companies value steady and ratable offtakes and thus, it makes sense to deliberately and systemically ramp Denver volumes in conjunction with Ironton production and sales, and speaks to our confidence in the commercial ramp in front of us. The amount of feed coming out of Denver was a constrained Ironton production in the quarter and with the additional shifts this should be relieved going forward. The 100 million pound compounding expansion at Ironton that we announced last quarter is on track for mechanical completion in December. And in addition to that, we've already installed the Co-Product 2 extruder on-site and started the operational commissioning. This compounding capacity that we're installing will allow for reduced complexity of supply chain, improved product offering, lowers our costs and should widen the market for available sales. The Co-Product 2 compounding expansion is already showing positive results. As you can see in the pictures on Slide 4, we can now take raw Co-Product 2 coming out of Ironton and compounded into a sellable pellet that we have already sold into the market for $0.20 to $0.30 per pound. As we have ramped Denver, we have developed market outlets to sell the non polypropylene co-products. As we have found markets for approximately 20% to 30% of the bale, that is non-PP, which results in approximately a net 20% reduction in feedstock costs. This is inclusive of the waste disposal costs for 18% of the bale that we are currently not selling. This is a really big deal. And I believe it's only the early innings of this co-product optimization and that it will be a big driver in our long-term low-cost story. Operations continues to make progress, and I feel increasingly confident about our ability to ramp production in coming quarters. To pace the commercial ramps, we expect to run the facility at 60% to 70% rates for the next 3 to 6 months and then ramp to near nameplate in the second half of the year. Now turning to the commercial update. Some of the largest brands and companies in the world are becoming interested in our products. This is a tremendous endorsement for the quality of our product and the future of our company. It's important for our teams to stay focused on developing these high-quality demand applications like this. While there have been some delays with respect to the overall rollout, it's important to note that none of that was driven by technical capabilities of our product or the market's underlying demand for it. The delays relate to developing regulatory dynamics in states, which are largely behind us as well as the natural delays that came from 2 mergers among the 4 largest global converters. Both mergers impacted the timing for a few contracts that we had initially expected to close, start moving in Q3. None of this has impacted the long-term progress or where things are going. Frankly, confidence in the end state of where Ironton is headed has only improved. I continue to see potential demand in the funnel, well exceeding our ability to supply it by multiple times over and a growing list of qualified products to take us there. If you combine the customers that we're beginning to ship to, with the ones we already have high visibility to ship to in the near term, this represents approximately 40 million to 50 million pounds annually at full ramp. I've spoken a lot over the past few quarters about how our resin continues to get qualified in numerous applications, especially those like film and fiber that traditional mechanical recyclers cannot serve. I've also talked about the value of compounding business and how it is a core component of how we can take our purified product and transform it into exactly what the customers require. So with that in mind, I think it's valuable to present to the market our current product portfolio with which we're going to market. There's a lot of technical data in there, but I think it's important to note a few things. First, all of our products serving food-grade end markets have FDA LNOs. Second, all of the material that we process has both Green Circle and APR certifications for post-consumer recycled content. Third, our general purpose material does not require compounding. However, we use compounding to augment the mechanical properties and to deliver a single pellet solution to customers. This product portfolio is a function of a lot of incredible work by our technical and R&D teams as well as demand and pricing discovery by our sales team over the last year and is a big part of why I'm so excited about the future of PureCycle. No other recycled PP producer can offer to the market what we can. Last quarter, we told the market that we had 17 applications that had successfully passed industrial trials and that we're in later stages before commercialization. I want to give as -- I want to give a detailed and update as possible on these. The key takeaways here is that we are progressing and converting the funnel. We completed negotiations with an unnamed consumer goods company during the quarter and expect to ship product for a thermoform application in Q4. 2 large applications for yogurt cups had to undergo lengthy odor and taste tests, but that's now complete. We successfully made industrial adhesive tape for a top 5 manufacturer during the quarter. This is very similar packaging tape consumers use every day when preparing for a remove or when shifting a gift to the postal service during the holiday time. They informed us that they do not -- that they do not -- that they -- sorry, they informed us that they want to do additional testing on a Brückner machine, which was planned for November. This will be our first commercialization of BOPP and believe this can be a double-digit annual volume opportunity for PureCycle. The only real disappointment in the funnel was the long brand adoption cycle we're seeing with fiber. We're fully technically qualified with numerous fiber app -- fiber producers, but this is a very fragmented market with literally thousands of small textile producers making decisions for apparel. It is taking longer to build out the new projects with end customers during the challenged market conditions. The only application of the 17 that PCT dropped out of the funnel with small consumer goods application. This is one of the smallest applications in our pipeline and PCT chose not to pursue due to the required internal resources to develop the project. What's really exciting to me is the number of new opportunities that have entered the later stages of the funnel. Many of them are with Fortune 100 brand owners, specifically across thermoform and BOPP. As I've mentioned, these last few quarters, part of the reason that we have qualified so many applications is to prove out the market depth across different segments and end markets. Not surprisingly, FDA flexible film or BOPP is toward the top of the list. Thermoforming for QSRs, namely for coffee lids and cups as well as for other food container opportunities are also emerging as one of the best places for us to focus. The demand from just 3 of these large QSRs for coffee lids alone could be enough to sell out Ironton. We have had a PO in hand -- we have a PO in hand to begin shipping for the first of these top 5 global QSRs in the fourth quarter and are closely working with the top -- with 2 top QSRs who have both told us that they want to move forward but are waiting for a couple of internal approvals before doing so. BOPP film continues to progress on schedule and trialing success with Brückner has unlocked with -- has now unlocked trials with brand owners of multiple top 5 snack brands. These are huge volume opportunities and currently cannot be served by mechanically recycled product due to the technical challenges of producing BOPP. We've also had virgin resin producers reach out to us for BOPP supply. The success we've seen with the first adhesive tape trial has led to interest and scheduled trials for other brands. To be clear, both white thermoform and BOPP film technical developments are very complex, and this is a very undersupplied market. We've proven that we can make them grades, we've tested it and it's working. And while they took additional time to complete the development of trials, the interest in this segment is strong and moving quickly -- moving more quickly than other applications. We believe that the single-use nature of many of these applications is driving interest and quicker adoption by QSRs and snack brands. Additionally, due to the lack of true recycled demand for these applications, we believe many of these companies are currently using -- currently buying ISCC Plus credits for roughly 70% to 80% per pound over virgin to cover their regulatory requirements. We continue to make progress with Procter & Gamble during the quarter. They are one of the most technically demanding companies due to their intense focus on quality and brand image. And I'm very excited that we expect to be shipping product in the fourth quarter with these caps making it to the shelves in early 2026. The relationship with Procter & Gamble is transitioning to an operational relationship. We meet weekly. We are well aligned and are both excited about this first application and the pipeline that's following. The partnership with Churchill continues to ramp with incremental end customers, and I'm very excited that we will be producing cups for the release of a very popular upcoming franchise film release. Additionally, there's a major sporting event taking place in the United States in 2026, and they have confirmed that they will be using our run-at-back cups during the entirety of that event. These are both nice volume additions, but even more importantly, I believe there will be great opportunities to showcase the PureCycle to a broader audience. It's also worth noting that one of the big 4 sports leagues has invited us to a Private Stadium Operations Conference where we'll have an opportunity to present our cups to all the franchise procurement teams at the same time. There's also a lot of positive news emerging from the regulatory front. 