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Operator: Hello, and welcome to Intellia Therapeutics Third Quarter 2025 Financial Results Conference Call. My name is Rocco, and I will be your conference operator today. Please be advised that today's conference is being recorded. I will now turn the conference over to Jason Fredette, Vice President of Investor Relations and Corporate Communications at Intellia. Please proceed, sir. Jason Fredette: Thank you, Rocco, and hello, everyone. Earlier this afternoon, we issued a press release and filed our 10-Q outlining our recent business updates and our third quarter financial results. These documents can be found on the Investors and Media section of Intellia's website at intelliatx.com. At this time, I would like to take a moment to remind listeners that during this call, Intellia management may make certain forward-looking statements. We ask that you refer to our SEC filings available at sec.gov for a discussion of potential risks and uncertainties. All information presented on this call is current as of today, and Intellia undertakes no duty to update this information unless required by law. Joining me on the call are John Leonard, our Chief Executive Officer; and Ed Dulac, our Chief Financial Officer. With that, I'll turn the call over to John. John Leonard: Thanks, Jason, and thanks to all of you who have tuned in for today's call. In terms of the agenda for today, we'll begin with the status of our nex-z program in ATTR amyloidosis since that is obviously top of mind for all of you. We then will provide an update on the significant progress we have made with lonvo-z, which is being developed as a potential onetime treatment for patients with hereditary angioedema or HAE, and we will close with Ed's financial review. First, for nex-z. Since the start of 2024, we've been enrolling patients in MAGNITUDE, our Phase III clinical trial for ATTR amyloidosis with cardiomyopathy. And we've been enrolling MAGNITUDE-2 for patients with hereditary ATTR amyloidosis with polyneuropathy since the start of 2025. Both trials have advanced rapidly, which we believe demonstrates patients' interest in a potential onetime treatment option. On October 24, a patient was admitted to the hospital after reporting abdominal pain to his principal investigator. This is a patient with ATTR cardiomyopathy in his early '80s who enrolled in MAGNITUDE and received a dose of nex-z on September 30. The patient's labs showed that his AST and ALT levels exceeded 3x the upper limit of normal and that his bilirubin exceeded 2x the upper limit of normal. These levels triggered a protocol-specified pause on patient dosing and screening for MAGNITUDE in the interest of patient safety. We decided to also pause patient dosing and screening in MAGNITUDE-2 as a precaution. On October 29, the FDA notified us verbally that it had placed a clinical hold on MAGNITUDE and MAGNITUDE-2. We are now awaiting the FDA's formal clinical hold letter. We were very saddened to learn that the patient passed away last night. We have been advised by the treating physician that this is a case with complicating comorbidities, and the case is being further evaluated. Since learning of this case, we've taken a number of actions in the interest of patient safety. For instance, we've mandated that clinical sites collect additional labs from patients in the initial weeks following dosing to detect potential liver elevation sooner. An internal team has been closely reviewing the blinded safety data, baseline characteristics, among other factors, to identify potential contributors to the liver-related events seen in MAGNITUDE. We've been working with the trial's independent data safety monitoring committees as we consider other potential monitoring and risk mitigation strategies. And of course, we are engaging with global regulatory authorities and other stakeholders to understand their perspectives, concerns and requirements so we can develop a plan that would allow us to resume enrollment as soon as appropriate. Not surprisingly, given the clinical hold, we are unable to maintain our milestone guidance for nex-z, and we expect to provide an update once we finalize the plan with regulators. Simply put, a lot has transpired over the past couple of weeks and in recent hours, and there is still much work ahead. There's a lot of focus on the safety profile of nex-z at this stage as there should be. That said, we continue to believe in this product candidate's potential to address important unmet needs for patients with ATTR amyloidosis. This is based on a few key factors. First, ATTR amyloidosis is a disease with high mortality. While undeniable progress has been made in this treatment, current therapies only slow its advance and most patients continue to face progressive morbidity and mortality. Second, we've enrolled more than 650 patients in MAGNITUDE and 47 patients in MAGNITUDE-2. To date, Grade 4 liver transaminase elevations have been reported in less than 1% of all patients enrolled in MAGNITUDE. Each of these cases has been observed approximately 3 to 5 weeks following randomization and dosing. There have been no Grade 4 liver transaminase elevations in MAGNITUDE-2. And third, we are highly encouraged by the data from our ongoing Phase I clinical trial of nex-z. On Monday, in a late-breaker oral session at the 2025 AHA Scientific Sessions in New Orleans, we will have the opportunity to share longer-term data for nex-z that we believe demonstrates its potential to improve various disease measures and mortality. Let's move on to lonvo-z, which is being investigated in our ongoing HAELO Phase III clinical trial for HAE. Over the course of 2025, we've made considerable progress in this trial. Enrollment was completed in September, less than 9 months after we dosed our first patient. This puts us on track to share top line data by mid-2026, submit a BLA to the FDA in the second half of 2026, and prepare for an anticipated commercial launch in the U.S. in the first half of 2027. We believe lonvo-z could completely redefine the HAE treatment landscape. We aim to reset expectations and the standard of care for patients living with this debilitating disease by completely eliminating attacks and the need for other HAE medications for a majority of patients, all with one dose. This Saturday, at the American College of Allergy, Asthma & Immunology Annual Scientific Meeting in Orlando, we will be presenting longer-term safety and efficacy data from all of the patients who received a 50-milligram dose of lonvo-z in our Phase I/II clinical trial. I'll now hand over the call to Ed, our Chief Financial Officer, who will provide an update on our financial results for the third quarter 2025. Edward Dulac: Thank you, John, and good evening, everyone. Intellia continues to maintain a solid balance sheet that allows us to execute on our clinical pipeline and build important capabilities required for future success. Our cash, cash equivalents and marketable securities were $669.9 million as of September 30, 2025, compared to $861.7 million as of December 31, 2024. During the third quarter, we raised approximately $115 million from our ATM facility. When combined with the benefits of the restructuring initiatives we implemented in early 2025, this enables us to extend our cash runway into mid-2027 and through lonvo-z's anticipated commercial launch in the U.S. for HAE. Collaboration revenue was $13.8 million during the third quarter of 2025 compared to $9.1 million during the prior year quarter. The $4.7 million increase was mainly driven by cost reimbursements related to our collaboration with Regeneron Pharmaceuticals. R&D expenses were $94.7 million during the third quarter of 2025 compared to $123.4 million during the prior year quarter. The $28.7 million decrease was primarily driven by employee-related expenses, stock-based compensation, research materials and contracted services, offset by an increase in the advancement of our lead programs. Stock-based compensation expense included within R&D was $12.2 million for the third quarter of 2025. G&A expenses were $30.5 million during the third quarter of 2025 compared to $30.5 million during the prior year quarter. Stock-based compensation expense included within G&A was $7.4 million for the third quarter of 2025. Finally, net loss for the third quarter of 2025 was $101.3 million, down from $135.7 million for the prior year quarter. We continue to expect a year-over-year decline in GAAP operating expenses of at least 10%. And as stated before, our cash runway is expected to fund operations into the middle of 2027. With that, we are ready to begin our question-and-answer session. Before we do, we would like to let you know in advance that we will be unable to answer some of your questions given a variety of factors, including the fact that we are still awaiting the FDA's clinical hold letter and a more thorough evaluation of the patient's case. We appreciate your patience and understanding. Operator, would you please open the line for questions? Operator: [Operator Instructions] Today's first question comes from Gena Wang with Barclays. Huidong Wang: I'm really sorry to hear the unfortunate event. I know you are still collecting tons of data, but just wondering if any initial hypothesis of the reason for liver enzyme elevation since this is a 1 month after dosing. Is that because of lipid nanoparticle Cas9 or age-related or disease? Any initial thoughts that would be fantastic. And the related question is, you shared the color on Grade 4, less than 1% in ATTR cardiomyopathy. How is that rate for ATTR polyneuropathy and the HAE patient population? John Leonard: So Gena, thank you for the question. At this point in time, we can only speculate, which we're not going to do in terms of what's the source of the liver function test abnormalities. As you pointed out in your question, we've seen across the entire study with over 650 patients enrolled, an incidence of less than 1%. This particular case is distinct from what we've seen. It was a very complicated clinical course with other comorbidities that may have had some influence in the outcome of the patient. Of the other cases that have occurred, all of those cases have either resolved or resolving and no one is in the hospital. Operator: And our next question today comes from Maury Raycroft with Jefferies. Maurice Raycroft: Maybe one more on the patient. I know you can't say much, but you mentioned the other comorbidities. Can you say what those were and also potentially whether the patient was managed in the United States or ex U.S.? And then, yes, I guess, if you can't answer those, if you could talk about just potential risk mitigation strategies that you could implement going forward. John Leonard: Yes. At this point, Maury, we can't go into the comorbidities. I can only say that the patient had a very complicated medical course, and these other comorbidities may have influenced the ultimate outcome along with the hepatic abnormalities. We're not commenting on geography. I can only assure you that the patient received what we believe to be excellent medical care, and we have no reason to believe that there was any shortfall in taking care of the patient. With respect to risk mitigation strategies, that's ongoing work. As you might imagine, we're doing as comprehensive analysis as we're able to do, looking at all of the data we've collected, coming up with any potential hypothesis. The ultimate goal would be to find a way to exclude patients who may be at risk, should we identify it or impose interventions that could deal with the liver function test abnormalities if they do occur. Operator: And our next question today comes from Alec Stranahan with Bank of America. Alec Stranahan: I guess, how many ATTR patients are currently within that 3- to 5-week post-dose window on the study right now? John Leonard: I can't give you precise numbers, but it's -- the vast majority of patients have passed through it. And with each passing day, there's a smaller and smaller set of patients who have yet to go through it. Operator: And our next question today comes from Mani Foroohar with Leerink Partners. Mani Foroohar: My condolences, a tough outcome for the patient for sure. So let me dive in a little bit on a hypothetical that I've received from a number of clients, which is if this hold were to remain for an extended period of time, what does that mean for the ongoing OpEx spend of the company? i.e., I know it extends the duration to whenever we get a potential pivotal outcome for the study. But does it change the total amount of spend over the course of the study? Is your spend at a normal level during this hold or at least some activities interrupted? How should we think from a financial modeling perspective, recognizing that, that, of course, is a secondary concern to the moral obligations for the patient? John Leonard: Thanks for the question. It was a little garbled, Mani, but I think you were asking how does the hold play into the financial runway of the company and how do we manage through it. I think there's going to be a two-part answer. Ed can speak to the runway and how we currently view it. As you can imagine, our priority is going through the data and coming up with the best possible path forward. And that is job one at this point, and it's something that we're working very, very hard to do. The goal is to be up and running as soon as appropriate so that we can regain what was a very substantial momentum as we said. We had enrolled over 650 patients, and that's I think just a really stellar record. But maybe, Ed, you can say a few words about the runway and how we're thinking about this may impact that. Edward Dulac: Of course. Thanks, John. Yes, I would say we -- it's premature to be too precise with any guidance. But as we sit here today, based on the information we know, as we indicated, the time lines and the plans for lonvo-z are unabated. So we continue to operationalize that study as we have been. While we are on clinical hold and therefore, unable to enroll new patients or screen for patients, as we reported, we do have now more than 650 patients in MAGNITUDE and we have 47 patients on MAGNITUDE-2 that still remain on study, are still being managed according to the protocol. So the appropriate follow-up. So that will continue as we work our way through our clinical hold. Maybe to your point, the only thing that changes is the incremental cost of dosing per patient. So in many ways, near term as we work our way through the clinical hold, you could argue we're going to spend a little bit less money. We'll still have program management fees related to CRO costs and our own internal work, but the incremental cost per patient will not occur during this time, and we will reassess what the time lines look like once we have a clearer path on getting off clinical hold. And then we don't talk much about it, but we do have research priorities within the organization, and that continues. So again, sitting here today, we don't see a substantial shift in the operating needs or the cash needs for the company, and we'll look to reevaluate that in a collaborative effort, including with the regulatory authorities in the weeks and months to come. Operator: And our next question comes from Yanan Zhu with Wells Fargo Securities. Yanan Zhu: Sorry to hear the update about the patient. I was wondering, when you talk about comorbidities, is there any liver-related comorbidities? And then additionally, when you talk about less than 1% of the enrolled patients have Grade 4 enzyme elevation, could you -- are you able to disclose how many cases of Grade 4 liver enzyme situation has happened and how many are still resolving? John Leonard: Thanks, Yanan. The 1% applies to the more than 650 patients. I remind you, this is an ongoing placebo-controlled double-blinded study. And what's attributed to what in precise numbers by case, et cetera, is not possible for us to get into. But you should think of this as less than 1% across that number. With respect to the comorbidities, it's not something we can get into at this point. I can assure you that there's an ongoing evaluation where we'll get more information that I think will be very helpful to understand the clinical course that this patient experienced. And we'll present that information at the appropriate time once we have it. But until that information is in our hand, I think it's premature to discuss. Operator: And our next question today comes from Troy Langford with TD Cowen. Troy Langford: My condolences on the unfortunate update today. I guess just to kind of follow on to some of the other -- some of the previous questions. Is there anything that you all can do preclinically to try and disprove any sort of causation between nex-z treatment and the safety event? And then I know you all can't say that much, but is there -- if you all can provide any sort of color on potential time lines or next steps with the FDA around reinitiation of the study, I think that would help a lot. John Leonard: Yes. I can't speak for the FDA, and we're certainly waiting for the letter that we expect to receive from them, the hold -- clinical hold letter. And that will be obviously very influential in how we think about -- going about getting back the protocol up and running. With respect to preclinically evaluating, it's hard to know at this point. But as I said before, we're looking at every source of information that we have to see if there is some way that we can identify patients who may be at increased risk. And when we find that information, I'm sure we'll be talking about it in a way that will be meaningful, but only when we're convinced that we have that information well in hand. Operator: And our next question today comes from Brian Cheng of JPMorgan. Lut Ming Cheng: Ed, earlier this year in January, I remember that you said that the ATM would be used at an opportunistic time. And looking at your 10-Q, $128 million this quarter was executed through the ATM. What changed your mind here in executing the ATM? And is the ATM your path going forward in raising additional cash? John Leonard: Brian, thanks for the question. And Ed, do you want to talk about how we think about the various tools for raising funds? Edward Dulac: Yes. So we've often talked about ATM as not a primary strategy, but a tool within the toolkit to raise capital for the company. We're not going to comment on specifics going forward, but we do believe in having options. And so whether it's traditional equity that's often done in biotech, including the use of the ATM, you should expect us to continue to have that available to us and potentially circumstances dependent to utilize that strategy. But there are others for a company like ours that is approaching Phase III data and has a BLA filing. And so whether it's collaborations that we could consider, debt structures or more creative financing opportunities, I do believe we have the balance sheet to get to those milestones and multiple options to consider to improve the balance sheet in the future. Operator: And our next question today comes from Jay Olson at Oppenheimer. Jay Olson: We're sorry to hear this news. Since you mentioned there are no Grade 4 liver transaminase elevations in MAGNITUDE-2, can you just talk about any notable differences in the baseline characteristics for MAGNITUDE versus MAGNITUDE-2? And any particular changes you may be considering to the enrollment criteria? John Leonard: The primary difference is the indication itself. Patients in MAGNITUDE-2, as I'm sure you know, have polyneuropathy, which is a manifestation of TTR amyloidosis. And in MAGNITUDE, it's cardiomyopathy as the primary manifestation. Other than that, the differences tend to be really minimal, and I would think of it as on a continuum with respect to the drug as a whole. Operator: And our next question today comes from Salveen Richter with Goldman Sachs. Salveen Richter: I was just wondering if we step back, whether you could just help us understand the steps from here apart from the FDA letter. John Leonard: Well, central to the way forward is the FDA letter and coming to terms with what they'll require. But you can imagine that we're already working very hard with all of the information that we've accumulated. We're looking clinical information, preclinical information, manufacturing, et cetera. All of this is part of a very, very comprehensive analysis to see if there is any indication of a particular thing or a characteristic that puts patients at risk. While we do that, we wait for the FDA and the information that it requests. And as that information -- as that letter becomes available to us, we'll think through what we need to do and we believe we'll have the tools to address what we imagine may be things that are of interest to them, and we will work very, very closely with them to come up with the best possible plan that we think is an appropriate way to mitigate risk. Operator: And our next question comes from Jack Allen of Baird. Jack Allen: I also wanted to pass along my condolences, a tough update here. Stepping back, I was hoping you could help remind us of the differences in the construct as it relates to the ATTR candidate as compared to HAE. I believe they're using different LNPs, but could you help me understand that, and then also obviously targeting different genetic diseases as well? John Leonard: Yes. Thanks for the question. As we've shared elsewhere, the LNP is the same. That is the lipid constituents, the mRNA is the same. It's the guide RNA that differs between the two. but that leads to a totally different sort of outcome in patients. So ultimately, the patients themselves are different. The disease that they have is different and the gene that is targeted is different. So we view lonvo-z and nex-z as absolutely distinct from each other and the patient experience thus far aligns with that. Operator: And our next question comes from Silvan Tuerkcan with Citizens. Silvan Tuerkcan: My condolences as well to the clinical team. My question is do you add any additional liver monitoring in the lonvo-z trial in HAE? And I'm asking because if the percentage is less than 1% on 650 patients, if you do the math, less than a patient in the HAE trial, right? So any chances you can pick up slight liver increases there before there's a potential launch? John Leonard: Well, first of all, the lonvo-z HAELO trial is completely enrolled. And as we said at a prior update, that patient population is fully enrolled, and they've all passed through this initial window for the patients randomized in the primary evaluation part of the study. The monitoring that we have is not as intense as what we have in the nex-z trial. But again, our experience to date has been quite distinct. And if there were an issue that we would expect to be able to see it with the monitoring that we do have. I would say that an additional aspect to point out is that on Saturday, as we said in our comments, we'll be presenting at the AACI meeting, the combined pooled experience that we have of all patients who have received a 50-milligram dose for lonvo-z, and you'll be able to see the same not only clinical performance, but safety performance that we're seeing ourselves. Operator: And our next question today comes from Jonathan Miller at Evercore ISI. Jonathan Miller: My condolences as well to the family of the patient and to you guys, tough update. I guess I would love to dig further into the comprehensive analysis that you said you were doing. Obviously, you're going back over the individual patient. But how deep are you going across both the nex-z and the lonvo-z patient populations thus far? And can you maybe put some guidelines around what sorts of cases you would consider to be possibly fitting the pattern versus the sorts of cases you would be excluding? I'm thinking of patients who have subclinical liver enzyme elevations that might fit a timing pattern. How do you adjudicate whether you think those are part of this signal or not? John Leonard: The first point I would make is that the lonvo-z experience is distinct from what we see with nex-z. But with respect to nex-z, you're correct in that we'll have more information coming from this particular patient, which I think can be potentially very illuminating in terms of understanding the patient's clinical course. But other than that, when I say comprehensive analysis, I mean comprehensive. And we're looking broadly. We're looking deeply and the sorts of things that you're raising are all on the list of things for us to consider. Operator: And our next question comes from Whitney Ijem with Canaccord. Angela Qian: This is Angela Qian on for Whitney. I also want to express our condolences. So we understand you'll be increasing the monitoring of lab values after dosing. But can you give us a little bit more color on how often the lab values are being monitored previously? In this one patient, the levels were discovered when he had abdominal pain. But in the other patients who did have elevations, how was that discovered? John Leonard: We've always monitored in the window, and that's how we are aware of what we've seen thus far. We've not only picked this up as a result of more intense monitoring. But what we've done as more information has become available to us is move to at least weekly monitoring for the first few weeks after a patient has been exposed to the drug to see if we're able to actually characterize the full course of what happens when it happens. Again, it's occurring in less than 1% of all of the patients that have been enrolled in the trial. And the notion there is that if there's information that can be acted on that, that's in the hands of the physicians who are caring for these patients. Operator: And our next question today comes from Luca Issi with RBC Capital Markets. Shelby Hill: This is Shelby on for Luca. Maybe a quick one on HAE. We appreciate that you don't see a lot of read-through here, but do you think the patient death in TTR could hurt the potential commercial opportunity for this indication? Any color there, much appreciated. John Leonard: I can only speculate at this time, I think between where we are today and completing the readout of our Phase III trial for HAELO, there's a lot of time and information to be accumulated that will characterize the benefit risk profile for lonvo-z. Again, I would point you to a presentation that will be given on Saturday, just a couple of days from now, where the combined experience of all of the patients, 32 that have received 50 milligrams and the efficacy profile, along with the safety profile is there for everyone to see. And we think that, that is largely going to be representative of what we think we'll see in our Phase III or clinical use of the product more broadly. So until we get all of that information, I don't think we're going to be in a position to talk about the commercial opportunity. But thus far, we very much like what we see. Operator: And our final question today comes from Myles Minter with William Blair. Myles Minter: Sorry to hear about the update. It's a straightforward one. Do you have a cause of death? This is a cardiomyopathy trial. You will have deaths in the trial, unfortunately. Just wondering whether this was a CV-related event or as it seems maybe something beyond that? John Leonard: If I heard you right, I'm sorry, it was a little garbled. We'll give the information once we have all of the final material in hand. There are some things that are being done after the death to give us additional insights. And at the appropriate time, we'll share all of that. Operator: Thank you. And that concludes our question-and-answer session. I'd like to turn the conference back over to CEO, John Leonard, for closing remarks. John Leonard: So thank you all for joining us. We will look forward to speaking with you again when we have meaningful updates to share. Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.
Operator: Good afternoon, everyone, and thank you for joining OptimizeRx's Third Quarter Fiscal Year 2025 Earnings Conference Call. With us today is Chief Executive Officer, Steve Silvestro. He is joined by Chief Financial and Strategic Officer, Ed Stelmakh; Chief Legal and Administrative Officer, Marion Odence-Ford; and Chief Business Officer, Andrew D'Silva. At the conclusion of today's call, I will provide some important cautions regarding the forward-looking statements made by management during today's call. The company will also be discussing certain non-GAAP financial measures, which it believes are useful in evaluating the company's operating results. A reconciliation of such non-GAAP financial measures is included in the company -- in the earnings release the company issued this afternoon as well as in the Investor Relations section of the company's website. I would like to remind everyone that today's call is being recorded and will be made available for replay on audio recording of the conference call on the Investor Relations section of the company's website. Now I'd like to turn the call over to OptimizeRx's CEO, Steve Silvestro. Mr. Silvestro, please go ahead. Stephen Silvestro: Thank you, operator, and good afternoon to everyone joining our third quarter 2025 earnings call. We had a strong third quarter with results ahead of both consensus estimates and our internal expectations. Our Q3 revenues increased 22% year-over-year to $26.1 million, and our adjusted EBITDA was $5.1 million, an improvement of over $2 million from the same period last year. Our contracted revenue remains well ahead of last year's pace, underscoring the success of our focus on operational excellence, our dedication to delighting customers and deepening relationships with trusted partners. Before we move on, I want to take a moment to thank the OptimizeRx team. We deeply appreciate their dedication and hard work as we navigate an increasingly complex and rapidly evolving digital pharma marketing landscape. The industry is in the midst of a major transformation and the company's products and services are positioned to fundamentally redefine how pharmaceutical companies, patients and prescribers connect. Our mission-driven culture fuels this progress and enables us to attract, retain and strengthen the relationships that make us a trusted and enduring technology partner. With that said, I'm happy to report we are increasing our guidance for the year and are looking for revenue to come in between $105 million and $109 million, with adjusted EBITDA to be between $16 million and $19 million. Moreover, while it is still very early, we are seeing favorable RFP trends for 2026. As a result, we are introducing initial fiscal year guidance 2026 with revenue expected to be between $118 million and $124 million and adjusted EBITDA expected to be between $19 million and $22 million. In addition, subsequent to the end of our third quarter, we paid down an additional $2 million of our term loan principal on top of the debt payment schedule. At this time, given the cash flow we are seeing, we intend to continue to pay down our debt at an accelerated rate and do not believe we will need to access the equity capital markets for the foreseeable future. As evidenced by our strong results, we are firmly hitting our stride. Disciplined cost management and targeted cross-selling strategies grounded in enabling customers to optimize budget allocation and maximize script lift are driving sustained momentum into Q4 2025 and beyond. Our strong third quarter performance makes it clear that our goal of becoming a sustained Rule of 40 company is within our sights. Perhaps most notably, average revenue for our 5 largest customers over the last 12 months continues to grow and now stands at over $11 million. We believe OptimizeRx is uniquely positioned to drive meaningful long-term growth and sustainable shareholder value. With one of the nation's largest point-of-care networks, we provide pharmaceutical manufacturers the ability to reach health care providers directly at the moments that matter most. Building on this foundation, we've developed a purpose-built omnichannel technology platform that integrates advanced patient finding tools like DAAP and micro neighborhood targeting. These capabilities are redefining how pharmaceutical companies, physicians and patients connect, communicate and act, helping to improve patient outcomes while transforming engagement across the health care ecosystem. Our reach across both the point-of-care and direct-to-consumer channels provides a durable and defensible competitive advantage. OptimizeRx is the only player with the scale, technology and data integration to engage providers and patients seamlessly, enabling us to deliver the industry's most comprehensive commercialization platform. This allows us to support customers across the full product life cycle, deepen client relationships and capture greater share of long-term value. As we've discussed on previous calls, a key focus moving forward is to further showcase our reach, scalability and our role as a trusted strategic partner, helping pharma manufacturers address some of their most pressing commercialization challenges. These include enhancing brand visibility, reducing script abandonment, improving interoperability and supporting the growing shift toward complex specialty medications. I believe our success in helping our customers address these challenges is best evidenced by our strong ability to build on the relationships and increase our engagements with our largest customers. I'm confident that continued execution in these areas, combined with our ability to deliver strong ROI and drive impact and script lift for our customers will translate into meaningful long-term shareholder value. We believe our momentum positions us to capture greater market share and expand our participation in the pharma industry's multibillion-dollar digital ecosystem. Our customers remain deeply connected with our integrated HCP and DTC offerings, and our goal is to keep them engaged across the full patient care journey. And with that, I'd like to turn the call over to our CFSO, Ed Stelmakh, who will walk us through our financial results. Ed? Edward Stelmakh: Thanks, Steve, and good afternoon, everyone. A press release was issued with the financial results of our third quarter ended September 30, 2025. A copy is available for viewing and may be downloaded from the Investor Relations section of our website, and additional information can be obtained through our forthcoming 10-Q. Third quarter revenue was $26.1 million, an increase of 22% from $21.3 million during the same period in 2024. Gross margin for the quarter increased from 63.1% in the quarter ended September 30, 2024, to 67.2% in the quarter ended September 30, 2025. Year-on-year gross margin expansion is tied to a favorable product mix, economies of scale as well as a favorable channel partner mix. Our operating expenses for the quarter ended September 30, 2025, decreased by $6.5 million year-over-year to $15.5 million as the third quarter of last year was impacted by a $7.5 million impairment charge. Meanwhile, our cash OpEx increased to $12.4 million from $10.8 million, largely due to higher bonus and commission payouts, which is directly tied to the company's strong year-to-date performance. As a result, we had a GAAP net income of $0.8 million or $0.04 per basic and fully diluted share for the 3 months ended September 30, 2025, as compared to a GAAP net loss of $9.1 million or $0.50 per basic and fully diluted share for the same 3-month period in 2024. On a non-GAAP basis, our net income for the third quarter of 2025 was $3.9 million or $0.20 per fully diluted share outstanding as compared to a non-GAAP net income of $2.3 million or $0.12 per fully diluted share outstanding in the same year ago period. Our adjusted EBITDA came in at $5.1 million for the third quarter of 2025 compared to $2.7 million during the third quarter of 2024. Operating cash flow was $11.6 million for the first 9 months of 2025, and we ended the quarter with $19.5 million cash balance as compared to $13.4 million on December 31, 2024. The remaining principal on our term loan debt financing at the end of the third quarter was $28.8 million. And subsequent to the quarter's end, we paid down an additional $2 million in principal with our total principal paydown for the year standing at $7.5 million. At this time, we intend to pay down the principal on our term loan faster than originally expected as we look to continuously lower our cost of capital. With that said, we continue to believe that our healthy balance sheet will help us execute against our operational goals. Now let's turn to our KPIs for the third quarter of 2025. Average revenue per top 20 pharmaceutical manufacturer now stands at $3.1 million as compared to $2.9 million for the third quarter of 2024. Net revenue retention rate remained strong at 120% Meanwhile, revenue per FTE came in at $820,000, topping the $732,000 we posted in the third quarter of 2024. We're encouraged by the improvements of our KPIs as we continue to execute against our strategy of driving profitable growth as a leader in our space. Now with that, I'll turn the call back over to Steve. Steve? Stephen Silvestro: Thank you, Ed. Operator, now let's move to Q&A. Operator: [Operator Instructions] And the first question comes from Ryan Daniels with William Blair. Ryan Daniels: Sorry, guys, can you hear me now? Yes. Can you guys hear me now? Stephen Silvestro: We can hear you, Ryan. Ryan Daniels: Okay. Sorry, about that. Congrats on the strong print. I want to start with the 2026 outlook. It's nice to see that so early in the year, one of the few companies doing that. And I'm curious if you could just offer a little bit more color there on why you're providing it at this time. I assume it's due to some enhanced visibility with the contracts. And then maybe question number two, you mentioned the strong RFP activity being part of that. Are you just seeing more new clients? Is it more shift towards digital, more omnichannel, more shift towards HCP given some of the D2C challenges? Any color on what's driving that? Congrats again. Stephen Silvestro: Thanks, Ryan. Good to hear your voice. So I'll start with the first one. We've been really articulating to the Street and also to our clients and investors that we're going to give more visibility on our visibility into the future as we've been migrating more toward a predictive model we've quoted in the past, subscripted momentum. And so we're going to continue to push that throughout the remainder of the year. And as a result of that, we're now getting more visibility into the out years, including 2026. In terms of the RFP situation, Ryan, RFP season has been very strong for the business. We do see more people coming into the digital space and making investments on the client side. And we're seeing equal parts, HCP and DTC at this point, interest in the RFP cycle. I would say the parts of DTC that we cover at OptimizeRx are CTV, ATV, the pieces that you're aware of. And in the event that we have a linear television ban or reduction or any of those pieces, our view and thesis is that our solutions that will continue to benefit disproportionately from those types of moves. So I would say, at this point, both DTC and HCP are looking very healthy. I appreciate the question. Operator: And the next question comes from Richard Baldry with ROTH Capital. Richard Baldry: When you look at the implied guidance for fourth quarter revenue, it'd be actually slightly down year-over-year at the top end of guidance. Talk about either any onetime year-ago issues or other things because your net retention would argue that, that's sort of difficult to do. Stephen Silvestro: Yes. Thanks for the question, Rich. Good to hear from you. So I mean, what we're looking at is really a full year guide at this point and trying to give a good range of what we believe will come in at. We moved away from quoting pipeline as everybody on the call knows and have moved principally towards contracted revenue and what our real visibility is. And so the new guidance that we've updated with is truly what our visibility is. It doesn't count bluebirds that might happen, buy-ups that might happen that are not accounted for right now where we don't have visibility in years past, we would have thought about that more in terms of on pipeline and probabilities. But what you're seeing in the guidance now is, I think, reflective of our true visibility that we know we can deliver on. Again, we're going to continue to be very transparent, very conservative, not sandbagging, but look to beat the numbers that we put out there every time. So hopefully, you appreciate the transparency and conservatism. Edward Stelmakh: Just to add a little bit. As Steve said, I think we do need to look at it on a full year basis rather than quarter-by-quarter. As you know, Q1, 2 and 3 have been extremely strong. So it is more of a smoother sort of phasing this year than it was in the past. So again, I would just encourage you to look at the full year performance versus last year. Stephen Silvestro: And part of it is the enhancement to the revenue model, right, Rich, part of it is we've been successful at migrating away from periodic revenue drops and getting to a more smooth revenue model. And so that's what Ed is referring to there. Richard Baldry: Got it. It's just implicitly a little hard to look at it as a full year, you only have 90 days left. So same question I think I'm going to get a similar answer. But if you look at the adjusted EBITDA guidance, you'd have an up revenue quarter, maybe 10% plus sequentially, but the adjusted EBITDA either be slightly down to narrowly possibly up Again, is there any like onetime expenses year-end things that true up higher that create more of a headwind because it wouldn't -- it'd still be down year-over-year as well. Stephen Silvestro: Sure. Ed, do you want to take that one? Edward Stelmakh: Yes, I can take that one. Yes, look, I mean, we're assuming a conservative gross margin number. There's nothing really in the operating expense line that's going to pop. So it's more of just being a little bit more conservative on what you think is going to happen with the channel and product mix. We do believe that we were shooting for hitting or beating the top end of the range. Operator: And the next question comes from David Grossman with Stifel Financial. David Grossman: Maybe we could just expand a little bit on the line of questioning you just went through. And maybe, Steve take a minute just to remind us fundamentally, what may be going on in the business that maybe smoothing out the quarters or maybe giving you better visibility? And then I have another question after that, but just curious, again, fundamentally, some of the changes that you guys have made that may be creating a little better visibility and again, giving you the confidence, for example, to guide to 2026 at this point. Stephen Silvestro: Sure. Yes, happy to talk to it and then Andy and Ed can chime in also. But I mean, if you think about our business data the way that we've talked about it over time, you've got our audience businesses, which is GAAP principally, and then you've got micro neighborhood audience, which is that targeting capability for DTC. Both of those are data-driven technologies that are -- lend themselves to becoming more subscriptive in nature. Then you've got our execution functions, both at point of care and the other omnichannel components for HCP and you've got that for DTC. And those are obviously going to be transactional largely because that's the way that component of not just our business, but the ecosystem operates. And so what we've seen is outsized growth in DAAP, like we've talked about in months past, and we've seen a resurgence of micro neighborhood audience growth. And so those pieces not only give us a smoothing of the revenue because of the revenue models, but they also give us a renewable view into what 2026 will look like and those contracts start earlier than we would normally do for transaction level contracting. So that's the big part of it. Andy, Ed, feel free to chime in if you want to add more. Andrew D'Silva: Yes. I mean, it's really -- go ahead, Ed. Edward Stelmakh: No, I was going to say, I mean, as you guys know, I mean, vast majority of our business comes from renewals. So if you take that into account and then add some of the successes that drove this year, on top of it with more visibility into next year in terms of signed contracts as we sit here today, we feel like we're in a position to say, right, looking at next year, we can start to make at least a general guide around bookends that we're going to shoot for. And as things progress forward, we'll continue to tighten that range. Yes, go ahead, Andy, you can add to that. Andrew D'Silva: No, you got it. You both you nailed it. David Grossman: So thanks for all those details. So if I recall, like last quarter, we talked about these managed services type of contracts that come in. How much of that was present in the third quarter? And are you kind of making the same assumption that you did last quarter where you're not assuming any of that comes to bear in the fourth quarter in terms of the guidance that you provided as well as the outlook for '26. Is that the way to think about it? Stephen Silvestro: Yes. Andy, why don't you take that one? Andrew D'Silva: Yes. So it went back to more of a normalized rate in the third quarter as it relates to that managed services business. The only thing that we're including in the forecast period for managed services business is stuff that we've already won and is starting to burn into revenue right now. We're not really including anything that's in pipeline and we don't have visibility to. So again, we're taking a very conservative approach to providing guidance with bookings that we feel very comfortable with. David Grossman: Right. So as we kind of think of your guidance for '26, can you help us kind of bracket the kind of retention that is the baseline, if you will, to achieve that range? Andrew D'Silva: Yes. So historically, between 5% and 15% of our business comes from new logos every year. So the remaining would be what you would consider net revenue retention on a normalized basis. David Grossman: Okay. And that's the same assumption underlying your '26 guidance? Stephen Silvestro: It is. Andrew D'Silva: Yes. We don't really guide based on net revenue retention, right, but that's kind of how it just shakes out as every year progresses. Stephen Silvestro: And David, on that note, just one other quick bullet for you. Just -- and you and I spoke about this last time we were together. We are seeing good growth in the mid-tier segment of our business, meaning the mid-tier segment of clients coming to the table who may not be in that top 20, 25, 30 manufacturers that are coming in with outsized spend, mostly because we're able to provide capabilities that can supplement -- not just supplement, frankly, replace a lot of the stuff that they can't afford to do internally. . Whereas the big manufacturers might have kind of Cadillac support, so to speak, the mid-tier businesses do not. But using the technology that we've got allows them to compete on level ground. And so that's why we're seeing such a drive there. In our commercial organization, that Theresa is leading, has done a wonderful job of driving that. So I just wanted to call that out as a key point. Operator: And the next question comes from Eric Martinuzzi with Lake Street. Eric Martinuzzi: I wanted to dive in on the RFP trends. You 0talked about they are improved. I was just curious, though, is that your win rate is the same and the number of RFPs has improved? Or is your win rate improving on a flat RFP trend? What can you tell us there? Stephen Silvestro: Yes, I'll start, and then I'll have Andy chime in, too. But all of the above, Eric, we're seeing more RFPs coming and the RFPs are more directly pointed at what we want them to be, which I think is good. The market is seeing what we are shifting the business model to over time. So the RFPs are definitely reflective of what we're providing the market, providing our clients. And I would say our win rate as a result of that is getting better. Again, I want to give some credit to our commercial team. They're doing an excellent job of getting out ahead of all of this stuff and engaging with clients. And when you're engaging with clients more intimately, you can tend to drive the crafting of the RFPs so that they get written at an appropriate level to something that you can respond versus just a random spray and pray request for information, right? And when we get those, the hit rate will be lower because there was no prior engagement. So hats off to Jen Dwyer, Theresa Greco and the entire commercial team for doing a great job there. Eric Martinuzzi: Right. And then you talked about the smoothing of the business. Maybe I could use a brief tutorial on the transactional where you said that those started later in the year as opposed to the DAAP and the micro neighborhood that are more sort of level loaded that kicks off to each of those types of campaigns. Stephen Silvestro: Sure. Yes, happy to talk about it. I mean you think about what DAAP and what MNT or MNA does, it's principally audience creation and it's the data that drives all of the campaigns, right? It's the technology that's producing -- finding those patients wherever they're going to be. And so because that is more of a software-like play that lends itself to a normal planning cycle where renewals are going to happen earlier. That's the way pharma manages that segment of their budget and then the transactional components, which is typically message distribution, whether it's at an HCP level or if it's something that's going through DSP like a trade desk or some other way, typically is budgeted and accounted for on a quarterly basis, and it's based on performance and driven that way. So bringing DAAP to the table and getting it more mature, which we've been working very hard on, as you know, over the last several years since we launched it, and now bringing in what we acquired through the Medicx acquisition with MNT, that has really started to transform the profile of the business, and that's what you're seeing reflected in the performance of this year as well. You're seeing it front and center, but it will reflect into 2026 as well. That's given us great visibility. I think everyone feels better about what we're doing there. We're significantly up year-over-year on visibility for next year. Eric Martinuzzi: Is there -- what's the right way to think about the percentage of the revenue in 2025 versus the percentage of the revenue in 2026 between those 2 buckets? Stephen Silvestro: We don't break it out. We don't break it out at a product level. Operator: Your next question comes from Anderson Schock, B. Riley Securities. Anderson Schock: Congratulations on another really strong quarter. So first, could you provide some color on the partnership with Lamar Advertising and on the size of the opportunity here? And I guess, will this gradually roll out in specific regions? Or is this going live across their entire national inventory? Stephen Silvestro: Yes. Happy to talk about it. Great to hear from you. So the whole idea with Lamar is they're looking to transform their business model, right? And their current business model is billboards. One of the things that OptimizeRx does really well, which you're acutely aware of is patient finding and an ability to be more precise in the way that we deploy messages across our omnichannel ecosystem. So think about the capability of doing that to enable a screen that's in a desperate location that might move from a random billboard to maybe a digital screen that's large, right? And that's really what Lamar is after there. The size of the opportunity is very large. I'm not going to take a stab at the TAM because it's not might take a stab at, it's really theirs. But the partnership is going to start rolling out pretty rapidly, I would say. And it's still early for us to start quoting projections on what we think it will do. It's really piloting at this point, but we're feeling pretty optimistic about the initial testing that we've done. And we'll release more information on it as we get some more results, but early stages look pretty encouraging. Anderson Schock: Got it. And then I guess this current guidance that you've provided for 2026 factoring any contributions from this partnership? Stephen Silvestro: No, zero, nothing. Too early for us to start factoring into forecast. We're just not going to do it yet. Anderson Schock: And then could you talk about the gross margin expansion in the third quarter? What really drove this? And how should we be thinking about margins going forward in the fourth quarter and also into 2026? Stephen Silvestro: Sure. Ed, do you want to take that one? Edward Stelmakh: Yes, sure. Yes. So look, I mean, it's typically driven by our product mix or solution mix and the channel partner mix. As we said before, as we scale the business, we have much more ability to negotiate more favorable deals with our channel partners, so that's reflecting yourself in the numbers as well as growth in DAAP and the DTC platform. So those 2 things together contributed to where we are right now for the year in Q4. Going forward, I would say we're kind of stabilizing in that upper 50s to low 60s range from a guidance perspective. But you can see there's certainly upside to that number as the year progresses. Stephen Silvestro: I'll add just one quick thing to that there, Anderson. So we also, in the third quarter, had a lot more -- in the second quarter had a lot more managed services revenue and we did not have nearly as much in the third quarter and managed services revenue is our lowest margin product. . Operator: [Operator Instructions] And the next question comes from Jeff Garro with Stephens. Jeffrey Garro: I want to ask on the 2026 guide and the profitability side. If I calculate it, right, at the midpoint, I see about 60 basis points of EBITDA margin expansion. I was hoping you could talk about the mix of gross margin expansion may be dependent on channel mix versus operating leverage? And then any areas of potential variability that could lead to more or less margin expansion than what we see at the midpoint there? Stephen Silvestro: Jeff, I'm happy to answer it topically, and we won't get too deep into 2026, but happy to answer it topically. And what Andy just said is really a clear articulation of the dynamics of the business that really govern it, right? So as we continue to see our audiences grow over time through the DAAP and MNT products, margin expansion will continue to be front and center we will also manage the channel partner mix on the other side of that looking for optimal margin and that gives us the dynamic of being able to continue to improve over time. Execution will be what it's going to be, as you know, from this business, and that's fairly predictable on the highs and lows. But those are the dynamics that are sort of shaping how we're thinking about 2026 gross margin expansion opportunities and where we've landed. Hopefully, that's helpful. Jeffrey Garro: Maybe a follow-up on the operating leverage side of things. You have certainly seen, I think, a quarter-over-quarter decline in adjusted operating expenses this quarter, seeing really good leverage and maybe not expecting that to be the persistent trend over the next 5 or so quarters, but just a little more color commentary on your ability to drive additional operating leverage in the business would be helpful. Stephen Silvestro: Yes, no problem. We're going to consistently -- go ahead, Ed. Yes, why don't you take it? Go ahead. Edward Stelmakh: Yes. So OpEx, as we said before, I mean, we have a highly leverageable business model as it is now. So as I said, on a cash basis, that was actually a bit of an increase, about $2 million versus last year. And that most of that is driven by the fact that our bonuses and variable comp are tracking our overperformance on the top line this year. So once you dial that back, you can pretty much assume a relatively stable operating expense run rate on a cash basis. Operator: And this concludes our question-and-answer session. I will turn the conference back over to Steve Silvestro for any closing comments. Stephen Silvestro: Thank you, operator, and thank you all for joining us today. We're pleased to be building on a strong operational and financial momentum. Our foundation is solid, our patient-focused strategy is working, and we're confident in the path ahead. What you heard today reinforces our belief in our ability to achieve both our near-term goals and our long-term growth objectives. I remain deeply optimistic about the future of our business and the opportunities before us. We look forward to speaking with all of you again on the next earnings call and meeting many of you in the upcoming investor conferences and one-on-one meetings in the coming weeks. Wishing everyone a wonderful rest of your day and a wonderful holiday season with your families and friends. Operator: Thank you, Mr. Silvestro. Before we conclude today's call, I would like to provide the company's safe harbor statement that includes important cautions regarding forward-looking statements made during today's call. Statements made by management during today's call may include forward-looking statements within the definition of Section 27A and the Securities Act of 1993, as amended, and Section 21E of the Securities Act of 1934 as amended. These forward-looking statements would not be used -- should not be used to make investment decisions. The words anticipate, estimate, expect, possible and seeking and similar expressions identify forward-looking statements. They may speak only to the date that such statements are made. Forward-looking statements in this call include statements made defining how pharmaceutical companies, patients and prescribers connect, our value, our growth plans, creating shareholder value, becoming a Rule of 40 company, estimated 2025 revenue and adjusted EBITDA ranges, capturing greater market share, expanding our participation in the pharma industry's digital ecosystem, our technology and growth opportunities and building a strong operational and financial momentum. Forward-looking statements also include the management's expectations for the rest of the year. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or qualified. Future events and actual results could differ materially from those set forth in, contemplated by or underlying these forward-looking statements. The risks and uncertainties to which forward-looking statements are subject to include, but are not limited to, the effects of government regulation, compensation, dependence on a concentrated group of customers, cybersecurity incidents that could disrupt operations, the ability to keep pace with growing and evolving technology, the ability to maintain contact with electronic prescription platforms and electronic health records networks and other material risks discussed in the company's annual report Form 10-K for the year ended December 31, 2024, and in other filings the company has made and may make with the SEC in the future. These filings, when made, are available on the company's website and on the SEC website at sec.gov. Before we end today's conference, I would like to remind everyone that an audio recording of this conference call will be available for replay starting later this evening running through for a year on the Investors section of the company's website. Thank you for joining us today. This concludes today's conference, and you may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to the OR Royalties Q3 2025 Results Conference Call. [Operator Instructions] Please note that this call is being recorded today, November 6, 2025, at 10:00 a.m. Eastern Time. I would now like to turn the meeting over to our host for today's call, Mr. Jason Attew. [Foreign Language] Jason Attew: Good morning, everyone, and thanks for your attention today, as I know it is a very busy reporting week. Procedurally, I'll run through the presentation, and then we'll open up the line for questions. For those participating online via the webcast, you can submit your questions in advance through the webcast platform. Today's presentation will also be available and downloadable online through our corporate website. Please note that there are forward-looking statements in this presentation from which actual results may differ. Also, all amounts presented and discussed in today's call will be in U.S. dollars unless otherwise noted. I'm joined on the call today by Fred Ruel, the company's VP Finance and Chief Financial Officer, as well as my other colleagues as indicated on Slide 3. OR Royalties third quarter of 2025 was a straightforward one with sequential quarter-over-quarter improvement with respect to GEOs earned, cash margin, cash flows as well as our overall debt reduction. OR Royalties earned 20,326 gold equivalent ounces in the third quarter, a modest 3% improvement over second quarter of this year. Based on where we sit today after the first 9 months of the year, the company is tracking towards the midpoint of its previously published full year 2025 gold equivalent ounce delivery guidance range of 80,000 to 88,000 GEOs. And this would be based on normalizing for the higher-than-budgeted commodity price ratios. In other words, gold, silver, copper and gold year-to-date. More on this in a moment. Recall that we've been very specific -- explicit about the fact that due to sequencing at some of our major producing assets, including Mantos Blancos and ongoing ramp-ups at other assets like Namdini. The second half of the year was always expected to be a little bit stronger than the first half of 2025. Consequently, and at this stage, we think it's appropriate for outside observers to infer that Q4 2025 should be OR Royalty's strongest quarter of the year in terms of GEOs earned. And thanks to improved silver grades realized quarter-to-date, Mantos Blancos will be playing a key role in supporting what should be a very solid Q4 for us. Circling back on our gold equivalent ounce guidance for 2025 and commodity price ratios. It's worth noting that through September 30, 2025, and due to the higher-than-budgeted gold prices versus both silver and copper over that period, OR Royalties is tracking approximately 2,000 GEO to 2,100 GEOs lower than its original budget. In other words, these GEOs are "lost" when not normalizing for commodity price ratios. As a reminder, in February of this year OR Royalties applied a consensus commodity pricing and notably an 83:1 gold-to-silver ratio for its budgeted 2025 GEO delivery guidance. All else being equal and based on the current commodity price volatility, this number of "lost" GEOs could either grow modestly or potentially get smaller before year-end. The key message is that the same higher gold prices that have skewed the ratios versus our original budget affecting our GEOs earned have also more importantly, translated to record revenues and cash flows from operating activities for all royalties for both the third quarter and the first 9 months of the year. For context, the average realized gold price for the first 9 months of this year was $3,188 per ounce, which is over $900 per ounce greater from the same period last year. So as you can imagine, our shareholders should still be satisfied with the outcome associated with these year-to-date price movements. In addition, we are 65% of our revenues are directly derived from gold. And speaking of cash flows, we're once again happy to report cash margins for the period of just under 97%, in line with our budget for the year. OR Royalties ended the third quarter with $57 million in cash as at September 30. We are in a debt-free position for the first time in over 10 years as the company paid down the outstanding balance of its revolving credit facility during the period. And while members of our corporate development team remain extremely busy to this day, there were no major transactions announced by -- OR Royalties during the third quarter outside of our second $10 million milestone payment released to SolGold, given the ongoing progress the new management team there continues to make in advancing a new vision for Cascabel. With the rapid increase in already elevated precious metals, in addition to recent price volatility, I continue to espouse an internal culture of capital allocation discipline. where returns on new transactions must exceed our internal hurdle rates at what we believe internally to be more realistic commodity pricing scenarios as well as contract structures that must come with the appropriate security features. Here at OR Royalties, we have the fortunate luxury to be able to walk away from transactions that we can't work for any of these aforementioned reasons, thanks in large part to our already bought and paid for organic GEO growth profile over the next 5 years or 6 years. I'll spend a little bit more time on our growth profile a little bit later. With respect to our ongoing commitment to return capital to shareholders, the company declared and paid its quarterly dividend of $0.055 per share in the second quarter, marking its 44th consecutive dividend. OR Royalty's history of progressive dividend payment serves as a testament to the confidence we have in the consistency, predictability and the anticipated growth of the current and future cash flows underpinning our business. Now moving on to the company's financial performance for Q3 '25. Quarterly revenues of $71.6 million tracked 71% higher versus the same period last year, again, largely thanks to the increased commodity prices and deliveries. And it also represented a quarterly record for the company. Net earnings of $0.44 per basic common share for the period also marked a very significant year-over-year improvement, thanks again to higher commodity prices and deliveries, but also in part due to the fact that as of August 2025, OR Royalties is no longer accounting for its equity position in Osisko Development as an investment in an associate and instead will now flow through other comprehensive income. This change in the accounting treatment of the Osisko Development investment generated a noncash gain of $54 million in the third quarter, as a result of the revaluation of Osisko Development equity investment at fair value on the date of the loss of significant influence being mid-August, which was triggered by the ODV equity financings. Most importantly, Q3 saw sizable year-over-year improvements in both cash flow per share of $0.34 versus $0.19 in Q3 last year as well as quarterly adjusted earnings of $0.22 per basic common share, again, versus $0.11 in the same period last year. Next slide, please. During the third quarter of 2025, our GEOs earned came predominantly from Canada, and we derived approximately 95% of our GEOs from precious metals, the balance coming from our direct copper exposure through our copper stream at Harmony Gold's CSA copper mine in Australia. Some comments on specific mine performances during the quarter before speaking about a couple of our more material assets in greater detail. At Agnico Eagle's Canadian Malartic complex, it had yet another solid quarter with respect to GEOs earned. A reminder that historically, we've often seen strong fourth quarters at Canadian Malartic versus the other way around. And while that should bode well for our final quarter of the year, we are mindful of an announced 4 day to 5 day maintenance shutdown at the mine during the fourth quarter. At Capstone Copper's Mantos Blancos operation, Q3 production saw a significant year-over-year jump, thanks to a couple of things. First, much improved plant throughput, still largely holding consistent at a nameplate of 20,000 tons per day; and secondly, approximately a month's worth of improved silver grades contributing to our own third quarter stream deliveries. Recall that with the 2-month stream lag, our 2025 stream delivery year for Mantos Blancos started November 1, 2025 -- 2024, sorry, and ends October 31, 2025. As noted, throughput levels remained at or above the mine's nameplate capacity of 20,000 tons per day at Mantos Blancos. And our anticipation is that silver grades should stay higher and in line with OR's expectations through the final month of our stream delivery year, which was the October that just ended. And also, as indicated in last week's Q3 2025 update from Capstone, the Mantos Blancos Phase 2 feasibility study is still scheduled for 2026, which we believe will be in the first half of the year. Finally, we've recently been really impressed with the ongoing successful ramp-up at the Namdini mine in Ghana, which based on our GEOs earned and paid year-to-date, it is starting to hit its stride after a slower start to the calendar year. We're expecting continued improvements from Namdini going forward based on the most recently -- the most recent publicly available mine plan for the asset, which was the 2019 feasibility study completed by the former Cardinal Resources, to which we understand the current operator is adhering to. Moving to Slide 7. And as I mentioned earlier, the number of currently producing assets in our portfolio stands at 22. And while unlikely to be included in any of our GEOs received this year, the next asset expected to be added to this list will be Ramelius Resources Dalgaranga mine in Western Australia, with our partner recently having released a full integration plan for the high-grade underground mine, which includes some modest gold production out of the mine in the first half of 2026. So likely beginning early next calendar year, more on Dalgaranga a bit later. On our last call 3 months ago, we went out of our way to highlight the meaningful silver exposure provided by OR Royalties, which through H1 2025 was just over 26%. If we recall the same chart from the previous slide you'll have seen that silver represented over 30% of our revenues in the third quarter. Summing this all up, we are essentially flagging that OR Royalties can provide lower risk, higher quality and meaningful leverage to silver for investors that are looking for it, especially if silver prices continue to close the gap versus gold as it has done over the past month or so. Moving on to Slide 8, which many of you will have seen many times before. Our company continues to set itself apart from the rest of its relevant peers in 2 key areas. First, as it relates to lower-risk jurisdictional exposure; and second, as it relates to our peer-leading cash and gross margins. Starting with the former. Just a friendly reminder that OR Royalties is the unequivocal leader when it comes to both net asset value and gold equivalent ounces earned from what we define as Tier-1 Mining Jurisdictions, which include Canada, the United States and Australia. And we would think that with the recent explicit plans outlined for the first time by Ramelius regarding Dalgaranga as well as other recent development advances across -- advancements across our portfolio, this exposure could very likely grow in the near to medium term. Moving to the latter. Simply put, OR Royalty's peer-leading cash margins provide our shareholders with both transparent leverage to precious metals prices as well as unmatched downside protection. Switching gears to Slide 9 and focusing on our cornerstone asset. Our partner, Agnico Eagle, provided some relevant information relating to the Canadian Malartic complex along with its Q3 2025 financial results announced on Wednesday evening last week. As it relates to operations during the period, aggregate gold production of approximately 150,000 ounces to 157,000 ounces in the quarter was higher than planned, primarily as a result of higher grades at the Barnat pit at Canadian Malartic. The higher gold grades at Canadian Malartic were a result of the continued mining of mineralized zones near historical underground stopes in the Barnat pit that returned higher grades than anticipated. Flipping to Slide 10. The Odyssey underground gold production during Q3 was slightly ahead of plan at approximately 22,400 ounces, driven by higher ore mined of approximately 3,634 tons per day compared to the target of 35,000 tons or 3,500 tons per day. Regarding the development of Odyssey Underground, the third quarter of 2025 saw mine development advance ahead of schedule with a record 4,770 meters completed. The breakthrough of the ramp to the mid-shaft loading station at Level 102 was completed in the third quarter of 2025. And the main ramp towards the shaft bottom progressed to a depth of 1,059 meters as at September 30, 2025. As previously noted by our partner and firmed up during the third quarter, Agnico Eagle approved the extension of the shaft -- the first shaft by 70 meters to a depth of 1,870 meters amongst some additional loading station adjustments. This adjustment is expected to improve operational flexibility and efficiency in the early 2030s, reducing reliance on truck haulage and further unlocking the significant exploration potential at depth. And speaking of efficiency, the sinking of the first shaft is already 2 months ahead of schedule. Looking at exploration, Agnico continues to press ahead aggressively with 29 surface and underground drill rigs operating during the period. The drilling program at Odyssey targeted the upper Eastern, lower Eastern and lower western extensions of the East Gouldie deposit. The new Eclipse zone and portions of the Odyssey deposit near the Odyssey shaft. Our partner believes this area of East Gouldie has the potential to add indicated mineral resources and potential mineral reserves to East Gouldie by year-end. The drilling success should benefit the ramping up of the mining operations and provide additional flexibility in mine development at East Gouldie, including a potential second mining area in the upper part of the mine. We touched on the following subject in our last quarterly conference call, but I think it's once again worth time to reiterate that our partner, Agnico Eagle, continues to openly discuss the concept of a second shaft at Odyssey. On Slide 9, we've provided just a small sample size of the details provided by Agnico as it relates to the current concept, including specific underground mine throughput profiles as well as aggregate potential underground production range in ounces as well as a breakdown of what is being targeted for both Shafts #1 and #2, expected grades and recoveries and finally, fairly detailed time lines to achieving all of this. What does this mean for OR Royalties? Distilling all of this down, it means that we could see an approximately additional 15,000 GEOs from a second shaft over and above what would be expected from the first shaft. The sheer amount of gold discovery to date at Odyssey Underground and more specifically East Gouldie on which we have a 5% NSR royalty and which continues to expand, continues to support our partners' plans. The current mineral inventory at the East Gouldie sits at approximately 50 million gold ounces and continues to grow. Agnico Eagle now has over 29 drills turning to expand this ounce inventory in addition to firming up the confidence of what has been previously defined. Given the sheer magnitude of the potential upside here, we can sympathize with Agnico's approach of taking a measured and methodical approach to the potential addition of the second shaft. Consequently, it is unlikely that there will be any meaningful public disclosure as it relates to specific details on the second shaft until the first half of 2027. Though Agnico has already indicated that upon release of those figures, a final investment decision would be quick to follow, if not almost immediate. Here at OR Royalties, it is our continued belief that the value of the potential second shaft at Odyssey is not currently fully