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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, ladies and gentlemen, and welcome to the Block Third Quarter 2025 Earnings Conference Call. Today's call will be 45 minutes. I would now like to turn the call over to your host, Matt Ross, Head of Investor Relations. Please go ahead. Matthew Ross: Hi, everyone. Thanks for joining our third quarter 2025 earnings call. We have Jack and Amrita with us along with Owen Jennings, our business lead; and Nick Molnar, sales and marketing lead for Block. . We will begin this call with some short remarks before opening the call directly to your questions. During Q&A, we will take questions from conference call participants. We would also like to remind everyone that we will be making forward-looking statements on this call. All statements other than statements of historical facts could be considered to be forward looking. These forward-looking statements include discussions of our outlook strategy and guidance as well as our long-term targets and goals. These statements are subject to risks and uncertainties, including changes in macroeconomic conditions. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause our results to differ. Also, note that the forward-looking statements, including earnings guidance for 2025, discussed on this call are based on information available to us and assumptions we believe are reasonable as of today's date. We disclaim any obligation to update any forward-looking statements, except as required by law. Further, any discussion during this call of our lending and banking products refer to products that are offered through Square Financial Services or our bank partners. Within these remarks, we will also discuss metrics related to our investment framework, including Rule of 40. With Rule of 40, we are evaluating the sum of our gross profit growth and adjusted operating income margin. Also, we will discuss certain non-GAAP financial measures during this call. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter, and our historical financial information spreadsheet on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, this call in its entirety is being audio webcast on our Investor Relations website. An audio replay of this call and the transcript for Jack and Amrita's opening remarks will be available on our website shortly. With that, I'd like to turn the call over to Jack. Jack Dorsey: Thank you all for joining. My intention for these calls going forward is to bring in more voices from across the company to share more perspectives on what we're building and why. This quarter, you'll hear from Owen and Nick, who are joining us for the Q&A today. Owen is our business lead and he'll be able to share more on our product velocity and what's coming next on our roadmap and Nick leads sales and marketing across the company. He and his team are responsible for the momentum we've seen in our go-to-market motions and he'll be able to share more on what's ahead. . I hope you all read our letter on where Square is headed and how we're delivering for our sellers. And with that, I'll turn it over to Amrita. Amrita Ahuja: Thanks, Jack. We had another strong quarter, delivering for our customers and exceeding expectations across gross profit and adjusted operating income. Gross profit grew 18% year-over-year to $2.66 billion, accelerating from 14% growth last quarter, driven by Cash App. Each of our profitability metrics grew on a year-over-year basis. Adjusted operating income was $480 million, showing strong profitability even in a quarter where we leaned into investments to drive long-term growth. Cash App's 24% year-over-year gross profit growth in the third quarter accelerated from 16% in the second quarter. Our focus on reaccelerating active growth and increasing network density is working as we reached 58 million monthly actives in September. This growth was driven by improvements in experiences across the app, including onboarding, referrals, and core payment flows, reducing friction while boosting engagement and retention. We've also seen success in our go-to-market campaigns focused on increasing brand awareness and reengaging actives who use Cash App infrequently. Our strategies to deepen engagement continue to show up in our numbers. Cash App's gross profit per monthly transacting active grew 25% year-over-year to $94. Primary banking actives grew 18% year-over-year to 8.3 million, up from 8 million in the second quarter. And new products like post-purchase Buy Now Pay Later on Cash App Card are continuing to scale, reaching $3 billion in annualized originations in early October. Last quarter, we shifted the origination of the majority of Borrow loans over to our bank, SFS. This quarter, we expanded Cash App Borrow to eligible actives in new states and expanded in existing states through underwriting improvements, growing originations 134% year-over-year while delivering stable risk loss and strong annualized net margins of 24%. We are bringing the successful Square Releases format to Cash App with our first Cash App Releases on November 13, set to showcase our roadmap and share more about the future of AI in Cash App and how we're driving growth across our banking products. Turning to Square. Gross profit grew 9% year-over-year in the third quarter and GPV grew 12% with an acceleration of growth in both the U.S. and internationally. Our product and go-to-market strategies are working as we continue to gain profitable market share in our target verticals like food and beverage, with larger sellers and outside the U.S. In Jack's shareholder letter this quarter, we outlined our strategy to power the neighborhood by being the best platform for sellers to grow and run their business. We're focused on 3 key opportunities. The