7 states covering about 20% of the U.S. population, have passed extended producer responsibility regulations or EPR for packaging over the past 4 years. On top of that, states like New Jersey have passed and are implementing laws that mandate recycled content. Further builds are also being introduced in numerous states across the political spectrum, including places like Tennessee and North Carolina. These bills were passed for the last 3 to 4 years and are just now being implemented. I believe this will force many large brands who operate an interstate commerce to ship to almost every state to adopt our material, and we expect will only accelerate as more states implement these policies in '26, '27 and beyond. We're ramping up our efforts to educate the steps on the positive role that the PureCycle can play in compliance to the new rules. Many new independent publications like the PRE White Paper for Dissolution and the NOVA Institutes Definitive Chart for recycled technologies are helping to place the right designations on plastic to plastic solutions at the regulations demand. PureCycle is very well positioned to be the premier solution for many brand applications. The regulation in Europe regarding PPWR as well as mandated recycled content for automotive continue to be planned for implementation towards the end of the decade and our recent successful application for the EIF grants speaks to the momentum PureCycle -- through the momentum for PureCycle in Europe. We will continue to educate all agencies and regulatory bodies on how PureCycle can support the legislative efforts around the globe. The growth plan we outlined to the market last quarter continues to progress. Since announcing the Thailand project earlier this year, key feedstock LOIs have been signed and the amount of material available appears to be more than required to run the facility at full capacity. In Europe, permitting for the Antwerp facility is progressing as planned, with construction expected to commence thereafter. Our proposal to the EU Innovation Fund has been accepted and we anticipate up to a maximum of 40 -- maximum grant of EUR 40 million by the end of Q1. Between the capital efficiency of the Thailand project, the EIF grant for Antwerp and the capital already spent on long-lead equipment, the remaining capital requirements are limited relative to the scope of these projects. We're in a good position to progress these 2 projects over the next 3 years according to our original plan. Additionally, we're on schedule to complete the final engineering for our Gen 2 purification line design work in early 2026. While not finalized yet, we still believe the capacity will likely fall between 300 million and 500 million annually. On the financing front, we have initiated debt financing efforts in Thailand in collaboration with local banks are making good progress to secure the financing and believe that we remain on track for financial close in line with prior communications. With that, I'll turn it over to Jaime for the financial presentation. Jaime Vasquez: Thank you, Dustin. As shown on Slide 16, we ended the quarter with just over $234 million of unrestricted cash. In addition to the cash on hand, we still hold about $87 million of revenue bonds that we plan to sell in the future to further support our growth initiatives. Also, as we mentioned in our June growth update, we have almost $25 million warrants outstanding that expire in March of 2026, must exercise at a price of $11.50 per warrant prior to that time. In addition to the potential proceeds from the warrants, our team is pursuing other nondilutive financing arrangements including the successful EUR 40 million grant application for our Belgium project that Dustin just mentioned. Our operations and corporate spend was around $37 million, which was slightly lower than the $39 million spent in the previous quarter. We anticipate that our operational spend will remain at similar levels adjusted for increased spend associated with the ramp-up of commercial sales. Additionally, we expect growth capital spend to increase beginning in early 2026. We are working on detailed project plans and we'll provide more insight once the spend curves associated with those plans are finalized. I would now like to turn the call back to Kyle, who will open the call for your questions. Operator: [Operator Instructions] And for your first question, it comes from the line of Andres Sheppard from Cantor Fitzgerald. Andres Sheppard-Slinger: Can you hear me okay? Dustin Olson: Yes, Andres. We hear you loud and clear. Andres Sheppard-Slinger: Wonderful. Congrats on the quarter and then all the progress. I think there's a lot to unpack, but I wanted to maybe start with all the progress with these QSRs. I was wondering if you can maybe give us some details as to where is the interest coming from? Any feedback you've received. Why have they been so interested as of late? Dustin Olson: Yes. I mean, thanks for the question, Andres. What I think is really exciting to me is to see the interest coming from these very recognizable brands around the world. These are not only brands people will recognize, but also brands that we can grow with globally. Sustainability is, quite frankly, really important to these companies and the brand value is core to their success. And ultimately, that's where the true opportunity lies. I think it's important to take a step back a little bit and helicopter up on recycling. I think when any individual thinks about recycling, they probably naturally go to their bin at home, okay? What are they throw in the bin? And where does it go? And everybody has this idea that they want to see that material go back in the products, but they don't see the scale of it. But that's what's interesting with PureCycle and quite frankly, our Denver facility. Our Denver facility is processing so many bales at that location. And when you really watch it for a while to stand on the line and watch the material move through, you see what's coming through. And there's just a tremendous amount of QSR material on the belts in Denver. And I think that when you see that and you share that with the QSRs, it really resonates with them. So I see these products, these companies, products running through the process in Ironton, and I see it as a real circularity opportunity. Not only can we give them high-quality product to make the product that they need, we can also take it back to Denver and show them that their material is coming back into their products. So when you see -- so when the companies see their product in the bales at Denver, it resonates. When they see it transform back into things like coffee lids, it moves them. And yes, I mean, as far as big companies are concerned, these QSRs are moving faster. And they're really excited about how we can work together, and these companies need a lot of material. Once we designed the white thermoform and the film brands, and we got them tested and showed that they could work, the excitement really started to grow. Thanks for the question, Andres. Operator: And for your next question, it comes from the line of Jeffrey Campbell from Seaport Research Partners. Jeffrey Campbell: Well, first of all, I wanted to congratulate you on strong progress this quarter. I'd like to ask a couple of questions if could. The first one is, I want to make sure I understood what you said earlier. Regarding the Co-Product 2, is the plan to sell what you separate from the feedstock to the market although you utilize any of it in your compounding operations? Dustin Olson: That's a very insightful question, Jeff. Thank you for that. The answer is both. While we see opportunities to take the Co-Product 2 that we separate out in our purification facility and compound that into a pellet form, so it's easier for customers to use. That's primarily what we're doing at Ironton right now with our newly installed compounding operations, which were commercialize or operationalizing right now. But you hit on something that's very interesting, and it speaks to where we're going to go with co-products. The concept of compounding is really about recipe management, and about taking lots of things and blending them together to make something better. And given the compounding of the capacity that we have with a third party as well as the compounded capacity we've installed in Ironton, coupled with the things that we make, both in Ironton and at Denver, it creates a lot of opportunities for us to find synergy. And so I think that your question is good, and that we will start taking some material from Denver and also bringing it into the Co-Product sales, which and how much that will be proprietary IP for the company to manage the recipe. But I think at the end of the day, it's going to lead to higher revenue from Co-Product sales and ultimately lower net feedstock costs to Ironton. Jeffrey Campbell: Right. Yes, that was kind of what I was thinking as well. I also wanted to ask you, you mentioned