reflected in our share price or even for that matter, in Agnico's share price despite the fact that we truly believe that there is little doubt that this project will eventually be sanctioned and completed. Finally, the potential second shaft only serves as a component, albeit a key one to Agnico's broader plans, which could see the entire complex produce 1 million ounces from 2030 onwards when factoring in additional regional ore sources such as Marban and Wasamac. As a reminder, Marban is subject to an NSR royalty or NSR royalties owned by OR Royalties as well as the toll milling royalty, while Wasamac ore would be subject only to the toll milling royalty. Agnico noted on their conference call last Thursday that the studies on both the second shaft and the complex's path to 1 million ounces remain on track. On to Slide 10, which touches on Dalgaranga, a high-grade underground gold asset in which OR Royalties owns a 1.44% gross revenue royalty and which was acquired just over a year ago. On July 31, Ramelius Resources fully closed its acquisition of Spartan Resources. And then just 2 weeks ago, our new operating partner provided its detailed plans of how it expects Dalgaranga to fit into this gold production growth over the next 5 years. In summary, Ramelius is choosing to operate and concurrently expand its central processing facility at its pre-existing Mt Magnet Hub in order to accommodate ore from Dalgaranga. Eventually, and within the next 2 years, the facility will be completely expanded to 5 million tons per annum and with 2 separate crushing circuits to accommodate ores from both Mt Magnet and Dalgaranga due to their respective different grind size and recovery profiles. In the meantime, higher-grade ore from Dalgaranga will be fed through the pre-existing unmodified plant with lower recovery rates expected to be achieved during this interim period. The good news out of all of this for OR Royalties is that Dalgaranga is now very likely the next producing asset in our portfolio with the first production expected in the first half of 2026, with significant step changes in growth expected after that based on Ramelius' financial year. Based on the recently provided production profile, Dalgaranga is also set to produce close to 275,000 ounces of gold in Ramelius' financial year in 2030 alone. None of these figures include any potential additional ore source, ounces sourced from Dalgaranga's Gilbeys Underground or a potential Never Never open-pit project, which serve as potential upside and on which Ramelius has also completed a PEA level scoping study -- scoping studies, respectively. And of course, this doesn't include any potential future exploration upside success within our royalties area of interest either. To sum up these points, we think that the recently released plans from Ramelius represents the first positive early indication of the true potential of this high-grade asset going forward. We'd like to extend our congratulations to the entire Ramelius team on having completed these creative and well-received integration plans in relative short order post this acquisition of Spartan Resources, and we very much look forward to Ramelius' execution going forward. Moving to Slide 13, but also staying down under. We're happy to report that Harmony Gold's acquisition of MAC Copper closed on October 24, 2025. The most immediate impact to OR Royalties and more specifically, OR Royalties International was the receipt of $49 million in cash for the 4 million shares held in MAC Copper. Even more exciting, though, is the future of this asset under such a deeply skilled underground mine operator such as Harmony. With the transaction closed, the approximate 3-month integration process of the asset is now underway. with Harmony looking to immediately execute on available synergies while also looking to maximize operational efficiencies once the integration is complete. Furthermore, Harmony has already provided a time line with respect to future catalysts at CSA, most notably an updated life of mine plan expected in August of 2026. Before that, however, will be some key interim updates in late February or early March of 2026, at which time Harmony is expected to provide a fiscal year 2026 production guidance for CSA as well as detailed updates on operational performance, key project development milestones and finally, on recent exploration activities. From our understanding, Harmony doesn't plan to deviate from either of the 2 projects started under MAC Copper, specifically the Upper Marn mine as well as the CSA ventilation project, with the latter still scheduled for completion in Q3 2026. Recall that these 2 projects are expected to get the mine to a point where it can sustainably produce at the 50,000 tons of copper per annum level, which represents a production expansion of approximately 25% of the most recently completed full year of operations in 2024. Recall the underground mine that had been the key bottleneck with the surface processing facility still having plenty of latent capacity, a facet that we expect Harmony to take full advantage of over time. Let's move to Slide 12. We're now highlighting the CSA expansion projects more explicitly in our 5-year growth outlook to 2029, alongside Island Gold, Dalgaranga and the others. As it relates to CSA, these expansions were always expected based on our exchanges with both MAC Copper and now Harmony Gold. Another minor change on this slide versus previous variations is that we've reintroduced the Eagle Mine in the Yukon back into the optionality bar, where previously it had been completely removed. And this actually provides a very good segue into Slide 13, which provides an ongoing summary of the significant progress being made on some of our key optionality assets that are currently excluded from our 5-year outlook. Though this slide might provide a good foundational preview on how to think about what might be included in our 2030 5-year outlook when released in mid-February of next year. As noted in our press release last night, we'll start with Cariboo and Spring Valley, 2 shovel-ready, fully permitted sizable gold projects that each resides in what we would define as Tier-1 Mining Jurisdictions. In aggregate, these 2 assets would be able to provide OR Royalties and their shareholders with approximately 16,000 GEOs in aggregate once fully underway. Starting with Cariboo, with another round of additional financing just completed, ODV is already moving forward with preconstruction and construction activities for the development of the project, including certain detailed engineering, procurement, underground development, operational readiness planning and other early works activities. We're expecting more news from the Osisko development team in the near term as it relates to more concrete plans and timelines for the Cariboo construction, which is set to be completed in order to achieve first gold production in the second half of 2028. Moving to Spring Valley, our understanding that Solidus and its build team are effectively ready to go as the company is keen to move forward with construction work. However, at this time, our partner is seeking final authorization of project financing via the proposed $835 million of U.S. EXIM bank facilities. So stay tuned on this one. Progress continues at pace at Agnico Eagle's Upper Beaver project in Ontario. Elsewhere, United Gold or Lydian Armenia is already drawing down on its credit facility in order to move forward with what's left to complete for the construction of Amulsar. In fact, we just had our team on site this past September, and they were very pleased to see this kind of activity there, the first of its kind in a really long time. And at South Railroad, Orla Mining should have an updated feasibility study out before the end of this year with the final record of decision expected mid-2026 and first gold and silver before the end of 2027. Finally, at Eagle, we understand that first round bids for the asset were due in the first week of September 2025, with those interested parties that made it into the second round now completing more due diligence, including site visits. The hope is that a new owner can be announced sometime in the coming months with a potential new plan of operations, including a potential timeline to restarting production following fairly soon after that. Quickly on Slide 14. On top of everything else we've mentioned, here is an updated list of key catalysts on currently producing assets on the left and key near-term development projects that fall within our current 5-year outlook on the right. I'll single out just 2 for now. Looking to the right side, one second. Looking to the right of the slide and starting with Windfall, it's likely that Gold Fields provide some updated economic numbers on the project at its upcoming Capital Markets Day scheduled for next week on November 12. Recall, the most recent fulsome update from Gold Fields provided the expectations that an updated feasibility study, along with final project permits as well as final IBAs with the relevant First Nation groups are now expected in what is shaping up to be a very busy 2026 for Gold Fields at Windfall. Second, and touching briefly on what has been and continues to be a busy year for Marimaca Copper with the MOD feasibility study now completed, it's quite possible that in the next few months, we could see additional major milestones achieved in the form of final permits for the MOD projects and our partner securing full financing to move forward with a final investment decision and subsequent project construction. Finally, we'll end on the formal part of the presentation on Slide 15, which outlines the current state of OR Royalty's balance sheet. At quarter end, we were completely debt-free and had cash of $57 million. This cash balance would have grown to approximately $106 million if we've been able to include the $49 million value of our MAC Copper shares, which are listed on this slide as investments held for sale, given this was representative as of September 30. The good news is this cash was received this past week. So factoring this all in, with approximately $1 billion in potential available liquidity at the end of the quarter, the balance sheet is looking incredibly strong. Our improved financial position is key as OR Royalty's corporate development team continues to be stretched to capacity across multiple transaction opportunities. At the same time, our robust organic growth profile and deep pipeline of tangible optionality affords OR Royalties the luxury to maintain a disciplined approach and wait for the right deal as we're not willing to sacrifice investment returns, deal economics or contract features just for the sake of adding gold equivalent ounces. As such, we plan to adhere to our time-tested strategy of measured and disciplined capital allocation in the pursuit of high-quality accretive streams and royalties that will bolster the company's current and near-term GEO deliveries as well as cash flows for the benefit of our current and future shareholders. And with that, we will conclude the formal part of today's call, and we can move forward with the Q&A. Joel? Operator: [Operator Instructions] Your first question comes from Joshua Wolfson with RBC Capital Markets. Joshua Wolfson: A couple of questions. First for Malartic, this has been a very strong year for the asset, outperforming expectations on Barnat grades. The existing mine plan in 2026 outlined a little bit lower production before, I guess, some further increases thereafter. I'm wondering how OR is thinking about the near-term outlook for the asset in the context of what next year looks like and what we should expect there? Jason Attew: Thank you, Josh. I note you had 2 questions, so we'll come back to you in a second, but I'm going to hand it over to Guy, who is best situated to answer the question for you in the audience. Guy Desharnais: Josh, we're not expecting any surprises. As you know, the grade overperformance is due to blocks that are around the underground stopes and Agnico takes a fairly conservative approach to whether those blocks appear in the resource reserve models. We continue that -- we expect that to continue into the final pits that we see there. So no expected surprises. We do get more detailed information at the beginning of the year with respect to their short-term mine plans, but we don't have those yet. Jason Attew: And your next question, Josh... I can keep going. I've got a couple of them. For Eagle, I'm wondering if OR has been involved in any part of the negotiation process with some of the parties here that have been, I guess, providing offers. So look, I think everybody is aware, there is a public process that BMO Capital Markets Restructuring Group is running. It's safe to say that, as we mentioned, the first round of indicative bids, nonbinding bids passed and they've selected a number of we would -- what we would qualify or what they've told us is high-quality operators with very, very good ESG credentials. In addition, given the fact that we are a stakeholder, given our interest, we've also signed an NDA with the group PwC, who's obviously acting for the Yukon government and BMO Capital Markets. So it's really not appropriate for us to be able to comment on, again, any discussions we may or may not have with potential operators. They are running the -- BMO Capital Markets is running a very fulsome and proper public process that you certainly and everybody, all stakeholders will be able to see in the fullness of time. All we can say is as a stakeholder, we're quite pleased with the progress that has been made. We do believe that at some point, and we'll very likely get visibility in 2026 as to what the plan of the next operator of the Eagle Mine will be -- and at that point, we will determine or decide whether we reinclude the Eagle GEOs into our 5-year outlook. So there's not much more that we can say on that, Josh, apart from we're very pleased with the quality of interest from established operators that are looking to set a base up in the Yukon. Joshua Wolfson: Great. And then one last one. I think in some of the prior conference calls, you had talked about some potential for a transaction to be announced before year-end. It sounds like the company is instituting some greater discipline. And I'm just wondering what the outlook is still for that negotiation process. Jason Attew: Yes. No, it's a really good question. I'm looking at my team around the table here. As I said in my remarks, the corporate development technical teams are just flat out right now. We're looking at a lot of opportunities. However, as I've said in the past, I mean, if our group can get 1, maybe 2 high conviction, very good returns for our shareholders over the course of 12 months to 18 months, we will do that. What we've seen in the marketplace, though, is we have not been able to conclude those transactions, both on a couple of things, as I said in my remarks, value. We're not seeing -- we've got to obviously make a spread on our own internal hurdle rate. We're not seeing deals right now that satisfy that criteria. As also, we've seen some loosening of structure, i.e., there's been a number of deals, as you would know, that are unsecured or the security instrument is not where we, as risk managers on behalf of shareholders' capital are comfortable with at this stage. So there's certainly a desire to get things done, Josh. It's just we have to remain very disciplined and really stick to and pick our spots. Operator: [Operator Instructions] Your next question comes from Tanya Jakusconek with Scotiabank. Tanya Jakusconek: Can I just continue on Josh's questions on the transaction opportunities? Jason, you mentioned on your call that you have an internal rate of return metric that you're very focused on as part of your strict valuation for all metrics for transactions and you said it's a more conservative gold price. What sort of internal rate is that? Is it... Jason Attew: It would vary, Tanya. And so maybe we can take this conversation offline because I think it is important you understand it, but I'll just talk about broad parameters. We obviously have a weighted average cost of capital within our company. That's mainly informed by a revolving credit facility. Our revolving credit facility is based on a variable rate. I think you know what prime rates and where the rates have been going down. So approximately, and it could vary over time, but approximately, it's about 4.5% in terms of our cost of capital or cost of debt if we were to dip into the revolving credit facility. So that is obviously what we need for a transaction is a spread beyond that. And what we also do is we don't do transactions and we don't look at transactions in the frame of spot prices right now. We do continue to look at consensus pricing and be informed by that. All that said, we do look at spot as a relevant benchmark. It is a very competitive sector and very competitive for deals right now. And then we have to really lean on our technical team, Guy and Brendan, in particular, to look through the asset and see what might not be publicly disclosed in terms of technical reports to look for upside, both geologically, mine life extensions and operational efficiencies. So it's a very complex -- well, it's an answer that has many different components to it. Very happy to walk you through our methodology at some point. But you can think around those parameters, as I said, a spread over that hurdle. And obviously, if we did a transaction in one of those Tier 1 jurisdictions, the hurdle or the spread would be significantly less than, let's call it, Tier 2 or Tier 3. And we've proven that in the past. Let's go back to the Cascabel transaction that we did with Franco and what the Street had suggested in terms of the internal rate of return that was mid-teens for us, 14% to 15%. So those are approximately the goalpost, Tanya. Tanya Jakusconek: Okay. So definitely over 5% spread over that. Maybe just on the opportunities that you're seeing out there. I think on the Q2 conference call, it was quite a wide spread from like $50 million to $1 billion. I mean, you can drive a truck through that. Maybe we could talk a little bit more about what are you seeing currently in the environment? Is it a much tighter spread? Is it still streams versus royalty packages? Is it still development or financing for asset sales? What exactly are you seeing? Jason Attew: The answer to all those questions, Tanya, is yes, all of the above. Again, it varies for sure. And some obviously deals that are in flight we've been working on for can be 2 years, 3 years and some obviously come in through processes of existing operators, for example, deciding now is the right time to sell a royalty package off that they've put in a portfolio many, many years ago and obviously are looking at the commodity complex and saying, is this the right time for us to extract value. So again, there's a lot of different opportunities out there for us. I think I'm consistent in saying that for us, being a mid-tier streaming and royalty company that the strike zone for us is anywhere between $50 million and $500 million. We do have ample liquidity and capacity to do that given, again, we're now 0 debt and completely undrawn on our revolving credit facility. But there is many, many opportunities out there. As I said, our team is very busy, and I will -- because I don't think it's -- I will again emphasize that for our company, given our growth profile, we just have to be incredibly disciplined around capital allocation. Tanya Jakusconek: Okay. I guess we'll get more into that at your Investor Day. Maybe just a final question. As I think about 2026, and I know pricing is important, whether you keep the 82 or 83:1 ratio. As I think about -- and you provided the 5-year 2029, you're up in that 120,000 GEO, 125,000 GEOs or thereabout. As I think 2026, would it be fair and it's just a directional situation, would it be fair to assume that '26 could look very similar to '25? Jason Attew: Yes. No, it's an excellent question, Tanya. Look, obviously, we'll provide more details when we put out our 1-year guidance in February of 2026 as well as an updated 5-year outlook. What we've been consistent in saying in the past is this growth rate, 40% over the next 5 years is not linear. You know the assets that we have in production currently. Really the only new asset that's going -- unless we actually bring an asset through an acquisition, the only really new asset coming in is the Dalgaranga that we talked about on the call. We do expect next year for Mantos Blancos to continue to have the higher silver grades that we've just recently started to experience. So those are the big drivers of growth for 2026 as well as the Namdini mine in Ghana as it hits its full stride in 2026. That's probably the best guidance I can give you at this stage. We can certainly talk about it further on Monday at the Investor Analyst Day, but we'll give all that specificity to the extent we can in February of 2026. Tanya Jakusconek: And look forward to your Investor Day. Operator: Your next question comes from Carey MacRury with Canaccord Genuity. Carey MacRury: Just a quick one for me. There was a copper buydown option on the MAC Copper stream. Just wondering if that option transfers now to Harmony and if you have any thoughts on whether they will execute that or not? Jason Attew: So really good question. Cary, effectively, you can think of everything that we had with MAC Copper as essentially being assigned to Harmony Gold. So yes is a straightforward answer. And anything that you're modeling or seeing with MAC Copper, you can just assume and because it has been assigned to Harmony Gold. There's been no changes in the structure, no changes in effectively anything commercially with respect to that -- both the silver stream and the copper stream. Carey MacRury: And that option only kicks in after -- on the fifth anniversary, they can exercise early. Jason Attew: That's correct. Operator: There are no further questions at this time. I will now turn the call over to management for closing remarks. Jason Attew: Thank you, Joel. As always, if anyone on the call or listening to this replay has additional questions, insights or observations on our business and our business strategy, please do reach out to Grant, Heather or myself, and we're more than pleased to provide more information about the bright future for our company and its shareholders. In addition, I would like to provide a final plug for our Investor and Analyst Day, which is planned to be a 2-hour session this Monday, starting at 1:00 p.m. at Vantage Venues in Downtown Toronto. My team will go through in much greater detail our assets, including the potential for growth, insights and opportunities that we do see within our portfolio. If you can make it down in person and you haven't already done so, please RSVP to my colleague, Grant Meonting. And if you can't make it in person, a live webcast link was also provided in our press release last night. We hope you can join us either way. And if not, a recording of the event will be available on our website in relatively shorter order after the event. Thank you again very much for your time, and we look forward to engaging with you in the future. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Azimut Group 9 Months 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Giorgio Medda, CEO of Azimut. Please go ahead, sir. Medda Giorgio: Thank you, and good afternoon, everyone, and thank you for joining us today for the Azimut's 9 Months 2025 Results Presentation. I'm Giorgio Medda, CEO of the Group, and I'm very pleased to be here with Alessandro Zambotti, our CEO and Group CFO; and Alex Soppera, Head of Investor Relations. This period marks another important step in our growth journey, reflecting both the strength of our business model and the consistency of our strategies across markets. This year, in 2025, we continue seeing a great execution and delivery in terms of objectives, translating into tangible results and exciting corporate development that we will certainly elaborate in detail later. So moving on to Slide 3, please. So let me start with the key highlights for the period. So the first 9 months of 2025 represent the best on record for Azimut in terms of managed net inflows, reaching EUR 13 billion, together with a strong 17% growth in recurring net profit. These results confirm the strength of our diversified business model and certainly the quality of our recurring revenue base. We also made very significant progress on the TNB transaction, which continues to advance and represent a transformational step for the group. Alessandro will discuss about this in more detail later. But now we certainly -- I can say we operate with greater clarity and visibility over the next regulatory steps related to the TNB project whose authorization is expected by the second quarter of 2026. Building on the strong commercial momentum to date, we are raising our core group net profit guidance for 2025. And today, we are projecting the core group net profit to exceed EUR 500 million in 2025, while we see 2026 net profit, including the expected contribution from the TNB transaction to surpass EUR 1 billion. As a result of the updated time line regarding the TNB authorization, we have decided to anticipate selected key guidelines from our Elevate 2030 strategic plan, in particular relating to our global business. The new strategic plan will outline an even more ambitious growth trajectory, further cementing Azimut's leadership position among global independent players. And -- but certainly, I mean, I will be able to elaborate on that in greater detail later in the presentation. So moving to Slide 4 and turning to the highlights for the first 9 months of the year. Let me mention that total assets have reached EUR 123 billion, marking a new record for the group. Net inflows were equally strong at EUR 15 billion, of which 43% came from our global operations. This demonstrates and shows the continued diversification of our growth and the relevance of our global platform, which once again outperformed other players in the Italian asset management industry. Revenues in the 9 months exceeded EUR 1 billion, supported by a 9% increase in recurring revenues, confirming the quality and resilience of our business mix. EBIT stood at EUR 471 million with recurring EBIT up 12% year-on-year, and group net profit reached EUR 386 million, representing a 17% growth compared to the same period last year. That is essentially driven by the steady expansion of our recurring profit base. And finally, let me stress what is the contribution from our global operations, reaching EUR 60 million, corresponding to EUR 43 million in the same period of 2024. So this is almost 50% growth versus the 9 months last year. This consistent growth across regions confirms the effectiveness of our international strategy and the scalability of our global business model. And let me say as a general comment that these figures put us in a strong position to continue executing our long-term growth agenda while we continue creating value for our shareholders. So looking at the bridge between 9 months 2024 and 9 months 2025, I'm looking actually at Slide #5. Our group net profit reached EUR 386 million compared with EUR 439 million in the same period last year. And the difference here mainly reflects lower performance fees and capital gains below the operating profit line, while recurring profitability continues to grow very strongly. So recurring EBIT increased by 12% after costs, confirming the solid momentum of our core operations, while performance fees were lower by about EUR 19 million, mainly due to insurance-related products. However, I would like to highlight our strong 3Q results and a solid start into Q4. Strategic affiliates in GP stakes have contributed slightly less than last year, with dividends from our GP stake in activities offset by lower net results from Sanctuary Wealth and AZ NGA. Under other items below EBIT, the comparison is significantly affected by nonrecurring items, most notably the capital gain from the sale of our stake in Kennedy Lewis. And as such, it's important that throughout this call and for the broader analysis in general, I would rather focus solely on recurring growth, which posted a 17% growth year-on-year as a result of our continued expansion across the globe. So on Page 6, you will see how our total assets have evolved since the start of the year under the new reporting method. I won't go too much into the detail of this analysis as these are figures that have been already published and commented on press releases. But the thing I would like to mention here that what is remarkable is the fact that growth was essentially coming from organic flows, which have totaled almost EUR 12 billion during the period and represents the best results on record in Azimut's history. And while we don't have all the final numbers as of yet, let me anticipate that October is poised to be another month with very strong inflows across the board. Turning to Page 7. Again, here, I wouldn't go too much into the details of this, which will be also commented by Alessandro more in detail. But let me certainly mention in Slide 7, the breakdown based on our 4 distribution lines. Integrated Solutions is our core line of engagements with clients, including Italy, Brazil, Egypt, Mexico, Taiwan and Turkey. This continues to be a powerhouse and command superior margins that are driven by the vertically integrated business model and market-leading positions that we have in these geographies. We have then the Global Wealth division, which brings together the group's hubs in Monaco, Dubai, Singapore, Switzerland and the United States that is becoming an increasingly important growth driver, serving high net worth and ultra net worth clients worldwide. And then we have the institutional and wholesale effort that is gaining traction and saw a very strong increase in profitability. Let me remind you that this segment brings together our global institutional initiatives across LatAm, Asia and EMEA and certainly Italy. The strategic importance of this business is rising and will continue to do so. It's a source of innovation, distribution diversity and partnerships such as the contribution for Nova. And also, let me mention that strategic affiliates remain in a phase of growth and consolidation, and we still have investments ramping up to expand the respective aggregating platforms of financial advisers in the U.S. and Australia. And very important also to mention that as we keep growing, the group is able to maintain a very healthy recurring net profit margin at 43 basis points. So moving to Slide #8 and zooming in on the performance by region. The results confirm the strength and the diversification of our global platform. Again, here, I won't go into details too much as numbers and the notes speak for themselves. But let me tell you that something that is very, very important to highlight here, Azimut has evolved from a successful Italian player into a global platform with very strong local routes and international breadth that spans 20 countries. Every region is contributing to growth, guided by unified culture, consistent governance and the shared vision for the long-term value creation. We're going to talk about Elevate 2030 later, but these results set a very solid foundation for the ambitious growth targets that we are setting for ourselves in the years to come. So let me now hand over to Alessandro for a more detailed commentary on the figures. Alessandro Zambotti: Thank you, Giorgio, and good afternoon to everybody. So we can now move to Slide 9. Total revenue in the first 9 months 2025 go up to EUR 1 billion, so marking an overall increase of 6%, EUR 61 million year-on-year. This is the result of an increase in recurring fees, plus EUR 58 million, thanks to the strong growth recorded in terms of total assets. And in particular, EUR 31 million came from the Italian perimeter with a strong contribution from all business lines from mutual funds, alternative funds and pension funds and also to Nova. Some numbers, at the level of the alternative funds, we have a positive contribution of EUR 12.5 million to the growth. Mutual funds around EUR 7 million and discretionary advisory services and pension funds contributed for EUR 9 million. With regards to our global operation, we have a contribution of about EUR 27 million, thanks in this case as well to the asset growth, mainly driven by U.S., Brazil, Singapore and Monaco. We should also factor in the change in perimeter due to the consolidation of Kennedy Capital and HighPost, which occurred for EUR 17 million. So moving to the performance fees were EUR 4 million lower year-on-year, mainly reflecting softer results in the first half of the year, but partially offset by strong third quarter performance, thanks to Brazil, Turkey and Monaco. Then at the level of the insurance revenue, we have a decrease by EUR 80 million compared to the first 9 months of last year. But however, in this case as well, despite market volatility, we have a positive contribution from performance fees of about EUR 27 million in these 9 months and in particular, strong contribution in the third quarter. We also grew our recurring revenue by about EUR 8 million compared to last year. And these 2 components largely compensated for the lower performance contribution resulting in an overall variance of EUR 16 million compared with last year. And to conclude this first part of the revenues at the level of the other revenue were up to about EUR 15 million compared to last year. And I mean, in general, we continue to see good consistency across all the areas that contribute to this line. But I would like particularly to highlight the contribution from a structuring fee related to our Brazilian private infrastructure business. These fees are not recurring on a quarterly basis since they depend on deployment activity. But however, given the size and the ongoing growth of our infrastructure platform, we do expect them to recur on an hourly basis, although with varying amount depending on timing and at the level of the single transaction. So then now moving to Slide 10. We are going to focus on cost trend. Compared to revenue growth of about EUR 61 million, cost increased by a total of about EUR 33 million. Distribution costs increased by EUR 24 million. This change is explained by the general increase in distribution costs, mainly within the Italian perimeter directly correlated to the growth of our assets and revenues and EUR 8 million as well from the growth of the variable and dispensing component, so an increase in marketing costs is also directly connected to the TNB project operation. And finally, EUR 4 million stemming from the increase in costs directly linked to the growth of our foreign business. The administrative costs were up by about EUR 11 million, and this is largely explained by the change in perimeter, meaning the line-by-line consolidation of Kennedy Capital and HighPost that contributed about EUR 4 million with offsetting effect from the FX. And we also would like to highlight anyway the cost discipline, especially concerning the Italian perimeter. And then D&A on the other hand, we see that it is substantially in line with the previous year. Moving to Slide 11. As you can see, considering the revenues and cost, the dynamic just explained, we're recording a strong EBIT growth of 12% or EUR 47 million year-on-year. Equally important, we recorded a growth in the recurring net profit of about 17%, EUR 44 million versus the first 9 months of last year. Before moving to the next slide, let's highlight also the significant contribution from the finance income item, which shows an increase of about EUR 62 million, driven by EUR 37 million from assets and portfolio performance, EUR 19 million from the fair value option and equity participation, EUR 9 million from interest and EUR 8 million from GP stakes & affiliates. And then also, we had a negative, in this case, negative impact of the IFRS for EUR 11 million. Now moving to Slide 12. We have the classic picture of our net financial position, which is a positive balance at the end of September of EUR 765 million, substantially the same value of last year compared to June, we have an increase of around EUR 120 million. That can be reconciled considering the pretax results of EUR 198 million less the tax advance of EUR 7 million, EUR 8 million, its M&A for EUR 8.5 million, the proceeds from the sale of RoundShield that contributed to the cash for EUR 38 million and then a technical adjustment of EUR 27 million from UCI units moved out from the net financial position. Moving to Slide 13. Let me share a key update on the TNB project. During the past month, we secured the antitrust approval to acquire the banking license. And I am delighted to announce today that we have signed yesterday a binding agreement with the Banca di Sconto. Our negotiation with FSI continued following the press release published to date. We have updated the project finalization time line to Q2 '26. This timetable establishes a clear and orderly process, providing Azimut and its shareholders with greater visibility on the final stages of the transaction. The schedule is fully aligned with the operational work already underway for the launch of TNB. And then I remind you, once again, the extraordinary long-term value of this transaction. So again, the EUR 1.2 billion potential total consideration plus the EUR 2.4 billion revenue guarantee plus the 20% stake that we will maintain in TNB. Turning to Slide 14. We have here shared the '25 targets. We confirm our net inflow target for the full year of EUR 28 billion to EUR 31 billion. We have already achieved more than EUR 15 billion of net inflows at the end of September. We saw preliminary figures for October and an expected contribution of about EUR 14 billion from the NSI integration could lead us to reach up the guidance. And then moving to Slide 15. Given the strong results achieved in the first 9 months, we are pleased to announce an upgrade to our '25 core group net profit target. We now expect to exceed EUR 500 million in '25 compared to our previous lower end guidance of EUR 400 million. Looking ahead to 2026, including the expected contribution from TNB in this year, as a result of the updated time line, we estimate group net profit to amount above EUR 1 billion. Finally, reflecting both the strength of our results and our solid capital position, the Board of Directors intend to propose announced the dividend policy for the 2025 financial year. This will be above last year EUR 1.75 per share, which represented a 61% payout on recurring net profit, further demonstrating our commitment to rewarding shareholders through sustainable and growing returns. We will share the final details with our full year '25 results presentation that will be happening at the beginning of March '26. Thank you for your time and your attention. Now I hand over to Giorgio, again. Medda Giorgio: Thank you, Alessandro, and I will move to Slide 16. So following the completion of the ordinary supervisory review by the Bank of Italy on part of our Italian business, we can say that we have full clarity and greater visibility on the regulatory time lines ahead. This gives us a very solid foundation to move forward with confidence towards the launch of TNB that is a key milestone in Azimut's evolution. The group strategic plan, Elevate 2030, which will include targets for all business lines and both the Italian and global platforms will be presented in full as previously announced to the market following the authorization of the TNB transaction. However, global expansion continues to be a cornerstone of Azimut's strategy, and we continue building on our presence in 20 markets. And we are very determined to continue strengthening our leadership among the world's leading independent players. And that is why, in the meantime, we have decided to share a few key guidelines focused on our global business that is a part not impacted by the supervisory review. This plan emphasize growth, diversification and sustainable value creation for shareholders. With Elevate 2030, we are certainly defining an even more ambitious growth trajectory, one that will showcase the full potential of our diversified global platform and reinforce Azimut's position as a truly global success story. But let us now take a closer look at what lies ahead, and I will move to Slide 17. So first of all, to help everyone to better understand the potential of our global operations, we started with a bottom-up analysis of the expected contribution in terms of net inflows from each region. This has historically been an area where the market underestimated our potential, and we believe these figures better illustrate the scalability of our platform. What we're showing here are the expected yearly net inflows from our global operations only, and we are excluding Italy. These targets are indeed very ambitious, but we see them as incredibly realistic. They are consistent with our historical growth trajectory, which also reflects a clear step-up as we continue to scale, broaden our investment solution base and bring innovation to our markets. And indeed, we believe a strong potential for Azimut to replicate the success that we have achieved in Italy. We expect total net inflows from our global platform between EUR 5 billion and EUR 8 billion per year, with the Americas region remaining a major growth driver, contributing EUR 2 billion to EUR 3 billion annually, supported by the integration of NSI in the United States, which will add approximately $16 billion or EUR 14 billion upon closing of the transaction at the end of the year. Our strategic affiliates led by Sanctuary Wealth in the U.S., AZ NGA in Australia, also very well positioned now to capture powerful structural trends and the shift of top financial advisers away from bank-owned networks towards independent platforms continues to accelerate and the ongoing intergenerational wealth transfer in both markets is expanding every day the addressable client base for advisory-driven models like ours. For the strategic affiliates, we are expecting to add between EUR 1.5 billion and EUR 2.5 billion of annual inflows, confirming the strength of our partnership model in high potential markets. The EMEA and Asia Pacific regions will also contribute steadily, driven by our ongoing expansion in markets such as Egypt, Taiwan and Singapore. And overall, this figure illustrates the depth and balance of our global business. In general, what I would like to stress here that the international component of Azimut is becoming an increasingly powerful engine of growth and value creation under the new strategic plan. So moving to Slide 18. Here, we are really converting the inflows into the overall asset base at the end of the period. And we are now projecting our global average total assets to grow from around EUR 54 billion to between EUR 95 billion and EUR 110 billion by 2030. This is a very exciting plan. We are essentially showing here our ambition to double our asset base. But certainly, it demonstrates the strength and maturity of our global platform. Achieving these goals will require certainly focus and determination, but I believe we have all the right elements in place. We have now a robust and diversified product offering across public and private markets. We have the ability to tailor solution to the specific needs of each client, and we have a unique entrepreneurial model and mindset that will allow us to move quickly and seize opportunities. This combination gives Azimut a unique and clear competitive advantage and positions us among the very few independent global players able to grow at scale while preserving quality and agility. And now moving to Slide 19. I want to really focus on margin. This is a very important element to help the market better understand what lies ahead and the true earnings power of our global business. Here, we show where our current net profit margins stand today by region and where we expect them to evolve by 2030. We have provided what is a wide enough range to capture different market conditions, but also we want to illustrate what is the significant operating leverage and the economies of scale that our global platform can deliver as it continues to grow. The Americas are expected to see margins rising from around 27 basis points today to between 25 and 35 basis points by 2030. And this will be our largest region by total assets, supported by the NSI integration and the planned launch of active ETFs, which will bring Azimut's global product capabilities to the world's largest market. EMEA remains our most profitable region with margins expanding towards 50 to 60 basis points, while we see the potential for the Asia Pacific region to gradually improve its contribution as the region scales and matures. Looking at these figures on a consolidated level, we expect the global business, excluding Italy and the strategic affiliates, to reach a net profit margin between 30 and 40 basis points by 2030, corresponding to an annual profit of approximately EUR 180 million to EUR 280 million. This compares with a margin of around 35 basis points and a net profit of EUR 70 million generated in the first 9 months of this year. Also, I think it's important here to put into perspective that since 2019, our global net profit has grown at a compound annual growth rate well above 35%. And this gives us a very strong base and clear visibility on the profitability path we are building towards 2030. I would move to Slide 19, 20 and 21. And on the next 3 slides, you see the same breakdown as before, but this time by business line rather than geography. And that should help everyone to cross check our assumptions and better understand the contribution of each vertical to the overall growth plan. I will not spend too much time here, but it's important to highlight the strength and balance across our global platform. And let me tell you that the Elevate 2030 plan will bring greater transparency to the market by showing our strategic and financial objectives through these 4 verticals that we have already introduced this year with the new reporting structure. This structure certainly enhances clarity, ensures consistency in how we represent value creation and makes it easier to appreciate the growth and profitability potential for each business line. And obviously, 4 verticals provide a diversified and complementary growth platform that is underpinning our market leadership, operational integration and long-term strategic partnerships. I would move now to Slide 23, where there is essentially highlighted what is a key pillar for Elevate 2030, that is strategic capital management. This is a framework designed to enhance our valuation to strengthen financial flexibility and deliver consistent and attractive returns to our shareholders. Our focus is on improving transparency and disclosure to help close the valuation gap that we continue to believe the market is still applying to the stock and not really truly appreciating the potential of Azimut. We are also proactively managing regulatory risk by simplifying our structure and ensuring greater operational clarity across jurisdictions. And we furthermore plan to unlock value from our global operations through a series of operations that could potentially include targeted demergers, dual listings and/or strategic partnerships. We're also very pleased today to announce a new share buyback program with a commitment to cancel up to EUR 500 million of repurchased shares over the next 18 to 24 months, equivalent to around 10% of our share capital. This initiative aims to maximize shareholder remuneration and reflects the constructive feedback that we have received from our investors over the last few months. And it's a clear signal of our confidence in the strength of the group, the resilience of our cash generation and our commitment to delivering tangible value to shareholders. Beyond this, we remain committed to maintaining a debt-free position given the strong cash flow generation of our business. However, we will preserve the optionality for future value-accretive M&A opportunities to be financed via debt. And as Alessandro has already highlighted, we will propose a new enhanced ordinary dividend for the full year 2025 versus the prior year. And certainly, we will give you more insight with our full year results in March 2026 when it comes to a broader and more comprehensive dividend policy as part of the Elevated 2030 plan. I mean, I think we can already anticipate that when it comes to shareholder remuneration, one key principle will be that any policy that we will announce to the market will be aligned with cash flow generation to ensure an attractive and sustainable payout over time. So let me move to the last slide, really to wrap up everything that we discussed and shared with you today. So first of all, we are upgrading our 2025 core net profit target to above EUR 500 million, and we project now net income to exceed EUR 1 billion in 2026. This reflects the solid momentum we have built throughout the year and continued strength of our recurring earnings. Second, we have made meaningful progress on the TNB transaction, gaining enhanced clarity on the time line for the next steps. And this gives us a clear regulatory and strategic pathway to move forward. Third, with Elevate 2030, we are releasing ambitious yet achievable targets for our global operations, and we project between EUR 5 billion and EUR 8 billion of annual net inflows over the next 5 years and total assets between EUR 95 billion and EUR 110 billion by 2030, with an expected net profit margin in the region of 30 to 40 basis points. And last point, our strategic capital management remains a key driver of value creation, supported by a EUR 500 million share buyback program with full cancellation of repurchased shares and the new dividend policy to be presented in 2026 after the completion of the TNB transaction. But as we mentioned, already we are providing an announced dividend payout for 2025, obviously applying on a payment in 2026. Together, we believe these initiatives position Azimut for a new chapter of profitable discipline and sustainable growth. With this, we are done and we certainly open the floor to any questions. Operator: [Operator Instructions] The first question is from Gian Luca Ferrari of Mediobanca. Gian Ferrari: Three for me, please. The first one is on the foreign business. I think what you are telling us today, Giorgio, is that the foreign operations are closing this year very close to the cost of capital you put in that development outside Italy. And given the trajectory you are disclosing today, is it fair to assume that by 2027, the IRR of this will reach 20% or something very close to that level? The second is on Nova. Last week, Amundi and then UniCredit, they have been pretty vocal in what is the relationship among them. I will not ask you the level of AUM you are expecting from UniCredit given the acceleration of the divorce, let's say, from Amundi. But I'm more curious to understand what is the level of margins after 2028? So after UniCredit will have exercised the call option. Is it fair to assume that your 20% in Nova will represent something like 15, 20 basis points on the AUM that UniCredit will have transferred at that point? The third question is, I don't know if I can ask this question, but are you eventually considering a dual listing of Azimut even in other stock exchange like in the U.S., for example? And sorry, if I may, the last one. I saw in the press release, you -- after the Bank of Italy inspection, you have some, let's say, adjustments to the business to be compliant with what Bank of Italy is asking to you. Are the costs related to that material or we are talking about a few million euros? Medda Giorgio: Gian Luca, I'll pick your first and second question. So regarding the foreign business or the global business, as we call it [indiscernible], you look at this year and you look at what we have delivered for the first 9 months, I think it would be fair to assume that we will generate a return on invested capital of between 13% to 15% that I think is above our cost of capital. So I think we are already proving value creation. And yes, indeed, when you look at the earnings trajectory over the next couple of years, certainly, I see as very realistic, a return on invested capital in the region of 20% within this time frame. When it comes to Nova, as you know, and I think it's important for me to stress it again, we will never, never disclose any confidential information regarding the activity of clients with our platform. We have never done that with any client. We will never do with Nova. But let me guide you towards some generic principles that govern our partnership with Nova. Certainly, the moment that UniCredit will exercise the call option to buy 80% of Nova, that should not have a material impact on earnings contribution. As already today, we have an agreement under which we are working like UniCredit was already an 80% shareholder. And when it comes to basis points, I think we've guided in the past a range between 40 to 50 basis points. I would assume that we are ballpark again in line with that level in the second stage of this partnership if we get to the second stage after the exercise of the call option. You were also asking about dual listing. Yes, indeed, the U.S. stock exchange remains a very viable option for us. Certainly, we see today a very significant valuation differential for players in our industry being listed there as opposed to be listed in European markets, but we will retain obviously full optionality in deciding which exchange will be eventually decided for our alternative listing. Alessandro Zambotti: I take the Bank of Italy side. So in general, as you said and as you probably read on the press, the report is focused on increase our strength in terms of [indiscernible] strategic planning. So nothing let's say, that cause us an impact on the business and therefore, on the P&L of the group. Therefore, it's just a matter to focus on paperwork and fix what, let's say, they found missing. But as you said also during the question, it's just a few, let's say, a few euros to spend to fix quickly the gap and then looking forward, focusing on our business. Operator: The next question is from Giovanni Razzoli of Deutsche Bank. Giovanni Razzoli: Two set of questions. The first one is on the target for the international operation contribution. You are targeting EUR 5 billion to EUR 8 billion of inflows, half of that are from the states. But if I look at the 9 months run rate, you are already at close to EUR 4 billion, EUR 4.5 billion with U.S. at EUR 2.5 billion. So I was wondering if we can consider the low end of the range, this EUR 5.8 billion contribution of inflows from the international operation as a quite conservative target. The second question relates to the announcement of the share buyback. I was wondering how shall we look at the 10% share buyback that you have announced in the context of the 3% treasury shares that you have already owned. So shall we assume that the 10% is on top of the 3% or you will proceed with the cancellation of the 3% and then on top of that, in 2 years' time, you will buy another 10% with the cancellation? And then as you have mentioned medium, long-term targets, given that your net financial position is very strong, actually, you are cash positive with a capital-light business, shall we assume that apart from this EUR 500 million share buyback, if I move forward, I don't know, 3, 4 years down the road, the share buyback becomes a kind of recurring component of your distribution strategy, let's say, EUR 500 million of share buyback in 2 years' time as a kind, as I said, of recurring contribution of your remuneration policy? Medda Giorgio: Yes, Giovanni. So let me start with the question regarding the EUR 5 billion to EUR 8 billion expected net new money from our non-Italian operations. Indeed, we have provided you a target. This is a target applied for a 5-year period. Certainly, we always work with the ambition of beating the targets that we set for ourselves. And indeed, I would say that the bottom end of that range assumes a deterioration in market conditions and things changing as opposed to what we are leaving now. But the range is a range, is a long period of time, and I would certainly with everyone in Azimut to make sure that our real objective is to beat that range. When it comes to the share buyback, I don't know which figure you are looking at, but I would say that probably today, treasury shares amount to 1% of our outstanding capital. And you should assume that the 10% is on top of this 1%. And for the question regarding what will happen in the next 3 to 4 years, I would certainly be thinking what we have announced today. And time will tell. I think we are making a very strong statement in terms of committing to ensure that our shareholder remuneration policy is inclusive and makes all our shareholders to benefit from the value that we create every day in our business around the world. What is important to say here is that after the TNB transaction, we'll be able to provide a more comprehensive shareholder remuneration policy, including also the ordinary payout policy when it comes to dividends. Operator: The next question is from Hubert Lam of Bank of America. Hubert Lam: [indiscernible] in the global business. Just wondering how much of that would you expect it to be coming from organic in your plans? And how much is it M&A? Do you need M&A to kind of get there? Or are you confident that organic, you can still achieve your targets? Second question is on the share buyback, the EUR 500 million. I'm just wondering in terms of timing when it could start, do you need the approval for the new bank first before you can start the share buyback? Or can it come before that? And lastly, any questions on the new bank. Any update in terms of expected profits you expect from this, both in '26 and maybe beyond that? Medda Giorgio: Hubert, I'll reply to your first 2 questions. I'm not sure I got right your first one. But let me start with the first one regarding organic growth from our global operations, the guidance we provided, you should assume it's mostly organic. And by the way, when you look at what we have done this year, again, the figure that we mentioned earlier is essentially mostly organic. So you should really consider any M&A contributing to this level. When it comes to the share buyback, as a matter of fact, the share buyback is live in the market because we had already approved the share buyback with our AGM in the first quarter this year. What the AGM will approve next year will be the renewal of the plan and the cancellation of the repurchased shares. But the share buyback is, as a matter of fact, right now live in the market. And as far as your first question is concerned, we missed it. Hubert Lam: Yes. Sorry about that. Yes, so the answer to the first 2 are very clear. The third question -- yes, sorry, on the new bank. Just wondering how much in terms of profit contribution we can expect from it in terms of delivering profits in '26. I know that's just the first year and also like beyond, any update in terms of guidance around that? Alessandro Zambotti: Well, nowadays, it's running around -- with the projection at the end of the year, it's around EUR 60 million for '25. Therefore, I would say we are going to be the 20% of this range less a few costs that obviously has to be incurred through the fact that it has no spending banks. Therefore, I would say that we are in this range. Operator: The next question is from Alberto Villa of Intermonte SIM. Alberto Villa: A few left. One is on the acquisition side. I read that your Chairman also indicated that there might be opportunities for future acquisitions, especially in LatAm. So I was wondering if you can give us an idea what is, let's say, of interest for the group in terms of completing the setup of the global operations you have. And broadly speaking, what is the leverage that you would consider as a good setup for the group if you find an interesting opportunity also inorganic in the framework of the -- also the capital remuneration and shareholder remuneration that you have in mind? Medda Giorgio: Okay. Thank you, Alberto. So your first question referring to the interview of our Chairman a couple of weeks ago in Italy. Indeed, we will continue to explore and to seek acquisition opportunities on a bolt-on basis and acquisitions that will never be material in terms of cash outlay and certainly will carry a strong strategic sense in terms of adding and complementing our existing businesses around the world. I think during the interview, it was mentioned our interest in Latin America. Let me tell you that there are a few situations we are looking at in Brazil, but that would be negligible in terms of cash investment for the firm, but certainly we will strengthen our distribution business in the country. And when it comes to the leverage, we often said that we certainly recognize the merits of having an optimal capital structure policy. And in general, we would guide the market when it comes to what we would envisage in the case of a transformative or material M&A transaction in terms of leverage, probably in a situation where we have a net debt to EBIT in the region of 1 to 1.5x ratio. Operator: The next question is from Elena Perini of Intesa Sanpaolo. Elena Perini: I have some left. The first one is about your new net profit target for '25 and 2026. So basically, you move the more than EUR 1 billion target to next year due to the timing of the conclusion of the TNB transaction, if I understand correctly. And while you have for 2025, a target about EUR 500 million. In terms of targets, just to refer to your global business. The wide range that you set for 2030 is EUR 180 million to EUR 280 million is only due to the different range of annual flows and due to the different potential margins on the assets? Or are there any other factors that could explain this wide range? And then a clarification about other income and tax rate. About other income, you mentioned structuring fees. Are there any recurring items for next quarters too? Or do they represent a one-off item? While for the tax rate, I think that there are some one-offs for this quarter as you confirm your guidance of 25% for the full year, but I'm asking you about this. Alessandro Zambotti: Yes. Thank you, Elena. I'm going to take a few of your questions, and then Giorgio will conclude. So starting from your first part relating to the net profit, the new target and as well the moving of the EUR 1 billion to the '26, it's clearly -- your understanding is correct. I mean the contribution of TNB that we plan -- I mean, we're planning at the end of the year is not going to happen. Therefore, obviously, the contribution and the equity transaction is going to happen in '26 and therefore, as well the P&L impact from this transaction is going to be booked next year. And at the same time, following the good results and the good trend of the group, we were updating the guidance for the, let's say, the simple reason that the projection that we see, the trajectory that we see for the last few months of the year is if nothing happens, let's say, complicate, we will be able to get the target. Then you refer to the other income. As you were saying, there is a one-off effect that is linked to the structuring fees. But at the same time, as I was saying at the beginning, it has not to be considered one-off for the yearly basis because it's quarterly basis, for sure, we cannot say that every quarter, we will have this contribution. But looking on a yearly basis, this amount I mean could happen that following this type of services that we are providing, they came up -- I mean, a contribution as well on the other income on the future years. And then at the level of the tax, I think it's more close to the constant of seasonability. I mean, this quarter, it's always lower than in December, considering also the provision of all the dividends coming from the other countries, we will probably get higher impact of tax for that, we kept the guidance stable as per the previous. Medda Giorgio: And yes, when it comes to the 2030 margin targets, the EUR 180 million to EUR 280 million net profit from global operations. Look, this range is admittedly very large. It reflects simply the addition of the lower bound targets for each division or geography and the upper bound. There is nothing else there. It certainly is a basic assumption that the business mix going forward will essentially remain unchanged or not dramatically different from what it is today. But as I said, we work every day to beat the target that we give ourselves, and we certainly do our best to even do better than what we are disclosing today. It's 5 years, it's a pretty long period of time, but we are starting off a very strong base, and I see us capable of doing very, very well. Operator: The next question is from Ian White of Autonomous Research. Ian White: Just a couple from me, please. First of all, can you call out some of the most important drivers of the improved organic net inflow performance this year, please? I'm particularly interested in where you think you've seen the strongest growth in your market share, thinking about the organic flows specifically. That's question one. And question two, in terms of the Bank of Italy's inspection, can you say a bit more about the specific findings there and the remediations that you're going to introduce? Am I right to read into the statement today that the delay to TNB approval is linked to the regulators' findings? And if so, what's your view as to why the regulator has connected those things, please? Medda Giorgio: Okay. Let me take your questions. So I'll start with the first regarding the underlying drivers of our terrific net new money performance this year. I think we -- if you look at the presentation that we have shown earlier, Slide 6, you find what is a pretty accurate detailed breakdown in terms of net new money to different product lines as opposed to different geographies. Let me tell you from a qualitative standpoint that fund solutions have been doing very well in Italy. Certainly, we have the contribution of Nova here, but let me mention what also we have done in Turkey, in Egypt, in the U.S., that is certainly our key product, our bread and butter, and we are proving now to be able to grow both catering to individual clients and institutional as well in terms of wholesale agreement. Let me mention that our Wealth Management business has been this year delivering incredible growth out of Asia, out of the Middle East. Switzerland, Monaco as well doing better than the previous years. And we see now what is a very sustained momentum that is a testament of our ability of building now a cross-border platform and being able to deal with high net worth, ultra net worth individuals that are recognizing Azimut's the ability and the capability to deliver performance vis-a-vis even larger players. Then when it comes to your question regarding the ordinary inspection from Bank of Italy, yes, again, I would refer to the press release, you should assume that we are subject to inspections every week. As you can imagine, we operate across 20 countries. We are subject to the supervision of 20 regulators, sometimes in certain markets like in the U.S. by 2 regulators in the same country. That is also the case for Italy, by the way. And there are routine inspections. So you can say that every day, we are subject to an inspection. So I do not see the Bank of Italy inspection in Italy has been particularly different from others that we have been subject to. And also, let me stress you that the -- let's say, the topic of the inspection was not the announced transaction with TNB. The inspection was very much covering for our, let's say, asset management product factory activities and has been very much referring to this aspect of the business that is not related to the announced transaction with FSI. One of the outcomes of the transaction was that we need to put in place some very ordinary remedial actions. And as you can imagine, although these actions are not related to the TNB transaction and considering the time line is relatively short, we will work on this remediation plan with some very close deadlines, also suggesting that there's nothing dramatic there, maintaining what is an achievable target for the transaction to close within Q2. By the way, this inspection started even before the binding agreement was signed with FSI, and it's really to be seen as completely unrelated. Maybe unfortunate in terms of timing, but to be honest, not really a reason of concern for us. Ian White: Okay. If I can just clarify, I'm not sure if I missed this. In terms of the -- is the delay to TNB approval a direct consequence of things that the regulator has found on its -- during its ordinary inspection? Or am I reading that incorrectly? Medda Giorgio: Not at all. It's procedural, if you want. And as we said very often, the 2 things are separate. There is no really -- we should not see the TNB transaction as the inspection that could be related to each other. As a matter of fact, the transaction occurs in a way where the company that is spinning off half of our network is the one that was subject to the inspection, but nothing of the activities that will be spun off has been subject to the inspection itself. It was mostly related to funds management to discretion portfolio management, really nothing at all that was related to the asset base that will be spun off. Operator: [Operator Instructions] Mr. Medda, there are no more questions registered at this time. Medda Giorgio: Okay. Let's close the call here, and let me wish everyone a good end of the year. And obviously, we keep looking forward to seeing you soon. Thank you. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Enhabit Inc. Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Bob Okunski, Vice President of Investor Relations. Please go ahead. Bob Okunski: Thank you, operator, and good morning, everyone. Thank you for joining our call today. With me on the call this morning is Barb Jacobsmeyer, President and Chief Executive Officer; and Ryan Solomon, Chief Financial Officer. Before we begin, I want to let you know that our third quarter earnings release and supplemental information are available on our website at investors.ehab.com. Additionally, we have filed a related 8-K with the SEC, and that is also available in the same location. On Page 2 of the supplemental information, you will find the safe harbor statements, which are also set forth in the last page of our earnings release. During the call, we will make forward-looking statements, which are subject to various risks and uncertainties, many of which are beyond our control. Certain risks and uncertainties that could cause actual results to differ materially from our projections, estimates and expectations are discussed in our SEC filings, including our annual report on Form 10-K, which is available on our website. We encourage you to read these documents. You are also cautioned not to place undue reliance on the estimates, projections, guidance and other forward-looking information presented, which are based on current estimates of future events and speak only as of today. We do not undertake a duty to update these forward-looking statements. Our supplemental information and discussion on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information as well as our earnings release. With that, I'd like to turn the call over to Barb. Barb? Barbara Jacobsmeyer: Good morning, and thanks for joining us. Let me start by recognizing the exceptional Enhabit team. We're proud to share that Enhabit has been named as one of Fortune's Best Places to Work in health care. This recognition is a powerful testament to our commitment to a culture of excellence, strong leadership and an outstanding employee experience. It's that same team that has delivered another quarter of strong performance for our patients, partners and shareholders. I will address the 2026 CMS home health rule before Q&A. But first, Ryan and I will review the quarter results. Home health total admissions were up 3.6% year-over-year, with census increasing 3.7%. Normalized for closed branches, our admission growth was 4.3% year-over-year. Fee-for-service Medicare census continues to stabilize with census down 1.4% year-over-year versus the 14.1% year-over-year decline experienced in quarter 3 2024. Our non-Medicare admissions were up 10.4% and an appropriately managed payer mix resulted in a 2.8% increase in non-Medicare revenue per visit year-over-year. As mentioned on our last earnings call, we experienced disruption at the end of the second quarter, early third quarter in both admissions and census from the impact of renegotiations with a national payer that ultimately resulted in achieving a low double-digit increase in our per visit rate effective August 15, 2025. By late September, we have recovered our census with this payer and recent admissions are now at 120% of our weekly average. Our total patient census grew sequentially each month of the third quarter, and that sequential growth persisted into October. Our scale drives meaningful access to payer members and that access, coupled with our high-quality outcomes, continues to position us well for progress within our payer strategy. This was evidenced by another renegotiated national payer contract during the third quarter. This was the renegotiation of one of our first payer innovation agreements, and this one did not require disruption to patient access or to our census and resulted in achieving a successful update in our rates effective in November. The positive impact of our payer innovation team is ongoing as we continue to work with new and current payers on pricing that appropriately values our timely access to care as a scaled provider with strong outcomes. Our quality of care and our timely access are also part of our hospice strategy, and these strategies continue to drive strong results. We have now experienced 7 straight quarters of sequential census growth. Total admissions grew 1.4% year-over-year. Normalized for closed branches, admissions were up 3%. Census grew 12.6%. We have added 21 or 11% additional direct sales team members year-over-year to continue to broaden our reach to additional referral sources. We have the clinical capacity for growth and will increase our reach to diversify our referral sources. To complement our organic growth strategy, our de novo strategy is positively impacting total growth. In quarter 3, we opened 2 de novos for a total year-to-date of 6. We opened our seventh location in October and continue to be on pace for a total of 10 de novos in 2025. As evidenced by our organic and de novo focus, our admissions and census growth are a big part of our strategy. However, whether it is CMS pricing or continued shift to Medicare Advantage, we must be as efficient as possible to have necessary resources to strategically invest in people and technology. Therefore, our cost structure is critical to future success. As mentioned before, we believe advanced visit per episode management is a promising lever to mitigate uncontrollable and unanticipated rate disruptions like these. Our advanced visit per episode management pilot was initiated in mid-August in 11 branches. However, because a pilot case must start with a new start of care, the branch's full census was not impacted until the end of October. Early results are promising with a decline in total visits per episode in these locations from approximately 15 prior to the onset of the pilot to approximately 13 currently. 