that some of your potential customers have to buy credits. Could you expand on that a little bit? And just give us a sense of the value of the PCT is going to provide these people. Hopefully by obviating the need for those credits. Dustin Olson: Yes, that's a good point. So this is one of the things that I'm not sure how much people are aware of what's going on out there. But there are ISCC credits being generated by several facilities across the industry, okay? And some of our customers, we believe, will buy those credits as part of the regulatory requirements for their company. Those credits, the best that we understand are valued at $0.75 to $0.80 per pound in the market, and that's effectively virgin pricing plus $0.75 to $0.80. So that's a really good proxy for the value proposition that we offer. And we should, at a minimum, be at those kind of levels in the long run. But quite frankly, we believe we should be over that. And here's why. ISC credits are not a plastic to plastic solution. It's effectively a plastic to fuel solution that is mass balance to plastic. And that's inferior for the brands. The brands really want to be able to -- the consumers, customers buying candy bar, snack bags and things like that. They want to know that the material that they threw into their bin has come back to the products that they're buying and that's a plastic to plastic solution that we offer. And so we offer our consumers, let's say, a real plastic to plastic solution, less regulatory risk and less litigation risk. You can see across the regulatory ecosystem that a lot of rules are coming in that limit the use of recycled material. And that limit the use of the ISCC material, and that's where we can come in and fill the gap. I think it's also notable that on many of the brands, the marketing for how they use recycled product becomes very complex, either they don't put the fact that they're recycling content on their packaging or they put a lot of legalese around it that complicates the overall message. And quite frankly, that's why brands like a simple plastic to plastic solution, and I think that's where we're going to start filling the gap. Jeffrey Campbell: Right. And the last question I wanted to ask is, are you -- right now, are you actively selling very much PureFive? Or are you building inventory for the compounding that you're going to be able to do when you get your equipment installed in the next quarter? Dustin Olson: Yes. I mean it's a little bit of both. I mean we sold some PureFive. We've sold some compounded products, but we've also built more inventory that we've sold. So I think that we've got an opportunity as these trials convert and the funnel starts to pull and the ramp extends, I think we'll pull that inventory down to show the revenue from that in the future. Operator: And for your next question, it comes from the line Hassan Ahmed from Alembic Global Advisors. Hassan Ahmed: So I wanted to focus both of my questions on the growth project side of things, right? So let me throw the first one out. This EIF grant that you guys were awarded. Would love to hear the process around that, what it entails, what this means for your sort of European growth projects? Dustin Olson: Yes. Look, I mean, this is a little bit third time's the charm. First of all, I want to compliment the team in Europe. We've got an incredible small but mighty team in Europe that has been building toward this project for 3 years. We've submitted 2 times in the past, and we're not selected, but we've continued to improve the quality of the project, economics of the project. And now we are -- we were awarded the EIF this year, and we're extremely excited about it. I think what it does -- I mean, look, it shows a lot of confidence in our ability to bring the technology to scale. I think it shows a lot of interest in Europe to -- it shows a lot of interest in Europe to continue to lean into sustainability. And I think from an economics perspective, the EIF is just a way to further reduce the overall CapEx for the project, which makes the project look more valuable to our shareholders. We continue to look at the overall CapEx of projects and work them very, very hard. And this will be another feather in the cap for the overall return when we put it to use for the development of the project. Thank you, Hassan. Hassan Ahmed: Very helpful. And just sticking to the growth side of things. On the Thailand side, it's -- you guys sort of flagged the sort of securing the feedstock letters. I mean, what does that entail? Can you talk a bit about the cost of it, the availability of it, particularly sort of in line with what you guys are thinking in terms of the capacity out there? Dustin Olson: Well, I think the punch line is it's just the tip of the iceberg, okay? One of the reasons that we found Thailand, and we leaned into it is that we believe that's a location for great growth. It's no surprise to anybody that Asia is an area of a tremendous population, and b, tremendous need for waste management, trash management, recycling. And so there's a lot of efforts going into, let's say, small cap projects to improve the handling of waste in Asia. We're starting to see the fruit of that. But quite frankly, all handlers of waste are looking for partners like PureCycle that can improve the net value of the product at the end. Look, at the end of the day, if we can't sell to a higher-margin business, then we can provide better economics to feed to continue pulling feed out of different systems. That will allow us to support the growth of the feed and also allow us to grow our business. So we're super excited about it. I mean, look, we've talked to -- we've talked to so many different people in Asia around the willingness to partner with us and there's a strong willingness to partner. But in many cases, they say things like I'm not limited by how much polypropylene I can find. I'm limited with how much polypropylene I can sell to customers like you. And I think that, that speaks really well to the prospects for our Gen 2 design and where we're going to place it and how we're going to grow around the world. Hassan Ahmed: And you're comfortable with the cost associated with it as well. Is it like the per pound, unit economics of procuring that feed stock? Dustin Olson: Yes, I think so. I mean you find it a little bit all over the map. It depends on what stage of preparation has been put into the pellet. But yes, I think the economics look pretty good for us there. We're still in the process of nailing down all of that to firm up the final economics, but they all look very, very, very positive for Thailand. Operator: And for your next question, it comes from the line of Jeff Grampp from Northland Capital Markets. Jeffrey Grampp: Was curious, Dustin, and I think you hit on this in your prepared remarks as well as the deck. A couple of applications are awaiting brand approval. It sounded like you guys have kind of jumped through all the hoops and just waiting for a couple of back office signatures effectively. Like what -- do you have any sense of what that timing looks like? Like what is the inflection point? Are we just literally just waiting on a couple of signatures and off we go? And what might that ramp look like for some of these where you guys sound like you're pretty close? Dustin Olson: I think we feel really good about it. I mean, if you look at what we've actually got kind of coming already, that's the green lines on our 2 slides. I mean that plus Procter & Gamble is enough demand to get to 40 million to 50 million pounds annually when ramped. And honestly, what's most exciting about the remaining opportunities and the highlighted is what we described on Slide 9. I mean these are really big and with some of the biggest brands in the world. Many of those are category leaders, Fortune 100 types and converting any of those will materially impact the 40 to 50. I think we're really encouraged by how the conversations are going and feel good about getting a few of these over the line and get us to a sold-out condition. These brands are very deliberate. They ramp in stages. It takes time, but their needs are real. Their interest is real. And that makes me feel good about what's to come. We are really excited not just to convert these guys quickly and get them in, in the short term. We're really excited to build a long-term relationship with them. So we're selling to them for decades. And so that takes a little bit more time on the front end, but we're doing that and we're successful so far. Jeffrey Grampp: Great. That's helpful color. For my follow-up on the Co-Product monetization side of things. Is that something that you guys think is feasible kind of across the spectrum as you guys get into new continents, is this something that has a depth of market, if you will, in future projects as well? Or do you guys have that level of, I guess, conviction or build out at this point? Dustin Olson: I think if you break it into prep Co-Products and purification Co-Products, for sure, the concept of purification Co-Products is directly applicable. I mean our Co-Product 1 is a very useful waxy-type product, and we're investigating different opportunities to move that into different applications. And I think the value of those applications will grow year-over-year as we find new opportunities to move that in. And the same thing with Co-Product 2. And both of those Co-Products we made off of every plant that we build in the future. With respect to prep Co-Products, I think it depends a little bit on the region and how sophisticated they are, okay? Generally speaking, I think the answer is yes. I think we're going to be able to take prep Co-Products also and bring them in, in various stages of our process, whether it be compounding or it's feedstocks into purification. We've got a lot of ideas and opportunities there and we'll handle them by a case-by-case basis. But I think the bigger takeaway here is that the ecosystem that we're building, both on the feed side as well as the compounding side is really transformative, and it's going to create so much optionality for our company to create full value chain value for the company and options to do different things to reduce overall yield loss from the prep process and overall value creation. We're really excited about the asset footprint we're putting down. Operator: And for your next question, it comes from the line of Eric Stine from Craig-Hallum Capital Group. Luke Persons: This is Luke on for Eric. So I guess, first. Could you maybe provide a little more color just high level on the financial impact that your shipments in 4Q will have or that you expect to have? And can you outline how quickly you expect to ramp towards full production levels for these contracts? Dustin Olson: Yes. That's a good question, Luke. Thanks for dialing in. I think what's most important is to focus on what we're shipping and growing with our customers in the fourth quarter and first quarter. It's always very tricky to know exactly which week or which month these type of shipments will ultimately fall in. But look, they're happening, okay? And the timing of the ramp is hard to pinpoint. But that doesn't mean that we're not -- that does not mean that we're wavering from the prior commentary around the $8 million target per month at the end of Q1 and into Q2. Listen, the bottom line is that the sales funnel continues to get stronger, the largest global brands are now fully engaged and interested. We're increasing revenue but what's most important is selling out Ironton with brands that are going to be there for -- with our customers for the next decade, as I said before. That's a good question. Luke Persons: Right. That's helpful. And just as a follow-up here, I guess, what's your thought process on just inventory and cash use going forward? So we thought we might start to see you build a little bit more inventory this past quarter, which is some of these contracts getting closer to the finish line. Should we expect to see that balance really start to build here in 4Q, 1Q? Dustin Olson: Yes. I think from an inventory perspective, I mean, we're going to be ramping rates at Ironton and Denver, consistent with what we see on the sales ramp. There might be a little bit of inventory build as we ramp into the customer sales funnel. But again, that's -- it's tricky to pinpoint exactly which month or which quarter that will happen. Yes. So that's how I go with that. Operator: And we have a follow-up question from the line of Andres Sheppard from Cantor Fitzgerald. Andres Sheppard-Slinger: Sorry, I think I got disconnected before. Dustin, I just wanted to follow up, if maybe you can give us a little more details around the 40 million to 50 million pounds run rate that you mentioned in the call. And also, I was wondering if you could maybe, maybe help us connect some dots with the REACH certification in Europe and then the joint presentation with Volkswagen on the bumper. How should we be interpreting that? And anything you can say to that effect? Dustin Olson: Yes, that's great. Yes. So on 40 to 50, I mean, I think we've hit that a little bit. But if you look at the, let's say, the green highlighted lines on the projects and you add Procter & Gamble to that, I think at full ramp, we're going to get to the 40 to 50. And it's just super positive, Andres. I mean like we're really moving forward with some big brands and good names. I mean these are top companies, big global brands that we can grow with, not only in Ironton and in Augusta, but also in Thailand and in Antwerp. I think it's going to be a really nice foundation for future plants, future sales, and that's going to be very positive for us. With respect to REACH and VW, look, I mean, we are going to -- we are a brand-new company. We're just emerging, and we're doing a lot of great things. And we're going to continue to click the box on lots of different certifications. We did it with GreenCircle. We did it with APR. We've done it multiple times with FDA LNO. I think we have 4 or 5 of those now. I don't know the exact number, but we've got several. And we just recently did with REACH. And so REACH is just a step to get your product into Europe, okay? If you don't have REACH, you can't ship appreciable volumes in Europe. And now that we have that, I think that we're starting to see already some interest in trials and getting things moving. And I think that will be very interesting for us. The European team has not only been working on the EIF submission, but they've also got a great outreach with different customers in Europe. And as we develop our product portfolio sheets with the white thermoform and the flexible packaging and the injection molding grades, things like that. We're going to start shipping samples over to Europe at scale and getting customers to really start biting off on those for trials. And I think that the REACH has enabled that. With respect to the 8-K that we put out a few weeks ago with VW, look, I mean I couldn't be more thankful of the partnership with that technical team. They really worked with us to develop the right recipe, the right compound to develop a beautiful bumper. I mean, we've got this bumper actually on display in our office in Orlando, and it's just beautiful, okay? And it's just -- it's a very difficult project to get post-consumer curbside recycled product into applications that are as sensitive as automotive. Remember, automotive is one of the most complex supply chains in the world and their precision to quality and just perfection is extreme. And so if you've got recycled product that varies in product quality or it has gels in it or it's got whatever contaminants in it that get to the surface to make it difficult to paint or make the paint crack when it's in cold weather, and make the paint crack what it's in hot weather. It's not going to work. And so the most exciting thing about the presentation that we published in the 8-K was the 1 slide that showed the picture. And then the next slide -- right next to that slide, it showed a whole bunch of green dots next to very complicated tests. And that's basically the 2 teams coming together and saying, not only did we build a bumper, but it passed all the required tests for another company that values quality, just as highly as is -- just above everybody else. I mean it's a really quality company. And so I think that -- I do not think that automotive is going to ramp quickly in the next 1 to 2 years for Ironton. I think we have other opportunities that are going to go faster and quite frankly, probably bring more value. But I fully believe that automotive is going to be a foundational component to our growth plan. It's going to be a stable volume for Thailand and for Augusta in the future. And I think that, that particular case is a good example for every automotive company in the world to see that our product works really well in an extremely complex application. And when the other automotive companies see that bumper, they say, "Wow, that's pretty amazing they're able to pull that off". Great question, Andres. Andres Sheppard-Slinger: Congrats again. Operator: This concludes our Q&A session. I would now like to hand the conference back over to Dustin Olson, PureCycle's Chief Executive Officer, for closing remarks. Dustin Olson: Look, thanks, everybody, for joining the call. I mean it's another good quarter for PureCycle. We've built a unique asset footprint on both ends of our process, feedstock processing and product compounding. This is unlocking opportunities to reduce costs and expand our customer base. We continue to deliver technical improvements to the pipeline. We're seeing strong adoption by major brands in the market, and the shipments are beginning to flow in Q4 of 2025. But most importantly, we're playing our part to improve our planet. We're converting post-consumer curbside waste from your waste bin into high-quality products that consumers can use. This is the holy grail for recycling and PureCycle is starting to achieve it. We're poised to execute on a very strong 2026. Thank you for your interest in PureCycle and your continued support. See you next time, everybody. Operator: This concludes today's conference call. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to today's Iveco Group Third Quarter 2025 Results Conference Call and Webcast. We would like to remind you that today's call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to Federico Donati, Head of Investor Relations. Please go ahead, sir. Federico Donati: Thank you, Razia. Good morning, everyone. I would like to welcome you to this webcast and conference call for Iveco Group Third Quarter Financial Results for the period ending 30th September 2025. This call is being broadcast live on our website and is copyrighted by Iveco Group. I'm sure you appreciate that any other use, recording, or transmission of any portion of this broadcast without the consent of Iveco Group is not allowed. Hosting today's call are Iveco Group CEO, Olof Persson, and me, Federico Donati, Head of Investor Relations, standing in for the financial section usually covered by our CFO, as Anna Tanganelli could not be present today. Please note that any forward-looking statements we make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included in the presentation material. Additional information relating to factors that could cause actual results to differ from forecast and expectation is contained in the company's most recent annual report, as well as other recent reports and filings with the authorities in the Netherlands and Italy. The company presentation may include certain non-IFRS financial measures. Additional information, including reconciliation to the most directly comparable IFRS financial measures, is included in the presentation material. Furthermore, on the 30th of July 2025, Iveco Group announced the signing of a definitive agreement to sell its defense business, IDV, and Astra brands to Leonardo S.p.A. The transaction is expected to be completed no later than 31st March 2026, subject to the customary regulatory approvals and carve-out completion. In accordance with IFRS 5, noncurrent assets held for sale and discontinued operations, as the sale became highly probable in July, the Defense business meets the criteria to be classified as a disposal group held for sale. It also meets the criteria to be classified as a discontinued operation. In accordance with applicable accounting standards, the figures in the income statement and the statement of cash flow for the 2024 comparative periods have been recast consistently. Additionally, in 2024, the firefighting business was classified as a discontinued operation. Its sales were completely on the 3rd of January 2025. As a consequence, the 2025 and 2024 financial data shown in this presentation refer to the continuing operation only unless otherwise stated. Finally, please note that, subject to applicable disclosure requirements pending the publication of the final offer document, we will not comment on the tender offer. As per the joint press release on July 30, announcing the entering into the merger agreement and the press release by Tata on August 19, announcing the filing of the document with Conso, anyone interested is invited to refer to the offer notice published on July 30, 2025, which indicates the legal basis, rationale, condition, terms and key elements of the tender offer. All the aforementioned material and announcements are available on the Iveco Group corporate website, where any additional relevant information will be published in due time. We will not comment on the sale of the defense business to Leonardo either. The rationale, terms, and conditions of the sale, with the details as currently available, were disclosed on July 30. As announced, the transaction is expected to be completed in Q1 2026, subject to customary regulatory approvals and carve-out completion. Consistent with the agreement reached with Tata, Iveco Group will distribute the net proceeds of the transaction based on the enterprise value agreed with the purchaser via an extraordinary dividend estimated at EUR 5.56 per common share to be paid out to the company's shareholders before the tender offer is settled. With those points covered, I'd like to turn things over to our CEO, Olof. Olof Persson: Thank you very much, Federico. And let me add my own warm welcome to everyone joining our call today. I'll start with Slide 3, outlining the main highlights from our third quarter performance, excluding defense. Throughout the quarter, we maintained a high focus on our long-term vision and maintained discipline in the execution of measures that will help achieve it. These include tight control on inventory levels, diligent cost management, and the ongoing commitment to our multiyear efficiency program, as well as its acceleration for the current year, which is proceeding as planned. We have also identified additional areas of improvement, which will deliver further full-year savings. In our Truck business unit, we concentrated on balancing pricing and market share. The focus was on protecting our leadership position in the LCV chassis cap subsegment, where pricing dynamics were more challenging and maintaining a very strict pricing discipline in medium and heavy in support of the final phase of the introduction of our model year 2024 across European countries, and thereby ensuring the quality, performance, and the full potential of the product. I'd now like to break down our performance by business units. In the truck industry, demand in Europe remained particularly low in the chassis cab subsegment, which affected profitability in the quarter, which was only partially offset by strict cost control measures. European deliveries in the period were down year-over-year, particularly for light commercial vehicles, which were down 27% versus last year. At the end of the quarter, worldwide book-to-bill for trucks came in at 1.0, up 25 basis points versus the same period last year. In Powertrain, we began to see the first sign of a sustainable recovery in engine volumes as had been expected, supporting profitability improvements. In our bus business unit, profitability was impacted by costs associated with the ramp-up of production in our NNA plant in France. But despite this, our order book remains strong, providing us with a clear long-term visibility. Free cash flow absorption in the third quarter of 2025 was at EUR 513 million, broadly in line with last year's performance, when we exclude from last year the positive effect of the deployment of the higher inventory levels that we registered at the end of June 2024. You will recall that this was linked to the phase-in and phase-out of the new model year in trucks. Going forward, we will continue to remain very focused on quality and operations in line with our long-term pathway, maintaining tight control on production levels and inventory management, and on delivering our efficiency program. Slide 4 outlines our indicative timeline for the first half of 2026, with the sale of our defense business and the tender of the Veeco Group progressing in parallel. Regulatory filings for both transactions, including those required by the European Union, are currently underway and subject to final approvals. Both the sale of the defense business to Leonardo and the subsequent distribution of the net sale proceeds through an external ordinary dividend and the tender of [Bertata] are on track for completion within the first half of 2026, as we stated previously. If we're then moving on to Slide 6 and the Truck segment. We maintained pricing discipline and tight inventory control throughout Q3 in 2025. European industry volumes increased by 5% year-over-year for both light commercial vehicles and medium and heavy trucks. Iveco's third-quarter LCV market share was 11.7%, of which 29.7% was in the Chassis Cab subsegment and 65.8% was in the upper end of the segment. Industry growth overall was largely driven by the camper subsegment, where Iveco has limited exposure. Chassis Cab volumes, on the other hand, remained under pressure, yet we managed to protect our leadership position. In medium and heavy trucks, our market share reached 7.2% with heavy trucks accounting for 6.4%. In this segment, we implemented a selective sales mix strategy throughout the quarter to optimize channel profitability and support the final phase of the introduction of our model year 2024 across European countries and thereby ensuring the quality, performance, and full potential of the product. Our ability to adapt to segment dynamics while preserving pricing integrity and managing inventory effectively reflects the strength of our commercial execution and the strategic clarity of our truck business. Moving on to Slide 7. Our worldwide truck book-to-bill ratio reached 1.0 at the end of the quarter, registering a 25 basis point improvement year-over-year. This reflects balanced commercial performance across geographies and product categories. In light commercial vehicles, our European order intake rose by 17% compared to Q3 2024, supported by a book-to-bill ratio of 1.05. This increase, we believe, is a welcome first sign of a recovery coming on the heels of a prolonged period of production coverage well below last year's level, 7 weeks this year versus 12 weeks last year. And South America experienced even stronger growth with order intake up 37% and a book-to-bill ratio of 1.11. In medium and heavy trucks, European order intake declined by 3% year-over-year with a book-to-bill ratio of 0.82. South America saw a more pronounced contraction of 21% with a book-to-bill ratio of 0.94. While these figures reflect a softer demand environment, the backlog remains stable at 7 weeks of production coverage. Let's move to the next slide, #9, with bus industry volumes and market shares. Iveco Bus during the quarter continued to demonstrate strong competitive positioning across Europe. In the intercity segment, our leadership was reaffirmed with a 55.1% market share in Q3, representing a 5% point increase year-over-year. This gain can be attributed to the successful introduction of electric models, which are contributing positively to both volumes and brand perception. In the European city buses segment, our market share stood at 15.1% in Q3. We expect an acceleration in deliveries during Q4, consistent with the seasonal patterns and supported by backlog conversion. Overall, Iveco Bus maintained its consolidated #2 position in the European market with a 21.3% market share year-to-date. Moving on to Slide 10. In Q3 2025, our