83 additional branches were rolled out throughout the month of October, and the rest are expected by the end of November. We anticipate adding 10 resources between our authorization team and our virtual clinical team to support the full company rollout. We will provide an additional update on our fourth quarter earnings call. As we navigate a dynamic operating environment, we remain confident that Enhabit is best positioned in the industry with our experienced leaders, high-performing teams and innovative technology to manage through challenges and continue growing market share. And now I will turn it over to Ryan, who will cover the financial results of quarter 3 and additional updates on our G&A cost management focused efforts. Ryan Solomon: Thank you, Barb. Continued strong execution in the quarter on our broader strategy delivered strong consolidated financial performance with both top line and bottom line EBITDA growth to the prior year in Q3, all while continuing to generate consistent free cash flow that we've used to improve our net leverage to levels not seen since late 2022 just following our spin. Our ability to deliver growth and profitability for the third straight quarter in what remains a challenging operating environment highlights the consistency in our operational execution and flexibility in our model. Even as payer disruptions created headwinds early in the quarter, our teams navigated the challenges effectively, ensuring that we built momentum throughout the quarter to deliver growth and position us well as we enter Q4 to finish the year strong. Before reviewing consolidated and segment detailed performance, a few Q3 highlights that demonstrate clear execution on our strategy include the following: Returning the business to consistent growth in 2025 was a strategic priority, and we are well on our way. With Q3 results, we have now delivered several quarters of year-over-year growth in both revenues and adjusted EBITDA. Improving the financial health of the business has been a focus in 2025 as well. With a return to consistent adjusted EBITDA growth, we have used the improved adjusted free cash flow to reduce our net debt to adjusted EBITDA leverage amount to 3.9x in Q3 2025, lower by over 1.5 turns compared to Q4 2023 when leverage was 5.4x. The improved leverage lowers our Q3 2025 annualized cash interest expense by approximately $19 million compared to Q4 2023. Improving the financial health of the business provides us with improved liquidity and an overall balance sheet flexibility for innovation and potential M&A. Hospice segment momentum continues to be very strong, delivering record revenues and profitability in the quarter with year-over-year segment adjusted EBITDA growth of over 70%, with substantial margin expansion on double-digit census volume growth of over 12%, driving overall revenue growth of 20% in Q3. Home Health successfully launched the visits per episode pilot in Q3, while delivering census growth of 3.7% to the prior year despite payer disruption early in the quarter, along with continued execution on stabilizing Medicare volumes and improving home health per patient day unit cost economics, which were lower by 2.1% in Q3 versus the prior year. Home office expenses improved $2.3 million sequentially, coming in at 9.1% of revenues in Q3 versus 9.9% of revenues in the prior quarter, as we focused on cost management initiatives, which lowered Q3 and run rate costs as we implement mitigation strategies in front of any potential CMS final rate rule headwind. Now shifting to the Q3 consolidated results details. Consolidated net revenue totaled $263.6 million, an increase versus prior year of $10 million or 3.9%. Consolidated revenue growth in the prior year was driven primarily by outsized growth in our Hospice segment with revenue growth of 20% on both census and unit revenue growth. Home Health revenue was relatively flat to prior year on census growth, offset by lower unit revenues related primarily to mix. Consolidated revenue growth in the quarter translated to improved profitability, both to prior year and sequentially, with consolidated adjusted EBITDA of $27 million in the quarter, an increase sequentially of $0.1 million or 0.4%, while growing to the prior year by $2.5 million or 10.2%, with overall adjusted EBITDA margin as a percent of revenue expanding to 10.2%, an increase of 50 basis points to the prior year. Now shifting to Home Health performance. Revenue was $200.5 million, lower than prior year by $0.5 million or 0.2%. We estimate that without the payer renegotiation disruption experienced early in Q3 and the loss of revenue from branch closures, the home health total revenues for the quarter would have been approximately $3 million higher, which would have resulted in growth to the prior year of approximately 1% in the quarter to prior year. Average daily census for the quarter totaled 41,451, growth to the prior year of 3.7%, while lower sequentially 1.6%, primarily related to the payer renegotiation disruption early in the quarter. While we were successful in replacing disrupted payer volumes early in the quarter and then building back volumes throughout Q3 post renegotiation, this did put incremental pressure on our unit revenue per patient day in the quarter, which was lower sequentially 2% and versus prior year by 3.7%. The lower unit revenues were partially offset by improved unit cost per patient day for the prior year of 2.1% as we maintained staffing productivity improvements in the quarter to offset typical incremental wage inflation costs. Home Health adjusted EBITDA totaled $33.9 million in Q3, reflecting a decrease to the prior year of $2.6 million or 7.1% and sequentially $5.4 million or 13.7%. The lower adjusted EBITDA sequentially reflects margin compression as unit revenues were lower 2% and unit costs were marginally higher by 0.7% on lower average daily census volumes of 1.6%, which created gross margin compression of 160 basis points. We saw this margin compression normalize late in the quarter as we built back volumes following the payer disruption. Two key items to highlight in Home Health outside of the broader revenue and adjusted EBITDA performance include the following: as Barb touched on, we continue to have success in slowing the rate of decline in our Medicare patient volumes, with Medicare revenue mix totaling 56.5% of total Home Health segment revenues, improvement sequentially of 20 basis points. In regards to the continued visits per episode optimization, our total visits per episode for Q3 of 13.4 is lower 0.3 visits sequentially and 0.7 visits versus prior year. A host of efforts in the quarter focused on providing the clinically appropriate number of visits to our patients, combined with successfully launching our pilot as previously outlined on our Q2 call in a small subset of branches with early results being promising, gives us confidence in our ability to use visits per episode as a key lever to continue to optimize while balancing quality to meaningfully offset potential rate reimbursement headwinds from CMS 2026 proposed home health rule. Now shifting to our Hospice segment performance for Q3, where continued execution by our Hospice leaders delivered a record performance for the quarter with revenue totaling $63.1 million, reflecting sequential growth of $2.9 million or 4.8% and exceptionally strong growth to the prior year of $10.5 million or 20%. Revenue growth was supported by continued strong momentum in census growth in the quarter of 3.2% sequentially and 12.6% to the prior year. Hospice adjusted EBITDA totaled $17.2 million in Q3, reflecting an increase to the prior year of $7.2 million or 72% on a double-digit volume increase combined with margin expansion as adjusted EBITDA margin as a percent of revenue improved 830 basis points to the prior year and totaling 27.3% as our operational leaders continue to create operating leverage on the increased volumes. Two key items to highlight in Hospice outside of broader revenue and adjusted EBITDA performance include the following: all of our 2024 hospice de novos are profitable and collectively generated $0.8 million of revenue and $0.3 million of EBITDA in Q3, demonstrating the ability to quickly ramp our de novo sites to profitability. Average discharge length of stay continues to remain relatively flat with Q3 coming in at 101 days versus the prior year of 100 days. Shifting briefly to our home office, general and administrative expenses for the quarter, which totaled $24.1 million or 9.1% of revenues in Q3 compared to $26.4 million or 9.9% of revenues in the prior quarter, delivering a sequential improvement of $2.3 million. This improvement primarily reflects the result of a focused G&A cost review completed in the quarter that generated savings in Q3. We saw an increase to prior year, primarily related to incentive accrual release in the prior year not replicated in Q3 and broader inflation, somewhat offset by cost initiative actions in 2025. Transitioning now to the balance sheet and cash flow. As outlined earlier, a key strategic priority in 2025 is using free cash flow to continue to delever our balance sheet. Adjusted free cash flow year-to-date totaled $64.8 million, which when normalized for 1 less payroll period in the quarter that we will see in Q4 would total approximately $45 million or an approximate 56% adjusted free cash flow conversion rate, which compares favorably to the full year 2024 by over 200 basis points. During the quarter, we reduced overall bank debt by $15.5 million, including amortization and prepayments. We ended the quarter with approximately $57 million in cash and available liquidity of $143.3 million compared to available liquidity in the Q3 period of the prior year of $94.1 million, an improvement of $49.2 million. Improved profitability, coupled with continued balance sheet improvements result in a net debt to adjusted EBITDA leverage ratio of 3.9x compared to Q3 of the prior year of 4.8x. Progress on reducing our overall bank debt continued in Q4 with us having already made an additional $10 million of debt prepayments quarter-to-date through October, which brings our total debt reduction to $100 million since Q4 of 2023 as summarized on our supplemental slides. We remain committed to strengthening our balance sheet and improving profitability. Let's conclude with briefly discussing updated guidance. Based on our consolidated year-to-date 2025 results and the momentum in the business, we remain confident in our strategy and full year outlook. We've updated our full year guidance as follows. We now expect full year revenue to be in the range of $1.058 billion to $1.063 billion. We are increasing our full year adjusted EBITDA guidance to be in a range of $106 million to $109 million. We are also increasing our full year adjusted free cash flow to be in the range of $53 million to $61 million. Thank you for the time today. I'll hand it back over to Barb for a few closing comments on the CMS rate rule before we open up for questions. Barbara Jacobsmeyer: Thanks, Ryan. As you're aware, the CMS 2026 home health final rule has not yet been published. We remain focused on our strategies to mitigate as much of the pricing headwind as possible in 2026 and are well on our way with the various strategies we have already deployed. More details will be forthcoming when we report full year 2025 earnings and 2026 guidance during Q1 of next year. As we noted in our comment letter, the proposed cuts, if finalized, will worsen the existing trend of reduced patient access to home health care. Home health is the patient preferred and most cost-effective post-acute care option and thus saves Medicare money. We urge CMS to reverse the temporary and permanent adjustments contained in the proposed rule to ensure adequate access to home health is restored. Operator, we can now open the line for questions. Operator: [Operator Instructions] And your first question comes from the line of Brian Tanquilut of Jefferies. Meghan Holtz: This is Meghan Holtz on for Brian Tanquilut. It's nice to hear some -- you guys had some additional payer negotiations that came out favorable for you guys. So can you kind of provide some color on the rate increase you received from that new one in November and then the pipeline of any additional payer innovation contracts that you have upcoming for renewal? Barbara Jacobsmeyer: Sure. So as I mentioned, this was our first payer innovation contract, national one that came up for renewal. So we were pleased with the update. Because it's already a payer innovation, we really won't disclose the update that we received. But I will say that we continue to work with those that we had negotiated. More of the regional type agreements will be coming up in the next year. The future national agreements, it will be more towards the end of next year, early 2027 before the additional national agreements will come up. Meghan Holtz: Okay. And then just a quick follow-up. You guys had nice improvement in the G&A line. Can you provide some color where that expense reduction is coming from? And then how much more runway do you have to reduce and remove some costs in that line? Ryan Solomon: Thanks, Meghan. Yes, so as we think about G&A, when we think about home office, more traditional back-office capabilities in the context of both internal and external related expenses. So a combination of some headcount reductions as well as some efficiencies that we're able to really in-source capabilities from third-party vendors while not impacting any of our capability. When you think about in the quarter, roughly $1 million to $1.5 million of that overall kind of G&A improvement sequentially, we think is durable and kind of how we think about things prospectively going forward. Operator: And your next question comes from the line of Ryan Langston of TD Cowen. Christian Borgmeyer: This is Christian Borgmeyer on for Ryan Langston. Last year, we saw a pretty big jump in hospice average length of stay sequentially from 3Q to 4Q. Should we expect a similar tailwind sequentially this year just as a product of seasonality? I'm just curious what seasonal factors drive that as we get to the end of the year. Barbara Jacobsmeyer: Yes, it's difficult because, obviously, last year, when you look, we're going to have some pretty big comps here both in Q3 and Q4. And so as you mentioned, there usually is some seasonality. It's why we've added some additional resources to make sure we can extend the outreach that we have. I would say that the holiday times tend to be a little bumpy within this segment. You do have folks that tend to want to wait to elect until after the holiday. So it's -- I would say it tends to be one of our more unpredictable times of year, especially as we go into the 2 upcoming holidays. Christian Borgmeyer: Got it. And then just one quick one on the payer innovation contract renegotiation. How long is re-contracting cycle typically? Is it annually? Or is it more contract by contract? Barbara Jacobsmeyer: Yes. It's by contract by contract. I would say the majority of our contracts are 3 year. We do have some that are 2 years, but I would say the majority tend to be around a 3-year time frame. Operator: [Operator Instructions] And we have a follow-up question from Brian Tanquilut of Jefferies. Meghan Holtz: As long as there's no other queues, I'll ask another follow-up. Can you guys just kind of speak to labor in the quarter, specifically if you guys continue to benefit from some of the peers that you saw changing pay structure and you're able to capture some labor there? And then how are you thinking about wage inflation in '26, if you could give some preliminary color there? Barbara Jacobsmeyer: Sure. So I would say we've seen a nice uptick continued in our applicant pool for nursing and for therapy. And so that has been nice to see. We've continued to see an uptick also in our headcount on the clinical capacity for Home Health and for Hospice. So are pleased with the results that we're seeing there. And then as it relates to wage, I would say, we're kind of, I would say, back to that normal merit around that 3% is what we're experiencing. There are markets that will pop up occasionally that are more challenging. We do handle those more at a market level. I would say we're seeing a little bit more of that right now in the therapy side of things, but we monitor that at a market level. Operator: And there are no further questions. I will now turn the conference back over to Bob Okunski for closing remarks. Bob Okunski: Thank you, everyone, for joining today's call. Please feel free to reach out if you have any additional questions. Thank you for your time. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Badger Infrastructure Solutions Limited Third Quarter 2025 Results Call. [Operator Instructions]. As a reminder, this event is being recorded today, November 6, 2025, and will be made available in the Investors section of Badger's website. I would now like to turn the call over to Anne Plaster, Director of Investor Relations. Anne Plaster: Good morning, everyone, and welcome to our third quarter 2025 earnings call. Joining me on the call this morning are Badger's President and CEO, Rob Blackadar; and our CFO, Rob Dawson. Badger's 2025 third quarter earnings release, MD&A and financial statements were released after market close, Wednesday, and are available on the Investors section of Badger's website and on SEDAR+. We are required to note that some of the statements made today may contain forward-looking information. In fact, all statements made today, which are not statements of historical facts are considered to be forward-looking statements. We make these forward-looking statements based on certain assumptions that we consider to be reasonable. However, forward-looking statements are always subject to certain risks and uncertainties, and undue reliance should not be placed on them as actual results may differ materially from those expressed or implied. For more information about material, assumptions, risks and uncertainties that may be relevant to such forward-looking statements, please refer to Badger's 2024 MD&A along with the 2024 AIF. I will now turn the call over to Rob Blackadar. Robert Blackadar: Thank you, Anne. Good morning, everyone, and thank you for joining Badger's 2025 Third Quarter Earnings Call. Before we get into the results, I'd like to take a moment to talk about safety, which is how we start all of our meetings here at Badger. As we move into the colder weather months, it is essential that our teams remain prepared for unexpected situations, including severe winter weather, equipment issues and any emergencies. We encourage all of our team members to review emergency response plans and ensure vehicles are equipped with winter safety kits. Staying informed about local conditions and having accessible, well-maintained safety gear can make a critical difference. We appreciate everyone's continued commitment to safety and the teamwork -- and teamwork as we prepare to enter into the winter season. Now on to the quarter's results. Building on the positive momentum from Q2, the team delivered another strong quarter of double-digit growth in revenue, gross profit and adjusted EBITDA. Our record Q3 top line revenue of $237.3 million grew by 13% company-wide over the prior year. We continue to see solid demand in our end markets in both local customer and project-based work. I will provide more detail and context on our broad and diverse end markets later in the call. Our positive results reflect the team's work to increase utilization while continuing to grow the fleet. Ongoing investments in sales and marketing initiatives, including consistent performance to capture pricing opportunities are also reflected in the results. Adjusted EBITDA grew at a faster pace than revenue, up 15% year-over-year. These results highlight Badger's continued strong operational efficiencies and the optimization of our overhead support functions. Accordingly, adjusted EBITDA margin increased by 40 basis points, to 28.2%. We achieved RPT or revenue per truck per month of $47,921 in Q3, up 8% compared to last year. This improvement reflects our fleet utilization and pricing efforts. Our Red Deer manufacturing plant delivered 57 hydrovacs this quarter versus 48 units in Q3 of last year. We are updating guidance for our full year fleet plan, mainly due to increased demand from our end markets. As Badger's growth in revenue and business volumes have risen, we have increased our rate of manufacturing to ensure we have the right capacity to meet our customers' needs. Accordingly, we expect 2025 hydrovac production at the upper end of our original 180 to 210 unit range. We also successfully consolidated a Badger franchise in Denver, one of our core markets and have accelerated the planned refresh of its fleet. As a result, we expect our 2025 retirements to be at the upper end of our original 90 to 130 unit range. We are excited to gain full control of the Denver market and bring Badger's size and scale advantage to accelerate market share. We retired 36 units in the quarter, bringing us to 98 hydrovac units retired year-to-date. We refurbished 5 units in the third quarter and have completed 23 so far in 2025. The refurbished program has lagged our expectations this year, mainly due to third-party facility capacity. We are reducing the 2025 refurbishment range from the original 50 to 60 units down now to 30 to 40 units for the full year. We plan to develop our own refurbishment facility in the Central U.S. to better control the pace and the cost of this program. This new facility is anticipated to be online and operational in 2026. The company ended the quarter with 1,703 hydrovacs in our fleet, growing the fleet by 5% since Q3 of last year. Revenue and profitability grew at more than double the rate of fleet growth, exemplifying Badger's operating leverage and capital efficiencies. With the increase in hydrovac production, the consolidation of the Denver franchise as well as targeted growth in strategic market branches, we expect our range of 2025 capital spend to increase from the original $95 million to $115 million range to now between $115 million to $130 million. I'll now turn the call over to Rob Dawson to discuss our Q3 financial results in more detail. Robert Dawson: Thanks, Rob. Our solid financial results this quarter reflect the strength of our business model and the continued disciplined focus of our team. As Rob noted, we have continued to grow our bottom line at a higher rate than revenue, reflecting the ongoing execution of our road map to build scalability. In addition to the continued advancement of our commercial and pricing strategies, steady improvements in the utilization of our fleet have contributed to our performance this year. The trend in our adjusted EBITDA margins continued to rise in the third quarter, up 40 basis points to 28.2%. In particular, the addition of our fleet module and our universal data platform are showing value in the management of both our fleet and labor force. We have also continued to scale our support functions and G&A spending. This margin expansion remains on track with Badger's long-term objectives. G&A expenses were $10.6 million or 4% of revenue compared to the $9.8 million or 5% of revenue last year. Finally, adjusted earnings per share was $0.91 per share, up 25% compared to last year. As Rob has already noted, revenues and adjusted EBITDA are growing at a faster rate than our fleet, adding to the bottom line profitability and longer term, continuing to drive higher returns on capital. With year-to-date revenue up 11%, adjusted EBITDA up 16% and adjusted EPS up 29%, we are encouraged by the continued scalability and growth in margins here at Badger. Turning to the balance sheet. Our compliance leverage ended the quarter at 1.3x debt to EBITDA, down from 1.5x in the same quarter last year. It is notable that we have the financial capacity to continue advancing our organic growth strategy and maintain a stable, strong balance sheet. We renewed our NCIB program in the third quarter, maintaining our ability to make opportunistic share purchases in addition to returning capital to our shareholders through dividends. During the third quarter, we did not purchase any shares under our NCIB. I will now turn things back over to Rob Blackadar for some final comments. Rob? Robert Blackadar: Thanks, Rob. So before we open up for questions, I'd like to share a few last comments regarding our market outlook. Badger's end markets have largely recovered following the slower activity we experienced in the back half of 2024 and early '25. As we move through the remainder of 2025 and into '26, we're seeing positive indicators of sustained growth, particularly in key U.S. regions and large metropolitan areas where demand remains robust. Our strategic focus remains unchanged. We continue to leverage our deep customer relationships, both locally and through our national accounts teams to drive market density and capture operational efficiency in our core geographies. The execution of our commercial strategy continues to help Badger capitalize on large infrastructure projects such as airports, light rail transportation, expansion of petrochemical and LNG facilities as well as data centers. Supporting all of these trends is the increased demand for power generation and transmission, particularly nuclear, natural gas and solar. These projects are in addition to the continued maintenance and renewal of existing aged infrastructure in many of our more mature markets. Overall, we expect to continue to benefit from these favorable tailwinds driven by significant and sustained growth in infrastructure and construction spending in our major markets. With one of the most capable fleets in the industry and a broad operational footprint spanning 44 U.S. states, 6 Canadian provinces, we were best positioned to capture long-term growth opportunities. As end market demand continues to strengthen, we remain committed to the disciplined execution of our strategy and to delivering sustainable value for our shareholders. So with those comments, let's turn it back to the operator for questions. Operator? Operator: [Operator Instructions] And our first caller is Krista Friesen from CIBC. Krista Friesen: I was just wondering if you could give us a little bit more color on the amount of work that you're doing around data centers and if you're willing to share kind of what percentage that makes up of your work right now? Robert Blackadar: Krista, so we -- and we've shared this at some recent investor conferences because we get asked this. Obviously, data centers are kind of the big buzz right now. It's been trending in that 5% to 8% range, direct work on the data centers themselves and then some of the support functions around the data centers, I think in terms of the subcontractors, et cetera, is probably another 3% to 4%. So I would say all in, including the ancillary support around the data centers, I'd say, in that 10% to 11% range, something like that. But directly on the data centers themselves, I'd say 6% to 8% right there. Krista Friesen: Okay. And then maybe just on a different topic. Do you have any update on how tariffs are impacting your business? And just given the announcement a little while ago on heavy trucks, if that's impacting your business? Robert Blackadar: Do you want to cover that, Rob? Robert Dawson: Yes, sure thing, Rob. Thanks for the question, Krista. We continue to monitor, obviously, the tariff situation very closely. I think a couple of things just overall with regards to tariffs. 100% of our business results are entirely unaffected by the tariffs, and that's mainly to deliver excavation services to our customers. And so it really only affects the supply of trucks to our business from our manufacturing facility in Red Deer and specifically to our businesses in the United States. We continue to monitor it very carefully. There has been no real clarity on the situation with heavy trucks right now. And so we don't really have a lot to say specifically about what the impact may or may not be. We continue to be fully CUSMA compliant, and we have not paid any tariffs to date on our truck builds. And I should also point out, I think we talked about this at Q1 that when we think about a worst possible case scenario where we would have, say, a 25% tariff on our entire manufacturing production for the year, it still would increase our CapEx for 200 trucks in the neighborhood of $10 million to $20 million. We'd still continue to be showing the same kind of balance sheet flexibility we have today, and the net impact on our earnings per share would be in that 1% to 3% range. So while we are closely monitoring the situation, we continue to believe that it's an issue that doesn't impact us to the degree of [indiscernible] third-party manufacturers and sellers of equipment across the borders. Operator: And our next caller is [ Joshua Bains ] from TD Cowen. Tim James: Yes. Actually, it's Tim James here from TD Cowen. Congratulations on the good results. My first question, I'm just wondering if you could comment on any findings that you've got or that you're seeing in terms of the longevity of the refurbished units that you're doing and putting back out in the field. I believe you expect an additional 5 years typically from those. Anything you're observing that would give you a reason to believe that, that could be actually extended or shortened? Robert Blackadar: Yes. Great question, Tim. We -- we're very pleased. Obviously, we're pleased enough that we're going to build our own facility to help even fast track even more units. Very pleased with the first 18 months of the program. And the thing that we're displeased with is the ability to get more through our current third-party facilities. But to frame it up, Tim, and some people on the call may not be aware of the context, we take a thoroughly inspected 9-, 10-, 11-year-old hydrovac that we've owned its entire life. We make sure that it has really strong frame rails, and the underbody components are very, very strong on it. And we replace four large components of the unit, which is the engine; the transmission; the transfer case, which is how you transfer the power from the engine to the hydrovac on the back; and then the blower, which provides the suction on that. To do that whole exercise, then we do repaint or touch up, put on new tires, new seats and cabs for our operators, so they have a good experience in a truck. We put it back on the road, and that's anywhere from 175,000 roughly to around 185,000. It gives us an additional, we believe, 5 years. So far, Tim, in our first 18 months of doing this, we've had wonderful success. And in fact, a few of our employees have said that the truck is running better than it did when it was new. And again, these are mostly our Gen 4 trucks, the previous generation of trucks. We are very pleased with their performance so far, very little maintenance or breakdowns on them other than just routine preventative maintenance, PMs. And then the last thing I'll share is, each one of those trucks on those new components -- and those are the most expensive components on the chassis. Those components come with a 3-year warranty unlimited miles. So there really is no downside to the investment we're making. As far as do we think it can go beyond 5 years and maybe it's 6 or many, many of our chassis are run on the same model chassis we use for dump trucks and flatbeds and various other over-the-road type environments, and trucks have around a 20-year life. We do believe, though, in certain applications, our trucks are run in a little bit higher duty. So we're not sure if it's going to be 5, 6, 7 because it's still early on, and we're through our first batch right now, but we're very encouraged right now. But we're going to stick with the 5-year life at this point. I don't know if you want to add anything on that. Robert Dawson: No, I've got nothing else to add. Robert Blackadar: So hopefully, that answers your question, Tim. Tim James: That's very helpful. I'll just have one more quick one, if I could. And I realize Canada is a relatively small portion of your business in North America. But I'm curious if Canada's budget released this week, if there's anything in there that caught your attention as surprisingly positive or negative in terms of opportunities for Badger in Canada over the coming years. Robert Dawson: Tim, it's Rob Dawson here. Thanks for the question. I don't think we would point out any one thing from that Canadian budget, but I would say that we are very encouraged by this government's support for the return of large project, an infrastructure project renewal in Canada that has slowed down so much over the past, say, 5 or 6 years. And we are already starting to see the benefit of some of those, just a change in tone. In particular, our Western Canadian business is back to growing. Our Central Canadian as in Ontario is also starting to show some signs of really solid performance. So overall, quite encouraged by the change in tone and the return to large project resource spending that has made Canada what it is. Robert Blackadar: And I'm going to add one thing, Tim. We have several of our larger construction customers there in Canada that, in a weird way, they're also kind of our peers, but they're our customers. I don't want to name them because the moment I start naming some customers, you always leave one or two out and make some crabby, so I don't want to do that. But we're very encouraged that several of our publicly traded customers are press releasing these large project wins, and we love supporting those customers and partnering with them. So just as Rob suggested, it seems like Canada is really making an effort to reinvest in some of the infrastructure and a lot of projects that we were seeing regarding -- around power as well as hospitals and some airports and stuff. So very encouraged what we're seeing coming out of Canada. Operator: Thank you. And that seems to be all of our callers. So I will turn it back over to you, Rob. Robert Blackadar: Thank you, operator. So on behalf of all of us at Badger, we want to say thank you to our customers, our employees, our suppliers and shareholders for your ongoing support that drives Badger's success. Operator, you may now end the call. Operator: Thank you. This concludes today's event. Thank you for participating.
Operator: Good morning, and welcome to the Air France-KLM Third Quarter 2025 Results Presentation. Today's conference is being recorded. At this time, I would like to turn the conference over to Benjamin Smith, CEO; and Steven Zaat, CFO. Please go ahead, sir. Benjamin Smith: Okay. Thank you. Good morning, everyone, and thank you for joining us today for the presentation of Air France-KLM's third-quarter results. As usual, I'll start by sharing the key highlights of the quarter, and then I'll hand it over to our CFO, Steven Zaat, who will walk you through the financial results in more detail. I'll return at the end with a few concluding remarks before we open the floor for any questions you might have. This quarter once again demonstrates the resilience of our business model in a challenging environment. In the third quarter, Air France-KLM delivered a stable operating margin of 13.1%, with revenues increasing by 3% year-over-year to EUR 9.2 billion, supported by a 5% increase in passenger traffic, which reached 29.2 million passengers. The passenger network unit revenue was up 0.5% at constant currency, driven by continued strong demand for premium cabins, which I will elaborate on later. Meanwhile, our maintenance business also made a solid contribution. We managed to limit our unit cost increase to 1.3% despite higher airport and air traffic control charges. As a result, operating income improved by EUR 23 million year-over-year to EUR 1.2 billion. Our balance sheet remains robust with leverage at 1.6x. Year-to-date recurring adjusted operating free cash flow reached EUR 700 million, confirming our ability to combine financial discipline with continued investment in our future. Finally, fleet renewal continues to advance with new generation aircraft now representing nearly 1/3 of the fleet, up 8 points compared to a year ago. Now moving to Slide 5. For those of you who are following the deck here. One of this quarter's key highlights is the continued success of our loyalty program, Flying Blue, which has been named the world's best airline loyalty program by point.me for the second year in a row. This distinction reflects the trust of over 30 million members and underscores Flying Blue's growing role in strengthening our connection with customers. Flying Blue remains a powerful driver of loyalty and commercial performance, and its global recognition is a testament to the value and quality of the experience that we deliver. Let's turn now to Slide 5. We're pursuing the implementation of our premiumization road map across the group with concrete improvement throughout the customer journey. On board, we're rolling out our latest long-haul business cabins at both Air France-KLM and KLM's premium comfort class is now featured on more routes. Starting in September, Air France has been introducing high-speed Starlink WiFi on board, available free of charge in every cabin, a first for any major European airline. Almost 30 aircraft have already been equipped, and we expect 30% of the Air France fleet to feature this service by the end of 2025. In addition, we are continuing to enhance the customer experience across multiple touch points. This includes upgraded premium lounges with recent improvements in Chicago and Boston, and an enriched dining offer featuring new signature dishes from Michelin star chefs on U.S. departures and a simplified customer journey from check-in to boarding. A new exclusive ground experience has also been introduced at Los Angeles, for La Prem customers, and I'm also particularly proud to highlight that our fully redesigned La Premal cabin will be available on the Paris City G2 Miami route starting November 10, after following a very, very successful launch on our flights to New York JFK, Singapore, and Los Angeles. Altogether, these initiatives elevate the quality of our product, reinforce our positioning in the premium travel segment, and support our path to higher value revenues. Moving to Slide 6. As you can see from this slide, the mix of our long-haul cabins is gradually shifting toward higher value premium segments. At Air France, the share of La Première and business seats set to increase from 12% in 2022 to 13% by 2028, while premium economy, now rebranded as premium, will rise from 8% to 10%. At KLM, the trend is even more pronounced. Premium comfort introduced in 2022 is expected to expand to 10% of seats by 2028, while the business cabin segment will grow from 10% to 12%. In other words, by 2028, almost 1 in 4 seats across our long-haul fleet will be in premium cabins. This structural shift aligns with our longer-term strategy to strengthen our brand positioning, reflecting evolving customer demand, improving revenue quality, and enhancing the value proposition for long-haul travelers. Turning to our network. We are continuing to expand connectivity across all key markets. This winter, the group will operate a broad network across all regions with balanced capacity growth. In Asia and the Middle East, Air France will serve Phuket, Thailand, while KLM will add Hyderabad, India, to its network. In the Caribbean, Air France will launch services to Punta Cana in the Dominican Republic and KLM will introduce flights to Barbados. Across Europe, KLM is opening Kittilä in Northern Finland, while Transavia is launching new services from Deauville (Normandy) and Madinah Saudi Arabia, and Marsa Alam, Egypt will also be added. And Transavia will increase flights to Morocco, Egypt, and Finland's Lapland region as well. Looking ahead, Air France will launch flights to Las Vegas in summer 2026, further strengthening our North American offering. Altogether, these additions illustrate how Air France-KLM continues to grow strategically, improving connectivity, reinforcing its position in key markets, and maintaining a well-balanced portfolio of routes. With that, I'll now hand it over to Steven, who will walk you through the detailed financial results. Steven Zaat: Yes. Good morning, everybody, and thanks for taking the time to listen to us. I think we can say it was a tough quarter in the third quarter, especially from a revenue perspective. The impact of the situation in the U.S. regarding FISA and immigration rules starts to hurt our lower-yield segment in the long haul. And I think also the warm summer didn't help our European network and Transavia. And then on top, we had ATC strikes in July, we had ground strikes at KLM, and then all the impact from the taxes and charges which we get in France from the TSBA, and at Schiphol, the charges of the lending fees and the increase of our security charges. I think we had last year, we had, let's say, the Olympics. So I think if you look at the tailwinds, which we should have from the Olympics, a big part has been absorbed by these headwinds in this quarter. If we look at the margin, you see a stable margin of around 13%, which is the same as we had last year. On the unit revenue, if you're excluding currency, we are at minus 0.5%. And the unit cost, we had quite well under control. I guided you already that we will be at the lower end of the 1% to 3%. So we are very close now to the 1%. And if you include also the fuel benefit, you will see that actually our unit cost is coming down with 0.2%. So let's say, unit revenues and unit costs are stabilizing each other in this quarter. If you look at the left and you look at the net result, you see that it looks down year-over-year, but it comes that we had an unrealized foreign exchange result last year of more than EUR 100 million. So if you take that out on the net result, we actually improved, and we are now at an equity level above EUR 2 billion. If you go business by business, and I will come back on the 0.5% unit revenue on passenger business on the next slide, you have to see at the cargo that we see a minus 5% in unit revenues. This is related to the fact that we had more freighters in maintenance. So we plan more maintenance for our freighters at Schiphol, and it extended also more than what we expected. So this is quite a big impact on our unit revenue. If you look at the cargo contribution to our P&L, it's more or less flattish. So it's also, let's say, benefiting from a unit cost perspective over there, absorbing actually the unit revenue decline in the cargo. On Transavia, we grew capacity 13.8%, 15% in France, and 12.5% in the Netherlands. In France by taking over the slots of Air France in Orly, and in the Netherlands by upgauging our fleet. That had an impact on our unit revenue, which is down minus 2.8%. And I think also that the warm weather didn't help our local business due to the fact that the appetite to travel probably when it's hot, it's less when it is raining dogs and cats outside. So we have a stable result of Transavia of around EUR 217 million. The maintenance business performed quite well, an increase of 13% of our revenues despite the lower USD, especially on engines and components, we start growing the business. We are now at an order book of EUR 10.4 billion. We increased our order book by EUR 1.7 billion compared to the beginning of the last year. So we are strengthening this business segment. And you see also that the results are improving quarter-over-quarter now with an operating margin of 6.3%. So a very good performance on the maintenance business, where we also start to recover at the components business to drive up our margin. If we then go to Page 11, let's start with Air France. Of course, there was the Olympics last year, but we also had the DSBA impact and the ATC strikes. And all in all, Air France improved the result by EUR 67 million, having now an operating margin of 14%. KLM is especially impacted by the lower yield demand, and this lower yield, especially on the long haul impacts the unit revenues of KLM. And on top of it, we have the increase of the triple tariffs, which is really hurting KLM, including also the security charges, which are going up. So I think these 2 impacts actually explains all the KLM decline despite the fact that we continue with our back on track. And you see later that on the productivity side, the unit costs are getting better under control. And also, we see that we are getting very close to, let's say, the low limit of our guidance, and especially a big contribution coming from the productivity. On Flying Blue, a stable result of around EUR 54 million. We had last year, we -- first of all, Flying Blue is impacted by the dollar because we sell miles in the U.S. And on top of it, we had very cheap seats available for flying routes during the Olympics. So that has a positive impact, let's say, on the miles cost and which we don't have this quarter, but I think it was a very strong quarter. We grew the business again with 10.5% and the business operating margin of 24% is contributing as we expected to our business model. If we then go to Page 12, then you see the big difference, and we took out now also the premium economy. You see that there's a big difference between the premium traffic and the lower-yield economy traffic. So in the first business, we increased our load factor. We increased our capacity. We increased our yield. On the premium economy, we even increased our capacity with 10%, while at the same time, increasing the ticket prices by 5.4%. And then on the economy, there, you see it's starting to hurt. It is minus 1.5% in terms of yield and also a lower load factor. Although the load factor is still 91%, you see that it is more difficult to fill the seats. If you look, for instance, on our traffic on the North Atlantic to the U.S., there is minus 10% lower passengers from India, for instance, which is all related to the immigration rules in the U.S. If you go over the world, you see still that North America on itself is not doing that bad. We have a 2.7% increase in yield, especially driven again by the first and business class and the premium economy and also by the very strong point of sale in the U.S. Latin America is still strong, 2.8% up in yield. And we see also that in the Caribbean and Indian Ocean, we could increase our yields year-over-year. And on the long or the outlayer is a bit Africa, where we see that we have a gap on the load factor, which is especially again related to the, let's say, the political situation in Africa. but also the connecting traffic to the U.S. where there is less traffic from Africa to the U.S. due to all the immigration rules. And on the right, you see a quite positive trend on Asia, up 4.4% in yield. So we are doing quite well in that segment with a limited growth of 1.7%. On the right, you see again Transavia, which I already explained. So this is minus 2.7%. And you see this hot summer had an impact on our short and medium-haul, which was more or less flattish year-over-year. If we then go to Page 10, you see we guided you that we would be at the lower end of the 1 to 3. So we are very close to the 1 now. That will also be the case in the next quarter. We see that the unit costs are coming down as productivity is kicking in. But of course, the premiumization, which contributes 0. 6% to our unit cost, and also this increased ATC charges and the significant increase of the airport charges, especially in Amsterdam that drives actually the cost here still. But our own unit cost, which we can directly influence, you see that the labor price is compensated by 1.3% on unit cost on productivity. And then on the operations, it's still going up 0.8%, mainly driven also that we have expensive ground, and also on the maintenance side, is still quite a difficult environment. So -- but all in all, good to see that the unit cost, excluding the ATC charges and the premiumization are more or less flattish, and we see also a positive trend towards Q4. On Page 14, you see the cash flow. So a big jump positively in terms of operating free cash flow. We had a EUR 1.5 billion, where we were last year at EUR 28 million. Then we still have there in there around EUR 400 million of deferred social charges and Wax. And if you take these exceptionals and you take also the payment of the lease debt, you see that we are now at a recurring adjusted operating free cash flow of more than EUR 700 million, where last year, we were at EUR 23 million. And if you look at the right, you see that the net debt is coming up. Of course, these exceptionals of EUR 400 million are added actually at the end of the day to our net debt. And we had -- let's say, we signed a lease contract on the 787-9, where we extended the leases till the period 2033 and 2035, which had a EUR 300 million impact on our modified lease debt. But of course, that has not an impact in the coming period on our free cash flow because we continue to operate these profitable planes. If we then go to Page 15, you see that the leverage is down now at 1.6. We have EUR 9.5 billion of cash at hand, which is very stable over the year, which is well above the EUR 6 billion to EUR 8 billion target. We launched very successfully a bond of EUR 500 million vanilla for 5 years with a coupon of 3.75%. We had the lowest credit spread ever in our history of Air France-KLM. So we are extremely proud of that. And we continue to simplify our balance sheet. So we redeemed Apollo for EUR 500 million in July. We issued a new hybrid into the market, but we will also pay back the EUR 300 million of our hybrid convertible bond in the market. So in total, we are reducing this hybrid stock with EUR 300 million this year. And that with a net result generation, we see that we have continued to strengthen our balance sheet where we're now above the EUR 2 billion of equity. Let's then go to the outlook, and let's start with the forward bookings. We see that there is a gap of 3% in the long haul, 2% in the medium haul, and 4% at Transact. We have seen this every quarter. At the end of the day, we were always able to almost close completely this gap. So that is also, let's say, that is a little bit the trend that we see now in our industry. To give you a bit of an indication, if we look at the first 28 days of October, we see a unit revenue increase of 2%, excluding currency impact, with a load factor gap of 1%. And we see again a difference between premium traffic, including premium economy and the low-yielding classes in the overall long-haul network, giving confidence on our premiumization strategy. Then also, I will, for one time, also guide you on the cargo because usually, I not do that because I think we don't have a lot of bookings in -- but we had a very exceptional situation last year where we had a positive impact of the front-loading, especially related to the U.S. elections in the fourth quarter. I already indicated in our last call that the Q4 cargo unit revenues would be negative. And for the first 4 weeks of October, we see a decrease in unit revenue of 11%. Although cargo has a very short booking window than the passenger business, and it's difficult to predict the unit revenues. But in our internal forecast, we expect a double-digit decline in unit revenues compared to last year for the fourth quarter. If we then go to Page 18 on the hedge, so you see that we have hedged now 70% of '25 and 50% of '26. We are quite stable in our fuel bill. I think we last time indicated $6.9 billion, and we are now at $6.9 billion. So a very stable fuel price, if you look at it over quarter to quarter. It can go up and down during the weeks, but I think we are now reaching a kind of normal plateau for the fuel price. If we then go to Page 19 on the capacity. So we still aim at a capacity of 3% to 5% on the long haul, 3% to 5% on the short and medium haul and Transavia, especially because we had a very strong operations in the third quarter. We expect to be above 10% for the full year. But overall, we still guide at 4% to 5% versus 2024. On Page 20, you see the outlook, and it is every quarter the same. It becomes a bit boring maybe. So group capacity, 4% to 5%. Unit cost, I'm very confident in the low single-digit increase where we will see in the fourth quarter that we had a very low side of this guidance. So we are comfortable for the full year on this low single-digit increase in unit cost. Net CapEx between EUR 3.2 billion to EUR 3.4 billion, also probably more at the low end of the bandwidth and net debt current EBITDA, we will keep that between 1.5 and [indiscernible]. Then we strengthened further our position in Canada. We have a very strong cooperation with WestJet, which is the second largest airline with a leading market position in Western Canada. We already have since 2009, a codeshare and a loyalty program with them. And it's interesting to see that they are the #6 partner of our Air France-KLM-enabled revenues. So next time when we do all to Chris, I will invite you to tell me who are the #2, 3, 4 and 5. Number one, you can easily guess, but it's interesting to see that they drive really up our revenue. So we were happy that together with Delta and Korean Air, we could lock them in for our business, and we took a stake of 2.3%, solidifying our, let's say, integrated way of working with Delta and securing our position in Canada. With that, I hand over to Ben for the final remarks. Benjamin Smith: Thanks, Steven. And just to summarize and conclude the comments that we just made. So Q3, again, was a mixed quarter, softer leisure demand and operational headwinds, but we're pleased that revenue -- there was revenue growth and a stable margin, which clearly shows that we've got a resilient, well-balanced network, strong cash generation, and the outlook is reconfirmed. So altogether, these results demonstrate Air France-KLM's ability to navigate challenges resiliently while building a stronger position for the future. So thank you for your time and attention. We're now available to answer any of your questions. Operator: [Operator Instructions] Our first question today comes from the line of Jarrod Castle from UBS. Jarrod Castle: I'll ask 3, please. Just quite interested to get any thoughts that you might have at the moment on at least the direction of ex-fuel costs going into 2026. Secondly, any impact from the U.S. shutdown on your North Atlantic? I see they're going to reduce the amount of capacity flying in the U.S. Is this more domestic in your view? Or will it have an impact on international? And then lastly, just the current French economic/political backdrop. If you could just go through some of your thoughts in terms of what these budgetary pressures might mean for your business. Steven Zaat: I will take the first question, and I will take the second and the third question. Yes. So we are currently busy with our budget for 2026. But we -- of course, we -- you know we are back on track. We have the same actually measures also at Air France. So we are driving our productivity further. So let's see where that will end when I come back with the guidance for 2026, but we are, of course, aiming if you look at the full year to be lower than where we were this year. You see every quarter, the unit cost development is coming down, which has strengthened our position also for the next year. But we have to define our full year budget before I will guide you on any number. Benjamin Smith: Jared, so the U.S. shutdown from the information we received this morning, it's only going to impact domestic flights and that international flights as of today should be business as usual. On the political side in the Netherlands and in France, the main focuses for us are will there be any additional taxes or charges imposed on customers, passengers, or us directly or airports. So far, we don't see anything different or new from what we've been -- what we've seen already and what we've been lobbying to change or get rid of. Again, one of the big negatives that impact us in France are the air traffic controller strikes. So far, we don't have any visibility for the rest of the year. So we're hoping that things will stay stable. We have a new head of the government body, which oversees the air traffic controllers. He is quite close to the file. It's the #1 file today. So we're hopeful there will be some improvement because it cost us a lot of money this quarter and a lot of money this year. And the operating -- the operational impact that we're experiencing is much worse. This is in France, much worse than any other country in Europe. And so far in the Netherlands, it's a bit too early to tell whether there will be any change in policy towards aviation. Operator: The next question comes from the line of Stephen Furlong from Davy. Stephen Furlong: Maybe, Steven, you can just talk about what's going on in cargo. Sometimes historically, it's been a leading indicator, but I just like to understand because I haven't seen that level of decline from other airlines. And then Ben, maybe can you talk about Orly how the work is going there? And obviously, as you build up an entirely largely Transavia business there, I'd be interested in that. Steven Zaat: Yes, let's say, the booking window of cargo is very short. So that is always difficult to predict. as I gave you the numbers for October because I think I want to be totally transparent where we are currently. I think we will be in that range also, let's say, for the coming months. But it's very difficult to exactly explain. But we saw last year that there was a lot of upfront loading towards the U.S. in expectations for what would be the outcome of the election. So that has first already before the elections, it started. And then, of course, when Trump came into the White House or at least he was elected to be in the White House. In January, there was a lot of front-loading in that quarter. So Q4, if you still remember, we had a very good unit revenue on the cargo level, and that is going to normalize. So on itself, the demand is not weak. I think it is normal, and it's, of course, better than in the other quarters. But I think the year-over-year difference is quite difficult due to the fact that we have this positive situation in the fourth quarter last year. Benjamin Smith: Stephen, regarding Orly, if you look at the overall Air France Group, so Air France and Transavia and Hub, which is the regional carrier. So excluding the rest of the business units in Air France-KLM. So just Air France Group, we're extremely pleased with the performance of the Air France Group despite all the challenges we're having with the air traffic controllers and the rest of the operations and taxes that are being imposed specifically in France. So with respect to Transavia at Orly, it has to be taken in context with the entire Air France Group performance because we have been progressively shifting slots from Air France to Transavia. So we have half of the capacity, 50% of the slots at Orly, which is about 150 departures. And we operate about 1/3 of those in 2018 were operated by Transavia, and the rest by Air France, our regional operator, Air France Hop. Those slots there are being transferred to Transavia, and the totality of those slots will have been transferred to Transavia by April of next year. On many of those flights, it's a significant upgauge. If you take a hop aircraft, as an example, of 70 seats, and you're going to a 737 or an A320neo above 180 seats, it's a big jump. And we're cutting our domestic capacity by double digits. And so those slots are being redirected to new routes in Europe. And to start up a new route takes some time, but we do have a very, very strong position at Orly, and we do have our loyalty program, and we do have a cost structure that's similar to the competitors that we are going up against at Orly Airport. So the strategy we're quite pleased with. What is difficult to measure or to at least report out on is how the benefits flow between Transavia and Air France. So Air France has been able to shed the bulk of its domestic operation to date, and it will be the entire domestic operation in April. And that, of course, will be transferred to a lower operating unit, which is Transavia, and we will significantly reduce capacity. This being done in a very complex -- this is a project that should have been done 30 years ago. It was very, very difficult to put this into place. It impacts a lot of employees, a lot of unions are involved with this. And to be able to balance this out by saying, okay, Transavia is going to be profitable or not. I think for me, if we can get the overall Air France group along the path that we've committed to the market to get it to an 8% margin, we're on the path. Is it being divided correctly between Transavia and Air France with this transfer? I'll give you an example, whenever there is an air traffic controller strike to protect the long-haul flying, which is our #1 moneymaker, we try to shift the impact of the strikes to or the airport to impact Transavia as an example. So they take that of an example of a negative like a strike. So I think it's unfortunately, we're not able to put all that into our disclosure into our press releases. But I think that that kind of level of detail, I think if we were able to share that or we have the time to share that, it would be -- I think it would be acceptably well understood that the strategy is the right one. But it has to be looked at in context with the rest of the Air France group performance, which, as you know, over the last 2 years, we've been hitting record COI results. Operator: Our next question comes from the line of Harry Gowers from JPMorgan. Harry Gowers: A couple of questions from me. First one, Steven, I think you gave the plus 2% unit revenue remarks for October, which was for the passenger network. So maybe -- the network business, sorry. So maybe you could give us what you saw in Transavia specifically? Second question, I mean, just in terms of the French ticket tax increase, the Schiphol tariff increases, clearly, these are external headwinds, which are impacting passenger demand to a certain extent for Air France specifically. So anything you can do at all to try and offset or minimize those impacts on demand? And then third question, just on the costs. Do we have any idea yet, or any visibility on where like airport tariff increases could go in 2026? Steven Zaat: Harry, let me come back on your questions and maybe Beck will follow up on it. So let's first start on the unit revenues in -- on Transavia, I don't have any number, to be honest, on Transavia yet. So we always wait for the full closing, which we are going to do, and on the passenger business because it's the main part of our business. I get the daily report. So I have those figures actually always up to date. But I didn't hear any negative news for the moment. And probably as we see bigger demand in October, probably related also due to holidays, I expect that also to come from Transavia. On the Schiphol tariff, yes, it is a very terrible situation, what we are seeing there. We know that Sriol was the #9 in terms of cost in Europe. We could develop very strongly our connecting traffic. And of course, the fact that they increased so much the tariff, and we are a connecting airline. So we need to have lower cost than our competition. So we are working on that. So first, we are working on it in what we call back on track. And you see the productivity measures are kicking in now in our unit cost to get that down also to compensate all those increased charges, which we get at Schiphol. But -- and we have to review also what we are going to do with KLM, what is the right model, and we are working on that also close with, let's say, the Schiphol management because we cannot go on like this. The first indication, which you asked what is the airport tariffs are going to do. So at least the good news is that they are not going up, but they went already with more than 40%, but they are not going up in '26. For Schiphol, I don't have the indication for ADP yet, but usually, they are much more modest in the last years. Operator: The next question comes from the line of James Goodall from Rothschild & Co Redburn. James Goodall: So 3 for me, please, as well. So just coming back to the 2% unit revenue increase in October. Is there any color that you can give us in terms of how that's trending by region? Secondly, coming back to that chart on Page 6 on the increasing premium mix, assuming that there's sort of flat yields over the course of the next 3 years, can you give us an indication of what the RASK accretion just in terms of mix would be from that premium cabin growth over the course of the next 3 years? And then finally, with Leverage now sub-2x liquidity is well above target. And I guess with a very positive direction for free cash flow generation as the exceptionals roll through and with EBIT expansion on the back of your medium-term targets. Have you guys started to think about any potential use of that free cash flow? I guess you haven't paid a dividend since, I think, pre-GFC. Is there any potential in that restarting? Steven Zaat: So very good question. Let's first start with the coloring of October. So I think I already indicated that premium was much -- doing much better than, let's say, the lower-yielding segment. We see a very strong unit revenue actually in North America, and actually all over the world on the long haul, it is pretty strong. On, let's say, the European side, it is still going up, but it is not as strong as we are seeing on the long haul. So you could say that it is, let's say, 3% on the long haul and 1% approximately or even -- yes, 1% on the European network. So still the driving force is the long haul and the driving force is the premium traffic. Yes, that's a very good question. We are just building again the budget for that, but I would say it is around 1% increase of unit revenue. That looks modest, but it is directly -- it will bring a margin up with 1%. So I would say you have part which is in the unit revenue, but also part which is in the unit cost. And I would say, if I have to give an indication in arid because I don't have exact numbers here, I would give that it would bring at least 1% in margins on those networks. Then on the cash flow, so yes, we have indeed a very strong cash position, and we are driving up now our cash flow. We will use that to pay off our hybrids because the hybrids are more expensive than, let's say, a normal Fin loan, as you have seen what we did in August. So the first thing for the short term and the short term is for me '26 is to further pay off our hybrid stock. We have EUR 500 million to pay to Apollo next year, and we will pay that from our own cash flow. That's at least if the situation stays where we are today. And then I think the moment of dividend is more when we end actually, the era that we don't have this payback of the social charges in France and the wage tax in the Netherlands. So that's more for that time horizon. But it's not now, let's say, to disclose to the whole world. We need to first discuss that with the Board because we didn't have these discussions with the Board so far. Operator: [Operator Instructions] The next question comes from the line of Antoine Madre from Bernstein. Antoine Madre: Two questions, please. So first one regarding back on track for KLM. You mentioned the productivity is improving. So is it going faster than what you planned? And can we still expect EUR 450 million improvement this year? And second one on maintenance outlook. How do you see the current headwinds impacting tariff, FX, and issue? Steven Zaat: To start with back on track. So we are still see this contribution of back on track. Of course, that is also to offset, let's say, the triple tariffs and all those kind of increases of cost, but we are fully in sync with the back on track target, which we announced at the beginning of the year, and we will come back on it at the full year results where we exactly are. On the maintenance, we don't see any real big impact coming from the new tariffs. Usually, the parts are excluded. We know that some parts where there's a lot of metal can have an impact in terms of tariffs, but we don't see a significant increase. And you've seen the beautiful results in the third quarter from our Engineering and Maintenance business. So, so far, that impact is very, very limited and not noticeable and not material in our results. Operator: The next question comes from the line of Antonio Duart from Goodbody. Antonio Duarte: A question for me just on Transavia, if I may, and mainly in your -- where do you see strength and weakness within Europe, considering such increase in capacity? Any routes that you see special that you would like to highlight, or where you're seeing particular weakness? Benjamin Smith: So what I look at it from a different way, the strength of Paris and the fact that it's the largest inbound tourist market in all of Europe, and that the airport is very close to Paris and has now got a new direct metro line directly into the terminal, a new Line 14. It's a very attractive airport. We've not been able to exploit our position there in the past because the cost structure of Air France and Hop was probably one of the highest in Europe. And we had a limit on the number of Transavia airplanes we could operate because of the collective agreement we had in place with the Air France pilots. So we negotiated in 2019, it was not an easy negotiation to have that limit removed. We can now operate as many Transavia flights as possible. So now with a competitive cost structure, we can really take advantage of the opportunity here in Paris. So I think the Parisian market is very strong. It's showing resilience. It's actually growing. So we are trying to position all the new capacity that we're putting into Europe with a strong focus on inbound. This is new for us. It's traffic we did not have in the past. And of course, we're trying to deploy this traffic where also there's a strong outbound component as well from Paris. So the typical markets, leisure markets in Italy, in Greece, in Spain, in Portugal, are all still quite strong. But where we're seeing very, very good growth is in Northern Africa, in the Maghreb countries, in Morocco, in Algeria, in Tunisia, as well as Beirude, so in Lebanon and Tel Aviv in Israel, as well as a few destinations in Cairo. So it's quite a unique breadth of destinations that we've got. Not typical for a low-cost carrier, but the fact that it's got so many opportunities to serve the Paris market with a very competitive cost structure, plus the benefits of flying blue, not all the benefits. We don't want to bog it down with the costs that Flying Blue can sometimes entail, but there is quite an array of unique benefits that we offer to customers on Transavia. So a loyal Air France customer does have a low-cost carrier option, which is quite unique in Europe from the main base city of the full-service airline that we have. Meanwhile, at Transavia Holland, we've been trying to manage through a situation where we don't have full visibility on the number of slots and the curfew situations at Schiphol. And of course, the bulk of the Transavia aircraft at Schiphol do start their day early in the morning. So we do have, I think, more visibility than we had 3 years ago now that the Dutch government has agreed to go through the European Commission balanced approach process, which is enabling us to take some decisions on the deployment of our fleet at Transavia. And so we'll be refining the network offering at Transavia Holland, and we believe that should improve in the near future. Operator: [Operator Instructions] We have a question coming from Muneeba Kayani from Bank of America Securities. Muneeba Kayani: This is Kate on behalf of Muneeba. I have a question on unit cost, which is tracking at the lower end of FY guide. Just wanted to ask about 4Q outlook. Are you seeing the trend continue at about 1.3% year-on-year growth into 4Q? And any kind of base effect we need to keep in mind when thinking about 4Q? And then just another question on your forward bookings on Slide 17. If I'm reading the numbers right, I'm seeing about 2% to 4% kind of lower loading factor compared to 2024, but the commentary is in line bookings. So just if you could clarify that. Am I reading the slide correctly? Steven Zaat: Let's first start on the unit cost. I'm quite optimistic about the fourth quarter unit cost. I already gave the indication where we would end in the second half year. And I think Q4 will even be a better development than Q3. We see quite some productivity coming in. And with, let's say, the more modest labor cost increase and also having our operations better running, we are quite optimistic on the fourth quarter, but we don't give an exact number. We have a full-year guidance, and you can see where we will end for the full year. For the load factor, yes, I think that what you -- of course, the numbers are right. If you have followed also the previous presentations, you have seen that we have -- every time we had these kind of gaps -- and at the end of the day, we were able to close them. So in the first quarter, we were almost closing the full gap. In the second quarter, we were 0.1%. So in terms of load factor gap, so very close to 0, and we started almost the same. And in the third quarter, we also saw the same, and we closed at minus 0.5%. So I don't say that we will fully close this load factor gap. We saw a small load factor gap in October, but we saw quite some good unit revenues. But it is too soon to tell. These are the numbers. And of course, there's no mistake in it. Operator: We have a question from Axel Stasse from Morgan Stanley. Axel Stasse: I have 2, if I may. The first one is, could you maybe provide any quantitative guidance on the back on track program contribution on EBIT for 2026? Do you still expect to be on track for the medium-term guidance? And the second question is a follow-up actually on the potential French corporate tax proposals. We have heard a lot of things in the press last week, and many legislative lift hurdles before any such proposal is actually passed. But could you just provide any indication on how much of group PBT is related to France? Steven Zaat: Back on track. We will see, of course, an outflow in 2026. I'm not yet there to guide you on the cost. As you know, I say that it's coming down and coming down and coming down if you look at the unit cost increase, but we have not finalized the full guidance on it. But the program on itself is delivering, but we see now that especially the low-yielding traffic is getting worse. So that hurt especially also KLM, plus the triple trailers. And we have to review what are our next steps with our KLM operations. So that is where we are currently working together with the KLM management. The second question, I don't have any figures, but-- Benjamin Smith: Yes, it's Ben. From what we've seen over the last week, we don't have an aggregate -- any aggregate figures on that and how that could impact us. As you know, things are moving all over the place. But the current government that's sitting, I think we have a good feeling that what we had in place last year is going to be very similar to what should be in place this year. But as you know, it's not very stable here, but the big items that could impact us seem to be under control. And comment actually on the guidance. Because it was a question, we will come back on that with the full-year results. But we are still, let's say, aiming at 8% margin in the period '26, '28. Operator: There are no further questions. So I hand back over to you, Sirs, for closing remarks. Benjamin Smith: Okay. Well, thank you, everyone, for joining us today, and we look forward to sharing our results at the end of the year, the end of the fourth quarter. Thank you. Operator: Thank you for joining today's call. You may now disconnect your lines.