bus order intake declined by 17% following the strong momentum we enjoyed in the first half of the year. This front-loaded demand contributed to a 6% year-to-date increase as of September. Deliveries rose 20% compared to Q3 2024, demonstrating robust execution and sustained customer demand. The book-to-bill ratio stood at 0.77 at the quarter's end, a figure impacted by the scheduling of orders early in the year. Importantly, year-to-date order intake remained higher than in 2024 at 1.08, demonstrating the segment's resilience. On the 29th of October, Iveco Bus signed a framework agreement with Ildefrance Mobility, a leading public transport authority managing one of Europe's largest and most complex transit networks. Iveco Bus will supply Ildefrans Mobility with up to 4,000 low and zero-emission buses and coaches between 2026 and 2032. This is in line with the brand's long-term strategy to build on zero-emission and electromobility solutions. In conclusion, we maintained a solid long-term visibility for intercity and city bus with coverage now extending well into the second half of 2026. On Slide 12, we have the delivery performance for our powertrain business unit. And after nearly 2 years of consecutive year-over-year decline, engine volumes increased by 1% compared to Q3 2024. While modest, this improvement reflects the recovery we predicted last quarter. During the period, new third-party customer contracts were signed between Lindner and JCB. Production for these orders will begin in 2026. These contracts position FBT Industrial as one of the main references in the agriculture industry and are in line with our long-term strategy to grow the number of third-party clients. Operational discipline remains central to our approach. We continue to manage costs diligently and remain committed to our efficiency program. These efforts are helping us to protect margins and ensure sustainable delivery as volumes recover. Looking ahead, we expect the recovery in deliveries to third-party customers to continue throughout Q4 and beyond, supporting profitability improvements. Going to Slide 14, look at our electric vehicle portfolio, where year-to-date delivery volumes continue to grow across the business units despite the challenging market demand scenario. This clearly shows the competitiveness of our product lineup and our unique positioning in LCV, where Iveco is the only truck maker to offer a complete fully electric product lineup ranging from 2.5 to 7 tons. With that, I finish my opening remarks, and I will now hand over the call to Federico. Federico Donati: Thank you, Olof. Let's now take a look at the highlights of our third quarter 2025 financial results on Slide 16. Again, all figures provided in the presentation refer to continuing operation only, excluding defense, if not otherwise stated. Q3 2025 closed with EUR 3.1 billion in consolidated net revenues and EUR 3 billion in net revenues of industrial activities. These figures reflect a contraction of 3.6% and 3%, respectively, on a year-over-year basis, mainly due to lower volumes in Europe for trucks and a negative ForEx translation effect, primarily in Brazil and in Turkey. The group adjusted EBIT closed at EUR 111 million with a 3.6% margin, and the adjusted EBIT of industrial activities reached EUR 76 million with a 2.5% margin, both contracted by 210 basis points versus Q3 2024. The net financial expenses amounted to EUR 58 million in the third quarter this year, in line with the same quarter last year. Reported income tax expenses come to EUR 17 million in Q3 2025 with an adjusted effective tax rate of 25%. This resulted in adjusted net income for continuing operations at EUR 40 million, down EUR 54 million versus last year, with an adjusted diluted EPS of EUR 0.15. Moving to our free cash flow performance in the quarter. Q3 2025 closed with a EUR 513 million cash outflow absorption, which was broadly in line with last year's performance, when we excluded from last year the positive effect of the deployment of the higher inventory level that we registered at the end of June 2024, as Olof said in his opening remarks. I will provide more details further in the presentation. Finally, available liquidity, including undrawn committed credit lines, closed solidly at EUR 4 billion on the 30th of September, of which EUR 1.9 billion was in undrawn committed facilities. Let's now focus on the net revenue of industrial activities on Slide 17. As you can see from the chart on the right-hand side of this slide, all regions contracted compared to the prior year, excluding South America, which was flat versus Q3 2024. Looking at our net revenues evolution by business unit, Bus was solidly up versus the prior year at plus 31%. Powertrain was flat, and the truck contracted 11% versus Q3 2024. More in detail, truck net revenues totaled EUR 2 billion in this quarter, down 11% versus the prior year, primarily as a consequence of 2 factors: First, a lower delivery rate in light-duty trucks due to the continuing challenging environment in the chassis subsegment. Second, a selective sales mix strategy throughout the quarter in heavy-duty trucks in order to optimize channel profitability and support the final phase of the introduction of our model year 2024 across European countries. Additionally, the top line was affected by an adverse year-over-year foreign exchange rate trend, mainly in Brazil and Turkey. Our bus net revenues were up 31.4% in Q3 2025, reaching EUR 719 million, thanks to higher volumes. And finally, our Powertrain net revenues were broadly in line year-over-year at EUR 745 million with higher volumes offset by an adverse foreign exchange rate impact. Sales to external customers accounted for 49%, in line with Q3 2024. Turning to Slide 18. Let me briefly comment on the main drivers underlying the year-over-year performance in our adjusted EBIT margin of Industrial activities. Volume and mix contributed negatively, EUR 67 million in the period, mainly due to lower truck volumes in Europe. The decrease in deliveries of light-duty vehicles particularly impacted the overall truck profitability. The year-over-year net pricing contributed positively for EUR 15 million at the Industrial Activities level and was positive across business units. Production costs were negative EUR 7 million year-over-year, with negative performance in Truck and Bus, partially offset by solid positive performance in powertrain. Finally, the year-over-year improvement in SG&A costs totaling EUR 17 million in this quarter and EUR 50 million to date is again a result of the acceleration of the efficiency action announced and launched at the beginning of this year. Let's now take a look at the adjusted EBIT margin performance for each industrial business unit on Slide 19. Truck closed the quarter with a 2.9% adjusted EBIT margin. As already mentioned, this was a result of lower volumes and negative mix, mainly due to the continuing challenging environment in the chassis subsegment, which experienced lower volumes in Europe. The negative absorption due to the lower production level was only partially compensated by the cost containment action implemented in the period. Truck pricing in Europe was positive year-over-year, confirming our tight price discipline. The Q3 2025 adjusted EBIT margin for our bus business unit closed at 4%, down 110 basis points versus the prior year, with higher volumes and positive price realization offset by higher costs associated with the ramp-up of production in our Annonay plant. Finally, the Powertrain adjusted EBIT margin closed at 5.1% in the third quarter, resulting from continued and diligent cost control and operational efficiency as well as a slight increase in engine volumes. Let's now have a look at the performance of our Financial Services business unit during the quarter on Slide 20. The Q3 2025 adjusted EBIT for Financial Services closed at EUR 35 million with a managed portfolio, including unconsolidated joint ventures of EUR 7.5 billion at the end of the period, of which retail accounted for 45% and wholesale 55%. This figure is down EUR 106 million compared to the 30th of September 2024. Stock of receivable past due by more than 30 days as a percentage of the overall own book portfolio was at 2.1%, which is slightly up versus last year. The return on assets remained solid at 2.1%. Let's move to our free cash flow and net industrial cash evolution on Slide 21. As said previously, the Q3 2025 free cash flow absorption came in at EUR 513 million, which is broadly in line with last year's performance when we exclude the positive effect of the initial deployment of the higher inventory level that we registered at the end of June 2024. The lower adjusted EBITDA was offset by positive year-over-year swings in financial charges and taxes, the positive delta in working capital, and lower investments. The negative year-over-year swing in provision was driven by lower sales volume in our truck business unit. Lastly, investment totaled EUR 150 million in Q3 2025, down EUR 39 million versus the same period last year. This is in line with the already disclosed acceleration of our efficiency program and the reprioritization of some of our less strategic investments. Moving now to Slide 22. As of the 30th of September 2025, our available liquidity for continuing operations, excluding defense, stood solidly at EUR 4 billion with EUR 2.3 billion in cash and cash equivalents and EUR 1.9 billion of undrawn committed facilities. Looking at our debt maturity profile, the majority of our debt will