Operator: Good day, and welcome to the Third Quarter 2025 Harvard Bioscience Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Taylor Krafchik, Senior Vice President at Ellipsis TA. Please go ahead. Taylor Krafchik: Thank you, operator, and good morning, everyone. Thank you for joining the Harvard Bioscience Third Quarter 2025 Earnings Conference Call. Leading the call today will be John Duke, President and Chief Executive Officer; and Mark Frost, Interim Chief Financial Officer. In conjunction with today's recorded call, we have provided a presentation that will be referenced during our remarks that is posted to the Investor Relations section of our website at investor.harvardbioscience.com. Please note that statements made in today's discussion that are not historical facts, including statements on management's expectations of future events or future financial performance are forward-looking statements and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect the current views of Harvard Bioscience's management, and Harvard Bioscience assumes no obligation to update or revise any forward-looking statements. Actual results may differ materially from those expressed or implied. Please refer to today's press release, the Harvard Bioscience Form 10-Q and other filings with the Securities and Exchange Commission for additional disclosures on forward-looking statements and the risks, uncertainties and contingencies associated therewith. During the call, management will also reference certain non-GAAP financial measures, which can be useful in evaluating the company's operations related to our financial condition and results. These non-GAAP measures are intended to supplement GAAP financial information and should not be considered a substitute. Reconciliations of GAAP to non-GAAP measures are provided in today's earnings press release. I will now turn the call over to John. John, please go ahead. John Duke: Thanks, Taylor, and good morning, everyone. I'm pleased to speak with you again as we report our third quarter results and continue to execute on our 2025 priorities. This quarter reflects operational progress, consistent execution and tangible improvement in several key areas of our business. After being appointed CEO in late July, I outlined 3 priorities for 2025: number one, maintain financial discipline and positive cash generation; two, accelerate product adoption across our core growth platforms; and three, strengthen our capital structure through a successful debt refinancing. I'm encouraged to report that we've advanced meaningfully on each front. First, the financial results. We delivered revenue of $20.6 million at the high end of our guidance range and with a slight sequential increase in what historically is a cyclically soft quarter. Gross margin of 58.4% improved sequentially and exceeded our guidance range. This margin expansion reflects disciplined execution, operational efficiency and an improved mix towards higher-margin products. Adjusted EBITDA was also up sequentially to $2 million. Our cost structure remains lean, and we generated another quarter of positive operating cash flow. Customer engagement remains high across our platforms. Q3 marked the first time in more than 12 months that we saw a quarterly order growth on a year-over-year basis. Going into the fourth quarter, our backlog has reached its highest level in nearly 2 years as demand has picked up considerably heading into the end of the year. Turning to our products. The SoHo Telemetry rollout has expanded into additional key accounts, and we've begun to see increased recurring consumable demand. Our Biochrom amino acid analyzer for bioproduction continues to perform well, and we remain on pace to exceed last year's consumable revenue. This quarter, we announced the launch of the Incub8 Multiwell System, our new smart microelectrode array platform designed to bring real-time monitoring to organoid and cell culture workflows with precise environmental control. Incub8 further strengthens the growth of our existing electrophysiology portfolio by expanding our reach into high-throughput applications, including drug screening, safety pharmacology and disease research modeling research. Initial customer response has been positive as we have already received orders and shipped our first system. In addition, we expanded our distribution agreement with Fisher Scientific, significantly broadening access to Harvard Bioscience products across North America. This partnership deepens our commercial reach within academic and pharmaceutical research markets and enhances visibility for our full portfolio, particularly our cellular and molecular technology products through one of the most trusted laboratory distribution channels in the world. Adoption of our Mesh MEA organoid platform continues to build momentum, supported by regulatory initiatives promoting new approach methodologies. On our capital structure, we continue to make constructive progress and remain in active discussions with our lenders and advisers regarding our assessment of the potential options and proposals that we have received. The process remains on track to complete the refinancing or repayment of the existing credit agreement in the fourth quarter. Our operating performance and consistent cash generation have improved our position as we move toward completion. The management team and the Board of Directors are aligned and remain committed to strengthening the balance sheet and positioning the business for long-term success. NIH funding for the 2025, 2026 budget is taking shape. We're also monitoring the ongoing government shutdown, which may impact the timing of NIH funding distribution. In the coming weeks, we'll have more clarity. In China, orders were flat sequentially. The most recent developments in trade talks late last week give us optimism that the worst of the tariff disruption is behind us, and we'll see increased activity moving forward. We also saw a strong uptick in order volume in Europe, contributing to our increased backlog heading into the fourth quarter. Looking ahead, we anticipate continued momentum in the fourth quarter as product adoption and the demand uptick support revenues into the end of the year. Our priorities continue to be financial discipline, driving demand in our high-value products and strengthening our capital structure. Harvard Bioscience is a fundamentally stronger company today than it was to start the year, leaner, more focused and better aligned with long-term growth opportunities. Our third quarter results demonstrate solid improvement over the first half of the year, and we look forward to continued improvement heading into 2026. I'm proud of our team's progress and grateful for the continued partnership of our customers, shareholders and employees. We appreciate your support as we continue to execute our plan. And with that, I'll turn it over to Mark, who will go into more detail on the financials. Mark? Mark Frost: Thank you, John. I'll start my remarks with our third quarter 2025 financial results, the details of which can be found on Slide 4 of the earnings presentation that we posted to our IR site. Revenue was $20.6 million at the high end of our $19 million to $21 million guidance and below the $22 million we reported in the prior year's third quarter. Gross margin was 58.4% versus 58.1% in the third quarter of 2024 and exceeded our guidance of 56% to 58%. Operating expenses declined $1.4 million from prior year, driven by actions taken in 2024 and the first quarter of 2025 to: one, move to one U.S. ERP system; two, lean out our SG&A organization; and three, reprioritize NPI projects. These actions led to an improvement in adjusted operating income of $1.5 million versus $0.8 million in quarter 3 '24. Adjusted EBITDA was $2 million versus $1.3 million in quarter 3 '24, with the major driver being the reduction in operating expenses, which more than offset the volume impact from the lower year-over-year revenue. Now looking at Slide 5, I will outline the revenue results for the quarter by product family and region. Overall revenues in the third quarter showed a slight increase from quarter 2, finishing at $20.6 million compared to $20.5 million in the prior quarter '25. Notably, this is a positive trend as we historically see a decline from quarter 2 to quarter 3. Now turning to the geographical results, starting with the Americas. Revenue in the third quarter increased sequentially by 3.6% and was down 4.4% versus the third quarter of last year. As shown in the light blue on the slide, CMT saw sequential and year-over-year decline. Our preclinical sales increased sequentially and year-over-year due to increases in telemetry and respiratory product lines. Now moving on to Europe. Overall revenue in Europe in the third quarter increased 0.3% sequentially, reflecting stronger preclinical academic shipments. Compared to quarter 3 last year, European revenues were essentially flat. Cellular and molecular sales decreased sequentially 0.7% and year-over-year 13%. Now our quarter 3 preclinical sales increased sequentially and year-over-year. Now moving to China and the Asia Pacific. In the third quarter, we saw improvement in APAC, excluding China. With China, revenue was down sequentially 6.3% and year-over-year 19.6%. With last week's news, we expect tariff headwinds to subside going forward. Now cellular and molecular APAC products were flat sequentially and decreased year-over-year. Preclinical APAC products also declined sequentially and year-over-year. Now I'll move to Slide 6 to discuss further financial metrics. Looking at gross margin first. Gross margin during quarter 3 2025 was 58.4% compared to 58.1% in quarter 3 2024 and up 200 basis points sequentially from 56.4% in quarter 2 '25 despite the flat revenue. The gross margin expansion compared to last year quarter 3 was mainly due to better absorption of fixed manufacturing overhead costs and the leading out of our manufacturing cost structure. The sequential margin increase was due to improved mix of higher-margin revenue, in particular, telemetry as well as better absorption of fixed manufacturing overhead costs. Now if you refer to the top right graph, our adjusted EBITDA during quarter 3 increased to $2 million versus $1.3 million in last year's third quarter. Compared to the prior year, lower gross profit of $0.7 million was fully offset by the $1.4 million reduction in operating expense. And moving to the bottom left, where we show both reported and adjusted loss earnings per share. As I've mentioned in the past, typically, the difference between GAAP EPS and adjusted EPS are the impact of stock compensation, amortization and depreciation. These differences between net loss and adjusted EBITDA are highlighted in the reconciliation tables on Slide 10 and are all noncash items. Now moving to the bottom middle graph. year-to-date cash flow from operations was strong at $6.8 million compared to negative $0.3 million in the same period with $1.1 million of operating cash generated in the third quarter. The primary drivers for the improved cash flow from operations were working capital management and operating expense reductions. We expect to see positive operating cash again in the fourth quarter. Now net debt was down over $6 million from year-end '24 to $27.5 million from $33.8 million. This reflects our quarterly principal payment of $1 million and improved operating cash flow. Now with respect to our credit facility, as John noted, we have made progress or in the process of reviewing the multiple proposals we have received. We are negotiating towards the most favorable deal for our company and our shareholders, and we expect to have resolution within the fourth quarter. We will provide more information when we are able to. Now I'll now move to Slide 8 to discuss our outlook for quarter 4. A key factor supporting our guidance is mid-single-digit order growth in the third quarter year-over-year and 4 consecutive months of year-on-year growth. This result has positioned the company with our strongest backlog since the first quarter of 2023. We are guiding to a range of $22.5 million to $24.5 million revenue, resulting in potentially flat revenue for the fourth quarter at the high end of the range. The lower end of the range reflects the potential risk of a prolonged U.S. government shutdown lasting through year-end. Now we expect a corresponding improvement in gross margin in quarter 4 from the higher volume and are guiding to a gross margin range of 58% to 60%. Improved demand and a strong backlog support our confidence to project continued sequential improvement in the fourth quarter. And I'll now turn the call back to our operator to take questions. Operator: Our first question comes from Lucas Baranowski with KeyBanc Capital Markets. Lucas Baranowski: This is Lucas on for Paul Knight at KeyBanc. First off, when we look at the uptick that was seen in preclinical systems during the quarter, was that primarily driven by CROs gearing up to run more studies? Or was it some other factor that was driving the uptick? John Duke: Thank you for the question. We benefited from broad uptick in demand for our telemetry products, and it was not just in one region, it was across regions as well as across different customer groups. Lucas Baranowski: Excellent. And in the press release, you had a comment about backlog being the highest in 2 years. When you look at that backlog, would you say the mix is similar to your existing product mix? Or is there a product like, say, Mesh MEA that's a disproportionate percentage of it? Mark Frost: Yes, Lucas, as John indicated, we had broad-based increase in orders across geographies and products. And we did see an improved benefit from all the NPIs we've launched in this year. So -- but it wasn't one specific product or region that drove the backlog. It was just uniform increase across our geographies and products. Lucas Baranowski: Excellent. And then maybe just one final question. Some of the larger tools companies have noted that they're seeing early signs of improvement in the academic and government market. What are you seeing on that front? John Duke: Yes, we have seen improvement, which is reflected in our Q3 results as well as in our strong backlog going into Q4. Now as we -- as Mark has stated regarding our guidance for the fourth quarter, some academic institutions are dependent upon NIH funding. And we have planned in our guidance depending upon how long the government shutdown goes and how that will flow through to our Q4 results. Operator: Our next question comes from Bruce Jackson with The Benchmark Company. Bruce Jackson: If we could just dive into the NIH funding a little bit more. So the guidance, do you -- are you contemplating an end of the government shutdown during the fourth quarter? Mark Frost: Yes, Bruce, this is Mark. We have built in to the lower range that if it does go to the year-end, that would be the potential benchmark, no pun intended, benchmark we would get to in the quarter. So we have assumed some impact from that in our guidance, Bruce. Bruce Jackson: Okay. And then if the funds don't get released in the fourth quarter, then would you anticipate getting that -- those funds flowing through sales in the first quarter of next year? Mark Frost: Yes, Bruce, yes, as you probably well know, the funds are not lost. It's a timing impact that it just moves out of quarter 4 into '26. So we would expect the orders. And depending when the orders come in, it would come in, in first quarter or second quarter next year. Bruce Jackson: And then last question on NIH. Do the customers have visibility on the funding? So do you feel like you've got good line of sight on the projects and that the customers also have line of sight on the funding? John Duke: It's customer-dependent. I mean, some customers have shared with us that there's no one even to talk to at the NIH right now. And so they're still trying to get visibility, whereas others do have visibility and they're just waiting for their funds to be released. Bruce Jackson: Okay. Great. And then if I may, just one question on the ERP project. Where are you in that project right now? And how should we be thinking about either the spending for additional ERP work or the flow-through from the benefits? Mark Frost: Yes. We actually finished the project in quarter 4 and moved to one U.S. platform. We actually did the same thing in Europe, which I didn't mention, and that was completed in quarter 4. So the benefits have started to roll through both our manufacturing side and our G&A side in '25, and it's contributing to why we've been able to reduce the expenses this year, Bruce. Operator: There are no further questions at this time. This concludes our question-and-answer session. You may now disconnect. Everyone, have a great day.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to the AAON Inc. Third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Joseph Mondillo, Director of Investor Relations. You may begin. Joseph Mondillo: Thank you, operator, and good morning, everyone. The press release announcing our third quarter financial results was issued earlier this morning and can be found on our corporate website, aaon.com. The call today is accompanied by a presentation that you can also find on our website as well as on the listen-only webcast. We begin with our customary forward-looking statement policy. During the call, any statement presented dealing with the information that is not historical is considered forward-looking and made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities and Exchange Act of 1934, each as amended. As such, it is subject to the occurrence of many events outside of AAON's control that could cause AAON's results to differ materially from those anticipated. You are all aware of the inherent difficulties, risks and uncertainties in making predictive statements. Our press release and Form 10-Q that we filed this morning detailed some of the important risk factors that may cause our actual results to differ from those in our predictions. Please note that we do not have a duty to update our forward-looking statements. Our press release and portions of today's call use non-GAAP financial measures as defined in Regulation G. You can find the related reconciliations to GAAP measures in our press release and presentation. Joining me on the call today is Matt Tobolski, CEO and President; and Rebecca Thompson, CFO and Treasurer. Matt will start off with some opening remarks. Rebecca will then follow with a walk-through of the quarterly results, and Matt will finish with our outlook for the rest of the year and some closing remarks. With that, I will turn the call over to Matt. Matthew Tobolski: Thanks, Joe, and good morning. The third quarter marked a decisive inspection point in our operational recovery and capacity expansion. We saw substantial improvement in production throughput at both the Tulsa and Longview facilities, which drove meaningful sequential sales growth, while continued strength in bookings contributed to further backlog growth. While margins in the quarter continued to be impacted by operational inefficiencies in Longview and the early ramp-up of the new Memphis facility, we continue to make steady progress and expect sequential margin improvement to continue through the fourth quarter and into early 2026, putting us firmly on track toward our longer-term goals. The BASX brand continues to perform exceptionally well, fueled by strong momentum in the data center market, where favorably priced bookings have risen sharply and the pipeline of opportunities remains robust. BASX-branded backlog grew to $896.8 million, up 119.5% from a year ago and up 43.9% from the prior quarter. Demand for both our air-side and liquid cooling products remain strong, reflecting how well our custom solutions align with customer needs. To meet this growing demand, we remain laser-focused on ramping up production capacity at our new Memphis facility. This facility adds nearly 800,000 square feet of state-of-the-art manufacturing capacity which provides considerable growth to our BASX production capabilities and positions us well for continued growth. The ramp-up of the facility is progressing as planned, with large-scale production expected by year-end. With a strong backlog and significant increase in capacity, we expect the BASX brand to deliver meaningful growth in 2026. The AAON brand continues to perform well, with sales rising substantially from the prior quarter and bookings remaining strong. AAON-branded sales grew 28.1% sequentially, driven by over 20% production increases at both the Tulsa and Longview facilities and improved utilization of the ERP system, enabling us to better meet demand. Also production returned to prior year levels. In Longview, while still about 20% below last year showed strong progress. Based on September and October exit rates, we expect Longview is nearing full recovery. Enhanced production output of AAON-branded equipment resulted in a book-to-bill ratio for the brand below 1, successfully helping bring backlog in lead times of AAON-branded equipment closer to normalized levels. While backlog for the brand remains higher than desired, we are making steady progress in reducing it. We are committed to achieving this in the near term, ensuring we can effectively serve our customers and restore a normal business cadence. Despite a soft commercial HVAC market and extended lead times, AAON-branded bookings remained strong. While flat year-over-year due to a challenging comparison, bookings were up 15% on a 2-year stack reflecting continued strength in underlying demand. National account wins were particularly robust with bookings up 96% in the third quarter and 92% year-to-date, representing 35% of total bookings for the year. Bookings of Alpha Class air-source heat pump equipment also continued their strong momentum, up 45% quarter-over-quarter and 46% year-to-date. As I mentioned earlier, Longview's ERP implementation has progressed considerably. While production of AAON-branded equipment at the facility remained about 20% below target, output improved sequentially throughout the quarter and by quarter end, production of AAON-branded equipment was approaching full recovery. Production of the new BASX-branded equipment in Longview has performed exceptionally well with consistent year-to-date improvement. Despite the improvement in throughput, we continue to work through efficiency challenges that are weighing on facility profitability. We view these as temporary and expect meaningful margin improvement in the coming quarters. In Tulsa, average production levels for the quarter reflected a full recovery. And by quarter end, we're running ahead of target. We've made strong progress in improving coil supply, which supported the higher production volumes. And while our supply of coils remains constrained, we are effectively managing through these constraints. With the Longview implementation now well underway, we have gained valuable experience and insight, both operational and technical that will guide future ERP rollouts and greatly enhance our readiness to efficiently deploy the ERP system across our other facilities. While we continue to expect some level of operational impact as future sites transition, we are far better prepared to manage these challenges with strengthened internal processes, improved training programs, and a proven framework that positions us to execute future implementations with greater speed, precision and minimal disruption. We've applied the lessons learned from Longview to the Memphis go-live, which occurred on November 1. And we continue to expect Redmond to transition in the first half of 2026 with Tulsa following in the second half. I will now turn the call over to Rebecca, who will walk through the financials in more detail. Rebecca Thompson: Thank you, Matt. Net sales in the quarter increased year-over-year $57 million or 17.4% to $384.2 million. The increase was driven by a 95.8% rise in BASX-branded sales due to continued demand for data center solutions, and increasing production out of our Memphis facility. AAON-branded sales were roughly in line with the prior year, declining 1.5% but increased 28.1% sequentially, driven by solid production gains at both Tulsa and Longview facilities. Gross margin was 27.8%, down from 34.9% in the prior year, but up 120 basis points sequentially. The year-over-year contraction was primarily due to operational inefficiencies associated with the ERP system implementation and unabsorbed fixed costs related to the new Memphis facility. Sequentially, the improvements reflect progress made in optimizing the new ERP system and the resulting increases in production throughput at both the Tulsa and Longview facilities. Non-GAAP adjusted EBITDA margin was 16.5%, down from 25.3% a year ago, but up 160 basis points in the previous quarter. Diluted EPS was $0.37, down 41.3% from a year ago, but up 94.7% sequentially. Below the line pressures included elevated DD&A from Memphis and technology consulting fees related to the ERP implementation. Looking at the segment financials, starting with AAON, Oklahoma, net sales grew 4.3% year-over-year and 29% sequentially. The growth was driven by a strong backlog entering the quarter and improved production throughput that enabled higher backlog conversion. Coil supply also improved, allowing us to efficiently scale production of AAON-branded equipment. Segment gross margin was 31.5%, down from 36.8% in the prior year period, but up sequentially 400 basis points. The year-over-year contraction was primarily due to approximately $4.5 million in unabsorbed fixed costs associated with the new Memphis facility. AAON Coil Product sales increased $35 million or 99.4% from the year ago period. The year-over-year increase was driven by $46.5 million in BASX-branded liquid cooling product sales, a category that was not in production during the prior year period. AAON-branded sales at this segment declined $10.9 million or 31.6% due to the ERP implementation disruptions. Sequentially, AAON-branded sales grew 36.2% reflecting improved utilization of the new ERP system and the resulting increase in production throughput since its go-live in April. Despite the improved throughput, gross margin declined sequentially, reflecting several discrete items which collectively impacted gross margin by 1,050 basis points in the quarter. We expect these challenges to be resolved with our ERP progress. And over time, we expect this segment will deliver gross margin of around 30% based on the strength of pricing within the backlog. Sales of the BASX segment grew 19.2% driven by sustained demand of data center solutions as the market continues to demonstrate strong momentum, and the business captures additional market share. Initial production from our new Memphis facility played a key role in driving growth. Gross margin contracted modestly due to higher indirect warehouse personnel costs associated with operating the Redmond facility near full capacity. Optimization efforts at this facility remain a focus and are expected to accelerate as the Memphis facility continues to ramp. Cash, cash equivalents and restricted cash balances totaled $2.3 million on September 30, 2005 (sic) [ September 30, 2025 ] and debt at the end of the quarter was $360.1 million. Our leverage ratio was 1.73. Year-to-date, we had cash outflows from operations of $18.8 million compared to cash inflows of $191.7 million in the comparable period a year ago. Capital expenditures for the first 3 quarters, including expenditures related to software development, increased 22.1% to $138.9 million. We had net borrowings of debt of $205 million over this period, largely the finance investments in working capital, capital expenditures and $30 million in open market stock buybacks that we executed in the first quarter, all of which we anticipate will generate attractive returns. Overall, our financial position remains strong. We anticipate cash flow from operations will turn significantly positive in the fourth quarter as working capital, including contract assets become a source of cash, reflecting payments received on a large order that was recent started deliveries. This gives us flexibility and allows us to continue to focus on investments that will drive growth and generate attractive returns. We now anticipate 2025 capital expenditures will be $180 million compared to our previous estimate of $220 million. The reduction primarily reflects project timing and the inability to fully deploy funds this year with the majority of these expenditures expected to shift into 2026. I will now turn the call over to Matt. Matthew Tobolski: Thank you, Rebecca. As previously mentioned, backlog remains strong across both brands, giving us the confidence in visibility to stay focused on production and execution. The BASX brand remains the key growth driver of the company, fueled by exceptional demand for the data center market and the unique custom design solutions that we provide our customers. In the quarter, BASX secured a strong volume of new orders at attractive margins, most of which are scheduled for production at our new Memphis facility in 2026. This sets us up to ramp production efficiently next year, optimize the fixed cost investments made in 2025 and drive robust growth for the BASX brand in 2026. The AAON brand also maintained strong momentum. Backlog at the end of the quarter was up 77.1% year-over-year, reflecting strong demand across our business. While backlog size and lead times remain extended, we are actively managing this by ramping production. Despite commercial HVAC volumes being down double digits year-to-date, bookings have stayed strong, demonstrating the resilience of our business. For the fourth quarter, we expect double-digit revenue growth driven by continued production recovery and pricing actions implemented earlier this year. This positions us well for 2026 as comparison fees. However, looking to 2026, we also plan to implement the ERP system at our Tulsa facility in the second half of the year. While we expect minimal disruption based on our Longview learnings, there may be some short-term production impact during the transition. Turning to our 2025 outlook. We now anticipate full year sales growth in the mid-teens at a gross margin of 28% to 28.5%. Adjusted SG&A as a percent of sales expected to be 16.5% to 17%. Before I hand it off for Q&A, I just want to finish by saying, while we continue to navigate some near-term challenges, we're making steady progress across all areas of the business. Our operational execution is improving, production is ramping, demand remains robust and cash flow is trending in the right direction. As we look ahead, we are extremely excited about the opportunities that 2026 will bring. With that, I will now open the call for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Ryan Merkel with William Blair. Ryan Merkel: Congrats on the quarter, a lot of things to like here. I wanted to start off with the BASX orders, which I think for me is the headline. You talked about liquid cooling being strong. You talked about Memphis is fully coming online. But just speak to the drivers, speak to your confidence in your outlook for 40% to 50% growth for the BASX segment. And then you mentioned order visibility is pretty good. I just want to get a sense that you continue to expect strong orders. Matthew Tobolski: Yes. Great question. And to start, maybe looking back to the Q2 earnings call, where the sort of backlog in BASX was flat, it was obviously a point of question from a lot of individuals. We mentioned on that call that obviously, we have to have the capacity and the visibility in our ability to execute those orders in order to really start taking on large orders to support the Memphis growth. As we've kind of progressed through the third quarter, we've had a lot more traction and visibility and kind of understanding what that ramp rate looks like, which allowed us to effectively go out to the market and really start filling the coffers for the Memphis facility. That, coupled with continued strength on liquid cooling orders out of the Longview site, air-side solutions at both Memphis and the Redmond site, provide a lot of that backlog growth. And so, the Q3 sort of order securing was really a good mix of orders in both air-side and liquid side orders kind of across all of our sites, but certainly with a strong amount of focus on the Memphis facility as we look to ramp that up in late '25 into '26. As we think through the visibility, I would just say that the activity our team is having in the pipeline conversations, in projects across existing as well as a number of new customers continues to strengthen and remain very strong. And so, we're having a lot of interest really across the product portfolio and tremendous amount of conversations across the sort of entire network of data center developers, as we look to really capitalize on the continued growth and align our unique value proposition to those customers. So really, we see the BASX -- the growth story is certainly being very strong, certainly have good growth in 2025. And as we go into 2016, we'll see continued good strength in converting that backlog into sales. Ryan Merkel: That's great. Okay. Perfect. And then the one nitpick this quarter was gross margin. Good to hear though the ERP, you're feeling strong there. The implied guidance for 4Q gross margin, 31%, you're showing a step-up. But let's just take the two pieces. So, in Oklahoma, if I add back sort of the Memphis unabsorbed and you're going to be getting the full production there soon, it sounds like, and then the price cost, which is really just a timing thing, should we think about sort of gross margins on a normalized basis for the Oklahoma segment at that 35%, 36% level? That's the first part of the question. Matthew Tobolski: Yes. And certainly, the math you're doing is putting you in that range. So, when we back out the Memphis impact and we back out that price cost differential kind of on that near-term kind of tariff dislocation, that does put you right in that mid-30s. Certainly, we see some additional pressures that existed. When we look at the kind of year-over-year comp from '24 to '25 in Q3, certainly, you got another 200-ish basis points of kind of gap there. And really, what I would say is, we've been ramping up production, kind of meeting some near-term needs of BASX products inside the Oklahoma segment, which while profitable in its sales, it certainly is a new product introduction into that facility that just caused some manufacturing inefficiencies where production lines aren't optimized kind of to build that, but we were doing it to ensure we met customer demand. So, I'd say that mid-30s with some headroom on top of that really is where we see the Oklahoma segment kind of on a normalized basis. Ryan Merkel: Got it. All right. I'll leave the ACP questions for others, but it sounds like there's some discrete items there and 30% long term is a target. So, that's kind of what I expected. Matt, I wanted to give you an opportunity before I turn it over to just comment on the short report that was out. I don't know if that's something you want to do, so I'll give you that out. But there were two claims that I was hoping you could respond to. One, the change in accounting has inflated revenues. And then two, large liquid cooling gross margins are in the 20% range. Just any thoughts there. Matthew Tobolski: Yes. So, just maybe to start off on that report and really just to hit this head on, we want to just kind of reaffirm that we take the integrity of our financial reporting incredibly seriously, and it is regularly reviewed by our independent auditors. And so these statements that are prepared and presented are fully in accordance with GAAP and with the rules of ASC 606. From a confidence standpoint, we're incredibly confident in the strength of our business, in the appropriateness of our accounting practices, and in our operations overall. So with that, just saying that the demand for our products, the pricing of our products remains incredibly strong, and our focus is on executing our strategy, serving the customers and making sure we deliver that long-term value for our shareholders. As we talk through the purported changes in accounting practice, just to state that, that is the ASC 606 standard, which is how revenue has been recognized for the BASX brand kind of throughout its history and since being acquired by AAON. When we look at the dynamics, there was certainly an increase in contract assets in the first half relative to that one large liquid cooling order, which is recognized as a custom engineered, custom manufactured product recognized on a percent of completion basis. And so, when we think about this in context, that one order that was acquired late in the year last year and kind of converting throughout this year, that was nearly the size -- that single order was nearly the size of all of BASX in 2024. And so, that just mathematically is going to drive that change in a near-term perspective on the contract assets. But in Q3, you saw those contract assets decline. You saw the receivables jump showing that conversion and shipping and going to that customer. And so that, that conversion is going to drive cash strength as receivables are kind of converted to cash-in-hand throughout the fourth quarter. The look at that, I mean, that liquid cooling order itself, again, just to reaffirm, that is a custom engineered product developed in the standard process in which BASX supports our customers over its entire history. And so, just kind of reaffirming that, that is not a contract manufactured product. It was engineered to a specification from a customer much the same as we have executed the development and execution of BASX products over its entire history. It is priced well. It is not priced at some low-margin kind of perspective. We're executing well. We're delivering for the customer. We're delivering the quality that customer expects, and we continue to receive add-on orders for that product as well as developing and collaborating on other cutting-edge innovations for the data center space. So, all that to say, I mean, this is executing in accordance with regulations. It's executing incredibly well and profitably for our customers. And some of the ACP near-term stuff has nothing to do with the price perspective on the product. It's inefficiencies as we've kind of rolled out some of that growth. Operator: Your next question comes from the line of Noah Kaye with Oppenheimer. Noah Kaye: Matt, Rebecca. Great to be on with you for the first time and a good quarter to be on for the first time on. I want to go to your CapEx guide lowering it to $180 million and the comments you made, Rebecca. Anything we should read or infer from that into kind of the timing of your planned capacity ramp, whether at Memphis or elsewhere in the business that we should be thinking about? Rebecca Thompson: No, I don't think so. It's just a slight shift from moving some amounts between Q4 to Q1. So, I don't think the lowering of that CapEx is going to slow down the ramp-up of Memphis. The Memphis facility has already really built out with most of the equipment we need to do the ramp-up right now. So, next year's additional plants would just be increasing capacity for future growth. So, it should not impact those ramp-up plans at all. Noah Kaye: Okay. And then since Ryan teed it up, I might as well ask about the discrete onetimes at ACP. Can you just give a little color on that and kind of how you lap them as we go into 4Q in '26 here? Matthew Tobolski: Yes. Just to start off, I want to maybe just take the ACP segment for a second and look at this from a quarter-over-quarter perspective. We saw really good strength and growth in the ACP segment, and absent of the discrete items that we kind of referenced, you'd be seeing margin at around 27%, which is showing good quarter-over-quarter growth in both the throughput as well as the overall margin profile. Some of these discrete items that kind of are in question, I mean, there's essentially operational inefficiencies, some of which are going to -- or most of which will abate kind of with the optimization of the ERP, the rest of which just with some additional manufacturing process improvement. Nothing to do with pricing. The liquid cooling order is priced at very compelling levels. And as I mentioned earlier to Ryan's question, that liquid cooling order itself is a solutions-based product, solutions-based win. It was not a low bid type situation. So, priced well and really just focused on getting that execution kind of fully in order. And looking forward, we're confident when we say the segment is at least a 30% gross margin business, based on what we have in the backlog, based on what we have with the margin profile in the backlog and really just focused on execution for both the BASX and AAON brands. Noah Kaye: Yes. And is that -- is ACP where we see the most improvement sequentially into 4Q to kind of help us get to that 31% that was referenced earlier, if that's the right number for gross margin for 4Q? Matthew Tobolski: Definitely quarter-over-quarter, you're going to see strong improvement. ACP definitely being a big driver of that improvement. But I would say, I mean, you're also going to see some incremental improvement within the Oklahoma segment as well, it's kind of as that price cost dynamic get on the right side from the tariff impact. Noah Kaye: Okay. Perfect. And lastly, obviously, really strong data center orders for BASX this quarter, great to see the increase in backlog. Can you talk a little bit about the customer mix and profile there? You mentioned liquid versus air-side, but just give us a sense of the demand profile across the customer base. Matthew Tobolski: Yes, it's a pretty broad-based actually. And I would say that when we look at the amount of interaction and conversation in the space right now, it is across sort of the entire profile of data center developers. So obviously, there's been strength and continued strength within the hyperscalers. But within a lot of the, I'll say, the contract builders, the colocation providers, the neocloud, we're seeing strength really across the profile in the order activity and in the quote activity in that space. Operator: Your next question comes from the line of Chris Moore with CJS Securities. Christopher Moore: Yes. Maybe we'll shift from BASX to rooftop. Can you just talk a little bit about pricing at this point in time, the current AAON premium, and maybe just your big picture thoughts on rooftop in '26. Matthew Tobolski: Yes. So, from a pricing standpoint, I mean, obviously, we put on price twice this current calendar year. So, early January 1, put in 3% and then additional 6% kind of came in through the tariff surcharge. So sitting a little above 9% compounded for the year. As we look forward, we're definitely in the midst right now of really kind of all of our analytics and kind of where cost drivers are looking as we go into 2026. So, no real guidance at this point on kind of what pricing actions are going to come in the near to midterm. But I would say that, we certainly see the price premium of AAON equipment is still existing, for sure, kind of inside the space, maybe ever so slight contraction from last year to this year, but really seeing the price premium and the value proposition is still being sold kind of throughout that product brand. Looking to your question, Moore, I'll say, on the market perspective, I mean, certainly, the space remains soft, the commercial HVAC space remains soft. As we do a lot of our checks with our sales channel partners, a lot of the commentary we're getting is, there's actually a pretty substantial uptick in bid activity. But still soft in the overall order conversion. So, I say that -- to say that, it's a positive indicator, certainly showing there's a lot of activity kind of brewing inside the space. But obviously, in the near term, if not converting to actual orders, it's not converting to new projects. And so, when we think about what that looks like into '26, indicates we're going to enter '26 kind of in continued softness. But I'd say that demand we're seeing with that bid activity, we would look to see that sort of start converting midway through the year into sort of strengthening of the overall order cadence from a macro perspective. But that aside, with that kind of as the macro driver, we continue to remain incredibly focused on some of the unique growth drivers that are sort of providing us that outperform in bookings, things like the Alpha Class air-source heat pump product differentiation really getting out in the marketplace and ensuring that we're selling to the market and effectively communicating to the market that value proposition as well as the continued focus on that national account strategy. So, we see those being the, I'll say, the levers that are allowing us to continue outperforming from a bookings perspective against the softer macro backdrop. Christopher Moore: Perfect. Very helpful. And maybe just a follow-up back to BASX. In terms of gross margins, we've had lots of discussions currently and ultimately, in terms of where the margins could be at the Investor Day. And we talked about 29% to 32%, a little bit below rooftop. And I'm just, again, trying to understand is there something structural in BASX that couldn't get to the mid-30s? Or it's just the rapid growth that is going to make it difficult for a while to get to that level? Matthew Tobolski: No, it's a great question. And certainly, our kind of putting it around that 30% level is really, sort of, setting what we see as the, sort of, near-term execution targets kind of within that space. From a perspective standpoint, it took AAON 30-some-odd years to really get into that mid-30s range. And a lot of that was driven by really good execution around improvements around manufacturing process, coupled with obviously pricing competitiveness. And so, as we start getting more and more, I'll say, we get the ability to really kind of get some of our production lines stable, we can really start focusing on pulling our costs and putting dollars to the bottom line in those spaces. And so, I would just say from an expectation setting standpoint, that 30% range is really kind of where we want to keep everyone grounded. But certainly, we're an organization that is focused on outperforming. And so, for us, looking at how do we keep driving better execution and really keep driving improvement of that is going to be something that is certainly front of mind as we keep progressing forward. Operator: Next question comes from the line of Tim Wojs with Baird. Timothy Wojs: On the Oklahoma business, Matt, I mean, where are your lead times today kind of relative to normal? And I guess as you think about kind of converting the Tulsa facility next year on the ERP side, I guess, how are you kind of communicating that to people in the channel? And how are you preparing for any sort of, I guess, kind of order pull forward that might kind of happen as a result of that implementation? Matthew Tobolski: Yes. Certainly great questions. And on the lead times, when we look at the Oklahoma segment, where they stand today, they're probably sitting around 50% higher than we wanted to be. And again, our focus here is really on getting that execution up, getting that volume up at that facility and really start pulling that back down. So, one thing I'd say is, well, obviously, backlog growth is a big conversation on the BASX side of the business. On the AAON side, our big driver here is, let's get that backlog down, let's get that lead time kind of back in check where we want them to be, just to be able to make sure that we're meeting the market demands appropriately. As we think about, I'll say, kind of getting ahead of things within the ERP side, we're certainly going to be substantially more proactive. Again, I'll just say lessons learned around the Longview side to make sure we get ahead of it. And provide some buffer kind of, in sort of, what we communicate to the market to make sure we deliver and these schedules that are met with our best foot forward. So, that's going to be definitely going to be part of our intentional, kind of, before go-live messaging strategy ahead of a Pulse to go-live. Exactly what that's going to look like and kind of what buffer, that's still certainly part of an operational conversation, but certainly will be something we're looking at throughout the mid part of '26. Timothy Wojs: Okay. And speaking of operations, I mean, you just, I think, hired a COO. Could you maybe talk about what kind of those responsibilities are going to be for him in kind of maybe the near and intermediate term and kind of what he brings to AAON? Matthew Tobolski: Yes. And I really -- maybe what I'll do is I'll start by kind of just framing a perspective here, which is, we've been very fortunate to go through some tremendous growth, which is incredibly exciting. It's an awesome opportunity for our organization, for our team to grow and to really thrive inside that space. And as we think about AAON 5 years ago versus AAON today, I mean, we've got five facilities. We've got some monster growth coming out of brand-new facilities. We've had massive expansion in Longview, strong investment in Redmond and continued investment inside the Tulsa facility, all of that supported by strong demand. So, the company over the last 5 to 10 years, it's really transformed. It's kind of gotten a lot of legs below it and really built itself up in stature and mass. And so, when we think about what Roberto brings to the organization, it's the ability to effectively manage consistency across all five facilities and drive best practice lean manufacturing, visible manufacturing really across the organization and get the right visibility to be able to tack the problems before they become problems. And so, you've got experience operating up to 23 facilities, expert in lean manufacturing and really something that the operations team and the whole team of AAON and BASX is incredibly excited about as we look to continue capitalizing on the growth drivers in a very profitable fashion. Timothy Wojs: Okay. Okay. That's great. And then, I guess just two questions -- two, kind of, modeling questions. I guess, first, is there any way to just quantify the free cash flow that you expect in the fourth quarter? And then as you kind of think about bringing on Memphis, do you have like a DNA number that we should think about for AAON in 2026? Rebecca Thompson: So, I don't have a quantification of the free cash flows for Q4. It should be considerably up. I mean, especially you saw it turn positive this quarter. We're starting to -- we had delays in getting some of our billings out. So, we're collecting those now in the fourth quarter. Yes. It should be up significantly, but I don't have a good estimate to give you just off the cuff. And then, on your second question, -- yes, so for 2025, we expect the year will be in the $75 million to $80 million range, and then we expect to see like another $20 million to $25 million in 2026. Operator: [Operator Instructions] Your next question comes from the line of Julio Romero with Sidoti & Company. Alex Hantman: This is Alex on for Julio. Just a follow-up on ERP. I know we talked a little bit about lessons learned and alluded to that, but maybe we could get a little more specific on key lessons learned from Longview that you're applying to Memphis and maybe even what milestones you thought about before greenlighting the rollout to Memphis? Matthew Tobolski: Yes. From a lessons learned, I mean, I'll say there's kind of a variety of people and process sides of it. But just high level, what I would say is, some of the configuration changes and lesson learned that we've implemented in Longview as well as Memphis is streamlining some of the automation that can be provided in process flow inside the ERP that wasn't fully implemented, I'll say, kind of on the initial go-live that caused too much manual interaction that slowed down some of the production velocity. And so, we really kind of streamlined some of those processes, and we've really greatly enhanced the amount of hands-on training within the system. I think the lessons learned is, we did a lot of training as part of the go-live, but a lot of it was more classroom setting versus getting really more live hands on how you would live in the system on a day-to-day basis. And so, a lot of that kind of was lessons learned out of the Longview site. And really, that was informing the kind of go-live strategy within the Memphis site. And Memphis has been live for about a week now and really been operating in a smooth fashion, albeit lower volumes than what we have in Longview, but kind of on a go-live and a ramp-up perspective, behaving very well. Alex Hantman: Great. I think going hand-in-hand with streamlining and ERP work might be automating with AI. So, I was curious if you could touch on any sort of work with that. Matthew Tobolski: Yes. I mean, certainly, as a manufacturer that greatly supports the explosive growth of the data center investment around AI, it certainly also informs kind of how we leverage AI as an organization. So there's a lot of things we're looking at. I mean, everything from how we analyze warranty claims for trends, how we look at predictive analytics around unit performance. So, there's a lot of sort of projects going on. But certainly, as time progresses, AI will become more and more relevant kind of in our strategy. But what I would say now is we have a lot of things that are more in the sandbox and planning phase as we look at how to leverage AI, both from an operations perspective, but also from a value driver from a customer's perspective. Operator: Your next question comes from the line of Brent Thielman with D.A. Davidson. Brent Thielman: Great. Yes. I guess, question, Matt, just as you peel back kind of the layers here within the rooftop business, your thoughts on what seems to be working in terms of the share capture strategy. I heard you comment on the national accounts growth, maybe how that informs, how that, kind of, strategy is working and anything else in and around that? Matthew Tobolski: Yes. So, to maybe peel it back in kind of two pieces. I think, when we look at what we call the more transactional type orders, the standard kind of end market orders, we see that softness kind of that you hear across the overall commercial HVAC space on the more everyday type orders. We see that kind of in our order cadence as well. And so, when we look at where the growth drivers have been, I'd say two things that are big differentiators for us that have allowed us to outperform in bookings has been the Alpha Class air-sourced heat pump. So, from an innovation and sort of a product differentiation standpoint, continue to see that getting some good traction inside the space as we really have a best-in-class solution that operates in sort of your southern climate all the way to your low-temp climates with sort of the more Alpha Class Extreme program. So that's definitely been a driver that's, sort of, allowing that differentiation of product to really capture the hearts and souls of a lot of organizations. And it really aligns well with that national account customer. So when we think about national account customers looking to reduce carbon footprints with portfolios of facilities all across the country, that Alpha Class product definitely is a huge conversation starter and a differentiator kind of inside the space. And with the three tiers of that product, we rolled that out in a way that provided solid pricing points, really depending on kind of what the market is from an environmental perspective. And so, we don't need to go all the way to the Alpha Class Extreme, low ambient air-source heat pump if I'm delivering a product in Florida. But when we look at some of the northern states, the solutions that we have in terms of efficiency, performance points and cost points really can't be beat inside the marketplace. And so, that's really allowed a broad conversation on that national account space, really around air-source heat pumps, decarbonization to be able to provide really a solution across the portfolio that really can't be met by anyone else in the marketplace. And so, a lot of that on some of that conversation and growth really in both the national accounts as well as really just transactional air-source heat pumps. Brent Thielman: Got it. And then on the BASX side, whether you wanted to talk around the orders this quarter, Matt, or kind of an immediate pipeline. I mean, one of the objectives here is to try and get into maybe more of the standardized products. And I guess, question one is, are you starting to see those orders come through? Is it far too early for that? And two, maybe just the diversification of customers that are reflected in these orders? Matthew Tobolski: And just to maybe put a clarifying point. When we look at the productization strategy, I wouldn't say we're going to a standard product by any stretch. What I would say is, really just, envision that as the same solution or the same mindset around how AAON goes to market with a software-driven semi-custom, still very much value-driven products just in a little bit more of a walled off platform that provides some more efficiencies in how we go to market. But I just want to kind of clarify that. I wouldn't really go to sort of a standardized product definition. It still very much is highly configurable value-driven solutions. But I would say, we're certainly starting to get into quote activity on those products. We're in the early innings, really on getting that into the marketplace. And so, certainly out there having the conversations, but that backlog growth that we see right now, that is reflective of the historic solution-based, the custom products that BASX brand has built itself on since its formation. Customer-wise, I mean, there's obviously a couple of large orders that exist inside that sort of backlog growth. But I would say there's also a spattering of other smaller customers kind of in there. So, there is definitely a couple of big hitters in that backlog growth, but there's also a diversity in the customer base in what we're growing right now. Brent Thielman: Okay. Last one. Obviously, a big chunk of orders here is to fill the Memphis capacity that comes on to, I think, just based on past conversations, Matt, you sort of want to be deliberate about that, work through any inefficiencies as that facility ramps up. I guess the question I have is, do you have what you want for now? Or are you comfortable continuing to push and capture more orders for that facility even as that hasn't ramped up quite yet? Matthew Tobolski: Yes, great question. I mean, I think the -- there's definitely good backlog sitting in there right now to help ramp that facility in a measured perspective, but there also is some headroom in there, especially as we get into the second half of next year to start putting in some more demand into that facility. And so, there is room to definitely keep putting orders in there as we get more and more traction. The facility as it stands today, just kind of maybe perspective, it has the ability to have seven production lines put in place. We're sitting at three today. We're adding -- we're working to add a couple more, but there certainly is all of that five to seven production lines are not fully booked out. And so there is room to -- as we keep growing it out to keep ramping up production at that facility. But I would definitely be thinking about that from a bookings cadence for orders that would be coming in for start delivery in the back half of next year. Operator: There are no further questions at this time. I will now turn the call back over to the management team for closing remarks. Matthew Tobolski: Okay. Thank you, everyone, for joining us on today's call. If anyone has any questions over the coming days and weeks, please feel free to reach out to myself. Have a great rest of the day, and we look forward to speaking with you in the future. Thank you. Operator: Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.