mature from 2027 onwards, and our cash and cash equivalent levels will continue to more than cover all the cash maturities foreseen for the coming years. Moving now to my last slide for today, # 24, with the discontinued operational performance of our Defense business unit. The net revenues for Defense came in at EUR 293 million, up 9.7% compared to Q3 2024, driven by higher volumes. The adjusted EBIT was EUR 25 million compared to EUR 23 million in Q3 2024, resulting from production efficiency, partially offset by higher R&D costs. The adjusted EBIT margin was at 8.5%, down 10 basis points compared to Q3 2024. The funded order book level at the end of September 2025 reached almost EUR 5.3 billion, up close to EUR 300 million from the end of June 2025. Thank you. I will now turn the call back to Olof for his final remarks. Olof Persson: Thank you very much, Federico. And I'd like to conclude this presentation by looking at both the outlook for the industry and our own financial guidance. I will also, as usual, provide some takeaway messages from what you have heard today. We confirm our total industry outlook for the current year across the segments and regions. Specifically, we expect demand to remain low in the chassis cab subsegment and South America to continue to be negatively impacted by reduced consumer confidence and less willingness to invest in heavy-duty trucks, given the increase in interest rates in Brazil since the beginning of the year. The next slide has our full-year 2025 updated financial guidance, also expressed as continuing operations, which means excluding defense. Our full-year 2025 financial guidance has been revised across all key performance metrics, except for the industrial activities net revenue, which remains unchanged. This update reflects the year-to-date performance negatively affected by 2 main circumstances. Firstly, a slower-than-expected recovery in light commercial vehicles during the second half of 2025, particularly in the chassis cab subsegment, which has negatively affected our truck business units' year-to-date profitability. Secondly, we have allowed for extra costs associated with the ramp-up of production in our NMA plant, which negatively impacted our bus business unit's profitability in the third quarter. Implied in our updated guidance is increased Q4 profitability year-over-year across business units and an additional positive effect from the acceleration of our efficiency program compared to the initial EUR 150 million CapEx and OpEx. Based on these premises, the updated guidance for our full year 2025 is as follows: at the consolidated level, including Defense, group adjusted EBIT is now between EUR 830 million and EUR 880 million. And for Industrial Activities, net revenues, including currency effect, confirmed to be down between 3% and 5% year-over-year. Adjusted EBIT from industrial activities at between EUR 700 million and EUR 750 million, and industrial free cash flow is between EUR 250 million and EUR 350 million. On the slide, we have also shown what this guidance implies for continuing operations only. The free cash flow forecast, excluding Defense, is not included due to ongoing activities related to the separation that could affect some balance sheet accounts. We will continue to manage production levels for trucks in Europe in line with the retail demand, while at the same time, maintaining diligent cost management and leveraging the benefits of our efficiency program across business units. And now to Slide 28. Let me provide you with some takeaway messages from today's call. First, as I said, implied in our revised guidance is increased Q4 profitability year-over-year across business units. And if we break that down by business unit, in trucks, our LCV and medium and heavy vehicles are sold out, covering the remaining 2 months of the year. This, combined with strict control on pricing and cost management, will positively contribute to higher profitability compared to the fourth quarter of last year. In the bus, ramp-up costs are now behind us, and we expect higher volumes to contribute positively to the year-over-year performance. And lastly, in Powertrain, as mentioned earlier, third-party client volumes are expected to continue their year-over-year growth, supporting progressively profitable improvements. The increase in third-quarter order intake for light commercial vehicles is an encouraging early sign that the worst is behind us. In heavy-duty trucks, we will continue to maintain strict pricing discipline to support our model year 2024, ensuring the quality, performance, and full potential of the product. In Powertrain, new third-party customer contracts were signed, among which are Lindner and JCB, with production for these orders beginning in 2026. Our robust order book remains strong, providing solid visibility well into the second half of 2026, and the funded order book for our Defense business unit reached almost SEK 5.3 billion at the end of September 2025, demonstrating continued momentum in the industry. Thirdly, we are proceeding at pace with the acceleration of our efficiency program and reprioritization of certain investments, confirming the expected EUR 150 million in savings in CapEx and OpEx for the current year, as well as additional areas of improvement, which will deliver further full-year savings. And finally, we are on track to complete the sale of our defense business to Leonardo as per our original combination, and the tender offer by Tata is expected to be completed within the first half of 2026. In conclusion, as always, we are focused on our commitment to operational excellence. Each business unit remains laser-focused on its short- and long-term objectives, working to deliver lasting value for all our stakeholders. With that, I would like to thank you and hand it back to Federico. Federico Donati: That concludes our prepared remarks, and we can now open it up for questions. To be mindful of the time, we kindly ask that you hold off on any detailed modeling and accounting questions. For this, you can follow up directly with me and the Investor Relations team after the call. In addition, as already pointed out, pending the publication of the formal offer document on the tender offer by Tata, we will not comment on the legal basis, rationale, condition, terms, and key elements of the tender offer. In this respect, for the time being, you are kindly invited to refer to the materials already published in the ad hoc section of the company website. As for the sale of the defense business to Leonardo, the activities are ongoing and on track, consistent with the timeline commented during the presentation. The company will strictly comply with applicable disclosure requirements, but for the time being, it has nothing to add vis-Ã -vis what has already been announced. Operator, please go ahead. Operator: [Operator Instructions] We are now going to take our first question, and the questions come from the line of Akshat Kacker from JPMorgan. Akshat Kacker: A couple of questions, please. The first one is on the truck and LCV business. Obviously, the trends this year have been difficult to forecast and understand, given the pre-buy last year and also the changeover in the product family. Could you just help us understand how you're looking at the business going forward, probably into Q4, but also any early signs on how you expect the LCV business to develop going into 2026? And if you could just add some color regionally as well, between Europe and Brazil. We have heard from a few of your peers that inventories are high in the Brazilian and LatAm markets, and overall, there is some pricing pressure. So some details there would be helpful. The second question is on the powertrain business. You talked about a slight increase in engine volumes, the first signs of recovery. Could you just give us some more details in terms of where these green shoots are emerging from? And we now expect volumes to turn positive going into the fourth quarter, please? Olof Persson: Okay. So on the LCV market, I mean, as we said, the indications we're getting now, and also you saw on the book-to-bill and the increase in our order intake, give us confidence, and we believe that the worst is behind us, and we will see a gradual uptake. We see that also in the activity levels in the market. And as we said, we are sold out now for this year and going into next year. So I think it's always difficult to really judge where this is going, coming from such a long period of a lower market. But I feel the LCV side, I think we have the worst behind us. And exactly how that will pan out coming into 2026, we will have to see. We need a couple of more weeks or months to see that coming into it. But I would say so far, so good, and it's really good and encouraging to see that this is opening up. And that is, of course, then moving also in our key segments on the cabover and both in the medium and the upper side of it. On the LatAm, I didn't really -- LatAm pricing. Akshat Kacker: No, I was referring to the inventory level, if I understood correctly. correct? Federico Donati: Yes, that's right. Akshat Kacker: Some of your peers talk about the weakness in that market, specifically in the medium and... Olof Persson: Yes, when it comes to the inventory, both our own inventory, the dealer inventory and the whole chain, we manage that very carefully, as you know, and we do that also in LatAm when we see the order volumes going down we, of course, adjust production, and we do that rather quickly in LatAm because it's a simple one factory system where we can really manage that in a good way. So I don't have any concerns about the inventory levels in LatAm going forward, even though, of course, on the heavy-duty side, there is, as we said, a decline in the market and the order intake. Then the final question was around Engines. So the green shoots for the engine. I would say that there are a couple of things. One is, of course, that we are getting third-party business. The team in Powertrain has done a great job in actually capturing more third-party business, which is good. We also see, of course, and we have said that before, it's around the stock level of engines out there in the market and the time it has taken to destock that given the downturn that we've seen over the last basically 2 years. And that also gives you confidence that this is covering up for the destocking coming to an end, and thereby, the volumes are coming back up again. So it's a combination of that plus the fact that we actually are successful in getting third-party business. That's giving me confidence going forward in the Powertrain side. Operator: We will now proceed with our next question, and the next questions come from the line of Martino De Ambroggi from Equita. Martino De Ambroggi: The first question is still on the LCV. Olof, I understood your qualitative comments on LCV for next year. But could you provide what your feeling is in terms of Europe and South America if in '26, the market overall is able to have at least a small single-digit rebound in terms of volumes? And the second question is specifically on the defense business because you are providing guidance with and without defense. I was wondering if in implying what the defense EBIT and revenues, is it correct to take EUR 150 million of adjusted EBIT and probably close to EUR 1.3 billion sales, or there are intercompanies or other items that could affect these figures? And I clearly understand you are not providing any updated guidance without a defense on free cash flow. But could you comment on what is the normalized free cash flow or cash conversion for this business? What was in the past? Olof Persson: Okay. If I start with the LCV market, I think I need to stay a little bit on top and give you the feeling I have right now because we need a couple of, I would say, weeks or at least a month to really see where the activities are going to start with in 2026. I mean, we now have visibility for the rest of the year, sold out, and then we need to see how the activity is going. But as I said, so far, so good. I mean, the activity levels that we see from our customers, the tender activities we see are coming. We do see, as you've seen, an increase in the order intake coming from very low levels in Q2 and so on and so forth. So the indications are good. But let's see when we have got that all together, and we will come back to that with a more detailed market development on that one. On the other 2 questions, I'll leave it to you. Federico Donati: Yes. On the defense side, I think, Martino, on the EBIT side, yes, you can be rounded to the number you have mentioned, as well as on the top line. And in terms of the free cash flow of defense, as you know, we have never disclosed it by business unit. The only thing I can say is a cash-generative business, but on a full-year basis. I hope this helps. Operator: We are now going to take our next question, and the next questions come from the line of Nicolai Kempf from Deutsche Bank. Nicolai Kempf: It's Nicolai from Deutsche Bank. Also 2. Maybe coming back on your full year guidance, it does imply a significant step-up in Q4 of around EUR 250 million in Q4 earnings versus EUR 300 million in the first 9 months. I mean, you mentioned that all segments will be stronger in Q4, but can you just give a bit more color on which segment should drive that? And it's probably going to be the light trucks, but any help would be appreciated here. And the second one, if I look at the EU heavy truck market share, came in at 6.4%. I think historically, you were closer to 9% or 10%. And that is despite the fact that you have launched a new model here. Should we expect that next year, you will have a higher market share? Or why is it below the historic run rate despite having a rather new product in the market? Olof Persson: So on the Q4, I think I gave the guidance that -- I mean, I can give at this point in time. The basis for the improvements that we see is there in the truck side is, of course, good to see that we sold out. That means that we can improve. If you look at the backup of the slide, you can also see that the inventory with our dealers has gone down. We have managed the dealer inventory together with the dealers and our own dealer very well. So we're having a system set up for an increase on that side, which I think is promising and stable in that respect. Then, as I said, powertrain bus, increased volumes, the profitability, we have the cost behind us on the ramp-up in Annonay. And just a comment on that, it was absolutely necessary to make sure that we create a very stable, efficient Annonay plant in terms of quality, volume, and efficiency, and we have that behind us, and we are pushing forward now. And then, of course, on the powertrain side. On top of that, as I mentioned and has been mentioned a couple of times, an efficiency program. Don't forget the efficiency program, that's never a linear coming in the profit and loss. It's actually an accelerating program. It's always those programs that are very often. And of course, the majority or a big chunk of that program will now start to come in fully with all the activities we have done, not only on the SEK 150 million that we talked about, but also the activities that we have seen. So those are the things that are actually going to drive the Q4 in coming back and making the result up to the guidance we have. On the EU market side, I think we specified we are now entering into the final phase of the launch, and we have been in a market situation that has been really focusing on keeping the price level on this new vehicle, because I truly believe that we're going to live on this product for many, many years. And we need to make sure that it is in the market in the right way. We have had a very stringent price discipline. We will continue to have a price discipline to really ensure, as I said, all the different aspects of the product. So I definitely see this product going forward in the mid and the long term being a product that definitely has a potential for more market share than it has today. That's for sure. Operator: We will now take one final question. And our final question today comes from the line of Alex Jones from Bank of America. Alexander Jones: Two from my side as well, please. Could you talk a little bit about the medium and heavy-duty outlook that you see in terms of order trends also into 2026? I know you talked a bit more positively about LCV, but medium and heavy orders were down 3% year-on-year in Europe. So your thoughts would be interesting. And then the second question on defense. Can you be more specific at all on the mix factors that weighed on margins this quarter, at least sequentially, and whether you expect those to continue going forward, Q4, and into next year? Olof Persson: Well, on the medium and LCV, that was the feeling going forward into the fourth quarter and into next year. And again, I repeat what I said. On the LCV side, I have a good feeling about the activity level. Also, I would say, on the medium-heavy. And as we progress with our final implementation and launch of the model year '24, we're going to see impacts there as well, not only in terms of market, but also in terms of market share over time. And we're going to continue to keep a strict, selective approach, making sure that we get the pricing. So I would say we come back in the beginning next year, as we normally do, to have a view on the market and where the market is going for heavy and medium. But we're well-positioned in both of these markets. And I think, as I said, I feel comfortable that once we are really fully launched this product now, we're going to see the positive impacts coming, full confidence in that. It is a very, very good product in terms of all the different aspects. And I'll leave it to you, Federico, on the... Federico Donati: On the Defense, sorry, you were talking and referring to the mix, if I take your question correctly, correct, Alex? Alexander Jones: Yes, please. Federico Donati: Yes. But I think, in defense is more generally speaking, you need to consider that we have a very long and solid order book that just needs to be deployed. And so, probably looking at the defense just on a quarterly basis, it is much better to look at it on a full-year basis, and the marginality also. So this is just a question of looking at it on a yearly basis, and the mix can also change by region and by country, and by product itself. So as Olof said at the beginning, we are expecting the performance of each single business unit up year-over-year, and that will be the case for the Defense as well in Q4. That is what I can share with you. Operator: Thank you. That concludes the question-and-answer session. I will now turn the call back to Mr. Frederico Donati for any additional or closing remarks. Federico Donati: Thank you all, and have a nice rest of the day. Thank you. Bye. Operator: That concludes today's conference call. Thank you all for your participation. Ladies and gentlemen, you may now disconnect your lines.