Operator: Good day, everyone, and welcome to today's FRP Holdings Inc. 2025 3Q Earnings Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions] It is now my pleasure to turn the conference over to Matt McNulty, Chief Financial Officer of FRP. Please go ahead. Matthew McNulty: Thank you. Good morning, and thank you for joining us on the call today. I am Matt McNulty, Chief Financial Officer of FRP Holdings, Inc. And with me today are John Baker III, our CEO; John Baker II, our Chairman; David deVilliers III, our President and Chief Operating Officer; David deVilliers, Jr., our Vice Chairman; John Milton, our Executive Vice President; Mark Levy, who will serve as our new Chief Investment Officer; and John Klopfenstein, our Chief Accounting Officer. Mark Levy came to us through our recent acquisition of Altman Logistics Properties, where he served as its President. First, let me run you through a brief disclosure regarding forward-looking statements and non-GAAP measurements used by the company. As a reminder, any statements on this call, which relate to the future are, by their nature, subject to risks and uncertainties that could cause actual results and events to differ materially from those indicated in such forward-looking statements. These risks and uncertainties are listed in our SEC filings. To supplement the financial results presented in accordance with generally accepted accounting principles, FRP presents certain non-GAAP financial measures within the meaning of Regulation G. The non-GAAP financial measures referenced in this call are net operating income, or NOI, and pro rata NOI. In this quarter, we provided an adjusted net income to adjust for the impact of onetime expenses of the Altman Logistics acquisition, which is a material business combination unlike our historical real estate acquisitions or joint ventures where we expense -- where our expenses are capitalized. We also provided adjusted net operating income to adjust for the impact of the onetime material royalty payment in the third quarter of 2024 to better detect the comparable results in both the quarter and year-to-date. Management believes these adjustments provide a more accurate comparison of our ongoing business operations and results over time due to the nonrecurring material and unusual nature of these 2 specific items. FRP uses these non-GAAP financial measures to analyze its operations and to monitor, assess and identify meaningful trends in our operating and financial performance. These measures are not and should not be viewed as a substitute for GAAP financial measures. To reconcile adjusted net income, net operating income and adjusted net operating income to GAAP net income, please refer to our most recently filed 8-K. Now to the financial highlights from our third quarter results. Net income for the third quarter decreased 51% to $700,000 or $0.03 per share versus $1.4 million or $0.07 per share in the same period last year due largely to $1.3 million of expenses related to the Altman Logistics Properties acquisition, partially offset by higher mining royalties and improved results in Equity in Loss of Joint Ventures. Excluding the acquisition expenses this quarter, adjusted net income was up $281,000 or 21% over last year's third quarter. The company's pro rata share of NOI in the third quarter decreased 16% year-over-year to $9.5 million, primarily due to the onetime minimum royalty payment received in last year's third quarter. Excluding last year's onetime payment, adjusted NOI was up $104,000 in this quarter versus last year's third quarter. I will now turn the call over to our President and Chief Operating Officer, David deVilliers III, for his report on operations. David? David deVilliers: Thank you, Matt, and good morning to those on the call. Allow me to provide additional insight into the third quarter results of the company. Starting with our Commercial and Industrial segment. This segment currently consists of 10 buildings totaling nearly 810,000 square feet, which are mainly warehouses in the state of Maryland. Total revenues and NOI for the quarter totaled $1.2 million and $904,000, respectively, a decrease of 16% and 25% over the same period last year. The decrease was due to same-store occupancy reducing by 24% or 132,000 square feet and the addition of 258,000 square feet of new development space generated by our Chelsea building in Harford County, Maryland, which was 100% vacant in the quarter. Combined, these vacancies totaled 51% of the business segment and a focus to lease and increase occupancy is a priority. Moving on to the results of our Mining and Royalty business segment. This division consists of 16 mining locations, predominantly located in Florida and Georgia with 1 mine in Virginia. Total revenues and NOI for the quarter totaled $3.7 million and $3.8 million, respectively, an increase of 15% and a decrease of 26% over the same period last year. The decrease in NOI is the result of a nonrecurring $1.9 million royalty payment in last year's third quarter. The disconnect between revenue and NOI is the result of GAAP accounting with the revenues being straight-lined. As for our Multifamily segment, this business segment consists of 1,827 apartments and over 125,000 square feet of retail located in Washington, D.C. and Greenville, South Carolina. At quarter end, 91% of the apartments were occupied and 74% of the retail space was occupied. Total revenues and NOI for the quarter were $14.6 million and $8.2 million, respectively. FRP's share of revenues and NOI for the quarter totaled $8.5 million and $8.2 million, respectively, a revenue increase of 2.9% with NOI down 3.2% over the same period last year. The decrease in NOI was a result of higher operating costs, property taxes and increased uncollectible revenue at Maren. The increase in revenue is the result of GAAP accounting, which again includes straight-line rents and uncollected revenue that is due, but which has not been paid. As stated in previous quarters, new deliveries in the D.C. market will continue to put pressure on vacancies, concessions and revenue growth in the foreseeable future. We continue to have renewal success rates over 55% with renewal rent increases averaging over 2.5%. New lease trade-out rates are generally down to compete with new supply and strike a balance between revenue and occupancy. Management continues to be diligent in tenant retention and rental rates in the market. Now on to the Development segment. In terms of our commercial industrial development pipeline, our 2 Central and South Florida industrial joint venture projects with Altman Logistics Partners, where FRP was a 90% and 80% owner are under construction. Following our acquisition of Altman Properties, FRP now owns these assets 100%. The projects are in Lakeland and Broward County, Florida, totaling over 382,000 square feet and shell completion is anticipated by summer 2026. Our Central Florida industrial joint venture with Strategic Real Estate Partners, where FRP is a 95% owner is pending permits for 2 buildings totaling over 375,000 square feet. The buildings are in Lake County, Florida, near Orlando, with options for investment in additional industrial development on adjacent properties in the future. We expect to break ground in Q4 on both buildings with shell building completion expected in Q4 2026. In Cecil County, Maryland, along the I-95 corridor, we are in the middle of predevelopment activities on 170 acres of industrial land that will support a 900,000 square foot distribution center. Off-site road improvements, reforestation codes and obtaining off-site wetland mitigation permits delayed our entitlement process, and we expect permits in early 2026 with a focus on attracting a build-to-suit opportunity. Finally, we are in the initial permitting stage for our 55-acre tract in Harford County, Maryland. The intent is to obtain permits for 4 buildings totaling some 635,000 square feet of industrial product. Existing land leases for the storage of trailers help to offset our carrying and entitlement costs until we are ready to build. We submitted our initial development plan during the quarter, which puts us on track to have vertical construction permits in late 2026 and the potential to start a 212,000 square foot building pending market conditions in 2027. Completion of these aforementioned industrial projects will add over 1.8 million square feet of additional industrial commercial product to our platform. Our projects in Florida represent over 750,000 square feet that will be available for lease-up in 2026. When stabilized, these projects alone are expected to generate annual NOI around $9 million with FRP's share of NOI just over $8 million. Subsequent to the quarter end, the company acquired the business operations and development pipeline of Altman Logistics Properties, LLC. As discussed earlier, this allowed FRP to own 100% of the Lakeland and Broward County, Florida projects. The acquisition also included a minority interest in 3 industrial buildings totaling 510,000 square feet in New Jersey and Florida, which are currently in various stages of development and all delivering in 2026. FRP expects to have up to $8 million invested in the 510,000 square feet with expectations of receiving over a 2x multiple on invested capital when the buildings are sold. The acquisition includes future development opportunities with the potential to develop 3 additional buildings totaling 725,000 square feet in Florida. Turning to our principal capital source strategy or lending ventures. Aberdeen Overlook consists of 344 lots located on 110 acres in Aberdeen, Maryland. We have committed $31.1 million in funding, $27.5 million was drawn as of quarter end and over $24.7 million in preferred interest and principal payments were received to date. A national homebuilder is under contract to purchase all the finished building lots by Q4 2027. 180 of the 344 lots were closed upon, and we expect to generate interest and profits of some $11.2 million, resulting in a 36% profit on funds drawn. In terms of our multifamily development pipeline, our joint venture with Woodfield Development, known as Woven, is under construction. FRP is the majority owner and the project represents our third multifamily project in Greenville, South Carolina. Total project costs are estimated at $87 million and consists of 214 units and 13,500 square feet of ground floor retail that is eligible to receive both South Carolina textile rehabilitation credits upon substantial completion and special source credits equal to 50% of the real estate taxes for a period of 20 years. The project is expected to be ready for lease-up in Q4 2027. In addition to Woven, our multifamily joint venture in Estero, Florida, located between Fort Myers and Naples, where FRP holds a 16% minority interest is under construction with Woodfield as well. Total project costs are estimated at $142 million and consist of 296 units and 28,745 square feet of retail. The project is expected to be ready for lease-up in late 2027. These 2 multifamily projects are expected to boost FRP's NOI by over $4 million following stabilization in 2029. In closing, FRP will have over 1.6 million square feet of industrial space available to lease over the next 12 months, making leasing conditions an important factor now and over the next 12 to 24 months. Currently, the broader backdrop remains mixed. Continued uncertainty around trade policy and macroeconomic direction has extended decision cycles for many occupiers, particularly for larger blocks of space. Even so, on-the-ground activity in our target submarkets is improving. In Maryland, we are seeing increased tour velocity, especially among tenants in the 25,000 square foot range. While demand for over 100,000 square foot product remains selective, mid-bay activity continues to demonstrate meaningful resilience. Industrial fundamentals remain constructive. Rents are holding firm. New construction has declined below pre-pandemic levels, creating a healthier balance between supply and demand. We expect market vacancy to peak in the fourth quarter of 2025 with improving policy clarity supporting renewed tenant momentum. As we bring new product online in 2026, our pipeline is well positioned to benefit from tightening fundamentals and continued strength in well-located Class A logistics assets. Across our core markets, we are seeing signs of stabilization and early recovery. New Jersey, vacancy held flat for the first time in 10 quarters with mid-bay product remaining exceptionally tight and the development pipeline near cycle lows. South Florida is among the strongest markets nationally with Broward County vacancy remaining around 5% with rent growth near 5%. Palm Beach is absorbing near-term deliveries, supported by enduring land scarcity and tenant demand. In Central Florida, market strength continues to bifurcate between bulk and mid-bay product. Our focus on mid-bay positions us to outperform. In Baltimore, leasing accelerated in Q3 with roughly 2.9 million square feet executed and vacancy tightening to 7.4%. Modern logistics and manufacturing users continue to drive activity, supported by disciplined new supply and durable rent levels. Bottom line, we are operating in supply-constrained, high-barrier markets where modern infill logistics space continues to command strong tenant interest. With deliveries aligned to improving fundamentals, we are positioned to capitalize on the next phase of industrial demand. We are leaning into the strength across our core logistics markets with roughly [ 400,000 ] square feet of vacancy in Maryland and over 1.25 million square feet of Class A products scheduled to deliver in New Jersey and Florida in 2026. The backdrop is constructive. Vacancies are stabilizing and trending lower and rents remain firm to rising. These conditions reinforce our confidence in achieving efficient lease-up across our portfolio and driving strong value realization. Thank you, and I will now turn the call over to Mark Levy, our new Chief Investment Officer, who we hired in concert with closing on the Altman Logistics portfolio in October. Mark? Mark Levy: Thank you, Dave, and good morning. I'm pleased to join you today. As Matt mentioned, I came to FRP following the company's acquisition of Altman Logistics Properties, where I served as President from the inception of the company in 2001 through closing. My career has been dedicated to institutional industrial investment and development across the Eastern United States, including senior leadership roles at Duke Realty, Prologis and Hilco Redevelopment Partners with a focus on large-scale capital deployment and strategic market expansion. Our team brings deep expertise across development, acquisitions, entitlements and leasing with a strong track record executing complex projects in high barrier supply-constrained logistics markets. Our strategy is centered on creating durable value and generating superior risk-adjusted returns through targeted investment in infill supply-constrained locations, off-market and creatively structured opportunities, value creation through entitlement, redevelopment and adaptive reuse and disciplined execution and delivery of Class A logistics facilities. Limited new supply in our target markets continues to support pricing power and rent growth. Against this backdrop, our pipeline is positioned to outperform as demand normalizes and absorption improves. In the Northeast, one of the most competitive industrial regions in the country, our development pipeline includes Logistics Center at Parsippany, which is a 140,000 square foot Class A redevelopment in Morris County and Logistics Center at Hamilton, which is a 170,800 square foot Class A redevelopment in Hamilton Township, New Jersey. Both projects convert obsolete office assets into modern industrial facilities, demonstrating our ability to reposition underutilized real estate in core submarkets. In Florida, supported by sustained population growth and strong logistics demand, our pipeline spans Central and South Florida. Logistics Center at Lakeland is a 201,000 facility along the I-4 corridor equidistant from Tampa and Orlando and Logistics Center at Delray is a 3-building just under 600,000 square foot logistics campus in Delray Beach, Florida. And finally, Logistics Center at 595 is a 182,773 square foot distribution facility in Southern Broward County that was converted from the legacy hospitality use. This property is located immediately adjacent to Port Everglades and the Hollywood Fort Lauderdale International Airport. As mentioned, the Altman platform historically operated as a merchant development program, earning fees and promote economics alongside institutional partners. FRP expects to continue this model for projects not wholly owned by the company with property level IRRs in the mid-teens to 20 plus prior to promote participation. In addition, FRP plans to retain full ownership of select assets, including Lakeland and Davie, positioning the company to capture long-term value through stabilized cash flow and NAV growth. Across the portfolio, our discipline is consistent, invest in locations with immediate transportation connectivity, deep labor pools, significant supply constraints and dense population centers. These fundamentals support resilient demand, attractive development yields and durable long-term value creation. I look forward to working with the FRP leadership team to advance our development pipeline, deepen our market relationships and scale our logistics platform in a disciplined value-accretive manner. With that, I'll turn it back to John. John Baker: Thank you, Mark, and good morning to those on the call. As Matt touched on, third quarter results, though down, are actually better than they appear at first blush. GAAP net income is down 51% for the quarter and 37% for the year. But adjusted for one unusual item, namely the legal costs associated with the Altman acquisition, adjusted net income is up 21% for the quarter and down 5% for the year. Pro rata net operating income was down 16% for the quarter and 2% for the year. But excluding the nonrecurring cash -- nonrecurring catch-up payment in mining royalties in the third quarter of last year, adjusted NOI is up 1% for the quarter and 5% for the year. This is a very long way of saying that results are where we expected them to be, which is to say more or less flat compared to last year. 2025 was identified by management as a foundational year for future growth, just not necessarily a growth year. In the short term, leasing and occupancy -- leasing and occupying our industrial and commercial vacancies at current market rates is the simplest and fastest way to improve earnings and NOI. Our buildings had real operating costs that are offset by tenant reimbursements, and that's a problem only new leases and tenants will solve. What we don't want to do is be so focused on occupancy that it comes at the expense of leasing these spaces for less than the value they should command. A bad lease will be a headache for us for longer than the short-term pain of the vacancy. In terms of setting the company up for our next phase of growth, as David mentioned, we have 3 industrial projects in Florida totaling 763,000 square feet in various stages of development, all of which will be substantially complete in 2026. We are working to entitle all of the projects in our in-house development pipeline in Maryland to be shovel-ready in 2026. This does not mean we are starting these projects in 2026, but we want to be fully prepared to move on them if someone approaches us about developing any of these parcels ahead of where they fall in our spec development queue. Finally, and most importantly, as we laid out in our call last week, the acquisition of Altman Logistics is essential to our growth strategy. As Mark just described, through this acquisition, we are now the general partner in developing industrial assets in some of the best industrial markets in the world. Through promotes and sales, we will generate a not insignificant amount of cash, which we can use to do entirely in-house projects or JVs where we are a larger partner with family offices or institutional money and generate fees or some of both. And we now have a team in place to be opportunistic and flexible with how and where we decide to proceed. I said this on the call last week announcing the deal, but at the risk of repeating myself, the finances of the deal are attractive, but I think the most important component of this acquisition is the people. Opening a new office and building a separate team would have been a full-time job and a risky one. If you're ever curious about what that's like, you can feel free to call Mark. And any expansion into these industrial markets outside of our traditional Baltimore Sandbox would have to be done by joint ventures, which while effective, is an expensive way to expand because of the development fees and the equity you give up on a successful project. Through this acquisition, we now have the ability to do these same projects in-house or be the partner generating fees and equity if we so choose. It simultaneously solves the problem of additional hires we would have had to make anyway with people plugged into the markets where we want to be. As I said last week, talent is going to be the only differentiator we can count on to deliver value to our investors. Through this acquisition, we have taken on a team with a proven track record that can identify growth markets, leverage contacts for off-market deals, control construction costs and get a building occupied and stabilized quickly with quality tenants. Combining this team with the additional profits earned from these joint ventures on top of our own projects will be what drives this company's next decade of growth. I'll now turn the call over to any questions that you might have. Operator: [Operator Instructions] We do have a question. We'll go to the line of Ted Goins with Salem. J. Goins: Thank you so much for all the discussion this morning and especially for all the energy that you're putting into this endeavor. I would love to talk about the difficult part of the business right now, sorry for this. The Nat Stadium opened in 2008. And -- it just seems to be a problem. You speak of the recovery issues around the Maren. I think maybe this is the same thing that Wall Street Journal was talking about in an article a week or 2 ago with Atlanta as a highlight. But could you put some color on what you all are seeing in that area and the impediments to development and your thoughts around when that might develop again? And I recollect that the transaction with Vulcan was coming up in 2026, which seems a lot closer today than it was a few years ago. And if you could speak to that as well. David deVilliers: Sure. I will start in terms of the district market conditions. And you've heard us talk about this before, but during the pandemic, a lot of, I would say, tenant protective laws were put in place, where tenants were not allowed to be evicted and you weren't allowed to raise any rents. And that really materialized into an environment where tenants just stopped paying their landlords. And we really had no way of getting them out of our buildings. And there was also laws passed where we really couldn't vet tenants. So we couldn't do our due diligence where tenants paid or not paid historically. And if they didn't pay, we couldn't get them out. So our delinquency rate was extremely high, not only ours, but across the market. In Class A buildings, we were seeing 10%, 12% of the tenants not paying. So you might have been 95%, 90% occupied, but that building was really only 80%, considering many of your tenants weren't paying. We are seeing that now subside. The district has truly embraced the fact that this is an issue and new laws continue to be passed to help landlords deal with tenants and protect rent-paying tenants as well. So I think from a legal, eviction tenant landlord relations side, things are changing and evolving. I think crime and security have been a focus as well down in the district, which also is helping to support more people coming out, more people using our ground floor retail. And there are signs that things are changing. There was a number of buildings that were delivered around our buildings, large projects. These projects are over 500 or 1,000 units being delivered. And there's velocity there. They're leasing them. They may not be at the rates that everyone likes, and there's definitely concessions in the market to get these new supply deliveries filled and stabilized. But the velocity is there, the demand is there. And I think we just need to strike a better balance between supply and demand, which we believe is coming. We need to get more of these, I would say, equal tenant landlord laws in place, and we need to make sure that people feel safe and want to be out in the environment, in the district. And all those things we have seen. We have seen change. We are moving away from the bottom. When it flips to a point where we feel development will pencil, is when we start seeing gains at our existing multifamily buildings. And we're starting to see it. We're starting to see renewal rents move up. Trade-outs, as I mentioned, are still pretty flat negative because it's tough to attract tenants into our buildings when new deliveries are given concessions. But it is turning. I feel that we are off the bottom of multifamily. But let's see what the next couple of quarters say. And in terms of the Vulcan lease, we are talking with them. We're in active communications with them, and we look forward to keeping them there. They're a great tenant. They provide concrete to our projects. And until we're ready to develop that site, we'd love to have them there. J. Goins: And how does the development of RFK move things along for you? Or is that just too far down the river? David deVilliers: In my mind, it's too far down the river, but it's great to see government investment. I do think it's a little too far down, but it's always great to have that type of activity in and around where you are. J. Goins: And part of the notion a few years back was that Amazon was going to move forward in Pentagon City or wherever it is right near there. And that would offer a reverse commute to folks in the district near you. How is that developing? David deVilliers: I would say this. I -- we haven't seen any real impact from that development. J. Goins: Okay. And could you speak to Bryant Street? It seems to be getting a little bit of momentum and what you might be doing there that's showing some green shoots? David deVilliers: Yes. Bryant Street, again, we're dealing with some delinquency there. It is stable, and we have seen some small gains. We have seen gains in our rental rates, which is great. I think the biggest green shoot that we have seen is that our retail component, which is fairly large at Bryant Street. The tenants are in, they're occupying, they're paying, and we're -- and we see kind of the light at the end of the tunnel. Bryant Street is more or less stabilized now. And with treasuries where they are, I think we will be in a place to get some good financing at some point. Maybe not now, but potentially in the first half of 2026, and we would be able to lower our debt service to a point where our earnings are relevant. So Bryant Street is a big project. The development of that area really got slowed down because of the pandemic. We're moving away from that. We're seeing rent growth. We're seeing our occupancy tick up. We're seeing delinquencies and concessions burn down. We're in a good, good place from -- we're more stable there than ever. And I think that bodes well with getting the capital stack of equity and debt in a good place and start seeing some meaningful cash flow on the horizon. J. Goins: Again, I just want to say thanks for all your efforts. The efforts, the intentionality that you guys are putting forth are evident to all of us. And so thank you for that. Operator: [Operator Instructions] It appears we have no further questions at this time. I will now turn the program back over to our presenters for any additional or closing remarks. John Baker: We appreciate your continued interest and investment in the company, and this concludes the call. Thank you. Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Good morning, ladies and gentlemen, and welcome to the CrossAmerica Partners Third Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Maura Topper, Chief Financial Officer. Please go ahead. Maura Topper: Thank you, operator. Good morning, and thank you for joining the CrossAmerica Partners Third Quarter 2025 Earnings Call. With me today is Charles Nifong, CEO and President. We'll start off the call today with Charles providing some opening comments and an overview of CrossAmerica's operational performance for the third quarter, and then I will discuss the financial results. We will then open up the call to questions. Today's call will follow presentation slides that are available as part of the webcast and are posted on the CrossAmerica website. Before we begin, I would like to remind everyone that today's call, including the question-and-answer session, may include forward-looking statements regarding expected revenue, future plans, future operational metrics and opportunities and expectations of the organization. There can be no assurance that management's expectations, beliefs and projections will be achieved or that actual results will not differ from expectations. Please see CrossAmerica's filings with the Securities and Exchange Commission, including annual reports on Form 10-K and quarterly reports on Form 10-Q for a discussion of important factors that could affect our actual results. Forward-looking statements represent the judgment of CrossAmerica's management as of today's date, and the organization disclaims any intent or obligation to update any forward-looking statements. During today's call, we may also provide certain performance measures that do not conform to U.S. generally accepted accounting principles or GAAP. We have provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press release. Today's call is being webcast, and a recording of this conference call will be available on the CrossAmerica website for a period of 60 days. With that, I will now turn the call over to Charles. Charles Nifong: Thank you, Maura. Maura and I appreciate everyone joining us this morning, and thank you for making the time to be with us today. During today's call, I will go through some of the operating highlights for the third quarter. I will also provide commentary on the market and a few other updates as I typically do on our calls. Maura will then review in more detail our financial results. If you turn to Slide 4, I will briefly review in more detail some of our operating results for the quarter. For the third quarter of 2025, our Retail segment gross profit decreased 4% to $80 million compared to $83.6 million in the third quarter of 2024. The decrease was primarily driven by a decline in motor fuel gross profit due to lower retail fuel margins for the quarter compared to the prior year. For the quarter, our retail fuel margin on a cents per gallon basis decreased 5% year-over-year, as our fuel margin was $0.384 per gallon in the third quarter of 2025 compared to a historically strong $0.406 per gallon in the third quarter of 2024. In comparison to the prior year, crude oil prices were much less volatile during the third quarter of 2025, which resulted in lower market volatility. And as a result, our retail fuel margins were lower year-over-year. For volume on a same-store basis, our overall retail fuel volume declined 4% for the quarter year-over-year. Our retail volume performance for the quarter was bifurcated between our company-operated and commissioned sites. For our company-operated sites, our same-store volume for the quarter was down slightly less than 3% year-over-year. Our pricing strategy for our company-operated retail sites overall remained unchanged. We strive to be competitive at each location for the market the site is in. For our commission class of trade, our commission same-store site volume was down approximately 7% for the quarter. The decline was due in part to our decision at select sites to adjust our pricing strategy. With many of the sites that we converted throughout last year, we were very aggressive with fuel pricing initially at conversion, which generated strong volume growth and provided us with data about the volume potential of the locations. These sites are now same-store locations. And in the third quarter, we sought to balance the volume and margin performance of these locations, which led to lower same-store volumes in our commission sites in addition to the overall volume decline in the market. Based on national demand data available to us, national gasoline demand is down approximately 2.5% for the quarter. So our company-operated sites slightly underperformed the market volume for the quarter, while our commission sites were below national market volume, primarily due to the deliberate pricing strategy changes we implemented during the quarter. In the period since the quarter end, national retail volume has been down approximately 3.5% and our overall retail same-store volume has been down slightly more than that year-over-year, as we continue to adjust commission pricing strategies relative to the prior year, and we compare against what was for us a very strong volume performance last October. In the same period, retail fuel margins have been significantly higher than the average third quarter retail fuel margins, as oil market price volatility has generated favorable market conditions for enhanced retail fuel margins. For inside sales -- on a same-site basis, our inside sales were up approximately 3% compared to the prior year for the third quarter. Inside sales, excluding cigarettes, increased 4% year-over-year on a same-store basis for the quarter. Our inside sales growth was driven by strong performance in our packaged beverage and other tobacco products categories. Also, our food category contributed to our relatively strong 4% growth in same-store sales for the period. Overall, national demand for inside store sales for the quarter was flat to slightly positive, indicating our relative outperformance for the quarter. On the store merchandise margin front, our merchandise gross profit increased by 5% to $32 million, driven by an increase in sales in our base business and an increase in store merchandise margin percentage. Our merchandise gross margin percentage was up strongly over the prior year, approximately 100 basis points. This was primarily due to strong growth in certain higher-margin categories like other tobacco products and also due to our transition from a commission-based model for certain products in the third quarter of last year into owning and selling these products directly for the current quarter. In the period since the quarter end, same-store inside sales have been approximately flat compared to the prior year. In our retail segment, if you look at our total number of retail sites at the end of the quarter, our company-operated site count decreased by 8 sites this quarter relative to the second quarter of this year. The decrease in company-operated sites reflects the asset sales we completed during the quarter. The divested locations were lower performing sites in markets that we decided were no longer strategic for us. Our commission agent site count also decreased modestly by 3 sites during the quarter relative to the second quarter. Site divestitures this quarter represent our execution on our continued strategic focus on being in retail, in the right markets, with the right assets and positioning our portfolio for long-term success. We continue to look for opportunities in our portfolio to increase our retail exposure and our overall retail strategy has not changed. The Retail segment performed well for the third quarter. On a fuel margin-neutral basis, the segment outperformed the prior year on strong inside sales and expense reduction, which Maura will address in her comments. Our volume performance at first glance underperformed, but this was due primarily to deliberate decisions we made in our commission class of trade to adjust our volume and fuel margin mix at select sites. In the period since the quarter end, we have benefited from a very strong fuel margin environment throughout the month of October. Moving on to the Wholesale segment. For the third quarter of 2025, our Wholesale segment gross profit declined 10% to $24.8 million compared to $27.6 million in the third quarter of 2024. The decrease was primarily driven by a decline in fuel volume, fuel margin and rental income. The primary factor for the fuel volume decline was the conversion of certain lessee dealer sites to company-operated and commission agent sites, which are now accounted for in the retail segment. Rental income declined for the same reason and due to the site divestitures we have completed thus far this year. Our wholesale motor fuel gross profit declined 7% to $15.7 million in the third quarter of 2025 from $16.9 million in the third quarter of 2024. Our fuel margin decreased 2% from $0.09 per gallon in the third quarter of 2024 to $0.088 per gallon in the third quarter of 2025. The decline in our wholesale fuel margin per gallon was primarily driven by movements in crude oil prices and lower prompt pay discounts associated with lower gasoline prices, which reflected lower crude oil prices during the quarter compared to the prior year, partially offset by better sourcing costs. Our wholesale volume was 177.7 million gallons for the third quarter of 2025 compared to 186.9 million gallons in the third quarter of 2024, reflecting a decline of 5%. The decline in volume when compared to the same period in 2024 was primarily due to the conversion of certain lessee dealer sites to our retail class of trade. The gallons from these converted sites are now reflected in our retail segment results. For the quarter, our same-store volume in the wholesale segment down approximately 2.5% year-over-year. So the additional approximately 2.5% drop in volume, the difference between the overall volume decline of 5% and our same-store volume decline of 2.5% for this segment was largely due to converting sites to the retail segment or the loss of independent dealer volume. As I mentioned in my retail segment comments, national demand data available to us indicated national volume demand was down around 2.5% for the quarter. So our same-store wholesale volume performance for the third quarter performed in line with overall national volume demand. In the period since the quarter end, wholesale same-store volume has been down approximately 4.5%, so slightly worse than national volume demand, which has been down approximately 3.5%. Regarding our wholesale rent, our base rent for the quarter was $8.5 million compared to the prior year of $10.4 million, a decrease due to the conversion of certain lessee dealer sites to company-operated sites as well as our real estate rationalization efforts. As we have previously explained, the rent dollars for the converted sites, while no longer in the form of rent, are now effectively in our retail segment results through our fuel and store sales margins at these locations. During the quarter, we continued with our real estate rationalization efforts, realizing approximately $22 million in proceeds from the sale of 29 sites during the quarter that we primarily used to pay down debt. For the most part, we sold sites with continuing fuel supply relationships, so we realized an extremely attractive effective multiple on these divestitures, strengthening our financial position today and positioning our portfolio for the future. Year-to-date, we have realized approximately $100 million in proceeds from asset sales, our biggest year ever. We continue to have a strong pipeline of asset sales for the rest of the year and are building a pipeline of asset sales for 2026. While we don't expect next year to be the record volume of sales that we have executed this year, we do expect it to contribute meaningful proceeds for us to either put into the balance sheet or to invest into the business. Overall, the third quarter was a solid quarter for the partnership. While our EBITDA was below the prior year, on a comparable fuel margin basis, our EBITDA results exceeded the prior year despite us realizing approximately $100 million in asset sale proceeds this year. During the quarter, we continued to make meaningful progress on our strategic goals with another strong quarter of site divestitures, which strengthened our balance sheet by lowering our debt level by approximately $22 million compared to the second quarter and further optimize our operating portfolio for the future. Since the end of the third quarter, we've had a strong start to the fourth quarter, benefiting from a very favorable fuel margin environment. With that, I'll turn it over to Maura to further discuss our financial results. Maura Topper: Thank you, Charles. If you would please turn to Slide 6, I would like to review our third quarter results for the partnership. We reported net income of $13.6 million for the third quarter of 2025 compared to net income of $10.7 million in the third quarter of 2024. This increase in net income was driven by a combination of factors, including a decline in adjusted EBITDA year-over-year, offset by increased gains on the sale of assets that Charles discussed in his commentary and a decline in interest expense. We recorded a net gain from asset sales and lease terminations of $7.4 million during the third quarter of 2025 compared to $4.7 million during the third quarter of 2024. Interest expense declined from $14.1 million during the third quarter of 2024 to $11.8 million during the third quarter of 2025, a material benefit to our quarter as a result of our strategic activities, which I will discuss further later on in my comments. Adjusted EBITDA for the third quarter of 2025 was $41.3 million, a decline of $2.6 million or 6% compared to the prior year period. This decline was primarily due to a decline in fuel and rent gross profit, which was offset by a $4 million decrease in overall expenses during the quarter year-over-year. Our distributable cash flow for the third quarter of 2025 was $27.8 million, a slight increase from $27.1 million for the third quarter of 2024. The increase in distributable cash flow was primarily due to lower cash interest expense, sustaining capital expenditures and current income tax expense, offset by our lower adjusted EBITDA. The decline in interest expense we experienced during the quarter was due to a lower average interest rate during the period and a lower average outstanding debt balance on our capital credit facility during the period, as we have materially applied the proceeds of our asset sale activities to pay down our revolver balance. Our distribution coverage ratio for the third quarter of 2025 was 1.39x compared to 1.36x for the same period of 2024. Our distribution coverage for the trailing 12 months for the period ended September 30, 2025, was 1x compared to 1.26x for the same 12-month period ended September 30, 2024. During the third quarter of 2025, the partnership paid a distribution of $0.525 per unit. Charles provided information in his comments on our top line and gross profit metrics during the quarter and how they impacted our adjusted EBITDA compared to the prior year. I will now touch on the expense portion of our operations. In total, across both segments, we reported operating expenses for the third quarter of 2025 of $57.5 million, a $3.2 million decrease year-over-year. We reported G&A expenses for the quarter of $6.5 million, a $0.8 million decrease year-over-year, resulting in a total expense decrease for the organization of $4 million or 6% over the course of the past year. As I touched on during our last quarterly earnings call, we have cycled through the first year of operations of many of our locations in their new classes of trade, which typically results in elevated expenses to onboard and upgrade the converted locations. As a result, we are experiencing a stabilization of our expense profile in our current class of trade site count. We will, of course, continue to experience seasonality of certain types of operating expenses in our stabilized portfolio, like increased labor in the summer and increased snowplowing in the winter. Returning to our operating segments. Retail segment operating expenses for the third quarter declined $1.6 million or 3%. This was driven primarily by the reduced site count in our retail segment this quarter, specifically the 4% decrease in average company-operated site count year-over-year. On a same-store store level basis, operating expenses in our retail segment were down 2% for the third quarter of 2025 compared to the third quarter of 2024. The decline was primarily driven by reduced repairs and maintenance spending at both our company-operated and commission class of trade locations due to realized ongoing efficiencies in our maintenance operations, offset by normal course increases in store labor costs. Operating expenses in our wholesale segment declined by $1.6 million or 19% for the quarter year-over-year due to declines in site level operating expenses and management fees, as our wholesale segment average site count declined 6% year-over-year. And specifically, our lessee dealer or controlled site count within this segment declined 23% year-over-year due to asset sales and to a lesser extent, conversions to our retail class of trade. Our G&A expenses declined 11% for the quarter year-over-year, primarily driven by lower legal fees and equity compensation expense. As noted last quarter, our G&A expense profile this quarter, excluding event-driven acquisition costs and unit price movements impacts to equity compensation is more indicative of our ongoing run rate in this area. We remain focused across the organization on efficient expense management at our locations, ensuring that we are investing in customer-facing areas that will drive the long-term health and sustainability of our sites and driving operating efficiencies in our above-store operations. Moving to the next slide. We spent a total of $6.7 million on capital expenditures during the third quarter with $4.8 million of that total being growth-related capital expenditures and $1.9 million of that being sustaining capital expenditures. The decline in sustaining capital expenditures versus the prior year is in line with our expectations, as we experienced a stabilization of our current class of trade site count as well as a reduction of our real estate controlled site count. Moving to our growth capital spending during the quarter. Our spend remained focused on our company-operated locations and included the completion of various projects to increase food offerings, both our own and QSRs as well as targeted fuel brand and backcourt refresh projects, supported by our wholesale fuel supplier partners. Our food-related growth investments have and will continue to contribute to our merchandise sales and margin results, as Charles discussed earlier. Turning to our balance sheet. The asset sale activities during the third quarter that Charles reviewed in his comments, meaningfully helped us reduce our credit facility balance by $21.5 million since the end of the second quarter of 2025, ending the quarter at a credit facility balance of $705.5 million. Our year-to-date asset sale activities have helped us to reduce our credit facility balance by $62 million year-to-date. The decrease in our balance, combined with the gains on sale generated from our asset sale activities, resulted in a decrease in our credit facility-defined leverage ratio to 3.56x compared to 4.36x as of December 31, 2024. This leverage ratio continues to provide additional meaningful savings on our credit facility interest expense, as we move forward. Our management team remains focused on the cash flow generation profile of our business, utilizing our normal course operations and our targeted real estate optimization efforts to manage our leverage ratio at approximately 4x on a credit facility-defined basis. Our asset sale activities during the quarter and reduced credit facility balance also helped improve our cash interest expense during the quarter, which decreased from $13.7 million in the third quarter of 2024 to $11.3 million in the third quarter of 2025. We also benefited from a lower average interest rate environment during the third quarter of 2025. Our existing interest rate swap portfolio continues to benefit us as well. At this time, more than 55% of our current credit facility balance is swapped to a fixed rate of approximately 3.4% blended, which remains an advantaged rate in the current rate environment. Our effective interest rate on the total capital credit facility at the end of the third quarter is 5.8%. In conclusion, as Charles noted, we had a solid third quarter. We successfully completed several asset sales, reducing our debt by more than $20 million and strengthening our balance sheet. These transactions also positioned our operating portfolio for long-term performance. We remain focused as a team on continuing to execute across the business and are looking forward to 2026, maintaining a strong balance sheet and generating value for our unitholders. With that, we will open it up for questions. Operator: [Operator Instructions] Unknown Executive: It doesn't appear we have any questions today. Should you have any questions later, please feel free to reach out to us. Again, thank you for joining us. Have a great day. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.
Operator: Good morning. My name is Joelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Cascades' Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I will now pass the call to Jennifer Aitken, Director of Investor Relations for Cascades. Ms. Aitken, you may begin your conference. Jennifer Aitken: Thank you, operator. Good morning, everyone, and thank you for joining our third quarter 2025 conference call. We will begin with an overview of our operational and financial results, followed by some concluding remarks, after which we will begin the question period. Today's speakers will be Hugues Simon, President and CEO; and Allan Hogg, CFO. Before turning over the call, I would like to highlight that certain statements made during this call will discuss historical and forward-looking matters. The accuracy of these statements is subject to risk factors that can have a material impact on actual results. These risks are listed in our public filings. These statements, the investor presentation and the press release also include data that are not measures of performance under IFRS. Please refer to our Q3 2025 investor presentation for details. This presentation, along with our third quarter press release, can be found in the Investors section of our website. If you have any questions, please feel free to contact us after the session. I will now turn over the call to our CEO, Hugues Simon, who will begin with a review of our Q3 performance. Hugues? Hugues Simon: Thank you, Jennifer, and good morning, everyone. Our third quarter performance was stronger than our projections. This was driven by improved volumes, higher average selling prices and lower production costs in both businesses. This reflects the growing momentum achieved by our profitability initiatives. Volume showed steady positive momentum in the quarter. In Packaging, the flexibility of our operating platform enabled us to capture volume above our forecast. We continue to remain laser-focused on our balance sheet, allocating free cash flow to reduce our debt. Consolidated EBITDA of $159 million increased 16% from Q2. As I mentioned, this was driven by a stronger performance in both of our businesses due to higher volume, higher selling price and lower production costs. Year-over-year consolidated EBITDA increased 14%. Results in both businesses benefited from stronger pricing and favorable raw material costs. These offset higher operating costs and lower utilization rate in Packaging. We provide a breakdown of the impact of these factors sequentially and year-over-year on Slide 5. Trends continue to be favorable on raw material input costs. We provide an overview of raw material average quarterly costs and trends on Slide 6 and 7. Moving now to the results of our businesses, which are highlighted on Slide 8 through 13 of the presentation. Beginning with Packaging, our second quarter sales increased 4% sequentially. This reflects stronger volume and improved average selling prices. Demand levels exceeded our cautious outlook with September, in particular, coming in stronger than expected. We provide box shipments data for Cascades and the industry on Slide 8 and 9. Q3 EBITDA increased by 14% sequentially to $136 million. This was driven by higher volumes and selling prices. EBITDA margins improved to 17.1% from 15.6% in Q2. Results in this business have begun capturing benefits from our improved operating cost structure and profitability initiatives. The closure of our Niagara Falls facility went well and production was transitioned to other operating units ahead of schedule. Similarly, we had a strong quarter at Bear Island, and we are pleased with the sequential progress. Production increased 24% to just over 102,000 tons. The mill ran at 90% of our targeted ramp-up curve and 88% of its total production capacity in the quarter. We have continued to see this positive operational pace in October, and we are forecasting a strong end of 2025. We remain committed to closing the gap by year-end. Our employees at Bear Island are driving this momentum and we would like to thank them for their hard work and incredible focus. Year-over-year sales increased by 3%. This reflected higher selling prices and favorable exchange rate, which offset lower volume due to plant closures and softer demand as a result of economic headwinds. EBITDA increased 16% from last year, driven by higher selling prices and lower raw material costs. Margins improved to 17.1% from 15.1% last year. Moving now to our Tissue business. Third quarter sales increased 5% sequentially on stronger volumes. Converted product shipments increased 6% in both away-from-home and retail tissue markets. EBITDA of $46 million increased 21% from Q2 as benefits from volume, mix and lower operating costs mitigated slightly higher raw material costs related to a higher proportion of virgin fiber. Sales increased 6% from last year. This reflected stronger volumes and higher average selling price. Shipments increased 5% year-over-year with a 7% increase in retail and a 1% increase in away-from-home. Year-over-year EBITDA increased by $3 million, reflecting higher volume, higher average selling price and lower material costs. These were partially offset by higher operating costs due to planned maintenance. We continue to focus on our Pryor, Oklahoma mill. We are building a strong foundation to accelerate efficiency improvements. We have started to see benefits in October and are confident that this trend will continue through Q4. Also, our recent investments in Kingsey Falls and Granby facilities are delivering good results. I'll now pass the call over to Allan, who will briefly discuss some of the financial highlights. Allan? Allan Hogg: Thank you, Hugues, and good morning, everyone. Let's start with the specific items recorded during the quarter, which impacted operating income by $12 million on Slide 14 and 15. The main items were $10 million for an environmental provision related to a closure in 2024 of a plant in Canada and $6 million of restructuring charges mainly related to the closure of the Niagara Falls mill. In addition, there was also a $4 million gain on derivative financial instruments. Slide 16 and 17 illustrate the year-over-year and sequential variance of our Q3 adjusted earnings per share and the reconciliation with the specific items that affected our quarterly results. As reported, Q3 net earnings per share were $0.29. This compared to net earnings per share of $0.01 last year and a net loss of $0.03 per share in Q2. On an adjusted basis, net earnings per share were $0.38 in the current quarter. This compared to net earnings per share of $0.27 last year and $0.19 in the second quarter of 2025. These increases were both driven by stronger adjusted EBITDA in the current quarter. As highlighted on Slide 18, third quarter adjusted cash flow from operations was $137 million, up from $86 million in the year ago period and $101 million in Q2. Adjusted cash flow generated in the second quarter improved year-over-year, mainly reflecting stronger operating results and lower financing expense. Capital investments and dividends paid to minority interests were largely unchanged. Sequentially, the increase in levels of adjusted cash flow generated reflects stronger operating results and lower amounts of dividends paid to minority interest, net of higher financing expense paid. Slide 19 provides details about capital investments. New investments for the third quarter totaled $30 million, bringing the year-to-date level to $91 million. For 2025, we expect CapEx to total approximately $140 million, slightly lower than the $150 million stated at the end of Q2. Moving now to our net debt reconciliation as detailed on Slide 20. Sequentially, net debt decreased by $81 million in the third quarter, mainly due to a stronger cash flow from operations and a reversal in working capital requirements. A less favorable exchange rate on our U.S.-denominated debt increased debt levels by $42 million. Our leverage ratio decreased to 3.6x from 3.8x at the end of the second quarter. Our available liquidity under our credit facility stood at $630 million at the end of the third quarter. We also announced that we've completed the sale of the Flexible Packaging operation on October 8. The $31 million of cash proceeds have gone towards debt repayment in the fourth quarter. Including this amount, total proceeds from asset sales amount to $57 million this year. Financial ratios and information about maturities are detailed on Slide 21, and other information and analysis can be found on Slides 26 through 34 of the deck. I will now pass the call back to Hugues, who will conclude with some brief comments before we begin the question period. Hugues? Hugues Simon: Thank you, Allan. We provide our outlook for Q4 on Slide 22. In Packaging, raw material and selling price trends are anticipated to be favorable. However, we remain cautious regarding demand levels due to unusual post-Thanksgiving seasonality and continued macro uncertainty. To this end, we are currently forecasting Packaging results to be in the range of stable to 10% below Q3 levels. This is driven by an expected 5% decrease in volumes, mainly in December. Tissue results are expected to strengthen sequentially with lower raw material and maintenance costs. Corporate costs are expected to be stable. However, share-based compensation costs are expected to be higher given the recent increase in our share price. Before opening the call to questions, I would like to provide an update on our strategic priorities for 2025 and 2026. First, our plan to monetize redundant assets is progressing well, and we are increasing our target to $120 million by June 2026 from the $80 million disclosed previously. Lastly, our culture of excellence focus is starting to show benefits and have helped mitigate the impact from headwinds. On Slide 24, we provide a few examples of what has been done and our current areas of focus. Looking at our most recent quarter, our initiatives contributed approximately $10 million to our results sequentially. We are on track to achieve our $100 million objective of run rate profitability improvements by the end of 2026. With that, we can now open the call to questions. Operator? Operator: [Foreign Language] [Operator Instructions] Your first question comes from Hamir Patel with CIBC Capital Markets. Hamir Patel: Congrats on a strong quarter. Hugues, I wanted to ask about the profitability improvement objectives there, the $100 million by the end of 2026. You mentioned you captured $10 million in Q3. How much have you captured cumulatively to date? And then the sort of longer-term goalpost of over $200 million, what do you see as the time line of achieving that? Hugues Simon: Yes. Thank you for your question, Hamir. If you look at what we've done so far this year, the first 2 quarters of the year was mostly focused on building the foundation to drive improvements. And we really started to see some good benefits in the third quarter. So we're building momentum. And as we stated on the second quarter, like we're really looking at a net run rate of $100 million by the end on the last quarter of 2026. So we expect the momentum to continue. I won't say on a straight curve. But most of it has to be achieved like before the fourth quarter, it's not all going to happen at the end of 2026. So we expect some momentum to be building over the next 3 quarters. And we're focusing on twice of the amount because, obviously, there are some headwinds. You look at the uncertainty in the market today. There's a volume impact. We -- that drove some of our decisions in the third quarter to shut down our Niagara Falls facility. We were able to redistribute the customer mix, focus on linerboard versus medium and look at profitability on a per hour basis, putting the right products on the right machine for the right customer. So that momentum is going to continue to build. And obviously, the focus is to get it as fast as we can. Hamir Patel: Great. That's helpful. And Allan, with respect to the CapEx budget for 2026, $175 million, what are the sort of larger projects that drive the increase there? Allan Hogg: Well, our team are just planning for that. But there's no, I would say, major strategic, but maybe a bit more investment in this year to continue to improve where we need to improve, improve quality, reduce our costs. So -- but there's nothing, I would say, like a major addition to what we have. That's what we have on the table right now. Hamir Patel: Okay. Great. And just the last question I had, and maybe this is for Hugues. Just with respect to what you're seeing in the recovered paper market, do you feel OCC prices are bottoming here? And kind of what are you seeing in your local markets? Hugues Simon: Yes. I mean we just had the latest publication going down $5 here and $10 in the Southeast yesterday. I mean we're getting to a point. It's a low number. We're really tracking the percentage of people that are doing the recycling. We're also tracking the quality of the product that we're getting. Sometimes when pricing deteriorates, you see an impact on quality, and that's something that we pay very, very close attention. There's also more of a headwind for people to export out of North America. But in the meantime, we're also seeing with the shutdown in the U.S., a lower recovery rate or a lower generation of OCC as well as consumers have reduced their spending. So we're -- per region, we're tracking the balance of all that, making sure that our strategy provides for like the low generation that we'll typically get as well after Christmas and match that with our operating rate. But overall, for the next quarter, we see that as if you do the summation of everything I just mentioned, it's a positive trend for us, but paying close attention to the volume generated. Operator: Your next question comes from Sean Steuart with TD Cowen. Sean Steuart: Congrats on a solid result. Hugues, a number of the U.S. packaging comps have provided cautious 2026 guidance with respect to the volumes and margins. Do you have enough visibility in your order file maybe past the fourth quarter to really comment on expectations, I suppose, on the volume side to start with for your Packaging business in 2026? Hugues Simon: Thank you for your question, Sean. I mean the visibility, I mean, we typically guide 1 quarter ahead. All the economic uncertainty right now gives a bit more of a -- it's a bit muddy out there for 2026. If you look back over the last few quarters, we've been very cautious on the guidance, and we've also been cautious on volumes that we put in our operating plan. The key here for us is really we want to be able to capture any uptake in demand. And we've been able to do that in the third quarter. We are able to do that right now in the fourth quarter. If you look at the fourth quarter, our -- the biggest uncertainty is post Thanksgiving, given the U.S. shutdown and how much money the U.S. consumer have to spend. So it's going to be the same reality until we see more stability in the economy, but we'll be ready to capture any uptake. And we're really focusing right now on partnering with customers that are more resilient that don't see too much of a drop that are using basic products. And then we have our mix in Canada and in the West that does behave differently than the U.S. It's very busy in our Western operation. It's very busy in Ontario as well. Quebec is probably the one that is the most difficult market given the type of businesses and the type of product that we produce. So we're working on that as well on a per region basis to partner with the most resilient customers. But as far as visibility, I mean, we'll continue to be cautious. We're not going to be over optimistic, and we'll make sure that we have the quick turnaround time to capture any available business over and above our forecast. Sean Steuart: Second question for Allan. The increase in the asset sales target to $120 million, is that incremental just exclusively the addition of the Flexible Packaging divestiture? And further to that, can you give us a sense of any associated EBITDA tied to these initiatives, i.e., how much are you giving up as you sell these assets down? Allan Hogg: Well, it's not necessarily linked to the Flexible Packaging transaction. As we go, we continue to evaluate what we have, and we see that there may be new opportunities that are coming on the table. So that's why we feel comfortable to increase this target. And there's -- in terms of EBITDA contribution, it's nothing -- I would say, nothing major. And as for Flexible, the approximately $5 million to $6 million a year. So that's no -- nothing significant, and we continue to progress, and we might have new opportunities in the future and some might just be not achievable. So that's why we are comfortable with the level we have right now. Operator: Your next question comes from Matthew McKellar with RBC Capital Markets. Matthew McKellar: Just reflecting back on some of the presentation materials around the time you're constructing Bear Island would suggest there could still be pretty substantial incremental EBITDA to unlock as Bear Island ramps up from, I guess, 88% in Q3 to the full potential of the facility. So recognizing that price input cost spreads and operating costs have evolved over time, how do you think about the incremental EBITDA Bear Island running full to generate compared to what you did in Q3? Hugues Simon: Yes. Thank you, Matt, for the question. The -- if you look at the last 6 months, we saw consistent improvement from an operating rate standpoint or operating efficiencies. We're now to a point where we're at 90% of our ramp-up curve, but also at 80% of the capacity of the mill. So we'll continue to push on that to get to the 100%. And we've now started to look at usage, so cost components, whether it's chemical, all the materials that we use here. So this is going to be a main focus for the next 6 to 12 months is how do we get benefits from both operating efficiencies and usage, so cost structure. We don't disclose profitability per mill, but there's still enough benefits to capture between where we are today versus where we want to be, that remains our #1 priority on Packaging. Matthew McKellar: And would that 6 to 12 months' time line align with when you would expect to essentially hit the full run rate profitability of the mill? Hugues Simon: From an efficiency standpoint, we expect Bear Island by the end of next year to be at the same. You're never at 100% of the capacity all the time, but we'll be running at the equivalent from an operating standpoint of our Greenpac operation. And our cost initiative, I want to say that it's going to take 24 months to get to a full where we are. That being said, we always reassess that, right? So sometimes we're somewhere and then we feel we can get better. And that's a bit of the mindset that we've put in place with our excellence initiatives where we always want to have over $100 million in the pipeline of improvement so that we can take care of headwinds, inflation and other cost components that we have less controls on. Operator: [Operator Instructions] Your next question comes from Nathan Po with National Bank Capital Markets. Nathan Po: Congrats on the quarter. So I want to ask about your Packaging segment because EBITDA came in above expectations this quarter. Were there any onetime incremental volumes that contributed to this? And can you describe whether those are more permanent volumes or temporary given you mentioned you're ready to capture any incremental uptake? Hugues Simon: Yes. No. So there's no onetime incremental volume that we don't feel that are going to come back. We are going to have this normal seasonability, sorry, on the fourth quarter. And now, I mean, we have the economic uncertainties in both Canada and the U.S., could be quite honest, like mostly post Thanksgiving. We saw good traction more than expected in September. That continued throughout the month of October. And we're not really seeing much of a slowdown to date right now in November. But we know that from a season standpoint, it is going to slow down. And you look at the accumulation of negative news for the North American consumers, we want to be cautious. So if you look at our guidance, we took 5% off in volume for the fourth quarter, and it was not front-loaded, but I mean, backloaded in the second part of the quarter, given Thanksgiving and Christmas. That being said, we're continuing to work on customer mix, the right product at the right place on the right machine and improved mix of linerboard versus medium because there is a significant difference in the profitability between the 2 products. So really pushing to have a more resilient volume base, which will enable us to plan better and look long term ahead with more stable volumes. Nathan Po: Appreciate the color. And with the -- talk about the CapEx budget constraints and lowering that guidance and focus on debt repayments, I want to invert that a little. What needs to change in the environment in 2026 or even 2027 for you to revise that CapEx budget upwards or start investing for growth? Hugues Simon: Well, we've said for many quarters, we want to be between the 2.5 and 3. We're at 3.6. So we're making good progress. We're not announcing any significant CapEx for 2026. We have options. Our strategy is to really build different options in both Packaging and Tissue to see what has the best return for Cascades. So I mean, we started looking at what are our alternatives, and we'll continue to do that. But for now, we're going to continue our focus on debt repayment. We're making good progress. We're looking at our forecast at the end of Q4. We'll make additional progress in the third quarter results. That does not include the Flexible Packaging sale, which cash came in, in the fourth quarter, and we're pushing our $80 million to $120 million. So we're really focused on that 2.5 to 3. We're not waiting to get there to assess our options, but we want to maintain a good ratio so that we maintain flexibility in an environment that it's ever changing. So a strong balance sheet will always give us more alternatives and put us more in the driver's seat versus like a 4x ratio on debt. Operator: There are no further questions at this time. Mr. Hugues, please continue. Hugues Simon: Well, thank you, everyone, for your time. We're very satisfied with the quarter. Looking forward for the fourth quarter, and we'll try to maintain the trend. Thank you. Operator: [Foreign Language] Thank you, ladies and gentlemen. This concludes today's conference call. You may now disconnect.
Operator: Good morning. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Choice Properties Real Estate Investment Trust Third Quarter 2025 Earnings Call. [Operator Instructions] I'd now like to hand the call over to Simone Cole, General Counsel and Secretary. Please go ahead. Simone Cole: Thank you. Good morning, and welcome to Choice Properties Q3 2025 Conference Call. I am joined this morning by Rael Diamond, President and Chief Executive Officer; Niall Collins, Chief Operating Officer; and Erin Johnston, Chief Financial Officer. Rael will start the call today by providing a brief recap on our third quarter performance, and provide an update on our transaction activity. Niall will discuss our operational results and our development pipeline, and Erin will conclude the call with a review of our financial results before we open the line for Q&A. Before we begin today's call, I would like to remind you that by discussing our financial and operating performance and in responding to your questions, we may make forward-looking statements, including statements regarding Choice Properties' objectives, strategies to achieve those objectives as well as statements with respect to management's beliefs, plans, estimates, intentions, outlook and similar statements concerning anticipated future events, results, circumstances, performance and exceptions that are not historical facts. These statements are based on current estimates and assumptions and are subject to the risks and uncertainties that could cause actual results to differ materially from the conclusions in these forward-looking statements. Additional information on the material risks that can impact our financial results and estimates and assumptions that were made in applying and making these statements can be found in the recently filed Q3 2025 financial statements and management discussion and analysis, which are available on our website and on SEDAR+. Finally, new to this quarter, our call will feature presentation slides. If you've joined by webcast, you will see these slides presented on screen. If you have dialed into the call by phone, these slides will be available on our website following the call. And with that, I turn the call over to Rael. Rael Diamond: Thank you, Simone, and good morning, everyone. Welcome to our Q3 conference call. We delivered another strong quarter, driven by strong tenant demand in our national grocery-anchored retail portfolio and new leasing activity across our well-located industrial assets. We maintained near full occupancy of 98%, up 20 basis points from last quarter. We achieved healthy overall rent spreads of 10.8% during the quarter, which included a significant amount of Loblaw renewals that we'll speak more about shortly. Our Loblaw leases continue to be a stable source of cash flow growth, and we're equally encouraged with the robust leasing activity from our third-party tenants in the quarter. Excluding the Loblaw renewals, our average rent spread was approximately 23%. This leasing activity underscores the strength of our overall portfolio and our team's ability to manage through uncertainty. We delivered FFO per unit growth of 7.8% this quarter, supported in part by lease surrender revenue from our ongoing Loblaw rightsizing initiative. These initiatives remain a part of our active asset management strategy as we support Loblaw in evaluating its space requirements nationwide while creating opportunities to introduce other high-quality, strong covenant tenants that enhance the overall quality of our sites. Excluding lease surrender revenues and other nonrecurring items in both comparative periods, FFO per unit growth was a very strong 3.5%. Erin will provide more detail on our financial results and an update on our 2025 outlook later in the call. Our strong performance this quarter comes amidst a backdrop of ongoing macroeconomic uncertainty driven by trade-related risks in Canada and abroad. Despite this, our portfolio continues to demonstrate its resilience and our commitment to prudent financial management has enabled our teams to execute on our growth initiatives. Turning to our portfolio. We continue to see a tight retail market nationwide, fueling strong demand for our grocery-anchored neighborhood centers. We're also seeing particular strength among necessity-based and discount retail tenants. Our national portfolio is well positioned to continue capturing this momentum and benefit from these favorable market dynamics. Our team remains active in new leasing initiatives at our existing assets, while our industry-leading balance sheet and strategic partnership with Loblaw enables us to continue delivering new retail space through intensifications and greenfield development. With a strategic focus on expanding our high-quality retail portfolio and a proven track record of execution, we are well equipped to deliver sustained growth and maximize value. In the quarter, we delivered 7 new retail intensification projects at attractive yields, further intensifying our neighborhood centers, something Niall will expand on shortly. In addition to intensifying our existing sites, we also continue to leverage our balance sheet and relationship with Loblaw to pursue new greenfield opportunities. During the quarter, we completed a $9 million acquisition of a 50% interest in a greenfield site in Ottawa. This 13-acre site will feature a new shopping center totaling approximately 120,000 square feet anchored by No Frills and a Shoppers Drug Mart, which we will develop and manage on behalf of our partner. Our industrial portfolio remains in excellent shape, and our team delivered another strong quarter of leasing activity as occupancy increased 30 basis points to 98.3%. Leasing spreads were robust at nearly 38%, driven by third-party tenant renewals. While the overall industrial market continues to normalize, our portfolio remains well positioned to drive further growth given the meaningful gap between in-place and market rents. We also maintained a significant industrial development pipeline, including approximately 220 acres of developable land remaining at Choice Caledon Business Park. In the quarter, we announced our intention to begin the next phase of our Caledon project on a speculative basis. This decision was supported by our conviction in the GTA industrial market, the location of our site, the competitive advantage provided by low land cost basis and the increased RFP activity we're experiencing on the site. Lastly, in our mixed-use and residential portfolio, we saw a quarter of solid momentum. Our office portfolio is primarily leased to affiliate entities and occupancy in the quarter was largely stable. On the residential side, we continue to experience some pressure from new supply at certain assets. However, looking ahead, we continue to have a strong conviction in the quality of our residential product and are optimistic about the long-term residential fundamentals in major urban markets in Canada. Turning to our transaction activity in the quarter. We remain focused on maintaining our portfolio quality through capital recycling, completing approximately $118 million in total real estate transactions during and subsequent to the quarter. This included the $9 million retail land acquisition in Ottawa that I mentioned previously and $109 million of noncore asset dispositions. On the disposition front, we sold our 50% interest in a non-grocery-anchored shopping center in Edmonton for approximately $9 million. And subsequent to quarter end, we completed 3 additional dispositions, including a retail portfolio of 4 assets in Ontario for $67 million, a 50% interest in a retail asset in Camrose, Alberta for $23 million and a Canadian Tire land lease and COU at a retail site in Fort Saskatchewan, Alberta for approximately $10 million. All transactions were completed at or above IFRS values. We expect to remain roughly balanced for the rest of the year, positioning us as net acquirers this year in line with our transaction activity to date. Our industry-leading balance sheet supports -- continues to support us being net acquirers in the future, complementing our existing cash flow growth and development growth pillars, and we will continue to maximize value for unitholders. With that, I'll turn the call over to Niall to discuss our operational results in more detail. Niall? Niall Collins: Thank you, Rael. Good morning, everyone. As Rael mentioned, our portfolio delivered another solid quarter of operational results, and we continue to see strong tenant demand and leasing spreads across each of our portfolio types. Overall portfolio occupancy remained strong, ending the quarter at 98%. This was a 20 basis point increase to the prior quarter. During the quarter, we had over 3.7 million square feet of lease expiries and renewed approximately 3.6 million square feet, resulting in a retention rate of 96%. Overall, the portfolio renewals were completed at an average rental spread of 10.8%. Excluding the Loblaw renewals, our renewal spread was a very healthy 23.1%. We also completed 291,000 square feet of new leasing, resulting in positive absorption of 135,000 square feet, largely driven by our Ontario industrial portfolio, Quebec retail portfolio. Turning to each of our asset classes. In our necessity-based retail portfolio, occupancy was unchanged at 97.8%. During the quarter, approximately 3.2 million square feet of leases expired, including 2.8 million of Loblaw maturities. We renewed approximately 3.1 million square feet, including 2.7 million square feet from the Loblaw tranche for a retention of 97%. Given the lack of new retail supply, vacating tenants or early terminations have provided opportunities to backfill space at elevated rental rates with stronger covenants. Lease renewal spreads averaged 9% above expiring rents and 12.9%, excluding the Loblaw tranche, with broad-based strength across all of our regions and categories led by value retailers. We also completed 148,000 square feet of new leasing. Average rents over the lease term are 42% higher than our average in-place rents. This largely offsets the 95,000 square feet of expiries that did not renew in the quarter. Our team has already backfilled a portion of the space at rents 49% above previous rates and remain confident in the leasing activity on the remaining space. Turning to our industrial portfolio. Occupancy increased 30 basis points from our last quarter to 98.3%. This quarter, 491,000 square feet expired, primarily in our Alberta and Atlantic portfolios, and we renewed 430,000 square feet for a healthy 87.6% retention rate. We had 2 vacancies in the quarter, one of which has already been backfilled for Q4 and negotiations are underway for the other property. Lease renewal spreads remained strong, averaging 38.3% above prior rents, driven by the Alberta and Ontario portfolios. In the Ontario portfolio, we completed 1 renewal for 57,000 square feet at a rent spread of 183%. Excluding the 189,000 square feet of Loblaw renewal, the average renewal spread for the portfolio was approximately 62%. We also completed 142,000 square feet of new leasing against 61,000 square feet of vacates, resulting in positive absorption of 81,000 square feet. New leasing rents averaged over the lease term are 32% higher than our average in-place rents. Lastly, our mixed-use and residential portfolio continues to perform well with occupancy at 95.5%, which is up 10 basis points from the last quarter and has increased 140 basis points year-to-date, primarily from strong performance within our mixed-use assets. Turning to our developments in the quarter. Our team continues to advance our development pipeline across each of our strategic asset classes with near-term focus on commercial development. This quarter, our team delivered 7 retail intensification projects totaling 107,000 square feet at a blended yield of 6.3%. Project deliveries included 2 Shoppers Drug Marts in Ontario and Alberta, totaling 34,000 square feet at yields in the mid-6s and 7s, and we have another 7 Shoppers Drug Marts currently in active development. At T&T and CRU in Mississauga totaling 44,000 square feet, 2 CRU units in Alberta with an international cosmetic retailer, totaling 7,000 square feet at yields in the high 8% range. And finally, 2 ground leases at a property in Ontario and Alberta totaling 22,000 square feet at an average weighted yield of approximately 11%. One of the ground leases with Nautical with whom we have a deep relationship and the other ground leases with a tenant in the automotive sector. As Rael mentioned earlier, this quarter highlights our team's ability to unlock incremental value from existing retail portfolio and land bank through intensifications and new development. These type of retail initiatives remain a cornerstone of our broader development strategy, and we will continue to actively pursue opportunities to deliver high-quality retail projects. Looking ahead for the balance of the year, our major active development project continues to be our industrial pipeline at Choice Caledon Business Park. The NLS building totaling approximately 624,000 square feet, of which we own 85% was transferred to IPP on November 1 and rent commencement is on track for April 2026. With this delivery, our team is now focused on the next phase of our industrial development in Caledon. This quarter, we announced our intention to begin construction of a 1 million square foot building on spec before the end of the year. Permits are submitted and delivery is scheduled for Q2 2027. Overall, our active development pipeline totals 12 projects of approximately 1 million square feet at an average forecasted yield of approximately 6.9%. Our development pipeline continues to be a reliable source of long-term cash flow and NAV growth for our portfolio. I will now pass it over to Erin to discuss our financial performance. Erin Johnston: Thank you, Niall, and good morning, everyone. We are very pleased to report another quarter of strong financial performance. Our reported funds from operations for the second quarter was $201.4 million or $0.278 on a per unit diluted basis, reflecting an increase of 7.8% compared to the third quarter of 2024. Included in our results this quarter, we had approximately $10 million of lease surrender revenue. Last year, we had approximately $5 million of lease surrender revenue and $3.3 million of nonrecurring G&A expenses related to outsourcing. As Rael mentioned, our lease surrender revenue is mainly due to our rightsizing activities with Loblaw, where we are able to add high-quality third-party tenants to our sites and Loblaw is able to rightsize their store to a smaller footprint. These initiatives demonstrate the benefits of our strategic partnership with Loblaw and do not occur consistently throughout the year. Excluding these items, FFO per unit growth remained strong at 3.5%. FFO growth was primarily due to strong operational results and contributions from net acquisitions and development transfers over the last 12 months, partially offset by higher net interest expense. AFFO this quarter was $0.192 per unit, which was impacted by the earlier timing of executing on our maintenance capital projects. On a full year basis, we expect our 2025 maintenance capital and AFFO payout ratio to be relatively consistent with the prior year. Turning to our operational results. Same-asset cash NOI increased by $7 million or 2.8% compared to the third quarter of 2024, driven by higher base rents from rent steps and strong leasing activity. By asset class, retail same asset cash NOI increased by $5.8 million or 3.1%. The increase was primarily driven by leasing activity, which included the impact of our Loblaw lease renewals in the quarter and higher base rent on contractual rent steps. Retail growth was also favorably impacted by higher capital recovery revenue. Industrial same-asset cash NOI increased by approximately $0.8 million or 1.6%. The increase was primarily due to higher base rent from contractual rent steps and leasing activity. Growth in the quarter was tempered by prior year property tax recoveries and other income items. Including prior year items, same-asset cash NOI growth would have been approximately 3.3%. Mixed-use and residential same-asset cash NOI increased by approximately $0.4 million or 4%. Moving to our balance sheet. Our IFRS net asset value or NAV for the quarter was $14.53 per unit, an increase of $111 million or approximately 1% compared to the second quarter of 2025. NAV growth was driven by a net contribution from operations of $56 million, a net fair value gain on our investment properties of $13 million and a fair value gain on our investment in the units of Allied Properties. As a reminder, we are required under IFRS to mark-to-market the investment in Allied to its trading price at each period end. Our fair value gain on investment properties in the quarter was primarily driven by cash flow growth, favorable leasing and backfill initiatives in our retail segment. This more than offset a fair value decrease related to certain asset-specific leasing adjustments in our industrial portfolio. This quarter, we also completed several successful financings, most notably our $500 million dual tranche unsecured debenture offering in August. The transaction included a $350 million Series W unsecured debenture at a 4.628% coupon with a 10-year term and $150 million Series X debenture at a 5.369% coupon with a 30-year term. The dual tranche offering carried a weighted average coupon of approximately 4.85% and a 16-year average term, extending our debt maturity profile to 6.8 years. Our team capitalized on a very strong credit environment with the issuances representing both the tightest ever 10- and 30-year spreads for Choice. We saw exceptional demand for these issuance with the combined offering being over 9x oversubscribed. This transaction continues to demonstrate our strong position in the market and our ability to source low-cost capital while also accessing the long end of the curve, providing the flexibility needed to prudently manage our balance sheet and maintain a well-structured debt ladder. Proceeds from the offering were primarily used to repay maturing debt, including the redemption at par of our $200 million Series F unsecured debenture in September and approximately $100 million of mortgages that matured in the quarter. The remaining proceeds were used for general purposes and to pay the rebalances on our revolving credit facility. Looking ahead to the remainder of the year, our team has largely addressed the few remaining maturities with our next significant debt maturity not occurring until our unsecured debenture due in November 2026. We ended the quarter in solid financial position with strong debt metrics, ample liquidity, including approximately $1.5 billion of available liquidity, including credit on our corporate facility and available cash and $13.7 billion of unencumbered properties. Our debt-to-EBITDA ratio was 7.1x, which was down 0.1x from last quarter as we capture earnings related to our acquisition activity earlier in the year. Supported by our strong year-to-date operating performance, including our team's ability to execute on a transaction strategy and deliver on our rightsizing initiatives with Loblaw, we have increased our guidance for 2025 FFO per unit to approximately $1.06 to $1.07, representing year-over-year growth of approximately 3% to 4%. With that, Rael, Niall and I would be glad to answer your questions. Operator: [Operator Instructions] And our first question today comes from the line of Mark Rothschild from Canaccord. Mark Rothschild: It sounds like you're comfortable progressing with industrial development now. And I'm just curious your thoughts on undertaking new developments on larger mixed-use projects at a time when general residential development, especially in the condo market is stopped or slowing, projects take quite some time. Are you looking at advancing any of these projects now? Or still do the numbers maybe just not work right now? Rael Diamond: Mark, it's Rael. Hope you well. Look, I think the way we think about it is we're a long-term owner of real estate. And if you start one of these projects now, you're only going to deliver it in 3 or 4 years, and you're going to be leasing it up in a very different environment than we are today. So given we take that long view, our balance sheet is strong. And there are quite a few available incentives at the moment our team is working on trying to capture. So we actually think we're going to be in a position to launch one of these in 2026 because we believe it's the right long-term investment. I don't know, Niall, if you want to add anything else. Niall Collins: Yes. Just to add to that, Mark, there's been a progressive decline in costs that come down approximately 15% over the last couple of years. So it's really improving the dynamics of how we're evaluating some of these performance. There is a lot of appetite in the market for new projects. So we think schedules will improve as well. So overall, we're seeing a change in dynamics that I think could be accretive very quickly. Mark Rothschild: But I guess, Rael, we should wait a little bit to hear your announcement on which project it is and what the plan is? Rael Diamond: Yes. So we hope to have something in the early part of 2026. Operator: Your next question comes from the line of Himanshu Gupta from Scotiabank. Himanshu Gupta: So your retail occupancy continues to be strong. Should we expect occupancies to be stable from here? Or do you expect any uptick in the near term? And at the same time, any pockets of like softer leasing demand within the retail side? Niall Collins: Himanshu, it's Niall. Just to respond to that. On our retail going into Q4, we're expecting a little bit of growth in occupancy improving. And in our industrial portfolio, we see occupancy improving as well. Himanshu Gupta: Okay. That's fantastic. And on the retail, I mean in the context of this population growth has slowed down and GDP growth also slowed down. So it sounds like no pocket of weakness you guys are seeing. Niall Collins: I'd say, look, there's a lot of catch-up from the immigration that has happened over the last number of years and retail and residential and industrial are still trying to catch up with that, particularly in retail. Himanshu Gupta: Okay. Okay. That's fair enough. And maybe my next question is on that Caledon industrial property. I mean, it sounds like you're making progress on that 1 million square feet of development on spec. Do you have a sense of what kind of tenant demand will be there for that kind of product? Niall Collins: Yes. We're very encouraged by the responses we've been getting to RFPs. It's a mix of logistics, electronics. There's a lot of growth there. We're seeing build-to-suit as well as interest in our spec as well. So there's a good variety there for us. Himanshu Gupta: And what kind of yields will you be underwriting on that project? Niall Collins: Similar yields that we've been achieving to date on our IPP portfolio. And our NLS project is transferring in the next quarter. We expect to see yields similar to that. Himanshu Gupta: Got it. Okay. Maybe just last question. I mean, on your Allied holdings, and I know it's a small part of the NAV. Any thoughts if there's a distribution cut, what could be the impact on your FFO... Rael Diamond: Look, Himanshu, I think just go back to what we've always said. We've always said that our view that the underlying real estate is great long-term real estate. We also recognize that office fundamentals are starting to improve. And then we don't need the capital right now. Look, we don't know exactly what the distribution cut is going to be until they officially announce it. But it's not going to have a material impact on our business. Our business is strong, and we'll provide an update when we know the magnitude of the cut. Operator: Your next question comes from the line of Sam Damiani from TD Cowen. Sam Damiani: Certainly interested to see the retail shopping center development kickoff in Nepean. I'm just wondering if, Niall, perhaps you could share a little bit of sort of thoughts about how you underwrote the opportunity and expected rents versus cost kind of yields. Like is this an opportunity that has opened up just in the recent year, let's say, with the rise in market rents? Is this an opportunity that could really expand more so in a bigger way across the country? Niall Collins: So, Sam, what I'd say, look, we have a number of opportunities for locations across Canada that we're working on for grocery stores and CRU. We are seeing rents improve to underwrite. But they're where they need to be for underwriting, so they're in the 50s. But we'll give you more input when we talk to you in Q4. Sam Damiani: Okay. That's helpful. And maybe, Rael, I mean, since you guys have been acquiring these industrial outside storage assets over the last few years, the asset class has become more popular. Are you still seeing opportunities in that space to acquire going forward? Rael Diamond: Sam, we haven't seen any real interesting new opportunities since we acquired the portfolio. I can tell you that numerous people have reached out to us to acquire portions of that portfolio at significantly higher values than we paid, which I think leads to your comment on the significant investor interest in the asset class. Sam Damiani: Okay. That's helpful. And just lastly, Mark asked about, I guess, residential construction. So I look forward to, I guess, seeing some details when that's announced. But do you have any initial thoughts on the federal budget announced a couple of days ago and how that sort of impacts the way you look at building new rental residential in Canada? Niall Collins: Look, we've been digesting it as it's been coming out over the last couple of days. You can see that there's a lot of emphasis towards infrastructure, which we feel is very important for some of our very large master plan projects. We're not quite sure how the impact on DCs is going to be trickling down to the provinces and the municipalities. So I think we're waiting for more information to come out. And Build Canada Homes, we're waiting to see how that's going to work as well. So I think there's more information to come out as the budget gets discussed over the next couple of weeks. Operator: Your next question comes from the line of Tal Woolley from CIBC Capital Markets. Tal Woolley: I was just wondering on the retail business, where Loblaw is -- where you're sort of terminating some of these leases or looking to downsize, are they switching banners while they're doing it? Erin Johnston: Tal, it's not necessarily them switching banners. I mean, they could. It's more they'll look at a store and say we have a store that's 150,000 to 160,000 square feet. Could we make the same amount or service -- do the same sales on a smaller footprint of, say, 120,000 square feet, 125,000 square feet. So it's more of that. And then what happens is Choice will go out to the market and see if we can find a third-party tenant. And only when we do, we'll tell Loblaw, we're okay for them to reduce the space. But if we don't have a good third-party tenant, we would never let them reduce the store footprint. Tal Woolley: Sorry, go ahead. Pardon me, Rael. Go ahead. Rael Diamond: I will tell you that the interesting thing, and maybe Niall can also comment is that our leasing team is saying that on the size that we're backfilling on the downsizing, there's really a lack of available space in the market. So we've had really strong tenant interest in that space, which has been a positive to offer that space to tenants. Niall Collins: Yes. And maybe add that I see, we had a lot of interest in our land bank and our opportunities and trying to find large space is difficult for our tenants that are looking to grow in a number of sectors. So rightsizing is definitely a solution and also some of our new developments for greenfield as well are providing opportunities for them, too. Tal Woolley: And is there a theme on any of these? Like is it a certain region or a certain size store that sort of predominates this group? Rael Diamond: No, I wouldn't call it on a theme. I think it's -- we've done ones in Toronto, in Montreal and in Alberta. But I don't think it's a regional theme. That's opportunity as well, refreshing the interior of their store, we work with them, too. Operator: Your next question comes from the line of Giuliano Thornhill from National Bank Financial. Giuliano Thornhill: Just wondering on the 8.6% renewals with Loblaws. I'm just wondering what would be required to see this kind of reach the maximum and looking out like further out to 2027, kind of where is that trending? Rael Diamond: It's Rael. Look, I think you have to understand there's 40, call it, 45-ish leases rolling a year. And the nature of our leases are that they can be no less than the expiry of -- the expiry rent and no more than 10% growth. So we actually think 8.5% is a really healthy lift given the nature of all the leases. And look, we don't have yet visibility on '27, and we're happy to share it when we have it. But I think it would be very difficult to get to the maximum 10% because it would imply that every single lease is at least 10% below market when it's rolling. And remember, these leases were set in 2013 at market rents. Niall Collins: Giuliano, just one thing to add is the geographic spread on these locations as well. It's across Canada and various markets. Giuliano Thornhill: Right. And then just going back to kind of Tal's line of questioning. Just how many more kind of opportunities do you think are for these larger developments? And where has kind of been the lack of grocery under construction in the country over the last little bit? Rael Diamond: Look, I think one of our big competitive advantages is that we're working with Loblaw to say, where are you trying to expand and how can we help you find land. For example, just on the grocery side, we had announced, I think, 1 or 2 quarters ago that we were building, call it, 6 new grocery stores. And I think in pretty much most cases, we're building additional CRU as well. Like I don't want to lean too much into where the locations are. I can tell you where the 6 are, but I don't want to lean too much into where the locations of the future opportunities we're looking at with Loblaw. But Niall can maybe just comment on where the, call it, the 5 remaining are. Niall Collins: Look, currently, they're typically out West and in Ontario. And as we go through and look at our pipeline, we think we're going to see more coming in from Quebec as well. So it's a national -- we're seeing a national opportunity in Ontario, out west, Edmonton and Calgary and some opportunities in Quebec that we're evaluating at the moment. Giuliano Thornhill: Right. And then just lastly, there's a conservatory group was kind of put up for sale recently. I'm wondering if any of the assets there kind of catch your interest within the portfolio. Rael Diamond: Look, I think we've just signed the NDA to get access to the data room. And hopefully, there will be something that fits our criteria, but nothing to share yet. Operator: Your next question comes from the line of Pammi Bir from RBC Capital Markets. Pammi Bir: Just on the lease termination income from Loblaw, just how many properties did that relate to? And then secondly, just to clarify, has all of that, I guess, terminated space been re-leased? Erin Johnston: So Pammi -- sorry, this is Erin. It related to 3 properties, and we actually put in 5 different CRU tenants across those properties, it would be like Dollarama, Goodlife, LCBO, and it's all been re-leased. When we do these, they are re-leased before we go ahead and do them. Pammi Bir: Okay. All right. And then should we -- as we think about just looking ahead for 2026 and maybe even beyond, is this process likely to continue maybe at the similar sort of volume annually? Or is this a bit of a unique period in terms of their rightsizing? Erin Johnston: Yes. So I'd say we've had this for the last couple of years. I think there'll be a few in 2026 and maybe '27. I wouldn't expect large volumes to continue. It will all depend on tenant demand market and Loblaw looking at their stores and where they're renovating, but we do have some in '26. Pammi Bir: Okay. And then just lastly, on the $100 million of dispositions, I guess, after the quarter, what was sort of the range or the cap rate range on those asset sales? And maybe just if you could comment on the likelihood of further capital recycling next year. Rael Diamond: Yes. I think the average cap rate or the range, it was all close to a 7. So a 7% cap. And as we said on the call, look, our balance sheet is in great shape. And this year, we were unbalanced from a capital recycling point of view, i.e., purchasing more than we sold, and we've done a significant number of transactions. And I think we're in a position to continue to do that in future years as well. Pammi Bir: And maybe as an extension to that, would that include perhaps monetizing some of the residential density as it gets owned? Or is that not really on the table at this stage? Rael Diamond: I think in this environment, it's tough at the moment. It's something we may consider in the future, but not really something we're considering at the moment. Operator: Your next question comes from the line of Gaurav Mathur from Green Street. Gaurav Mathur: Just one question on the disposition activity so far. Is there -- is it fair to say that there's a lack of liquidity now in the market when compared to probably 9 to 12 months ago as you were looking through your capital recycling plans? Rael Diamond: No. Look, I think from our standpoint, we wouldn't agree with that statement. We actually think for the product that we've been selling, there's been lots of liquidity. So used even the portfolio, there was roughly $100 million. The average asset size was each $25 million. And the pool of buyers, it's deep, it's institutions, it's advisers, sometimes even it's a private individual. So we actually -- for the product we've been selling, we haven't seen a lack of liquidity. Gaurav Mathur: And by extension, would that also be applicable to the industrial market? Rael Diamond: Again, if you look at this -- again, there hasn't been a lot of trading on the industrial market. There's been -- I think in -- I think this past quarter, there were 2 significant trades. And again, they were large assets with, from our point, seem to have good liquidity on it, too. And I will share with you as well on -- I'll also share with you when we sold the small bay portfolio earlier in the year, there was strong investor interest and appetite for more of that as well if we would be willing to sell more assets. Operator: Your next question comes from the line of Sam Damiani from TD Cowen. Sam Damiani: Just a quick follow-up on the Loblaw space that was given back and generated the lease surrender fees. That is all in respect of store downsizing. There were no stores completely closed. Is that correct? Erin Johnston: That's correct, Sam. Operator: And I will now turn the call back over to Rael Diamond, CEO, for some final closing remarks. Rael Diamond: Thank you, Rob. As I mentioned at the start of our call, our portfolio and balance sheet are in excellent shape, and our team remains focused on achieving our growth objectives. Thank you all for your interest in Choice and for joining us this morning. We look forward to providing you another update on the business in the new year. Operator: This concludes today's conference call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to NETSCOUT's Second Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Scott Dressel, AVP, Corporate Finance and his colleagues at NETSCOUT are on the line with us today. I would now like to turn the call over to Scott Dressel to begin the company's prepared remarks. Scott Dressel: Thank you, operator, and good morning, everyone. Welcome to NETSCOUT's second quarter fiscal year 2026 conference call for the period ended September 30, 2025. Joining me today are Anil Singhal, NETSCOUT's President and Chief Executive Officer; and Tony Piazza, NETSCOUT's Executive Vice President and Chief Financial Officer. There is a slide presentation that accompanies our prepared remarks. You can advance the slides in the webcast viewer to follow our commentary. Both the slides and the prepared remarks can be accessed in multiple areas within the Investor Relations section of our website at www.netscout.com, including the IR landing page under Financial Results, the webcast itself and under Financial Information on the Quarterly Results page. As discussed in detail on Slide #3, today's conference call will include certain forward-looking statements about NETSCOUT's views on expected results of future performance and business strategy. These statements speak only as of today's date and involve risks, uncertainties and assumptions that may cause actual results to differ materially, including, but not limited to, those described in the company's most recent annual report on Form 10-K and subsequent filings with the Securities and Exchange Commission. As discussed in detail on Slide #4, today's conference call will also include discussion of certain non-GAAP financial measures that the company believes to be useful to investors. While this slide presentation includes both GAAP and non-GAAP results, other than the revenue and balance sheet information, we will focus our discussion on non-GAAP financial information. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. Reconciliations of all non-GAAP metrics to the nearest GAAP measures are provided in the appendix of the slide presentation in today's financial results press release and on our website. I will now turn the call over to Anil for his prepared remarks. Anil? Anil Singhal: Thank you, Scott, and good morning, everyone. Thank you for joining us today. We delivered another solid quarter in Q2, driven by revenue growth from both our cybersecurity and service assurance product lines as we continue to advance our strategic initiatives, including AI-driven product innovation. Our strong top and bottom line performance also benefited from the acceleration of some orders originally anticipated in the second half of the fiscal year. Given our strong first half performance, we are raising our revenue and earnings per share outlook, which Tony will detail in his financial review. Let's turn to Slide #6 for a brief recap of our financial results for the second quarter and the first half of fiscal year 2026. Revenue was approximately $219 million, representing an increase of nearly 15% year-over-year, driven by solid growth in both our cybersecurity and service assurance areas of our business, along with the acceleration of certain orders originally anticipated to occur in our second half. We expanded both our gross and operating margins during the quarter and delivered diluted earnings per share of $0.62, an increase of approximately 32% year-over-year. For the first half of the fiscal year or the 6 months ended September 30, revenue was approximately $406 million, an increase in approximately 11% year-over-year, which benefited from a solid growth in both cybersecurity and service assurance area of our business, along with the previously mentioned acceleration of certain orders. We expanded both our gross and operating margin during the first half of the fiscal year and delivered diluted earnings per share of $0.95, an increase of approximately 27% year-over-year. Now let's turn to Slide #7 for some perspective in our business and some market insights. Starting with our Service Assurance offering. Revenue in the first half of the fiscal year increased approximately 10% year-over-year, driven by growth from both our enterprise and Service Provider customer verticals. We achieved solid growth across most of our major enterprise sectors with the federal government being particularly strong in the first half. This sector benefited from both underlying demand and the acceleration of certain orders expected in the second half. In the Service Provider area, growth was largely attributable to the timing of maintenance renewals, including back maintenance that processed in Q2 versus Q3 in the prior year. Our Enterprise customers are continuing to invest in digital transformation initiatives related to enhanced visibility, Observability and AIOps initiatives. Accordingly, we are driving intelligence into Observability and AIOps to feed the need for actionable telemetry derived from wire data and to leverage the unmatched power of our scalable DPI and metadata technology. We also recently launched our Omnis KlearSight Sensor for Kubernetes, which provides comprehensive observability within the complex cloud environment. It delivers deep, actionable and real-time insights into the system performance, health and cost drivers. The solution reflects our vision of visibility without borders and is specifically designed to support dynamic and distributed architectures, which are challenging environments to monitor due to their encrypted nature. On the Service Provider side, domestic and international carriers continue to align their investment with clearly defined 5G monetization opportunities such as fixed wireless access and private 5G. Although the Service Provider space remains challenging, we remain optimistic that NETSCOUT can capture further opportunities by delivering differentiated value as we continue to navigate the current environment. For example, we recently announced solutions to support cable providers and multiple service operators or MSOs with Omnis AI Insights, which generates a high fidelity curated data set to provide real-time network visibility, ensuring a high-quality user experience for video streaming and over-the-top services to help MSOs deliver high-quality user experiences more cost effectively. Moving to our cybersecurity offering. Revenue in the first half increased nearly 13% year-over-year, driven by growth in both our Enterprise and Service Provider customer verticals. Organizations continue to prioritize this area as they seek to protect themselves against an increasingly complex and expanding cyber threat landscape. In late August, we released our latest research detailing the evolving Distributed Denial-of-Service attacks landscape and how such attacks can destabilize critical infrastructure. Just in the first half of this year, Activist groups launched hundreds of coordinate attacks each month, targeting communications, transportation, energy and defense system. What is particularly concerning is how DDoS-for-hire services has made sophisticated attack tools available to virtually anyone. These attacks now use AI-enhanced automation, multi-vector approaches and carpet bumping techniques that overwhelm traditional defenses. Bot are compromising tens of thousands of IoT devices, servers and routers to deliver sustained attacks that cause real disruption and are creating an unprecedented level of cyber risk for organizations and Service Provider networks. NETSCOUT's solutions are designed to mitigate this risk by leveraging our unparalleled visibility into global attack trends. Moving on to customer wins. Our solution continued to gain traction with customers seeking to enhance their visibility, observability and cybersecurity capabilities, leading to combined solution wins across our Service Assurance and cybersecurity offerings within customer orders. Highlights for the second quarter include an Enterprise deal with multiple orders totaling an amount in the 8-figure range, part of which we received earlier than anticipated related to a U.S. government agency that we have been a loyal and long-standing user of our solution. These orders are follow-on orders from orders received last quarter and consist of both Service Assurance and cybersecurity solutions, including our new AI and cyber intelligence product. This user values our solution for the smart data we provide, which they are leveraging to enhance their user experiences and support AI-driven operations initiatives as they modernize their technology environment. Additionally, in the Service Provider area, we won a low 7-figure deal with a major U.S. telecommunication company that's another loyal and long-standing customer. This deal included our Adaptive DDoS and Distributed TMS cybersecurity solution that the customer had opted to purchase on a subscription basis. The cybersecurity solution purchase are designed to defend against the kind of carpet-bombing DDoS attacks that recently targeted a large number of high-profile platforms. The deal also included solutions from our Service Assurance offerings related to the customers' 5G expansion. The cybersecurity and Service Assurance purchases were implemented to improve the subscribers' user experience and to reduce churn among their 5G and Wi-Fi customers. In all, these developments reflect our momentum in executing our long-term strategy. With that, let's move to Slide #8 to review our outlook. Looking ahead, we remain focused on driving product innovation, returning to annual revenue growth and enhancing our margin through disciplined cost management. Accordingly, based on our strong first half performance and our pipeline of opportunities, we are raising our revenue and earnings per share outlook. Tony will provide more details on the outlook in his remarks. As we navigate the second half of the fiscal year, we will continue monitoring the uncertain macro environment while remaining motivated by strong and positive customer feedback, including at our recent Annual Engage Technology and User Summit. We hosted this event in September and showcased our latest solution focused on Observability, AIOps and Cybersecurity. It is clear that our customers rely on our highly curated data to drive improved business outcomes across all ecosystems, which we believe positions us well to capture new opportunities through our differentiated solutions. As always, we are committed to empowering our customers to meet the demands of today's complex digital landscape by delivering mission-critical solutions that address performance, ensure availability and safeguard security. We look forward to sharing our progress with you throughout the remainder of our fiscal year. With that, I will turn the call over to Tony. Anthony Piazza: Thank you, Anil, and good morning, everyone. Thank you for joining us. I'll start by walking you through the key financial metrics for the second quarter and first half of our fiscal year 2026. After that, I'll share some additional commentary on our outlook for the remainder of the fiscal year, including some color on our expectations for the third quarter. As a reminder, other than revenue and balance sheet information, which is on a GAAP basis, this review focuses on our non-GAAP results and all reconciliations with our GAAP results appear in the presentation appendix. I will note the nature of any such comparisons accordingly. All comparisons are on a year-over-year basis unless otherwise noted as well. Slide #10 details the results for the second quarter and first half of our fiscal year 2026. Focusing on the quarterly performance, total revenue for the second quarter increased 14.6% to $219 million. Product revenue increased 16.9% to $94.7 million, which benefited from the acceleration of certain orders expected in the second half. Service revenue increased 12.9% to $124.3 million, reflecting both underlying growth and favorable timing of maintenance renewals, including some back maintenance that was processed this quarter. Adjusting for these timing benefits across both areas, underlying total revenue growth for the quarter was in the mid-single digits year-over-year, demonstrating solid momentum in our business. The gross profit margin increased 1.7 percentage points to 81.4% in the second quarter, primarily driven by product volume and mix. Quarterly operating expenses increased by 11%, which, as previously disclosed, included the shift of our Engage User Summit into the second quarter compared to the third quarter last year as well as the timing of commissions and variable incentive compensation, all of which are expected to normalize, resulting in a low single-digit increase in operating expenses for the full fiscal year. We reported an operating margin of 26.5% compared with 23.1% in the same quarter last year. Diluted earnings per share increased 31.9% to $0.62. Let's turn to Slide 11, where I'll walk you through the key revenue trends by product lines and customer verticals. As a reminder, revenue presented is on a GAAP basis and all comparisons continue to be on a year-over-year basis. For the first half of fiscal year 2026, Service Assurance revenue increased by 10.1% and Cybersecurity revenue grew by 12.7%. During the same period, our Service Assurance product line accounted for approximately 65% of our total revenue and our Cybersecurity product line accounted for the remaining 35%. Turning to our customer verticals. For the first half of fiscal year 2026, our Enterprise customer vertical revenue grew 12.7%, while our Service Provider customer vertical revenue grew 8.4%. During the same period, our Enterprise customer vertical accounted for approximately 60% of our total revenue, while our Service Provider customer vertical accounted for the remaining 40% Additionally, one customer accounted for 10% or more of our total revenue during the second quarter with no customer accounting for more than 10% of our revenue for the first half of the fiscal year. Turning to Slide 12. This slide shows our revenue split between the U.S. and international markets. For the first half of fiscal year 2026, 57% of our revenue was generated from the United States, with the remaining 43% coming from international markets. Additionally, all geographies grew in the first half of the fiscal year. Slide 13 shows some key balance sheet items along with our free cash flow for the period. We ended the second quarter of 2026 with $526.9 million in cash, cash equivalents, short and long-term marketable securities and investments, representing an increase of $34 million since the end of the fiscal year 2025. Free cash flow for the quarter was $4.3 million. During the second quarter, we repurchased approximately 741,000 shares of our common stock for approximately $16.6 million at an average price of $22.34 per share. We currently have capacity under our share repurchase authorization and subject to market conditions, intend to remain active in the market during the remainder of fiscal year 2026. From a debt perspective, we have no outstanding balance on our $600 million revolving credit facility, which expires in October 2029. As previously disclosed as a Q1 subsequent event, on August 4, 2025, we completed the sale of our entire foreign investment highlighted in past quarters for the equivalent of $11.8 million. The original purchase price was $7.5 million. To briefly recap other balance sheet items, accounts receivable net was $130.2 million, representing a decrease of $33.5 million since March 31, 2025. Days sales outstanding, or DSO, at the end of the second quarter of fiscal year 2026 was 51 days compared with 53 days in the same period in the prior year. The improvement in DSO in the second quarter reflects the timing and composition of bookings. Let's move to Slide 14 for commentary on our outlook. I will focus my remarks on our revenue and non-GAAP earnings per share targets for fiscal year 2026. As Anil noted, our strong first half performance gives us increased confidence in our full year outlook. We are raising our full year expectations for both revenue and non-GAAP diluted earnings per share from what we shared in August on our first quarter earnings call. We now expect revenue in the range of $830 million to $870 million compared with our prior range of $825 million to $865 million. Non-GAAP diluted earnings per share is now anticipated to be in the range of $2.35 to $2.45 compared to our prior range of $2.25 to $2.40. The full year effective tax rate is expected to remain at about 20%, and we are assuming approximately 73 million weighted average diluted shares outstanding, reflecting our first half share repurchase activities. In closing, let me provide some color on our third quarter expectations. Given the acceleration of orders we saw in the second quarter, orders originally expected in the third quarter, we are anticipating third quarter revenue in the range of $230 million to $240 million. We expect non-GAAP diluted earnings per share in the range of $0.83 to $0.88 for the third quarter. That concludes my formal review of our financial results. Before we transition to Q&A, please note that our upcoming IR conference schedule is provided on Slide 15. We will be attending the RBC Global TIMT and Needham Tech conferences in November and the UBS Global Technology and AI conference in December. We hope to see many of you at the events. Thank you, and I'll now turn the call over to the operator for questions. Operator: [Operator Instructions] We'll take our first question from Matt Hedberg with RBC Capital Markets. Simran Biswal: This is Simran on for Matt Hedberg. Congrats on the quarter. To start, I just wanted to double-click on the strength that you saw in the quarter. Could you talk a little bit about the acceleration of orders that were originally expected in the second half? And what drove that shift? And then on the Fed piece, that was also great to see. So if you could speak to some of the demand trends there as well. Anil Singhal: Well, I think this was always -- when we look at the Fed orders, especially, they are always on the edge of the end of the fiscal year. Sometimes we get it end of the federal fiscal year, which is September. So sometime in the past years also, we get it afterwards. And this time, we got -- we had the reverse effect. And second thing, as Tony talked about, we had some big maintenance order, which was recognized later in the year. And those were the 2 big factors. Tony, anything else you think? Anthony Piazza: No, those were 2 of the factors that pushed us into the -- exceeds expectations. But it was a strong federal quarter. Some of that, again, was the acceleration of that particular order. And we did see the acceleration, we believe, because they were prepping for the federal government shutdown, so accelerated those orders into our second quarter to be prepared when that shut down. Simran Biswal: Got it. Got it. And then just one more for me. On GenAI, could you speak to a little bit about what's been resonating with customers on your AIOps offering and then how Enterprise customers have been leaning into it? Anil Singhal: Yes. So I always talk about and you may have -- I mean, in the script, you notice all the time, we use the word differentiation because that's the starting point. Before we say we are better, we have to differentiate and get the year plus out. So what's different for NETSCOUT in the generative AI and observability and AI world is that we have smart data telemetry, which we have never shared outside our own applications in the past because the data lakes and other solutions were not ready to consume it like a company like Splunk, ServiceNow, AWS and things like that. So how we are differentiating is not that we have better algorithms in that area because there are so many available even in open source. We're feeding smart data to algorithms in a unique way so that they have better outcomes. So we are basically using our branding as a smart data company, but that smart data was not experienced by third parties because we were not willing to share the data. So we created a new product called AI sensor, AI Insight, basically, which allows it makes it easier to mix our data with other data set, but more importantly, now they can apply their algorithms, whether it's in the ChatGPT area or any other observability to our data, and that's very unique in the industry. Operator: We'll take our next question from Eri Suppiger with B. Riley. Erik Suppiger: Congrats on a very solid quarter. A couple of questions. First off, on the 10% customer, can you comment as to whether that was a service provider, federal or enterprise? And then on the threat landscape, you talked about for denial of service. Can you discuss how some of these attacks are evolving and whether your end customers are capable of defending against some of the changes in the attack landscape? Anil Singhal: So on the first part, Tony, do you want to cover that? Anthony Piazza: Yes. So on the first part, the over 10% customer's related to the federal government orders. So it was a channel partner. Anil Singhal: Okay. On the second one that -- so when we talk about security area, we believe that DDoS market is underserved. A lot of people are looking at more sophisticated attacks. But the DDoS attacks are much, much more easier to orchestrate and they are getting more sophisticated, but they're still easier to orchestrate and they create a new sense factor. like, for example, a carpet bombing attack, a previous DDoS attack will attack a target or a server. The carpet bombing attack is an evolution of that. It's not that difficult to be orchestrated by botnets, which goes after multiple targets at the same time. So now instead of one server or 10 machines, you have hundreds of machines who have to defend themselves. So that's what is happening in the DDoS area. We believe that the industry is doing a great job outside of DDoS area. But within the DDoS area, it's only relegated to specialists and yet nation state actors and even the university students can orchestrate the DDoS attack. So what we did, Erik, in the last 3, 4 years is as we integrated the Arbor DDoS business into NETSCOUT, we brought our scalable DPI technology to that solution. And that was necessary to deal with these new and more sophisticated DDoS attacks. Erik Suppiger: And what is the timing of some of this evolution? Is this taking place this year? Is this something that's been just kind of gradually evolving over a few years? And how is the state of the market right now? Anil Singhal: So we released an option to our product called Adaptive DDoS last year. And that includes this functionality. One of the reasons it's called Adaptive is that -- and that Adaptive DDoS option is sold as a subscription. And because we will keep adapting every 6 months, a new release to deal with new attacks and people can just take advantage of that with the subscription. So some of the adaptive DDoS revenue is already in this year's numbers. And so the adaptive DDoS is our definition of dealing with these new and evolving attacks on a periodic basis through that option. Operator: We'll go next to Kevin Liu with K. Liu & Company. Kevin Liu: I'll add my congrats on the results as well. Just on the impact of the government shutdown, it certainly sounds like it accelerated some orders. I was wondering if you could talk about what's happening with kind of the existing pipeline there, whether deals are essentially paused or if they continue to move forward? And then whether there's any sort of fulfillable backlog that was associated with the government orders secured and whether they would still continue to take those even amidst the shutdown? Anthony Piazza: Yes. I mean I'll let Anil talk a little bit about his perspective on the government. But with regard to the backlog or fulfillable orders, there was some backlog related to the federal government order. And so we already have that order, and so that's already been fulfilled. Anil Singhal: Yes. Overall, I think the shutdown has not affected the nonfederal business and even federal business so far not affected, but we are sort of watching it. And so if you look at the uncertainty in the second half, potential uncertainty is the shutdown. If it lingers on, it may affect -- we are expecting more orders in that from the same customer. And second is the impact of tariff. That situation is still evolving, potential impact of that on nonfederal customers. So those are the things we are watching and continue to be -- see whether that affects anything in the second half. Kevin Liu: Understood. And Anil, since you mentioned the tariffs, to the extent those are rolled back, what sort of benefits or would you expect to see either from your existing customer base or even if your own business has been impacted, which I don't think it has? Anil Singhal: You said benefit? Anthony Piazza: Yes. I think, Kevin, we haven't really seen any detriment of it at this point. From a business perspective, as we talked about before, given that a lot of our product comes from Canada, the U.S. and Mexico and right now is protected under the various agreements, we haven't seen an impact from a cost perspective. From a customer perspective, I think what Anil is referring to is if they were to change behavior, but we've heard noise around it, but really haven't seen a large impact. Anil Singhal: I think the impact will be like on the end user pricing, not necessarily margin because we sell software, which is very high margin. So the potential impact on certain deals are budgets were set up, let's say, 8, 9 months ago. We have long sales cycles, 6 to 12 months. And now if the tariff affects the total price of even the hardware portion, which is they're buying it, then we may have to just make them whole. But it's just all up in the air right now, and we just need to watch. Anthony Piazza: And Kevin, just on the federal government, we do have a strong pipeline opportunity with the government, the federal government orders. And so we continue to look at that. I think we're a little bit insulated in the near term because of the pull forward of orders as they prep for the shutdown. So we'll continue to watch that. Kevin Liu: Got it. And just lastly, if I could ask about your product gross margin, that's as high as I've seen it before. Is there anything in terms of how you guys are going to market or which products are in demand from customers right now that's contributing to that? And how sustainable do you think this level is? Anil Singhal: Well, I think the biggest part is that we are generally counting on selling our AI. And so we have 2 segments, as you know, the core business, DDoS and Service Assurance. The AI solution will be marketed to the Service Assurance customers. Largely that, I mean, less than 10% will be new customers. And Cybersecurity solution, which we call it Omnis Cybersecurity will be marketed to DDoS customers. So we are looking at these products as sort of adjacencies to the existing product line and yet attracting new budgets. So that's a good situation, and we don't need to hire a lot of salespeople or train them to do that yet we have new opportunities. Anthony Piazza: Yes. And so I'd say, Kevin, for the quarter, our product gross margin was in the high 80% range, where it's typically in the mid-80% range. And it was particularly strong given the volume of software sales in the quarter. And in the future, we're continuing to move more and more to software-related type sales. Operator: Ladies and gentlemen, with no further questions at this time, this will conclude our call. Thank you for joining us today.
Operator: Good day, and thank you for standing by. Welcome to the Second Quarter 2026 Haemonetics Corporation Earnings Conference Call. [Operator Instruction]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Olga Guyette, Vice President, Investor Relations and Treasurer. Please go ahead. Olga Guyette: Good morning, and thank you all for joining us for Haemonetics Second Quarter Fiscal Year 2026 Conference Call and Webcast. I'm joined today by Chris Simon, our CEO; and James D'Arecca, our CFO. This morning, we released our second quarter and year-to-date fiscal 2026 results and updated full year fiscal '26 guidance. The materials, including our earnings release, Form 10-Q and supplemental earnings presentation are available on our Investor Relations website and through this morning's press release. Before we begin, I'd like to remind everyone that we will use both organic and reported revenue growth rates. In case of organic growth rates, those exclude the impact of FX, the divestiture of the whole blood product line and the exit of certain liquid solution products. Organic growth ex CSL also excludes the impact of the previously disclosed transition of CSL's U.S. disposable business. We'll also refer to other non-GAAP financial measures to help investors understand Haemonetics' ongoing business performance. Please note that these measures exclude certain charges and income items. A full list of excluded items, reconciliations to our GAAP results and comparisons with the prior year periods are provided in our earnings release. Our remarks today include forward-looking statements, and our actual results may differ materially from anticipated results. Factors that may cause our results to differ include those referenced in the safe harbor statement in today's earnings release and in our SEC filings. We do not undertake any obligation to update these forward-looking statements. And now I'd like to turn it over to Chris. Christopher Simon: Thanks, Olga. Good morning, everyone, and thank you all for joining us. Second quarter revenue was $327 million and $649 million year-to-date, each reflecting a 5% reported revenue decline driven by $48 million and $101 million in last year's portfolio transitions, respectively. Excluding these transitions, organic growth ex CSL was 9% in the quarter and 11% year-to-date. Adjusted EPS increased 13% in the quarter and 11% year-to-date to $1.27 and $2.36, respectively. Our results reflect disciplined execution, delivering strong core product growth, record margin expansion and solid earnings that convert to cash, while advancing our portfolio and company transformation to sustain this momentum well beyond our long-range plan. The focus on NexSys, TEG and VASCADE continues to advance our leadership and fuel growth. We are gaining plasma share through best-in-class collection solutions. We are reinforcing TEG leadership in viscoelastic testing, and we are executing targeted vascular closure initiatives to strengthen performance and return Interventional Technologies to growth. Turning now to our individual business performance. Hospital revenue was $146 million in the second quarter and $285 million year-to-date, up 5% on a reported basis and 4% organic in both periods. Strong Blood Management Technologies performance offset softness in Interventional Technologies, underscoring the resilience and diversified of our diversified portfolio and multiple drivers of performance. Blood Management Technologies delivered strong growth, up 12% in the quarter and 13% year-to-date, driven by sustained strength in hemostasis management. Growth was fueled by higher TEG disposable utilization and the ongoing rapid adoption of the global heparinase neutralization cartridge. In October, we reinforced our global leadership in viscoelastic testing by launching the HN cartridge in EMEA and Japan. The broader portfolio also contributed to growth with transfusion management achieving double-digit growth, supported by heightened demand for transfusion safety and efficiency. Interventional Technologies declined 5% in the quarter and 6% year-to-date, reflecting softness in the esophageal cooling against accelerating PFA adoption. While modest in size at approximately $3 million in revenue in the second quarter, esophageal cooling remains a disproportionate driver of near-term underperformance. Vascular Closure grew 2% in the quarter and 3% year-to-date, led by MVP and MVP XL and electrophysiology growing 4% and 5%, respectively. These gains were partially offset by continued softness in legacy VASCADE concentrated in lower growth coronary and peripheral procedures. We remain confident in the strong clinical and economic differentiation of our vascular closure portfolio, and we are taking decisive actions to strengthen execution to accelerate growth. We are also making solid progress with SavvyWire in the U.S., delivering consistent double-digit growth as we build its foundation and broaden our relevance in structural heart. We are updating our hospital revenue growth guidance to 4% to 7%, both reported and organic, reflecting sustained double-digit growth in Blood Management Technologies and little to no contribution from Interventional Technologies. This outlook reflects our focus on taking the steps necessary to drive long-term value creation with Interventional Technologies expected to play a larger role in accelerated growth and margin expansion beyond FY '26. Moving to Plasma. Revenue was $125 million in the quarter and $255 million year-to-date, down 10% and 7% on a reported basis, respectively, reflecting the CSL transition. Excluding CSL, organic revenue grew 19% in the quarter and 23% year-to-date. Second quarter results were driven by share gains, robust growth in U.S. collections and ongoing benefits from innovation. Our plasma business is stronger than ever, delivering revenue growth and margin expansion, enabled by best-in-class solutions that help improve customer performance to drive our share gains. Based on customer forecast and strong sentiment from PPPA, we have renewed confidence in the sustained robust growth of the plasma therapeutics market, particularly immunoglobulins. Our second quarter results reinforce that view with U.S. collections growing in the high single digits and European collections continuing to grow double digits. Given stronger-than-anticipated first half performance, we are raising our full year reported plasma revenue guidance to a decline of 4% to 7% or 14% to 17% organic growth ex CSL. Second quarter collections growth was very encouraging. However, our guidance remains grounded in the factors we can control, primarily share gains. Blood Center reported revenue decline of 18% in the quarter and 21% year-to-date, reflecting the impact of the whole blood divestiture. Organic revenue grew 4% in the quarter and 5% year-to-date, driven by resilience in our core apheresis business. We are raising our full year Blood Center guidance to reflect this performance, now expecting reported revenue to decline 17% to 19% as we fully anniversary the Whole Blood divestiture and organic growth to be approximately flat. Overall, revenue momentum remains strong, underpinned by growth and expanding profitability across our businesses. Despite $153 million in last year's portfolio transitions, 2 of our 3 growth franchises continue to deliver outsized organic growth while we strengthen our commercial execution for renewed sustained success in IVT. Reflecting better-than-expected first half performance across more than 80% of our portfolio, we are raising full year revenue guidance from a reported decline of 3% to 6% to a decline of 1% to 4% and organic growth ex CSL from an increase of 6% to 9% to an increase of 7% to 10%. Over to you, James. James D'Arecca: Thank you, Chris, and good morning, everyone. We delivered another strong quarter of profitable growth. Our results highlight the benefits of our strategic portfolio transformation, ongoing productivity initiatives and disciplined approach to cost management, contributing to continued improvement in margins and earnings growth. Adjusted gross margin reached 60.5% in the second quarter and 60.6% year-to-date, up 380 and 460 basis points, respectively. The expansion was driven by the continued adoption of our Persona technology, price initiatives across the portfolio and favorable product mix, all of which are expected to continue to support margins in the second half. Software license fees in the first quarter contributed roughly 100 basis points of gross margin benefit year-to-date. Adjusted operating expenses in the second quarter were $111 million, a decrease of $1.5 million or 1% -- the decline reflects lower freight costs, coupled with disciplined expense management and continued focus on efficiency across G&A while prioritizing targeted investments to support innovation and long-term growth. Adjusted operating expenses year-to-date were $229 million, slightly up from $227 million last year, predominantly due to the timing of certain R&D investments. The strength of our core portfolio and our ability to drive margin expansion is evident in our results. Year-to-date, we've absorbed $101 million of revenue impact from last year's portfolio transitions, all while growing our adjusted operating income. This performance reflects the strength and higher profitability of our base business and disciplined cost management, holding G&A flat and delivering additional productivity savings that help offset continued strategic investments in growth initiatives that strengthen our long-term trajectory. Adjusted operating income increased 5% in the second quarter to $87 million, with adjusted operating margin expanding 250 basis points year-over-year to a new record of 26.7%. Turning to the segment level performance in the second quarter. In hospital, adjusted operating margins expanded by 370 basis points, predominantly on continued strong momentum in Blood Management technologies, and higher operating leverage. In Plasma, adjusted operating margin expanded by 190 basis points, driven by prior technology upgrades, share gains and the full transition of our legacy U.S. PCS2 business, partially offset by additional investments into innovation. Blood Center adjusted operating margin expanded 320 basis points, driven by the whole blood divestiture, a stronger core apheresis mix and continued productivity gains from the ongoing portfolio rationalization. Adjusted operating income for the total company year-to-date was up 7% to $165 million, with adjusted operating margin of 25.4%, an improvement of 270 basis points versus the prior year. We expect continued margin expansion in the second half and reaffirm our total company full year adjusted operating margin guidance of 26% to 27%. The adjusted tax rate was 24.7% for the quarter compared with 25.1% in the prior year. Year-to-date, the adjusted tax rate was 24.8%, and we expect it to remain consistent for the remainder of the fiscal year. Adjusted net income rose 5% to $60 million in the second quarter and 4% year-to-date to $114 million. Adjusted EPS increased 13% to $1.27 in the quarter and 11% year-to-date to $2.36. The combined impact of share repurchases, tax, interest and FX provided a $0.06 benefit to quarterly adjusted EPS and a $0.05 benefit year-to-date. We are raising our full year adjusted EPS guidance to $4.80 to $5 a share. At the midpoint of our revised fiscal year guidance, we assume approximately $35 million in interest and other expenses, generally comprised of net interest expense and foreign exchange hedge contracts and approximately 47.6 million in diluted shares outstanding at year-end. Turning to cash flow and the balance sheet. We continue to enhance working capital management to optimize value creation, generating $111 million in operating cash flow in the second quarter, up 128% year-over-year. Year-to-date operating cash flow was $129 million, a sixfold increase when compared with the same period last year, primarily due to improved inventory management, including the build-out of NexSys devices, which impacted our cash flow in the prior year. Free cash flow was $89 million in the quarter and $91 million year-to-date, with the free cash flow to adjusted net income conversion ratio of 147% and 80% in the quarter and year-to-date, respectively. Our ability to generate cash remains strong, supported by disciplined execution and renewed focus on cash efficiency. We are raising our full year free cash flow guidance to $170 million to $210 million and reaffirming our expectation for the free cash flow to adjusted net income ratio to be in excess of 70% for the full fiscal year, underscoring our commitment to performance, cash discipline and capital stewardship. Turning to the balance sheet. We ended the quarter with $296 million in cash, down $10 million from the beginning of this fiscal year, primarily reflecting $75 million in share repurchases and additional strategic investments, partially offset by higher net income, translating into an even stronger cash flow. Our capital structure remains unchanged with total debt of $1.2 billion, no borrowings under our revolving credit facility and a net leverage ratio of 2.5 as defined by our credit agreement. This positions us well to meet near-term debt obligations, fund operations and pursue value-creating opportunities, including additional share repurchases when appropriate. Before we begin Q&A, I'd like to close with a few thoughts. We continue to execute our plan with strength and discipline, delivering profitable growth, expanding margins across all segments and translating our adjusted earnings to cash. Despite $153 million in last year's portfolio transitions impacting this fiscal year, most of which are now behind us, we remain on track to achieve our updated guidance for the year and meet all our long-range plan targets. Our growth and profitability are anchored in the success of our 3 core products: NexSys, TEG and Vascular Closure, supported by company-wide initiatives that continue to drive productivity and operational excellence. Margin expansion remains a hallmark of Haemonetics. And with plasma and blood management outperforming and progress underway in Interventional Technologies, we are building a strong foundation for continued margin expansion beyond fiscal '26. Across the company, our results reflected disciplined execution and a high-performance culture. And when combined with strong cash generation and a solid balance sheet, this positions us to further enhance long-term value creation. For fiscal '26, our priorities remain focused on meeting debt obligations, returning excess cash to shareholders via buybacks when appropriate and advancing targeted investments in our growth products. Thank you. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Rohin Patel of JPMorgan. Rohin Patel: I just wanted to start off with some of the revenue drivers. You had a nice quarter in plasma and are raising the guidance, and you mentioned high single-digit collections growth in the U.S. So I just want to ask what you're assuming in the second half for collections versus share gains versus pricing? And are you seeing any meaningful kind of recovery in collections intra-quarter? And how should we reconcile that with the strong ex CSL growth maybe with your longer-term sustainable outlook in plasma? Christopher Simon: Rohin, it's Chris. Thank you for the question. We had a really stellar quarter with Plasma, a stellar first half. And I think you see that in the organic results. The second quarter was propelled by 3 things in order of priority, share gains as we continue to pick up additional centers on our devices, the benefits of innovation pricing, premium pricing for us, what is a superior product. And now collections volume growth. We had always predicted volume growth in the back half of the year. It started early in the second quarter. And that's a powerful trifecta. To be specific about the volume growth we experienced high single digit in the U.S., double-digit growth in Europe. And we see that as a return from the normal cyclicality that has defined this industry for a very long period of time. So we remain really bullish on the end market demand for Ig-derived therapies, and you see that in our customers' earnings discussions as well. So plasma goes from strength to strength. We're very optimistic about its continued success. Rohin Patel: Great. And then also just turning to hospital. Maybe if you can provide an update on some of the commercial work to get IVT back on track. I appreciate the additional color and disclosure you provided in that business. And also just it seems from your disclosures that the hospital business actually drove a lot of the incremental margin benefits in the quarter. So maybe if you could just talk about some of the levers you're pulling to drive operating margin and how you're balancing that with any of this additional commercial spend to get those products back on track. Christopher Simon: Sure. Again, thank you. Yes, hospital was the single largest contributor to what continues to be really robust margin expansion. We're trying to provide more detail to be as transparent as possible. As we calculate the segment P&Ls, the hospital operating income expanded 370 basis points in the quarter. And to your point, that's mix, that's volume. And increasingly now, that's operating leverage, which we're really keen to see. Obviously, there's 2 parts to hospital. Blood Management Technologies continues to excel, which is allowing us to put the appropriate focus and resources on driving IVT. And so IVT is defined by vascular closure. You saw the numbers in the quarter. Happy to go through as much detail as you want on that. But we remain confident in both the clinical and the economic differentiation of our vascular closure portfolio. And we're taking the right actions. We're being decisive to regain growth momentum in the latter part of this year and into FY '27. Operator: Our next question comes from the line of Marie Thibault of BTIG. Marie Thibault: Congrats on a nice quarter. I wanted to follow up there on Rohin's question about the IVT commercial efforts. You've mentioned some of the progress underway. Can you give us a little more detail on what exactly is happening, some of the green shoots that you're starting to see? Just any more detail on that turnaround? Christopher Simon: Yes. Thanks, Marie. Good to hear from you. So I'd summarize it this way. I am highly confident in our team. They're taking the right actions in the right way, and they're fully resourced. And so the things we are highlighting, that commercial leadership group from first-level sales supervisors on up to the business president, many of them are new. They come with the exact right background experience and relationships to excel, particularly in electrophysiology, but also interventional cardiology. You know that at the beginning of the year, we bifurcated our field force. It's an 80-20 split with 80%, of course, going to vascular closure. That gives us over 200 personnel in the field driving the product. We feel that's quite appropriate for the opportunity set. We've put a number of tools in place to drive sales force excellence, and I won't drag you through the details, but we're closing vacancies. We've upgraded our training. We have a new set of tools to track and monitor. The quotas have been aligned. The incentive comp is state-of-the-art. So we feel quite good about sales force excellence. The other part of this is we've meaningfully strengthened our corporate accounts group that will help us with IDNs and increasingly with the ASCs as those become an important driver for the market where we think our value proposition is even more distinct. We have successfully completed the MVP-XL trial, and we're able to make a timely submission to FDA prior to the shutdown. So that should bode well as we get here later in this fiscal year and next in terms of stronger clinical evidence and opportunity to leverage that trial outside the U.S., particularly in Japan. And then we've gotten very targeted in our competitive response. And I know there's concern about is this going to meaningfully diminish your gross margins. It will not. We think we can actually maintain excellent margin and execute well to hold, to regain and to expand share across the board. Marie Thibault: Yes. Very helpful, Chris, and thanks for all that detail. It sounds like things are improving for sure. And then I wanted to follow up here and talk about Blood Management Technologies. Again, very, very strong performance. Help us think about the sustainability of that over the next few quarters. How should we think about the cadence of launches that you've recently put out, the length of kind of the rollouts and some of the benefits that you tend to see, again, sort of growing above historicals? Christopher Simon: Yes. Thanks for the question. I think Blood Management Technologies continues to be on or undersung hero in the portfolio, grew 12% in the quarter and 13% year-to-date. That's, I don't know how many quarters now in a row of double-digit growth. We feel from the launch of the global heparinase neutralization cartridge that, that franchise has hit a new inflection point. And we think that double-digit growth is absolutely sustainable for about as far as we can see. It's driven by a combination of capital equipment, disposable utilization and, of course, the adoption of that heparinase neutralization cartridge. I called out in the prepared remarks that we were pleased to launch the cartridge, both in Europe and Japan here in October. And we think that helps us, again, go from strength to strength for a business that's -- it's a market that the team helped create -- and we have the leadership share, 70% plus, and we intend to build and expand upon that. Fortunately, for us in the quarter, Blood Management Technologies was also benefited from transfusion management growing double digit, which is -- it's a smaller line of business, but one that is really attractive on many dimensions and continues to contribute positively. So we're excited about the prospects for Blood Management Technologies going forward. Operator: Our next question comes from the line of Mike Matson of Needham & Company. Unknown Analyst: It's [ Joseph ] on for Mike. Could you just touch on blood center growth a little bit? Just, I guess, why was it so strong? I think 4% organic. Can you just talk about some of the growth drivers there, what you benefited from in the quarter? Christopher Simon: Yes. Happy to talk about it, Joseph. Yes, Blood Center, again, that's the real unsung success story here, I guess, and it's meaningfully benefiting from focus. As you know, at the end of last calendar year, we divested the whole blood franchise and some of the supporting products, liquids, et cetera, that were really a drag on our margin and the distraction from a focus area. So with those behind us, we've really been able to focus on what is increasingly plasma apheresis done in blood centers often with our NexSys device. And you see that growth, 15%, 15% of the corporate revenue, but it's a solid source of EBITDA and return on invested capital and free cash flow, as you see from our numbers in the quarter. The operating income in that business on a stand-alone segment basis, we estimate expanded its operating margin by 320 basis points, again, benefiting from the divestiture and an ongoing effort to rationalize that portfolio. We talk about the regional market alignment program. That's the focus there. So that gave us a lot of confidence to raise the guidance. And now on an organic basis, we expect that business to hold serve and finish flat for the year. Unknown Analyst: Okay. Great. Yes, it's very clear you guys are benefiting from the rationalization. And then I guess 2 more unrelated, but they're quick. I'll just ask them together. How much did the share repurchase add to the EPS in the quarter -- or sorry, the EPS raise for fiscal '26? And then I guess just on VASCADE and Vivasure, are you still committed to the large bore market? And are you still planning on proceeding with that acquisition of Vivasure? James D'Arecca: Yes. It's James here. I thought I'd jump in on the first question on the share buyback in the quarter. It was a few cents, and it's included in the $0.06 below the line item that I gave earlier. Christopher Simon: Yes. And just jumping over to Vivasure large bore closure. We are very committed to consummating that acquisition. That's -- I would describe that as near final successful submission to the FDA. If anyone has an opportunity to attend the most recent TCT, you would have heard about some really impressive results coming out of the patch trial, just in terms of reduction in vascular complications, medium time to hemostasis near instantaneous, really, really exciting. We think that it will be an FY '27 event just given the timing of FDA release, but that's a $300 million high-growth market for large bore arterial access in TAVR and EVAR -- the product is meaningfully differentiated. It's fully absorbable, sutureless implant-free. Really, as we look at it from the submission to FDA, it was a best-in-class safety and ease of use. And for us, it's highly synergistic. It is a closure product, which is our primary focus in IVT, and it goes against structural heart, which will have call point synergy with our SavvyWire business. So yes, we're excited. There's more work to be done, but we'll have more to say about that, I think, later this year. Operator: Our next question comes from the line of David Rescott of Baird. David Rescott: Congrats on the progress here. Two questions from us, and I'll ask them both upfront. First, on the plasma side, it seems like a pretty substantial step change in the U.S. collection volumes that are going out. I know you've talked in the past and have remain committed to the fact that there's ebbs and flows in the market and had expected it to get better in the second half of the year. It's clearly coming sooner than expected. So I'm curious on what you're seeing on the ground level as to why, again, a multi-quarter kind of low single flat growth number has now stepped up to this high single-digit level in the U.S. And just interested to hear on your confidence that maybe this isn't just a onetime thing. Should we expect the cyclicality on a quarterly basis, maybe to even step back down and step back up as this multiyear return to high single digit plays through? That's the first question. And then second, on the VASCADE business, I know there were some comments around some of the competitive nature in that market. Last quarter, you're focusing on getting the sales force initiatives realigned here. So just curious to hear if you could parse out maybe the benefits you've seen from the work that you've done versus the overall market acceptance versus some of the things on the competitive side that again give you the confidence that you can continue to progress here through the year. Christopher Simon: Yes. Thank you, David. So first on U.S. plasma collections, again, high single-digit volume growth on top of the pricing benefit from the technology advancements and ongoing share gain. We're very bullish that the cyclicality of this market. When we talk to our customers, when we walk the floor at PPTA and see the association's forecast, we think what we observed in the quarter is absolutely sustainable through the second half of the year and beyond. And we're benefiting because our customers are taking share in the end market, enabled by NexSys and the outperformance there. The guidance that we put forth, right, because we grew 23% through the first half. The guidance we put forth is more modest, and we don't control collection volume. While we have every confidence that they continue and grow from here. Our guidance reflects what we can control, which is share gains and the annualization of those prior technology rollouts, which are happening this quarter, third quarter. So from our vantage point, we'll guide to what we control. We have continued share gains at hand, and we feel great about that. And so that's what you see in our forecast. With regards to VASCADE and the competition, it is a competitive market. We clearly woke up both of the direct competitors we face there. But when we look at the trial data coming off of Excel, when we look at the actual head-to-head in accounts, we are very confident that we can regain share. We have green shoot examples of that as we speak. And we think that we go from strength to strength there. You'll know and you'll see our progress in the upcoming results. It will be first and foremost with VASCADE in electrophysiology. SavvyWire is an important contributor, much smaller, but SavvyWire will be -- is the second priority for that team, and we expect continued double-digit growth ex OEM. And then when I spoke a minute ago about PercuSeal Elite coming in from Vivasure, that will be a third priority when we get into FY '27. So the guidance there is more modest. We felt like the right path was just to be prudent. And so we've narrowed and lowered that range. We don't expect a meaningful contribution this year, but the green shoots we are observing tell us that, again, right team, right actions being done in the right way to reestablish growth in that category going forward. Operator: Our next question comes from the line of Travis Steed of BofA Securities. Unknown Analyst: This is [ Anja ] on for Travis. I wanted to ask on VASCADE. I understand the competitive discounting environment and lapping the Japan launch. Do you think the sales force changes really get you back to market -- above-market growth? And when should we expect the Japan label expansion? How significant would that be? Christopher Simon: Yes. We absolutely have confidence that the changes we've made will return us to above-market growth rates and beyond. And so it's a really good product, clinically economically differentiated in the right hands. There's a lot of upside potential, particularly with MVP and MVP XL in electrophysiology. With regards to Japan, yes, historically, Japan this fiscal year was an important growth contributor for us -- the launch of PFA changes the dynamics. But PFA looks meaningfully different in Japan, as you would hear from some of the folks behind that, right? It's a much more modest uptake in part because I think the Japanese market prioritizes safety first. So we see a slower adoption curve and then the mix within that adoption is much more evenly split between the lead players, which is important for us because they've accepted MVP-XL into the market, and we have reimbursement on the base label. And that's important because we're now indicated for so many more of those procedures, in fact, all but one modality at this point. That gives us confidence that the second part of this year and beyond, Japan becomes an important contributor. They've also agreed to accept the U.S. data as part of our submission for regulatory approval and release for the larger access site indications. So there's more to be done. I don't want to call the timing on that because we don't control it. But as we get both the approval for the expanded label and that reimbursement, which has been very favorable for MVP and MVP XL and their base indications, we have a lot of confidence, particularly in the distributor we're using there. There'll be some movement quarter-to-quarter order timing, et cetera, but Japan will be a source of growth for us going forward. Operator: Our next question comes from the line of Joanne Wuensch of Citi. Unknown Analyst: This is [ Anthony ] on for Joanne. Could you maybe characterize a bit more? I know it's early, but just how the launch of the HN cartridge is going in EMEA and Japan and if it's tracking similarly to how the U.S. launch was in the first few months? Christopher Simon: Yes. So it will look different in those markets because the markets -- the viscoelastic testing is really different. We -- the product gives us broad-based application. And if what we see in the U.S. holds true, we're just seeing a far higher number. The dollar revenue per device is meaningfully increased with the heparinase neutralization cartridges here in the States. We expect that part of the launch will be very similar. But it is a different starting point. We don't have nearly as many TEG 5000, the predicate product in the market in either of those places. So less opportunity for that conversion. They are smaller markets. But again, we have the ability to lead and our teams are excited. They are -- those markets reflect more of a hybrid approach. Some of them are direct, for instance, the U.K., Germany and parts of Japan. Others are through distributors. So there'll be a lag time as those distributors come up to speed on the new product, new cartridge and get established in the market. But long term, it's an important source of sustainable double-digit growth for that business and that franchise. Operator: Our next question comes from the line of Andrew Cooper of Raymond James. Andrew Cooper: Maybe starting, I think, Chris, you said a couple of times VASCADE was economically differentiated. Can you just give a little bit more color on sort of what you mean by that versus the competition? And then talk a little bit about how pricing and your approach to the market there has evolved competitively. Have you made changes to price? And do you feel like from here, we're in the right spot where it's going to be a little bit steadier. I know you said margins would hold in there, but just would love any thoughts on the top line and the price component. Christopher Simon: Sure. Thank you, Andrew. Yes, the product, when you look at the metrics in terms of time to ambulation, time to discharge, it is at or above anything else in the marketplace. The real benefit, and I think you're seeing this with a heightened focus even in the post-PFA environment, is the improvement in workflow productivity. As a center adopts MVP and MVP XL, their ability to really move quickly with these patients, get them closed, get them ambulated and in almost all cases, send them home the same night, really powerful. The other factor, and you hear this in the verbatim from the clinicians repeatedly is it's a pain-free solution. Suturing works and suturing has a reasonable profile, but it hurts a lot and often comes with the use of narcotics, which have their own complications. We eliminate all of that. And so the speed in the workflow, the absence of pain medication and just a much better patient verbatim helps a lot. As I said earlier, as this market increasingly moves to the ASCs, that difference will be all the more powerful. And so we're enthusiastic about it. And with regards to pricing, as we've dug into this, we look very carefully now with the account level detail that we have at where we're gaining, where we're losing. It's almost never about the actual price of the product. We may have needed to be more flexible with regards to initiation trials or other work done jointly with VAC to get those remaining accounts converted. But in the head-to-heads that we're observing, very modest degree of flexibility on price tends to be driving the desired outcomes. And you see that, again, I just go back to we're -- the hospital operating income margin was the primary driver of our overall margin growth at 370 basis points of OI. So from our vantage point, -- and to be clear, both BMT with TEG and IVT with VASCADE were equal contributors to that gross margin expansion. So what you'll see going forward is as we layer on the volume is increasing operating leverage. So we don't have any worries. The investments have already been made in OpEx and the price concessions are modest at best. And so from our vantage point, our margin expansion and the growth that we're anticipating top and bottom line are absolutely achievable. Andrew Cooper: That's great. And then I wanted to ask one more on Blood Management as well, just given the traction there, not to jump too far ahead of ourselves, but it's clear that the HN cartridge has done a lot for driving that growth. When you look into the future from an innovation perspective, are there other menu items to add that could be similar in magnitude? And if so, can you give any color on what they might be or maybe when we could think about more of that menu expansion to continue driving penetration with TEG? Christopher Simon: Yes, Andrew, we absolutely see additional opportunity for the growth of visoelastic testing. We target, for example, in the U.S., a T700. Nearly half of them have not adopted visoelastic testing. We have 70 share of the market. Obviously, we intend to retain and grow that. But our biggest opportunity is taking visoelastic testing to the other sector of the market that doesn't have it. Hp neutralization helps do that because it gives you a broader spectrum of testing. But we also have additional indications that we are pursuing and additional applications of the product that -- we'll talk about more probably in the spring when we do our next Investor Day. We'll pull back to Vail a bit and talk more about the really exciting portfolio pipeline that we've got going behind TEG. Operator: Our next question comes from the line of Michael Petusky of Barrington Research. Michael Petusky: So Chris, and I will admit, I missed it. There's a ton of companies reporting this morning and I missed part of your prepared remarks. So I'm just curious on Vascular Closure, if you're looking at over the last 12, 13, 14 weeks since we last talked on a conference call and you put in all these initiatives to try to sort of turn the business, and I'm sure you're looking at this, if not day by day, certainly week by week. I mean, are you -- I certainly heard the green shoots commentary, but are you seeing progress week by week, even through the end of the quarter into where we are now? Like are you seeing enough evidence to say, yes, we've bottomed, we've turned this. It's not an overnight back to where we were, but we've turned this or at least now we're trading punches as opposed to just taking punches. Like where what are you seeing? And where are you sort of in -- if you're calling us a sort of a comeback story, hopefully, where are you in that? Christopher Simon: Yes. Thanks, Mike. I appreciate the question. And I appreciate the interest on this. We are absolutely anticipating a comeback story, right? And I think this one is going to be exciting and interesting to watch as it develops. We are confident that the actions that we have taken year-to-date have stabilized this performance. And so we don't expect any further deterioration in performance. we see green shoots with new account openings. We see green shoots with greater utilization. We see green shoots with competitive win backs or just healthy head-to-head that we've come out on top on. So we do expect meaningful growth going forward. However, we're going to be prudent in our guidance. And at this point, the guidance for IBT writ large, and it's important. We didn't talk about this probably enough, but that franchise is unfortunately dragged down by esophageal cooling, and I'm happy to come back and give some more specifics there because I'm not including cooling as part of my commentary. I'm talking specifically about closure. In closure, we put very little in for the second half, but that's us being prudent because it's a tough market, and I'd rather be on the conservative side of that. We've heard that loud and clear from the market to call it when you see it, but not before. Our results from here will speak for themselves, okay? Michael Petusky: Okay. All right. Great. And just a quick one for James. James, as you -- obviously, you guys have been aggressive here recently with share repurchase. As you just sort of think, I guess, longer term, not looking for specific guidance for next year or longer term, but just generally speaking, I mean, would you expect the share count to sort of remain sub $50 million over the next few years? Like are you guys going to continue to be pretty active in share repurchase as you think about capital allocation beyond fiscal '26? James D'Arecca: Yes. Thanks, Mike. So there's roughly 47 million-ish shares outstanding now. So I think a lot would have to happen to get above that $50 million mark. So the thought process here is that certainly, we would aim to keep dilution in check for sure. And then I mean, let's face it, one of the benefits of having a strong balance sheet is that we do have some optionality on capital deployment. So yes, that includes buying back shares, also debt pay down and so forth. But yes, for the foreseeable future, lower than $50 million, pretty good bet. Christopher Simon: Yes, Mike, it's Chris. If I could just pile on there. From a capital allocation perspective, exactly as James just highlighted, we're going to focus on paying down our debt, being opportunistic with the share buybacks. We'll make targeted organic investments as we have to advance new technology into the market. But again, we feel we've fully resourced from an OpEx perspective. You see that. You see that in our leverage. And obviously, you see that in our robust cash flow and a really healthy free cash flow to net income conversion ratio. But we're focused on what we have. We're focused on making the most of the portfolio. As I've said repeatedly, we'll do Vivasure when the final set of milestones are hit, and we're ready to go there. Beyond that, M&A is off the table until we have IBT exactly where we need it to go. Operator: I am 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: Good day, and welcome to the Velocity Financial, Inc. Third Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Chris Oltmann, Treasurer. Please go ahead. Christopher Oltmann: Thanks, Chloe. Hello, everyone, and thank you for joining us today for the discussion of Velocity's Third Quarter 2025 results. Joining me today are Chris Farrar, Velocity's President and Chief Executive Officer; and Mark Szczepaniak, Velocity's Chief Financial Officer. Earlier this afternoon, we released our third quarter results. You can find the press release and accompanying presentation that we will refer to during this call on our Investor Relations website at www.velfinance.com. I'd like to remind everyone that today's call may include forward-looking statements, which are uncertain and outside of the company's control, and actual results may differ materially. For a discussion of some of the risks and other factors that could affect results, please see the risk factors and other cautionary statements made in our communications with shareholders, including the risk factors disclosed in our filings with the Securities and Exchange Commission. Please also note that the content of this conference call contains time-sensitive information that is accurate only as of today, and we do not undertake any duty to update forward-looking statements. We may also refer to certain non-GAAP measures on this call. For reconciliations of these non-GAAP measures, you should refer to the earnings materials on our Investor Relations website. Finally, today's call is being recorded and will be available on the company's website later today. And with that, I will now turn the call over to Chris Farrar. Christopher Farrar: Thanks, Chris, and we appreciate everyone joining the call today. Our third quarter results were fantastic as we've achieved another record quarter in terms of pretax earnings, which were up 66.5%, production volumes of $739 million and new applications, which exceeded $1.4 billion for the quarter. Looking forward, the markets remain strong, and this momentum has continued into the fourth quarter as we gain market share and expand our reach. From a credit perspective, we remain disciplined as evidenced by the decline in the weighted average portfolio loan-to-value to 65.5% and our coupons remain on target at 10.5% generating attractive risk-adjusted spreads and stabilizing our attractive NIM and core pretax ROE of 24.1%. Our asset managers have done a great job of resolving NPAs consistently above par for net positive gains. Plenty of capital available for REOs that are priced properly and expect the real estate markets to continue to perform well within our niche. Most unique event in Q3 was the closing of our first ever single counterparty securitization of new production with a top-tier money manager. This strategic partnership allows us to reduce transaction costs, execute at similar levels to our regular, widely marketed deals and diversify our long-term funding options. We're proud to partner with this world-class firm and expect the transactions to continue as evidenced by a second transaction that closed in early October. Obviously, the fixed income markets are very supportive, and we intend to maximize our opportunities there. As usual, I give full credit to our outstanding team members that work so hard to deliver these results, and we will continue to create shareholder value wherever possible. With that, I'll turn over to the presentation and begin discussing Page 3. In terms of earnings, obviously, a great quarter, net income up 60% year-over-year and core diluted EPS of $0.69 a share. Portfolio NIM was very stable at 360 basis points above our target of 3.5%. Moving to Production and the Loan Portfolio. I mentioned record level of production of $739 million, 32% net increase in the portfolio year-over-year after netting out prepayments. In terms of nonperforming loans, that portfolio was pretty stable, 9.8%, down from 10.6% and within our expected range. As I mentioned earlier, we continue to see positive gains on resolved NPAs of $2.8 million, and our team has done a fantastic job there. Turning to financing and capital. I mentioned that first ever single counterparty transaction. We were approached a quarter or 2 ago by a large party and with the interest of developing a consistent outlet for our product and very pleased with the way that transaction -- both those transactions executed. And we expect it to be an additional diversification of our funding sources going forward. In terms of liquidity, we have plenty of cash and available borrowings, and you can see over $600 million of warehouse capacity at the end of the quarter. So all in all, in shape there. Turning to Page 4. I want to reemphasize our strategy of compounding earnings by taking all of our earnings and investing them back into the platform and the portfolio. As you can see, we've had outstanding results, and we think this is a great opportunity for investors to get exposure to our earnings and the compounding of capital. So very pleased with how we've transacted over the last couple of years and expect this to continue going forward. With that, I'll turn it over to Mark on Page 5. Mark Szczepaniak: Thanks, Chris, and good afternoon and evening, everyone. On Page 5. As Chris mentioned, Velocity had a new record for loan production in Q3. The loan production for the quarter was $739 million. That included $23.9 million in unfunded loan commitments. The $739 million again demonstrates our continued strong demand for our product. In Q3, the loan production broke the previous quarter's record of $725 million. There were a total of 1,778 loans originated in the third quarter. The strong production growth in Q3 included the weighted average coupon on new held for investment originations continuing to come in strong at 10.5% and the weighted average coupon on our HFI originations for the last 5-quarter average trend was at 10.6%. The growth in originations in Q3 was also very tight credit levels with the weighted average loan-to-value for the quarter being at 62.8%, which is right on top of the last 5-quarter average weighted average LTV trend of 62.8%. As a result of the continued robust growth in production, take a look at Page 6. It shows the overall growth in our Q3 for our overall loan portfolio as we retain these loans in our portfolio. Our total loan portfolio as of September 30 was just under $6.3 billion in UPB. That's a 7.1% increase from Q2. And I think as Chris mentioned, a 32% increase year-over-year, even netting out prepayments. The weighted average coupon on our total portfolio as of September 30 was 9.74%, which is 7 basis points above Q2 and 37 basis points in terms of portfolio yield over Q3 -- I'm sorry, year-over-year. The total portfolio weighted average loan-to-value remained consistently low at 65.5% as of September 30. If you go to Page 7, we maintained a strong portfolio NIM at 3.65% in Q3, and that's consistent with our last 5-quarter average portfolio NIM of 3.62%. On the right side of that page, you can see the breakout of our yield as well as the cost of funds. Our portfolio yield for the quarter was at 9.54% and the cost of funds at 6.27%. We've maintained a nice healthy spread over several periods. On Page 8, our nonperforming loan rate at the end of Q3 was 9.8%. That's down 0.5 point from Q2 and 80 basis points year-over-year. We continue to see, as Chris mentioned, the strong collection efforts by our special servicing department that have resulted in favorable resolutions of our nonperforming assets and the NPAs are comprised of our nonperforming loans as well as REOs. Page 9 shows the continued positive results of our NPA resolution efforts. Our Q3 NPA resolution gains totaled $2.8 million or 2.6% of the $108 million in UPB resolved. And on a trend basis, we've averaged 3.8% quarterly NPA resolution gains over the last 5 quarters. Turning to Page 10. The top part of the table on the right-hand side shows our CECL loan loss reserve. The bottom part shows the net loan charge-off and gain loss on REO activity. In terms of the CECL reserve at September 30 was $4.6 million, or 22 basis points, and that's on our outstanding amortized cost HFI portfolio. And that 22 basis points is consistent over the last 5 quarters, we've averaged around 20 basis points of CECL reserves. So not much of a change there. And keep in mind, the CECL reserve does not include held -- I'm sorry, fair value option loans. It's only our held for investment amortized cost. The bottom part of that table shows that for Q3, our net gain loss from loan charge-offs and REO activities. We had a net loss of $1.6 million, mainly as a result of REO valuations. Page 11 shows our durable funding and liquidity position at the end of Q3. Total liquidity at September 30 was just under $144 million, and that's comprised of about $99 million in our cash and cash equivalents and almost another $45 million in available liquidity on our unfinanced collateral. As of September 30, our available warehouse line capacity is just a little over $600 million with a maximum line capacity of $935 million. And that's a $125 million increase in max line capacity over Q2. So we went from $810 million maximum capacity at the end of Q2 to $935 million and some of our warehouse lines are increasing their capacity. That concludes my Q3. Our debt-equity ratio on a recourse basis stays consistent though it's at 1x, has been between 1.5x, 1x for the last 5 quarters. So Chris, with that, I'll turn it back to you to present an overview on our outlook and key business drivers. Christopher Farrar: Thanks, Mark. Appreciate it. Just to sum it up, we're very positive about the future. We think markets are healthy. Our credit is performing well. Our capital markets are extremely robust, especially on the fixed income side. And we believe that our earnings are going to continue to grow and expect positive results going forward. So with that, I'll open it up for questions. Operator: [Operator Instructions] The first question comes from Steve Delaney with Citizens. Steven Delaney: Gosh, excellent quarter. It sounds repetitive, but you guys put the numbers up every quarter and just whether it's production gains, everything that you've summarized on Page 3. So tip my hat to you on that for sure. A little concern on not so much REO resolutions, but just in terms of, as you show on Page 10, the charge-offs are up quarter-over-quarter for sure. And this quarter, I know REO gains can be a little fluky, but we went from a nice gain on REO in the second quarter to -- or excuse me, last year third quarter to the loss this year. And I guess the number that jumps off the page because primarily, I don't understand it. Chris, if you could help me understand the REO valuations on a net basis, the negative $6.3 million. Just explain that if that was a -- do you book the REO at where you think it should be or based on your loan balance? And then as you study the market and get feedback on property valuation, then you have to adjust. Just curious why that big number of negative $6.3 million. Christopher Farrar: Thanks for the question, Steve. In terms of the REO valuation, I'll walk you through the detail. But just from a high level, if you look, you'll see it in our Q that gets filed later today, year-to-date, our REO activity is basically on top of last year, $3.2 million gain, I think it is. So there's some noise just in timing issues here. In terms of the REO valuation expense that we recognize, that happens after we've taken a loan from -- off the books and put it into REO. And then it's -- as it sits on the balance sheet, we adjust market to market realities. I would say in this $6.3 million, you've got some cases where maybe the property has deteriorated, maybe worse than what we thought when we originally foreclosed. You have some cases where we actually end up just selling the REO a little less than where we thought we were going to -- where we had it marked. So it can be driven by a number of different things. But I would say, from our perspective, we don't see it as like a worsening trend and much more of just kind of a quarterly timing issue. I expect that number, you'll see it kind of go up and down quarter-by-quarter. Mark Szczepaniak: And I'm sorry, Steve, this is Mark. If I could just add to what Chris said, it is really a timing item. The main thing to look at is the NPL resolution table, the final resolutions. For example, I got $6.3 million. What could happen is when we first foreclose on a property and set the REO up, the REO has to go up at its fair value. We'll keep in mind, since we've got the loans at basically 63%, 60% LTV, if you have a $500,000 loan, now you're going to write off the loan and put the REO on the books for, say, $800,000 because the loans at 65% LTV. So you put the REO on your books at $800,000. So that's what's in that gain on transfer to REO, that top number. Then maybe 6 months down the road, you get an offer, it's not $800,000, it's $700,000. And you say, okay, we got an offer for it. That's the new fair value. We're going to take the offer. So you write it down from $800,000 to $700,000. Well, in that period, which might be 6 months later, 8 months later, it looks like a $100,000 REO loss. The reality that $700,000 you're writing it down to is still $200,000 more than the $500,000 loan you had. So overall, if you sell it at that $700,000, you're still going to have an overall gain on resolution. It's just a timing of when you first put the REO on and then maybe you write it down because you're going to decide to take less to sell it. But what you're selling it for is still more than the loan that you took off the books. Steven Delaney: Got it. So I think you're telling me -- you added $4.6 million as a positive number when you took it into REO. And then when you understood the property or developed the marketing plan or looked at offers or something, then you had to just -- you reverse some of that. Mark Szczepaniak: That's exactly correct. And that $6.3 million, remember, it's different periods. So the $4.5 million, that's all new REO that came on in that quarter. The $6.3 million is probably something that maybe in those quarters, it went on for $8 million or $9 million positive, and now we're taking $6.3 million of it back, if I'm saying. Steven Delaney: Got it. Got it. Okay. Understood because you have the gain, it's more of an accounting gain when you take it into REO the first time. But then once you understand valuation, it sounds like that can be a little lumpier in terms of when that valuation adjustment is made. Mark Szczepaniak: That's correct. Steven Delaney: All right. That's helpful. Well, obviously, the positives in the report far exceed the negatives, but I just wanted to bring that up. And one final thing. What is your headcount currently or at 9/30? And how has that changed over the last year? Christopher Farrar: Yes. So we're at like 347 people at 9/30, and that's up about 82 heads. Steven Delaney: Okay. Congrats on another great quarter and I guess we'll do this again in 3 or 4 months. Christopher Farrar: Thanks, Steve. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Chris Farrar for any closing remarks. Christopher Farrar: Great. Thanks, everybody, for joining, and we'll speak to you in a few months. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Hello, and welcome to Intellia Therapeutics Third Quarter 2025 Financial Results Conference Call. My name is Rocco, and I will be your conference operator today. Please be advised that today's conference is being recorded. I will now turn the conference over to Jason Fredette, Vice President of Investor Relations and Corporate Communications at Intellia. Please proceed, sir. Jason Fredette: Thank you, Rocco, and hello, everyone. Earlier this afternoon, we issued a press release and filed our 10-Q outlining our recent business updates and our third quarter financial results. These documents can be found on the Investors and Media section of Intellia's website at intelliatx.com. At this time, I would like to take a moment to remind listeners that during this call, Intellia management may make certain forward-looking statements. We ask that you refer to our SEC filings available at sec.gov for a discussion of potential risks and uncertainties. All information presented on this call is current as of today, and Intellia undertakes no duty to update this information unless required by law. Joining me on the call are John Leonard, our Chief Executive Officer; and Ed Dulac, our Chief Financial Officer. With that, I'll turn the call over to John. John Leonard: Thanks, Jason, and thanks to all of you who have tuned in for today's call. In terms of the agenda for today, we'll begin with the status of our nex-z program in ATTR amyloidosis since that is obviously top of mind for all of you. We then will provide an update on the significant progress we have made with lonvo-z, which is being developed as a potential onetime treatment for patients with hereditary angioedema or HAE, and we will close with Ed's financial review. First, for nex-z. Since the start of 2024, we've been enrolling patients in MAGNITUDE, our Phase III clinical trial for ATTR amyloidosis with cardiomyopathy. And we've been enrolling MAGNITUDE-2 for patients with hereditary ATTR amyloidosis with polyneuropathy since the start of 2025. Both trials have advanced rapidly, which we believe demonstrates patients' interest in a potential onetime treatment option. On October 24, a patient was admitted to the hospital after reporting abdominal pain to his principal investigator. This is a patient with ATTR cardiomyopathy in his early '80s who enrolled in MAGNITUDE and received a dose of nex-z on September 30. The patient's labs showed that his AST and ALT levels exceeded 3x the upper limit of normal and that his bilirubin exceeded 2x the upper limit of normal. These levels triggered a protocol-specified pause on patient dosing and screening for MAGNITUDE in the interest of patient safety. We decided to also pause patient dosing and screening in MAGNITUDE-2 as a precaution. On October 29, the FDA notified us verbally that it had placed a clinical hold on MAGNITUDE and MAGNITUDE-2. We are now awaiting the FDA's formal clinical hold letter. We were very saddened to learn that the patient passed away last night. We have been advised by the treating physician that this is a case with complicating comorbidities, and the case is being further evaluated. Since learning of this case, we've taken a number of actions in the interest of patient safety. For instance, we've mandated that clinical sites collect additional labs from patients in the initial weeks following dosing to detect potential liver elevation sooner. An internal team has been closely reviewing the blinded safety data, baseline characteristics, among other factors, to identify potential contributors to the liver-related events seen in MAGNITUDE. We've been working with the trial's independent data safety monitoring committees as we consider other potential monitoring and risk mitigation strategies. And of course, we are engaging with global regulatory authorities and other stakeholders to understand their perspectives, concerns and requirements so we can develop a plan that would allow us to resume enrollment as soon as appropriate. Not surprisingly, given the clinical hold, we are unable to maintain our milestone guidance for nex-z, and we expect to provide an update once we finalize the plan with regulators. Simply put, a lot has transpired over the past couple of weeks and in recent hours, and there is still much work ahead. There's a lot of focus on the safety profile of nex-z at this stage as there should be. That said, we continue to believe in this product candidate's potential to address important unmet needs for patients with ATTR amyloidosis. This is based on a few key factors. First, ATTR amyloidosis is a disease with high mortality. While undeniable progress has been made in this treatment, current therapies only slow its advance and most patients continue to face progressive morbidity and mortality. Second, we've enrolled more than 650 patients in MAGNITUDE and 47 patients in MAGNITUDE-2. To date, Grade 4 liver transaminase elevations have been reported in less than 1% of all patients enrolled in MAGNITUDE. Each of these cases has been observed approximately 3 to 5 weeks following randomization and dosing. There have been no Grade 4 liver transaminase elevations in MAGNITUDE-2. And third, we are highly encouraged by the data from our ongoing Phase I clinical trial of nex-z. On Monday, in a late-breaker oral session at the 2025 AHA Scientific Sessions in New Orleans, we will have the opportunity to share longer-term data for nex-z that we believe demonstrates its potential to improve various disease measures and mortality. Let's move on to lonvo-z, which is being investigated in our ongoing HAELO Phase III clinical trial for HAE. Over the course of 2025, we've made considerable progress in this trial. Enrollment was completed in September, less than 9 months after we dosed our first patient. This puts us on track to share top line data by mid-2026, submit a BLA to the FDA in the second half of 2026, and prepare for an anticipated commercial launch in the U.S. in the first half of 2027. We believe lonvo-z could completely redefine the HAE treatment landscape. We aim to reset expectations and the standard of care for patients living with this debilitating disease by completely eliminating attacks and the need for other HAE medications for a majority of patients, all with one dose. This Saturday, at the American College of Allergy, Asthma & Immunology Annual Scientific Meeting in Orlando, we will be presenting longer-term safety and efficacy data from all of the patients who received a 50-milligram dose of lonvo-z in our Phase I/II clinical trial. I'll now hand over the call to Ed, our Chief Financial Officer, who will provide an update on our financial results for the third quarter 2025. Edward Dulac: Thank you, John, and good evening, everyone. Intellia continues to maintain a solid balance sheet that allows us to execute on our clinical pipeline and build important capabilities required for future success. Our cash, cash equivalents and marketable securities were $669.9 million as of September 30, 2025, compared to $861.7 million as of December 31, 2024. During the third quarter, we raised approximately $115 million from our ATM facility. When combined with the benefits of the restructuring initiatives we implemented in early 2025, this enables us to extend our cash runway into mid-2027 and through lonvo-z's anticipated commercial launch in the U.S. for HAE. Collaboration revenue was $13.8 million during the third quarter of 2025 compared to $9.1 million during the prior year quarter. The $4.7 million increase was mainly driven by cost reimbursements related to our collaboration with Regeneron Pharmaceuticals. R&D expenses were $94.7 million during the third quarter of 2025 compared to $123.4 million during the prior year quarter. The $28.7 million decrease was primarily driven by employee-related expenses, stock-based compensation, research materials and contracted services, offset by an increase in the advancement of our lead programs. Stock-based compensation expense included within R&D was $12.2 million for the third quarter of 2025. G&A expenses were $30.5 million during the third quarter of 2025 compared to $30.5 million during the prior year quarter. Stock-based compensation expense included within G&A was $7.4 million for the third quarter of 2025. Finally, net loss for the third quarter of 2025 was $101.3 million, down from $135.7 million for the prior year quarter. We continue to expect a year-over-year decline in GAAP operating expenses of at least 10%. And as stated before, our cash runway is expected to fund operations into the middle of 2027. With that, we are ready to begin our question-and-answer session. Before we do, we would like to let you know in advance that we will be unable to answer some of your questions given a variety of factors, including the fact that we are still awaiting the FDA's clinical hold letter and a more thorough evaluation of the patient's case. We appreciate your patience and understanding. Operator, would you please open the line for questions? Operator: [Operator Instructions] Today's first question comes from Gena Wang with Barclays. Huidong Wang: I'm really sorry to hear the unfortunate event. I know you are still collecting tons of data, but just wondering if any initial hypothesis of the reason for liver enzyme elevation since this is a 1 month after dosing. Is that because of lipid nanoparticle Cas9 or age-related or disease? Any initial thoughts that would be fantastic. And the related question is, you shared the color on Grade 4, less than 1% in ATTR cardiomyopathy. How is that rate for ATTR polyneuropathy and the HAE patient population? John Leonard: So Gena, thank you for the question. At this point in time, we can only speculate, which we're not going to do in terms of what's the source of the liver function test abnormalities. As you pointed out in your question, we've seen across the entire study with over 650 patients enrolled, an incidence of less than 1%. This particular case is distinct from what we've seen. It was a very complicated clinical course with other comorbidities that may have had some influence in the outcome of the patient. Of the other cases that have occurred, all of those cases have either resolved or resolving and no one is in the hospital. Operator: And our next question today comes from Maury Raycroft with Jefferies. Maurice Raycroft: Maybe one more on the patient. I know you can't say much, but you mentioned the other comorbidities. Can you say what those were and also potentially whether the patient was managed in the United States or ex U.S.? And then, yes, I guess, if you can't answer those, if you could talk about just potential risk mitigation strategies that you could implement going forward. John Leonard: Yes. At this point, Maury, we can't go into the comorbidities. I can only say that the patient had a very complicated medical course, and these other comorbidities may have influenced the ultimate outcome along with the hepatic abnormalities. We're not commenting on geography. I can only assure you that the patient received what we believe to be excellent medical care, and we have no reason to believe that there was any shortfall in taking care of the patient. With respect to risk mitigation strategies, that's ongoing work. As you might imagine, we're doing as comprehensive analysis as we're able to do, looking at all of the data we've collected, coming up with any potential hypothesis. The ultimate goal would be to find a way to exclude patients who may be at risk, should we identify it or impose interventions that could deal with the liver function test abnormalities if they do occur. Operator: And our next question today comes from Alec Stranahan with Bank of America. Alec Stranahan: I guess, how many ATTR patients are currently within that 3- to 5-week post-dose window on the study right now? John Leonard: I can't give you precise numbers, but it's -- the vast majority of patients have passed through it. And with each passing day, there's a smaller and smaller set of patients who have yet to go through it. Operator: And our next question today comes from Mani Foroohar with Leerink Partners. Mani Foroohar: My condolences, a tough outcome for the patient for sure. So let me dive in a little bit on a hypothetical that I've received from a number of clients, which is if this hold were to remain for an extended period of time, what does that mean for the ongoing OpEx spend of the company? i.e., I know it extends the duration to whenever we get a potential pivotal outcome for the study. But does it change the total amount of spend over the course of the study? Is your spend at a normal level during this hold or at least some activities interrupted? How should we think from a financial modeling perspective, recognizing that, that, of course, is a secondary concern to the moral obligations for the patient? John Leonard: Thanks for the question. It was a little garbled, Mani, but I think you were asking how does the hold play into the financial runway of the company and how do we manage through it. I think there's going to be a two-part answer. Ed can speak to the runway and how we currently view it. As you can imagine, our priority is going through the data and coming up with the best possible path forward. And that is job one at this point, and it's something that we're working very, very hard to do. The goal is to be up and running as soon as appropriate so that we can regain what was a very substantial momentum as we said. We had enrolled over 650 patients, and that's I think just a really stellar record. But maybe, Ed, you can say a few words about the runway and how we're thinking about this may impact that. Edward Dulac: Of course. Thanks, John. Yes, I would say we -- it's premature to be too precise with any guidance. But as we sit here today, based on the information we know, as we indicated, the time lines and the plans for lonvo-z are unabated. So we continue to operationalize that study as we have been. While we are on clinical hold and therefore, unable to enroll new patients or screen for patients, as we reported, we do have now more than 650 patients in MAGNITUDE and we have 47 patients on MAGNITUDE-2 that still remain on study, are still being managed according to the protocol. So the appropriate follow-up. So that will continue as we work our way through our clinical hold. Maybe to your point, the only thing that changes is the incremental cost of dosing per patient. So in many ways, near term as we work our way through the clinical hold, you could argue we're going to spend a little bit less money. We'll still have program management fees related to CRO costs and our own internal work, but the incremental cost per patient will not occur during this time, and we will reassess what the time lines look like once we have a clearer path on getting off clinical hold. And then we don't talk much about it, but we do have research priorities within the organization, and that continues. So again, sitting here today, we don't see a substantial shift in the operating needs or the cash needs for the company, and we'll look to reevaluate that in a collaborative effort, including with the regulatory authorities in the weeks and months to come. Operator: And our next question comes from Yanan Zhu with Wells Fargo Securities. Yanan Zhu: Sorry to hear the update about the patient. I was wondering, when you talk about comorbidities, is there any liver-related comorbidities? And then additionally, when you talk about less than 1% of the enrolled patients have Grade 4 enzyme elevation, could you -- are you able to disclose how many cases of Grade 4 liver enzyme situation has happened and how many are still resolving? John Leonard: Thanks, Yanan. The 1% applies to the more than 650 patients. I remind you, this is an ongoing placebo-controlled double-blinded study. And what's attributed to what in precise numbers by case, et cetera, is not possible for us to get into. But you should think of this as less than 1% across that number. With respect to the comorbidities, it's not something we can get into at this point. I can assure you that there's an ongoing evaluation where we'll get more information that I think will be very helpful to understand the clinical course that this patient experienced. And we'll present that information at the appropriate time once we have it. But until that information is in our hand, I think it's premature to discuss. Operator: And our next question today comes from Troy Langford with TD Cowen. Troy Langford: My condolences on the unfortunate update today. I guess just to kind of follow on to some of the other -- some of the previous questions. Is there anything that you all can do preclinically to try and disprove any sort of causation between nex-z treatment and the safety event? And then I know you all can't say that much, but is there -- if you all can provide any sort of color on potential time lines or next steps with the FDA around reinitiation of the study, I think that would help a lot. John Leonard: Yes. I can't speak for the FDA, and we're certainly waiting for the letter that we expect to receive from them, the hold -- clinical hold letter. And that will be obviously very influential in how we think about -- going about getting back the protocol up and running. With respect to preclinically evaluating, it's hard to know at this point. But as I said before, we're looking at every source of information that we have to see if there is some way that we can identify patients who may be at increased risk. And when we find that information, I'm sure we'll be talking about it in a way that will be meaningful, but only when we're convinced that we have that information well in hand. Operator: And our next question today comes from Brian Cheng of JPMorgan. Lut Ming Cheng: Ed, earlier this year in January, I remember that you said that the ATM would be used at an opportunistic time. And looking at your 10-Q, $128 million this quarter was executed through the ATM. What changed your mind here in executing the ATM? And is the ATM your path going forward in raising additional cash? John Leonard: Brian, thanks for the question. And Ed, do you want to talk about how we think about the various tools for raising funds? Edward Dulac: Yes. So we've often talked about ATM as not a primary strategy, but a tool within the toolkit to raise capital for the company. We're not going to comment on specifics going forward, but we do believe in having options. And so whether it's traditional equity that's often done in biotech, including the use of the ATM, you should expect us to continue to have that available to us and potentially circumstances dependent to utilize that strategy. But there are others for a company like ours that is approaching Phase III data and has a BLA filing. And so whether it's collaborations that we could consider, debt structures or more creative financing opportunities, I do believe we have the balance sheet to get to those milestones and multiple options to consider to improve the balance sheet in the future. Operator: And our next question today comes from Jay Olson at Oppenheimer. Jay Olson: We're sorry to hear this news. Since you mentioned there are no Grade 4 liver transaminase elevations in MAGNITUDE-2, can you just talk about any notable differences in the baseline characteristics for MAGNITUDE versus MAGNITUDE-2? And any particular changes you may be considering to the enrollment criteria? John Leonard: The primary difference is the indication itself. Patients in MAGNITUDE-2, as I'm sure you know, have polyneuropathy, which is a manifestation of TTR amyloidosis. And in MAGNITUDE, it's cardiomyopathy as the primary manifestation. Other than that, the differences tend to be really minimal, and I would think of it as on a continuum with respect to the drug as a whole. Operator: And our next question today comes from Salveen Richter with Goldman Sachs. Salveen Richter: I was just wondering if we step back, whether you could just help us understand the steps from here apart from the FDA letter. John Leonard: Well, central to the way forward is the FDA letter and coming to terms with what they'll require. But you can imagine that we're already working very hard with all of the information that we've accumulated. We're looking clinical information, preclinical information, manufacturing, et cetera. All of this is part of a very, very comprehensive analysis to see if there is any indication of a particular thing or a characteristic that puts patients at risk. While we do that, we wait for the FDA and the information that it requests. And as that information -- as that letter becomes available to us, we'll think through what we need to do and we believe we'll have the tools to address what we imagine may be things that are of interest to them, and we will work very, very closely with them to come up with the best possible plan that we think is an appropriate way to mitigate risk. Operator: And our next question comes from Jack Allen of Baird. Jack Allen: I also wanted to pass along my condolences, a tough update here. Stepping back, I was hoping you could help remind us of the differences in the construct as it relates to the ATTR candidate as compared to HAE. I believe they're using different LNPs, but could you help me understand that, and then also obviously targeting different genetic diseases as well? John Leonard: Yes. Thanks for the question. As we've shared elsewhere, the LNP is the same. That is the lipid constituents, the mRNA is the same. It's the guide RNA that differs between the two. but that leads to a totally different sort of outcome in patients. So ultimately, the patients themselves are different. The disease that they have is different and the gene that is targeted is different. So we view lonvo-z and nex-z as absolutely distinct from each other and the patient experience thus far aligns with that. Operator: And our next question comes from Silvan Tuerkcan with Citizens. Silvan Tuerkcan: My condolences as well to the clinical team. My question is do you add any additional liver monitoring in the lonvo-z trial in HAE? And I'm asking because if the percentage is less than 1% on 650 patients, if you do the math, less than a patient in the HAE trial, right? So any chances you can pick up slight liver increases there before there's a potential launch? John Leonard: Well, first of all, the lonvo-z HAELO trial is completely enrolled. And as we said at a prior update, that patient population is fully enrolled, and they've all passed through this initial window for the patients randomized in the primary evaluation part of the study. The monitoring that we have is not as intense as what we have in the nex-z trial. But again, our experience to date has been quite distinct. And if there were an issue that we would expect to be able to see it with the monitoring that we do have. I would say that an additional aspect to point out is that on Saturday, as we said in our comments, we'll be presenting at the AACI meeting, the combined pooled experience that we have of all patients who have received a 50-milligram dose for lonvo-z, and you'll be able to see the same not only clinical performance, but safety performance that we're seeing ourselves. Operator: And our next question today comes from Jonathan Miller at Evercore ISI. Jonathan Miller: My condolences as well to the family of the patient and to you guys, tough update. I guess I would love to dig further into the comprehensive analysis that you said you were doing. Obviously, you're going back over the individual patient. But how deep are you going across both the nex-z and the lonvo-z patient populations thus far? And can you maybe put some guidelines around what sorts of cases you would consider to be possibly fitting the pattern versus the sorts of cases you would be excluding? I'm thinking of patients who have subclinical liver enzyme elevations that might fit a timing pattern. How do you adjudicate whether you think those are part of this signal or not? John Leonard: The first point I would make is that the lonvo-z experience is distinct from what we see with nex-z. But with respect to nex-z, you're correct in that we'll have more information coming from this particular patient, which I think can be potentially very illuminating in terms of understanding the patient's clinical course. But other than that, when I say comprehensive analysis, I mean comprehensive. And we're looking broadly. We're looking deeply and the sorts of things that you're raising are all on the list of things for us to consider. Operator: And our next question comes from Whitney Ijem with Canaccord. Angela Qian: This is Angela Qian on for Whitney. I also want to express our condolences. So we understand you'll be increasing the monitoring of lab values after dosing. But can you give us a little bit more color on how often the lab values are being monitored previously? In this one patient, the levels were discovered when he had abdominal pain. But in the other patients who did have elevations, how was that discovered? John Leonard: We've always monitored in the window, and that's how we are aware of what we've seen thus far. We've not only picked this up as a result of more intense monitoring. But what we've done as more information has become available to us is move to at least weekly monitoring for the first few weeks after a patient has been exposed to the drug to see if we're able to actually characterize the full course of what happens when it happens. Again, it's occurring in less than 1% of all of the patients that have been enrolled in the trial. And the notion there is that if there's information that can be acted on that, that's in the hands of the physicians who are caring for these patients. Operator: And our next question today comes from Luca Issi with RBC Capital Markets. Shelby Hill: This is Shelby on for Luca. Maybe a quick one on HAE. We appreciate that you don't see a lot of read-through here, but do you think the patient death in TTR could hurt the potential commercial opportunity for this indication? Any color there, much appreciated. John Leonard: I can only speculate at this time, I think between where we are today and completing the readout of our Phase III trial for HAELO, there's a lot of time and information to be accumulated that will characterize the benefit risk profile for lonvo-z. Again, I would point you to a presentation that will be given on Saturday, just a couple of days from now, where the combined experience of all of the patients, 32 that have received 50 milligrams and the efficacy profile, along with the safety profile is there for everyone to see. And we think that, that is largely going to be representative of what we think we'll see in our Phase III or clinical use of the product more broadly. So until we get all of that information, I don't think we're going to be in a position to talk about the commercial opportunity. But thus far, we very much like what we see. Operator: And our final question today comes from Myles Minter with William Blair. Myles Minter: Sorry to hear about the update. It's a straightforward one. Do you have a cause of death? This is a cardiomyopathy trial. You will have deaths in the trial, unfortunately. Just wondering whether this was a CV-related event or as it seems maybe something beyond that? John Leonard: If I heard you right, I'm sorry, it was a little garbled. We'll give the information once we have all of the final material in hand. There are some things that are being done after the death to give us additional insights. And at the appropriate time, we'll share all of that. Operator: Thank you. And that concludes our question-and-answer session. I'd like to turn the conference back over to CEO, John Leonard, for closing remarks. John Leonard: So thank you all for joining us. We will look forward to speaking with you again when we have meaningful updates to share. Operator: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful 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: Ladies and gentlemen, thank you for standing by. I am Jota, your Chorus Call operator. Welcome, and thank you for joining the Alpha Bank conference call to present and discuss the 9 months 2025 financial results. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Alpha Bank management. Gentlemen, you may now proceed. Iason Kepaptsoglou: Hello, everyone, and welcome to the presentation of our third quarter results. I'm Iason Kepaptsoglou, Alpha Bank's Head of Investor Relations. Our CEO, Vassilios Psaltis, will lead the call with the usual summary and a few updates. Our CFO, Vassilios Kosmas, will then go through this quarter's numbers in some detail. Q&A will come at the end, and we should wrap up within the hour. Vassili, over to you. Vasilis Psaltis: Good morning, everyone, and thank you for joining our call. Let's start with the usual overview of financial results on Slide 4, please. As you can see, reported profits for the 9 months stood at EUR 704 million, already more than what we have made in the preceding fiscal years. Earnings per share of EUR 0.27 are 73% of the target we have set for the year. This translates into a 13.9% normalized return on tangible equity. We've also accrued EUR 352 million for distributions so far this year, already more than the distributions out of 2024 profits, and we intend to distribute circa EUR 111 million as an interim cash dividend in about a month's time. The main pillars of our performance remain the same. We have defended against the fall of the interest rates, seeing the second quarter of sequential NII growth. We recognize that the decline in interest rates will come less relevant in the coming quarters, but our ability to prudently position the balance sheet to maximize the value we can extract will remain relevant, be it on policy rates or spreads. We see structural tailwinds to our fee income line coming from Asset and Wealth Management, alongside lending and transaction banking. Fee income growth is the product of the initiatives we have taken that are now bearing fruit, both from the corporate as well as the affluent side of the business. We continue to position the business to maximize the recurring value we can create for our stakeholders in a sustainable way. Now allow me to spend some time on the strategic outlook, starting with Slide 5. Our strategic partnership with UniCredit continues to be a cornerstone of our transformation and growth agenda. As of last week, UniCredit has increased its stake in Alpha Bank to circa 30%, reinforcing the depth and commitment of our partnership. This is not just a financial investment. As UniCredit CEO, Andrea Orcel repeatedly stated, it's a strategic partnership, delivering tangible commercial, operational and systemic benefits for both institutions. We've cooperated closely and successfully combined our Romanian subsidiaries in a record time frame on footprint and unlocking synergies in cross-border operations. Furthermore, our clients now benefit from UniCredit's European network across 13 countries. This uniquely positions Alpha Bank as a gateway to Europe and the bank of choice for over 5,000 wholesale clients in Greece. In Wealth and Asset Management, the launch and expansion of the OneMarket funds suite has been a major success with close to EUR 900 million distributed to our customers. In Wholesale Banking, we have collat over EUR 300 million in letters of credit and guarantees through our transaction banking business and approved circa EUR 0.5 billion in international syndicated lending since the partnership began. Additionally, bilateral FX payment volumes have reached EUR 650 million year-to-date, reflecting strong transactional momentum. In Capital Markets and Advisory, the integration of our investment banking platform is progressing well. Together with UniCredit's advisory franchise, we're targeting joint deal origination across various sectors. Lastly, beyond commercial gains, we are also leveraging UniCredit's expertise in customer experience, process simplification, upskilling and reskilling programs, compliance and operational resilience, areas that are crucial to our long-term sustainability. This partnership aligns with Europe's vision for cross-border integration and financial stability. It supports the capital market union and enhances systemic resilience across Europe. Looking ahead, we aim to scale further our syndicated lending, transaction banking and cross-border advisory and broaden the distribution of asset management products across UniCredit's network. Our partnership with UniCredit gives us a competitive advantage that differentiates us from the rest of the pack, one that we aim to fully utilize to enhance the value that we can create for the benefit of all of our stakeholders. Our story remains intact, as you can see on Slide 6. Our strategic actions alongside our balance sheet tactical positioning will allow us to maintain an upward trajectory to our bottom line. Our defensive net interest income profile is now evident as we are amongst the first commercial banks in Europe to see growth in their net interest income line. We continue to dynamically manage our balance sheet, capturing the tailwinds of loan growth. The structural growth potential of the regions where we operate will allow us to maintain a pace of net credit expansion above the EUR 2 billion mark. We are stepping up our efforts for incremental fee income generation. Our franchise is strongly positioned to benefit from the long-term uplift in the penetration of fee-generating services. And as mentioned above, we are leveraging the partnership with UniCredit to accrue tangible benefits quarter after quarter. Our profitability is on an upward path, and we see earnings growing by 12% beyond 2025, still notwithstanding the impact of any share buybacks. Let's now move to Slide 7, please. The trends for 2025 and beyond allow us to maintain a differentiating positive EPS growth trajectory in the medium term. This differentiation should now be apparent vis-a-vis our domestic and European peers. EPS is expected to grow by 10% per annum over the planning period, above consensus estimate even before accounting for the effect of any buybacks. And then on Slide 8, please. We have been diligent and clear on how we intend to allocate capital and our priority remains unchanged. Our first and foremost priority is to fund profitable loan growth and invest in bolstering our capabilities. Our capital generation capacity suggests that we ought to be increasing payout. Lastly, our excess capital provides us with significant firepower to do more. Allow me to provide you with an update on these priorities, starting with loan growth on Slide 9. Loan growth in Greece continued to show resilience with corporate lending continuing to lead the way. We are seeing sustained momentum driven by a combination of strong economic fundamentals, a robust investment cycle and the structural support mechanism in place. Businesses are actively engaging with the banking sector to finance expansion, transformation and innovation, reflecting a deeper shift in the corporate landscape. We expect this dynamic to persist fueling high single-digit growth for corporates. The mortgage market presents a more complex picture. Demand is evident, but structural constraints around supply and legacy portfolio dynamics continue to weigh on growth. Government support measures offer some relief and growth is now turning positive. As a result, lending to individuals will be a growth area in the coming years. We're operating in an environment of hidden competition, particularly in the large corporate segment, which has led to gradual compression in spreads. We're actively defending profitability through prudent underwriting, optimizing risk-weighted assets and increasing fee and commission income. The commercial book remains resilient, and we are confident in our ability to navigate these dynamics effectively. Overall, the outlook remains constructive. Corporate lending will continue to be the engine of growth, supported by a recovering economy and targeted investment flows. Whilst mortgage activity may be -- may be slow in picking up, the broader loan book is well positioned to deliver in our expectations. We remain confident in our guidance and continue to expect mid- to high single-digit growth over the medium term. On Slide 10, you can see the revenue benefits from the investments we have made in growing parts of our core business. Beyond balance sheet growth, we have made important strides in diversifying our revenue streams and enhancing our cross-selling capabilities, which is a key pillar of our medium-term growth strategy. Trade finance and overall transaction banking fees have seen strong growth, achieving an 8% CAGR, boosted by our internal efforts to deepen our share of wallet with clients and also thanks to our partnership with UniCredit and the larger product pallet that they are now able to offer us to our corporate customers. In Asset Management, fees and assets under management have both doubled since December 2022, with over 60% of this growth coming from net new money, complemented by positive market effects. The former highlights our growing distribution capabilities, capitalizing on our affluent and wealthy clientele whilst the latter demonstrates the outperformance of our products. Mutual funds have taken the lion's share of this growth with net sales accounting for 75% of the total growth and a continuing bias towards balanced and equity funds. These are products that carry higher management fee margins, helping our fee CAGR in asset management reach an impressive 32% since the first quarter of '23. The outlook for these 2 areas remains very constructive. Our corporate customers, they are increasingly more sophisticated and their needs are expanding beyond vanilla lending. As such, we aim to support them in their growth journey through an expanded pallet of transaction banking, trade finance, treasury and advisory product, the latter with our new larger business following the acquisition of AXIA Ventures. In Asset Management, Greece is at early stages of a new secular trend with rising disposable incomes and improving financial literacy among affluent customers, creating long-term tailwinds for AUM growth. Moving on to Slide 11. Shareholder remuneration has been on a consistent upward trajectory, reflecting both our strong capital generation capacity and our commitment to sustainable value creation. We reiterated dividends with -- we started again paying dividends with a 20% payout ratio, increased this to 43% of reported profits last year, and we are currently accruing at 50% for 2025. This progression underscores our confidence in the robustness of our capital position and our ability to support higher distributions going forward. Indeed, our capital generation capacity suggested the payout north of 50% is sustainable, aligning with our strategic objective to deliver predictable and growing returns to our shareholders. Cash dividends have followed a similar upward path, starting with EUR 61 million out of 2023 profits and rising to EUR 70 million for 2024. For the current year, the introduction of an interim dividend of EUR 111 million to be paid in the fourth quarter confirms the positive momentum and our disciplined approach to capital deployment. Now when it comes to the split between cash dividends and share buybacks, our approach remains balanced and responsive to market conditions. While cash dividends provide immediate and tangible returns, buybacks offer flexibility and accretive value, particularly in periods of market dislocation. We continue to assess the optimal mix guided by our capital planning framework and our overarching goal of enhancing total shareholder return, cognizant of the change in the return of investment for future buybacks. Let's now move to M&A and start with Slide 12, please. We view M&A as a powerful tool that can accelerate the delivery of our strategy. The 3 transactions we announced earlier this year, FlexFin, AstroBank and AXIA Ventures, they are fully aligned with our framework. FlexFin enhances our factoring capabilities and opens access to underserved SME segments. AstroBank consolidates our systemic presence in Cyprus, doubling its profitability. AXIA Ventures strengthens our advisory offering, elevating our dialogue with corporate clients with additional focus on cross-border capabilities in conjunction with our UniCredit partnership. Moving on to Slide 13. As we have stated clearly, the financial impact of these transactions with a total 6% accretion to EPS and 60 basis points benefit to profitability in terms of return on tangible equity at the cost of circa 60 basis points of capital. Integration efforts are already underway, and we're working toward full rollout in line with our strategic road map. To ensure seamless execution, we have appointed a dedicated Chief of Integration and Group Initiatives Officer, who oversees all aspects of delivery and sits on the Executive Committee. This governance structure ensures strategic alignment, operational discipline and timely execution. We will continue to pursue opportunities that fit our framework and deliver long-term value to our clients and shareholders. And then finally, from my side, I'm pleased to announce that we are planning to host an Investor Day in the second quarter of 2026. We're close to the end of the period covered by our last event held in June 2023. So we believe it is time to update the market on the progress we have made across the group and explain our strategic priorities going forward. Planning is already underway, and we will be sharing more details in the coming months. At the full year results stage, you should expect to receive guidance for 2026, but with a 3-year business plan subsequently unveiled during the Investor Day. And with that, Vassili, the floor is yours. Vassilios Kosmas: Thank you, Vassili. Hello to everyone from my side as well. Let's start with the P&L on Slide 16, please. Quiet quarter in terms of one-off items this time. We've had EUR 25 million well-publicized donation to the Marietta Giannakou program for the reconstruction of schools as well as a few transformation and NP transaction-related costs. As you can see, trading and other income was also particularly low this quarter, mainly stemming from the liability management exercise we did on our Tier 2 note back in July. That had a EUR 12 million impact. As a result, our reported profit is a bit lower this quarter, while on a normalized basis, we're still cruising comfortably above the EUR 200 million line. Obviously, these 2 have implications for the full year guidance. Overall, we still expect to beat our original guidance of EUR 850 million in reported profits by a bit over 5%. We're still looking at EUR 2.2 billion of revenues, north of EUR 1.6 billion in NII and north of EUR 460 million in fees. Costs are still expected to be contained at EUR 870 million. We're tracking very well against the improved cost of risk guidance of 45 basis points. Associate income would likely come in at EUR 30 million. Tax, excluding the one-off PTA recognition should around about 26%. And finally, in terms of one-offs, we're likely going to have a couple of negatives in Q4, bringing the total for the year to positive EUR 30 million. All in, that should give a normalized EPS of EUR 0.35, in line with the consensus. With that, let's move to the next slide and talk about the underlying results and the main P&L items. Both net interest income and fees are growing sequentially. So the underlying core revenue picture remains solid. Operating income was down 5% Q-on-Q, solely attributable to trading, where, as mentioned, this quarter, we had a loss on the LME. Costs at EUR 214 million were flat versus previous quarter, and we're still trading better than expected. We expect a significant uptick in the fourth quarter on account of some seasonality typical towards year-end and thus retaining the full year guidance of circa EUR 870 million. Impairments came in at EUR 45 million for the quarter, bringing cost of risk at 45 basis points, in line with guidance and reflecting a benign credit environment. Finally, on the bottom line, reported profit after tax was down 36% as we had a large positive one-off in the previous quarter and a small negative this time. Normalized stood at EUR 217 million, almost flat Q-on-Q. So I still feel very comfortable with the full year guidance. Next slide on the main balance sheet items. Performing loans are up 2% in the quarter and a 13% jump from last year. Customer funds are also up 4% in the quarter with a year-on-year increase of 9%. Tangible book value, up 1.3% in the quarter on goodwill recognition with the annual growth rate of 13% after adjusting for dividends. And then on capital, which stands at 15.7% in terms of fully loaded CET1. But as you might remember, we will have a 60 basis point headwind in Q4 upon completion of AstroBank, already completed and AXIA. Let's move to Slide 19, where we discuss the 2 main components of revenue. NII was up for one more quarter, continuing the upward trajectory. At EUR 42 million, we're still seeing the impact of rate declines and to a lesser extent, the dollar depreciation. On the commercial side, with average rates still down in the quarter, we're seeing a lower contribution from loans. Even though rates appear to have stabilized, the lag effect of repricing means that we'll still have a headwind going into Q4. Deposits and funding costs continue to improve, although the pace of rates decline means that time deposit pass-through are more elevated than expected. With rates now hopefully at the trough, we should see some improvement in time deposit spreads. On the noncommercial side, securities book hasn't grown, so there's no material improvement this quarter. On the fee and commission side, we saw a small decline in the quarter. If we exclude the gain from the one scheme partnership with Visa in the previous quarter, third quarter was actually up 7% on a comparative basis. For yet another quarter, the star performance was asset management at EUR 32 million, being already currently running double the run rate of the 2022-'24 3-year average. Business credit fees came at EUR 33 million, up 2.3% versus the second quarter. Fees from cards and payments are seasonally strong in the third quarter. Overall, fees are up 10% versus the same quarter last year and even more if we adjust for the government initiatives, reinforcing the guidance we have given you for the year. Now let's move to Slide 20 to look at loans and customer funds. Performing loan balances reached EUR 35.7 billion with some EUR 700 million of net credit expansion in the quarter. Another strong quarter with EUR 3 billion of disbursements and a similar pattern in the board, corporates, including SMEs, driving growth evenly spread across sectors. Some small contribution from retail at around about EUR 50 million. Year-to-date, net credit expansion has now reached EUR 2.2 billion, while once we account for the negative FX headwind from the weaker dollar and the asset quality flows, performing balances are up EUR 1.6 billion. Net credit expansion is slightly better than expected and the repayment of a large circa EUR 300 million corporate exposure we were expecting in Q3 has yet to occur. This repayment has now been rolled into Q4, so do take that into account when forming your estimates. Spreads continue to be under pressure, but we remain disciplined in our underwriting criteria. As such, we will avoid deals or refinancings that do not meet our own credit criteria and are not accretive to our shareholders. Turning to customer funds, another quarter of solid growth with circa EUR 1.6 billion of growth in deposits, almost entirely coming from domestic corporates. Please note that about EUR 0.5 billion relates to bond placement that we led at the end of the quarter, which has quickly reversed in Q4. On AUMs, we continue to see good underlying net sales, EUR 400 million this quarter with circa 3/4 driven by OneMarket funds this time. Year-to-date, we have had EUR 1 billion net sales, reaching the year-end target a quarter earlier. AUMs have grown 17% versus last year, 1/3, as you can see, attributable to net sales and 2/3 coming from valuation effects, predominantly in equities. Contrary to the local industry, the dominant products we sell are equity and balance funds with good management transaction fees under the typical target maturity products that replicate time deposits. The above reflect the strength of the bank franchise. Turning to Slide 21 on asset quality. NPE ratio was at 3.6%, mainly on account of circa EUR 70 million of retail net flows. Coverage ratio has thus edged to 55%. The underlying picture remains solid. We're not particularly concerned with any flows as should be evident by the underlying cost of risk that stood at 26 basis points for the quarter. We don't expect any meaningful surprises in the coming quarters and remain on track to deliver the full year guidance of 45 basis points. To wrap it up, let's turn to Slide 22 on the capital. This quarter, we had 38 basis points of capital generation organically, and this includes everything that is business as usual. So P&L, DTAs, the usual DTC amortization, the semiannual AT1 coupon and RWA growth. Overall, we're still very much on plan for organic capital generation. As mentioned, we have accrued a further EUR 93 million towards dividend, bringing the total year-to-date to EUR 352 million, whilst 37 basis points of capital you see here includes DTC acceleration. All in, CET ratio stands at 15.7% on a fully loaded basis or 10 basis points higher if you take into account pending transactions. Note that the transitional CET1 ratio stands at some 36 basis points higher at 16.1%. With now, let's open the floor for questions. Operator: [Operator Instructions] The first question comes from the line of Demetriou, Alex with Jefferies. Alexander Demetriou: Just 2 questions from me. So next quarter, we see the AXIA and AstroBank deals close. So if you were to look across your current product offering and income lines, are there any other areas where you see gaps, you'd like to strengthen that could be supported by the bolt-on acquisitions or potentially supported through the partnership with UniCredit? And just secondly, so on loan yields, when should we expect the yields to stabilize if rates were to remain flat from here and we start to see the end of the repricing lag that we are likely to see continue into Q4? Vasilis Psaltis: Well, Alex, it's Vassilios. I'll take the first one. On the area of bolt-on, as we have said in the past, bolt-on has been quite an efficient and effective way of doing 2 things. Number one is to quickly go to narrower areas where we spotted gaps or where we want to accelerate further our product offering and/or geographies. And the second element that we have been fortunate to tie it so far is that we acquired with it excellent human capital, which is, as you well know, currently one of the biggest constraints that we have across the industry or across the industries, I should rather say, for growing further. So this, to us, being a proven strategy, which we do continue to scan the universe for areas like that. As I said, it's not just about gaps. It is also about progressing faster. There are such, and we're actively looking into that. Unknown Executive: If I may add regarding your question for the closing of the announced transactions, Astro has closed. So in the fourth quarter, you will see its numbers in the group numbers. As far as AXIA is concerned, we expect closing in the fourth quarter of 2025. Vassilios Kosmas: If I can pick up on the second part of your question, if I understand correctly, you tried to assess what's the outlook for the NII. I mean the first thing to note here that we are still very confident on our total revenue projections for 2026. Now as regards to the dynamics, you're right to say that some of the pressure that we had on the rates in Q3 versus Q2 will be abated. So you should expect a slightly better picture in Q4 versus Q3. So we continue this trend. But most of the growth in NII, we're going to be looking at it in the 2026 numbers, where effectively, we expect flat rates and the impact of volume growth on loans to come into play. Alexander Demetriou: If I could just follow up. So if we think about the loan yields in a stable environment, when do you expect them to be flat and we no longer see that repricing lag come through and so kind of lower interest income, excluding like the volume effect? Iason Kepaptsoglou: No. I think we need to leave that for the full year state where we're going to provide guidance for 2026. I don't think we ought to be commenting on that at this point. Alexander Demetriou: No, no, that's very clear. No worries. Vasilis Psaltis: I think given Alex's question, just hold on this point, I think it is useful perhaps to give a bit -- so sketching a bit on what may come our way for 2026 because I think the important thing for the market to understand is that for 2026, what we're going to be looking for is to capitalize on the strategic approach that we have taken so far. And as such, I think we're comfortable with market expectation vis-a-vis our total revenues. That is the point I would like to stress that Vassili has also mentioned before. And so far, we have been building on holistic relationship, which are now proven to be the core advantage of our bank, and that allows us to be more adaptable as the demand for nonlending services, including asset and wealth management, et cetera, is picking up. So that -- I think that is a key takeaway, and that is what you should expect to hear more from us when we have our full year results looking into 2026. Operator: The next question comes from the line of Kemeny, Gabor with Autonomous Research. Gabor Kemeny: Can I please follow up on NII and specifically on corporate loan spreads, which I believe have been trending down. You show that on Page 29 of the presentation. Is this a trend you would expect to continue? I mean 2.4% corporate loan spread is still very solid. That's the first one. Second one, you mentioned that the deposit pass-through has perhaps been higher than you expected. Indeed, you show a 55% deposit pass-through. Can you elaborate on the dynamics here and how the front book, back book of the pricing of the deposit portfolio looks like? And just lastly, a very comfortable capital position, even if we take into account the upcoming transaction closings. How do you think about raising your distribution above 50% from '25 results? Vassilios Kosmas: Let me try to pick on this, Gabor. Thank you for the questions. So starting with the corporate loan spreads, you're right to note that there's a bit of a linear 7 or 8 basis points tightening on a quarter-to-quarter basis. As we see the market, we're sort of leading the absolute level compared to our peers. So we're very happy with the mix that we have, that we keep some distance from the tightest situations. And as mentioned several times, we are walking away from situations that don't fit our return on investment criteria. I think it's useful also to keep in mind that the strategy here when we're looking at the corporate relationship is not all around spread, but around the overall relationship. That's why you see much of what we see lower in NII from spreads to be recouped from trade finance. Trade finance for reference is around about a bit more than 30% corporate. Transaction banking fees from corporate is around about 30% higher this year than the previous year. Now on the time deposit pass-through, I think you're right to note that pass-through is pretty much stable at around about 65%. We're sort of tracking the market on that one, to be frank with you. And what we see happening in the market is that as rates stabilize and mind you that rates practically have stabilized in Q3, the time deposit book takes around about 6 to 7 months in our case to converge. So you should expect in the next couple of quarters, time deposit pass-throughs to go, maybe collectively 4, 5 points for the whole market, including us. I wouldn't give you that for the next couple of months. But as I said, it should take couple of quarters for this to materialize, assuming, obviously, that base rates are going to be at the same rate that they currently are at around about 2%. Vasilis Psaltis: Now on the point of -- if I may take it, Vassili, on the point of distribution, I think for 2025, it is clear that we expect to pay 50% of the reported profit. So that's close to EUR 450 million, EUR 111 million of which will soon be distributed as an interim dividend. And from where we see it, we clearly have the capacity to grow higher than that, and it's something we intend to do from '26 onwards, both in terms of absolute amount on account of earnings growth and obviously subject to regulatory approval on the back of a higher payout. Gabor Kemeny: That's very helpful. Just a small follow-up on the 4, 5 points you mentioned, I'm not sure I got that. What did that refer to, please? Vassilios Kosmas: Time deposit pass-through, Gabor. Operator: The next question comes from the line of Munari, Filippo with JPMorgan. Filippo Munari: So I have 2 questions. The first one, I saw that you raised the normalized EPS target, excluding the buybacks to EUR 0.47 in 2027 from EUR 0.46, I think. So what's driving that? Is it better fees, better OpEx or a combination of things? If you can please give some color on that would be super useful. And then second thing on the trading and other income side. I understand there is EUR 12 million of negative impact from the Tier 2 refinancing in the quarter, but that should explain only part of the weakness because the run rate would be still quite higher than that. So can you please comment if there were other negative factors affecting the trading line in the quarter? Iason Kepaptsoglou: If I quickly take the guidance, the EUR 0.47 is something that we have disclosed back in August with the second quarter results, and it's mainly on account of a lower cost of risk. Hopefully, you remember the discussion we had back then about the improvement we've been able to produce on the guidance with cost of risk sustainably. So that's the only reason behind the EUR 0.47 in 2027. And then on the other question, Vassili. Vassilios Kosmas: Sure. I mean, if you turn to Page 16, if I understand correct your question, you're asking us around the Q2, EUR 30 million of trading and other income versus the Q3, EUR 1 million. You're right to point out that around about EUR 12 million is the LME. The other element, which is noteworthy here is rental income, to be frank with you, which is classified as other income. This is the dividend from our 10% shareholding in Prodea. This was a EUR 12 million dividend, which was paid out in June. And obviously, they don't pay such a dividend every quarter. I think more importantly, it's important for people to consider, and I think some of that is due on us, too, that when the bank is reporting around about EUR 460 million plus net fee and commission income, we're missing around about another 25-ish currently on an annualized base rental income, which other people used to report in this line. So I think in the coming quarters, we should make this more clear because this is a recurring line coming in. On top of this, our risk appetite for real estate is growing. This is an investment that we are continuously stepping our feet. So we expect more to come in Q4 in terms of investment and more recurring income to come out of these investments in 2026. But obviously, hopefully, you have made some patience to give you a bit of a full picture around that in February. Operator: The next question comes from the line of Kantarovich, Alexander with Roemer Capital. Alexander Kantarovich: My question would be on UniCredit participation, clearly a major factor affecting your valuations. And now that they have reached 29% and possibly going higher, surely, this would have -- this partnership is having a big strategic implications for Alpha. So my question is, how do you see this participation progressing in the near future in 2026, if possible? Vasilis Psaltis: Well, I think for something that you implied about the evolution of the stake since we are not the owners of the stake, I think I'm simply going to echo what Andrea Orcel has said on that. Now the way he and we view it is that we have an outstanding relationship at all levels with UniCredit. And this is not just a top management team, but a wide array of people at UniCredit that are regularly involved with people on our sites as we are going -- as we're doing so many things together. We and they were all excited to do it because it is truly a mutually beneficial relationship, both in terms of commercial activity as well as exchange of know-how. And the partnership is outstanding, and this is progressing well on all fronts. And thus as a result of that, both as Alpha Bank, but I think also as a country, we have welcomed UniCredit to Greece. And as the saying goes, if it works, I mean, don't fix it. There is nothing more at the moment beyond the current state. All I can reaffirm is that we are deepening and broadening the things that we are doing together. And there's going to be more on that, that we will be able to report quarter-by-quarter. Alexander Kantarovich: Okay. Okay. Let's call it deepening, yes. My second question is on the effect of FX on loans. I think you used the phrase FX headwind in one of your slides. Can you elaborate? Vassilios Kosmas: Sure. Yes, I'm happy to take that one. Effectively, what we're saying is that the bank, I mean, rough numbers has EUR 36 billion loan book in terms of euro. On that, you should include something in the tune of EUR 3.2 billion, EUR 3.3 billion of USD-denominated shipping loans. And obviously, interest is charged in USD. So these 2 metrics stemming from the balances, right, and the NII do have an impact when the dollar has weakened some 15%, 16%, if I remember the numbers correctly from the beginning of the year. So that is the impact that we're discussing here. Does that make sense? Operator: [Operator Instructions] Ladies and gentlemen, we have another question from the line of Novosselsky, Ilija with Bank of America. Ilija Novosselsky: I have 2, please. So first, on your Investor Day that should come in Q2. If you can just give us maybe a sneak peek of what would be the main topics that would be subject to discussion. And I also wanted to ask the reasoning behind the timing of the Investor Day because your previous one, which was in 2023, was at the time when there was a lot of change in rates, macro and so on. Well, now we are entering arguably a place of stability, and you also tend to give 3-year targets on your Q4 results. So I just wanted to ask about the reasoning for the Investor Day. And second, maybe if you can comment a bit of your loan pipeline for Q4, if you can say whether it should be stronger, weaker compared to this quarter and whether it should be large corporates or there's some movements more into SMEs. And also, I'm seeing on Slide 40, which is showing your disbursements versus repayments. So this quarter, you had rather solid disbursements, but you had an increase of repayments and if there's a reason for that. Iason Kepaptsoglou: I'm going to take the first one. Ilija, I'm sorry, I'm going to -- afraid I'm going to have to disappoint you. Unlike movies, we're not going to be producing trailers for the Investor Day. You need to hold your breath until then. And hopefully, it's going to be nice. So no color whatsoever on what we're actually going to be publishing with the Investor Day. In terms of timing, this has to do with Investor Relations planning and how we work internally. There's a specific cadence of events that's leading us towards the second quarter of next year, also taking into account the busy schedules that investors and analysts like yourself have. On the second question, Vassili? Vassilios Kosmas: Thank you, Iason. I mean, on the loan growth, if we start with Q3, as you rightly say, it was another strong quarter. Seasonally, Q3 is a good quarter because of the footprint on the bank. It's the bank typically has a much larger footprint in tourism and accommodation and both hospitality projects and trade around these areas is picking up in the summer. Hence, we had another good quarter. To a lesser extent, just I'm talking for the quarterly numbers, it was construction and energy, very typical drivers of our Q3 of our quarterly evolution. Now when it comes to Q4, first of all, important to note that we have guided the market on around about EUR 2.2 billion net credit expansion for the year. We're already there in the first 3 quarters. Now when it comes to Q4, it's fair to say that we're going to be crossing our annual number, but I would be hesitant if I were you to put another EUR 600 million, EUR 700 million into this. The reason has to do with what we mentioned during the presentation that there is a couple of large refinancings coming in Q4. This is a couple of transactions linked to M&A, where some of our competitors opted to go a bit more aggressively in credit terms. We didn't want to go there. So I would say you wouldn't expect -- you shouldn't be expecting any fireworks in Q4, still some positive mild positive growth. Then on retail, what we have seen, which is pretty much in line with the market is that from quarter after quarter that we had negative inflows, Q3 was the first -- not the first, but one of the quarters that we had positive inflows in all segments, both [ SBs, ] which is typically our stronger product line, but also mortgages and consumer loans. We expect this to continue as retail is turning corner. I mean, hard to imagine EUR 0.5 billion out of retail in the coming quarters, but still having like 50s or 60s rather negatives is a good number for us. I'll have to disappoint you on why the repayments in Q3 are in the tune of EUR 2.1 billion. Let's take it offline because honestly, I don't have it on top of my head. Operator: We have another question from the line of Nigro, Alberto with Mediobanca. Alberto Nigro: Very 2 quick questions. One is on the bond portfolio. This quarter it seems that the repricing of the bond portfolio has been very minimal. Can you help us to understand when we should see the better yields coming through the NII? And the second one, if you can help us to understand the impact of AstroBank in Q4 for the P&L lines and if this is included in the full year guidance? Iason Kepaptsoglou: I'll take the second one. On AstroBank, we're only talking about a bit under 2 months. So there's not a very big impact, and it's already included in the guidance that we have provided to the market for this year. So minor impact from AstroBank. Obviously, we're going to be extracting some synergies next year, and you will see a more material impact thereafter, in line with the guidance that we have provided for a 5% uplift to EPS. On the first question you had on the repricing of the bond portfolio and when we expect yields to improve there, we have yet again with us our CIO, Konstantinos, here to answer. Konstantinos Sarafopoulos: You've already seen the impact from Q4 and Q1 on the repricing of our bond portfolio, and you should continue to see that all the way into 2026, not only from the investments happened this year, but the upcoming maturities, which again are going to be reinvested that 1% or higher than the current back book yields. Obviously, on the last quarter, we didn't make any significant investments on all our maturities, and that's why we haven't seen any significant impact on quarter-on-quarter on that book. Operator: Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you. Vasilis Psaltis: Well, thank you very much for your participation. We're looking forward to welcoming you again at the very last week of February where we're going to be releasing our full year results. Thank you very much. Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for calling, and have a pleasant evening.
Operator: Ladies and gentlemen, welcome to the Aperam Third Quarter 2025 Results Conference Call. I am George the Chorus Call operator. The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Timoteo Di Maulo, CEO. Please go ahead. Timoteo Di Maulo: Hello, everybody, and thank you very much for joining our conference call today. All our comments were contained in the podcast that we published this morning, which you know supports our quarterly financial reporting and where applicable, our disclosure of regulatory information. We also save more time for your partner question during this call. As you know, this is my last quarterly conference call as CEO of Aperam. I'm proud of the work we have done to the stronger resilient pattern during the last 11 years. Just like in the podcast, my colleagues, Sud Sivaji and Nicolas Changeur are here, and together, we are working forward to answering your questions. Let's start straight away with the Q&A, please. Operator: [Operator Instructions] Our first question comes from Tristan Gresser with BNP Paribas. Tristan Gresser: I have two, the first one, in your outlook presentation, you mentioned some price pressure from imports in Brazil. Can you discuss a little bit the situation there. I thought that you had received recently a renewal of the antidumping duties from China and Taiwan on CRC. Is that enough? Do you need more? Usually, we talk a bit more about Europe input pressure and not so much Brazil. So has anything changed recently? Sudhakar Sivaji: Tristan, Sud here. So because it's Brazil, let me answer, and I think it's important, and your understanding is correct. There is price pressure is not on our stainless product portfolio. It's actually the non-stainless part, specifically the commodity electrical steel grades, which is the NGO part and some carbon steel part, so to speak. We just mentioned that just to be clear what are the different moving factors for your model, so to speak. It has nothing to do with stainless. And there, your understanding is correct. There is a proposed antidumping revision, and we are waiting for the results of that one on stainless. This is just the non-stainless part. And the effect is not very significant, but still the effect is there. And the reason we wanted to mention that is because, as you know, Brazil goes into a summer quarter in Q4, and it has been our most profitable contributor compared to Europe, which is positive but slightly positive. So when volumes disappear, smaller changes become visible, and that's the reason we gave that guidance. So it's no concern on the stainless market. Demand remains stable margins have not unchanged. The import pressure has not changed to post the minus in stainless in Brazil. Tristan Gresser: Okay. That's very clear and helpful. And my second question is on CBAM. So in the presentation, you mentioned that CBAM is on track. Can you mention a little bit the details of what you expect from the policy would be a good outcome, a more neutral outcome and a more negative outcome? Do you firmly believe that Scope 3 on NPI will stay? Can Scope 2 be included? And does that even matter? Do you think the commission will be able to assign a carbon intensity by company or by country? And finally, if you have a view on the benchmark, I believe there are differences depending on the grades of scale less steel you look at. So any color there would be greatly appreciated. Timoteo Di Maulo: Okay. It's a complex question, knowing that not everything is clear today and because the commission has not decided seems like the benchmark deal value, which has an impact in term of numbers. Now what is clear as of today is first the application from the first of January. The second thing that is clear is that for stainless steel, there will be the inclusion of the precursor. Precursor, meaning the raw material, the most important arrays that are in the scope of stainless steel like ferronickel, pure nickel or nickel pig iron or ferrochrome. The third point, it is clear and that you have mentioned is that Scope 2 is not considered. Okay, I will not be considered the application of the CBAM for the time being. The other point, which is clear is that CBAM will have a progressive ramp-up. This has been already disclosed many times. And so it will start in January 2026 and will have the full effect in the next 7 years. This is what is clear today. Another part that is clear is that considering the very high level of CO2 of the producer, which are the most competitive because they have a [nickel pig iron, this will have a big impact on all producers, which are used on nicely. The other part, which is also clear is that the commission is putting in place the melt report just to avoid the non-traceability or improve the traceability. All this is positive. The numbers are not yet communicated and in particular, all as you mentioned, all the management and the default values are not for the moment known. Operator: The next question comes from Maxime Kogge with ODDO. Maxime Kogge: Two questions on my side. The first is on volumes, actually and the bridge from Q3 to Q4. So reading between the lines, I understand that you expect volumes to increase in Europe in line with your seasonality, which I equities in contrast what has been guided by your two main competitors. And in Brazil, this would be lower, but in line with seasonality. Can you confirm that? And perhaps a bit more color on the trends you're seeing. Timoteo Di Maulo: No, no, I fully confirm that. The seasonal effect in Europe and in Brazil, plus months. The Europe will increase their volumes because in Europe typically in the month of August is very low because of the closure of all this out of Europe or France, et cetera. And then for Brazil, you start this summer. And so there will be a summer in Q4. So all in all, I confirm that Europe will be a increase of volumes and Brazil will be some decrease in volume, but in line with the seasonality. Maxime Kogge: Okay. Very clear. And second question is on the aerospace end market, which has actually quite soft, like your initial expectations. So perhaps can you shed more light there on your customer portfolio, your exposure between the market and new equipment or kind of information that can be useful to appreciate the potential of upside in 2026. Timoteo Di Maulo: Okay. So fundamentally, we are exposed to aerospace in universal and a little bit in some activity of recycling but these are minor compared to nines our exposed to aerospace. What has been here in aerospace, and we have discussed in previous cold is that there has been a long phase of destocking in which we are still now. What is clear also in aerospace is as a market, the market is very solid and the order book of all the producers that we are addressed producer, which are the typical Boeing, et cetera, but all the supply chain of this producer with motors with landing gears, et cetera, they have a very solid order book. Now once we'll be stocking is finished and we see that this is going to the end in the next few months, the market will go back to the performance that they have shown in 2024 and the beginning of 2025. It's clear that this market is a bit different from the commodity market that we address with the standard steel where the stock and inventory are between 2 to 3 months, 4 months. Here, we are discussing of inventories, which are along the supply chain of many, many more months and we are at 12, 15 months. And so whenever there is a disturbance in the demand, this has a very long, let's say, consequence and this is what we are experiencing. On top, we have had some maintenance during Q3. But as I repeat, we are very confident on 2026. Operator: The next question comes from Tom Zhang with Barclays. Tom Zhang: Just one for me, actually. On the CBAM, I think we discussed before, there's clearly a lot of potential loopholes and specific issues of sales, whether that's different grades, whether that's sort of default values? And is the global market these as a quite smart guys are going to try and slide ways around it. So in my mind, with CBAM, it's not just about getting the policy right. It's about being very quick to react to examples of circumvention and changing the policy, which is why I think the delays that we're going to have in even if there's something like benchmark and default values has made a bit of a concern. From your discussions in Brussels, is there anything that gives you confidence the commission is going to be more flexible and a particular to react to adjust the CBAM in the future, try and shut out circumvention? Sort of any thoughts to go around that would be interesting. Timoteo Di Maulo: For sure, they have I see you are very well informed. So for sure, they have fully understood about the benchmark and they know personally the story of the grade, and they have bonded us that this will be fully considered because not only the grades are sent end of CO2. And so typically, the highest content of CO2 is in austenetics, which represent 75% of the market. So they are fully aware and they are supportive on this point. We look also that you are referring are they well known they are on the capacity sharing and this circumvention. And all this has an answer, which is the melt and pour and the implementation of both melt and pour, the benchmark and the default values is part of what the commission is working on, knowing that it miles a very clear view on what are the loopholes and the possible measure, at least we have given them all the possibility to put in place leisure with our totally satisfactory. Tom Zhang: Okay. Maybe if I can just wish you slightly. I mean, we've had some stories of Asian producers basically melting slab and then immediately scrapping that slab and remelting it and basically just calling it scrap as one way of circumventing CBAM. Maybe this is a very small scale, but just give us an example. I guess the question is more, once bans in place, do you think the commission is going to faster going forward in the tour do you think it's still going to be quite a slow European process when we see circumvention, maybe it's going to take 1, 2, 3 years for them to go out and pick it. Timoteo Di Maulo: I don't think you can change dramatically the speed of Europe. Now what is clear is that all what is described here is very well known and it is not discovered tomorrow mony they will not start to work on all these problems from more and more, okay? On top of the question, the question is also the fact that you have let's say, refer to things which are relatively heroic. So scrapping a sub and then remelting this lab is something which has a cost the end you have a very low interest to the debt. So I'm confident that progressively, the CBAM will be a strong support for a level playing field. Then we will see. Operator: [Operator Instructions] Our next question comes from Bastian Synagowitz with Deutsche Bank. Bastian Synagowitz: My first one is also coming back on the plan policy changes. I guess as a starting point, no one at the moment is really making any money in Europe this way easily EUR 100 away from what used to be previous mid-cycle margins. would you be confident enough to say that with what is coming in, what planned, we should be going back to mid-level margin levels before demand rebound, which we've been waiting for, for some time, I guess, which we can't really think on? That would be my first question. Timoteo Di Maulo: Yes. The answer is clear, yes. Now the answer is not if we are confident or not to make this will level. The question can be in which month, we will see the effect because it's a question of months. We don't know exactly when the commission will put in place. We have asked the first of January a lot of member states are supporting the first of January. But at the end, when the level of the imports will be reduced at a sustainable level, which was the level of 2012, 2013, when the utilization rates of the plants in Europe will be let's say, much better in close to the 80%, 85%, yes, the market will be different. Then and this will be different even in a moment where the final demand is still lagging behind because as you have seen also in our podcast for the moment, the markets are not yet recovering. So we can expect a double effect. Which is on one side, the full, let's say, ramp-up of the circuit and the other side, the fact that some policy like the German plan, will enter in effect and the demand will be stimulated and go back to a more normal level. Now as I repeat and as to be clear to everybody, it's a question of months. Not a question on years, not question quarters. I think it is a question of months, can be 1 or 4, I don't know. But it will come. Bastian Synagowitz: That's been very clear. Then my next question is on alloys. Can you maybe help us understand how, I guess, the former business pre-Universal is doing? And are you still confident we'll be hitting the EUR 100 million EBITDA target this year? Or has this become out of reach. I guess you obviously have the maintenance situation here, which is constraining you a little bit. And then maybe also give us a bit more color on how much Universal is contributing relative to the, I guess, previous EUR 60 million pre-synergy earnings aspiration level is used to have. Those are my questions on alloys. Sudhakar Sivaji: So on the question, Yes. So we've given you two points, which is that we have this temporary weakness in the oil and gas market, which I'm sure the entire industry is going through, right? And based on that, on an annual run rate level, the previous alloys business would be awarded about 10% less level, so to speak. So that's an upside, and we still stick to the EUR 100 million goal for the previous alloys business. And the Universal business, if you remember, we are actually only taking this year, and that's something we kept in mind only 11 months, right? So the first one was before. Just to keep run rate in mind. We had guided close to EUR 60 million for the year in a steady-state run rate. And the weaknesses, which Tim has explained in the market and the maintenance issues between alloys before Universal will traditionally bring Universal probably to around 50%, 60% of that number this year, so to peak. So this is the broad level we expect this year. Starting next year, it should be full run rate for Universal because we'll have it 12 months in our portfolio and alloys as well and then synergies have to start kicking in Remember, we guided to 27 million synergies also. So because this is a year of ramp-up of synergies, so there should be a run rate of the first year of the ramp-up, which we promised this split across the next 4 years, should also start flowing in, just to give you alloys. Bastian Synagowitz: That's great color. Just briefly on , are you seeing any same signs that this is now starting to come back for the next year, I guess, in terms of earlier call-off rates and indications? Or is it just too early to say? Sudhakar Sivaji: It's too early to say because also there's a lot of year-end-related store loan, a lot of equipments, which get called off end of the year, as you know. It is not just simply a Brent price compared to the investments or calculation. So it's too early to say. Bastian Synagowitz: Okay. Great. My last question is on your financing line, which was slightly higher this year. Can you maybe just quickly update us on how much of the financing costs were related to things like advisory and also hedging and what would be an assumption here for, I guess, the recurring run rate. You mentioned EUR 50 million cash cost in the report, but what can we use as a P&L item for the next quarter? Nicolas Changeur: Nicolas speaking, so for the interest rate, you can use for your model, EUR 15 million basically per quarter. The rest of the cost is indeed the derivatives. We are looking here at a timing effect, and this effect would be neutral over a period of time. Bastian Synagowitz: Okay. So EUR 60 million annualized is basically the financing line in the current situation with the balance sheet and financing costs as it is? Sudhakar Sivaji: For this year, Bastian if I can jump in. But I think the broader guidance is look at our debt, and we have the 4% to 5% rate plus you add a few utilization fees and everything. So you have to understand, you've announced this time refinancing of $790 million. So that refinancing, obviously, the older lines were probably at 3% to 4% because they came in from 5 years ago, right? So that will probably have a smaller hit a very, very, let's say, high single digit or low double digit, and I'm talking now 10 million or 11 million ] to that number starting next year, if you want to look at long-term ones. Operator: Ladies and gentlemen, this was our last question. I would now like to turn the conference back over to Timoteo Di Maulo for any closing remarks. Timoteo Di Maulo: Okay. Thank you very much for attending and participating to our Q3 call today. As I opened, this is my last quarter conference call as the CEO of Aperam. However, you know that I will remain close connected to Aperam, not only as a shareholder, but also as a future member of the Board of Directors. I also intend to continue supporting Aperam and will continue as a strategic adviser on public affairs for Europe, for example, so that we can build a clean steel industry in Europe. I am confident that our open transparent dialogue with the capital market will continue, thanks to my successor. And that you will continue to have confidence on the fact that the headwinds that we have faced in the last quarters are going to be partially sold or totally sold in the next future. So thank you both on the corporation and CEO and have a fantastic start to the Christmas and holiday season. Bye-bye to all of you. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.