first is connecting sellers and consumers at scale in a way that we believe only Block can. At Square Releases, we introduced Neighborhoods on Cash App to connect our sellers with Cash App's massive network of 58 million monthly actives, Neighborhoods provides sellers the power of an enterprise-grade mobile app and the ability to offer customizable local rewards, tied to free marketing and discovery tools, all with a 1% processing rate for all in-app orders. Second, we are delivering world-class AI tools to sellers so they can put more of their operations and finances on autopilot. We've launched Square AI, a business partner built right into the tools sellers use everyday, which is empowering our sellers to get insights about their business in minutes that would have previously taken hours. At Square Releases, we announced AI-driven Order Guide to help sellers better manage procurement, and Voice Ordering to automate incoming phone orders during peak demand times. Third, we're focused on making selling easier with software solutions and commerce tools for our sellers. We believe we're the only company that designs the hardware, operating systems, software, commerce capabilities and financial tools for sellers. This vertical integration is an advantage for us, letting us move faster and serve more customers in a differentiated way. At Square Releases, we announced a number of new products, including multichannel menu management, unified third-party delivery app management and improved kiosks, enabling 30% faster order times for our sellers. These product strategies are positioning us well as we scale our go-to-market efforts to serve every seller that wants to work with us. We've seen an inflection in new volume added or NVA, our proxy for volume growth from new customers. Sales-driven NVA is up 28% year-to-date as our field sales and partnerships continue to expand. We've also seen accelerated growth in NVA from self-onboard marketing channels. Marketing drives the significant majority of our self-onboard volume, and we are seeing strong NVA growth and very healthy 4- to 5-quarter payback periods. We expect to deliver our strongest NVA performance ever in 2025 through expanding field sales, partner programs and targeted marketing. In the third quarter, we saw notable strength upmarket, with GPV from sellers above $0.5 million in volume, growing 20% year-over-year, reflecting our strongest growth rate for these sellers since the first quarter of 2023. In our international markets, GPV grew 26% year-over-year as we're seeing particular strength in our telesales channel. As we mentioned last quarter, our decision to increase operational flexibility at a processing partner modestly increased processing costs. This was an approximately 2.6 percentage point headwind to Square gross profit in the third quarter, which we expect to lap in the second quarter of 2026. In Proto, our Bitcoin mining business, we generated our first revenue, seeding what has the potential to become our next major ecosystem. We monetize Proto's innovation in hardware and software through hardware sales across ASICs, mining hashboards and full mining rigs that provide many of the key advanced components to mine Bitcoin. In the third quarter, we sold our first rigs to our first customer. And while it's only a modest contributor to the second half of this year, we are actively pursuing a robust pipeline for 2026 and beyond. From a profitability standpoint, adjusted EBITDA was $833 million, and adjusted operating income was $480 million in the third quarter. Adjusted operating income margins were 18% in the quarter. Product development costs remained flat year-over-year, while our growth initiatives across sales and marketing spend directly contributed to our growth in both Cash App and Square. Transaction, loan and risk loss expense grew 89% year-over-year as we invested in scaling our lending products, most notably Borrow and the recent launch of post-purchase BNPL. We continue to see healthy trends as we scaled post-purchase BNPL and Borrow losses continue to trend below our 3% target. So far this year to the end of September, we have repurchased approximately $1.5 billion of stock, and we intend to continue returning capital to shareholders as we generate cash. We're excited to share more about our capital allocation priorities at our upcoming Investor Day. Turning to guidance. We are increasing our full year guidance for both the Q3 beat and our raised Q4 expectations. For the fourth quarter of 2025, we expect to accelerate gross profit growth again with gross profit growing over 19% year-over-year to $2.755 billion. We expect to expand adjusted operating income margins year-over-year to 20% and deliver $560 million in adjusted operating income. Taken together, we expect to be approaching Rule of 40 as we head into 2026. Our full year guidance reflects our Q3 outperformance and our increased expectations for the fourth quarter. We expect to deliver $10.243 billion in gross profit for the full year, reflecting more than 15% year-over-year growth, consistent with the initial outlook for 2025 that we provided a year ago. We expect adjusted operating income of $2.056 billion, growing nearly 28% year-over-year despite meaningful investments in sales and marketing and scaling Borrow and other lending products. Finally, to help in your modeling for Q4 and the upcoming years, we want to provide some details on tax rate and interest expense. We expect our 2025 and long-term tax rate to be in the mid-20% range, relatively consistent with where we've landed in the first 3 quarters of the year. We expect net interest expense of $45 million in the fourth quarter, reflecting our recent debt raise and the latest benchmark rates. These figures are also good representations of our long-term expectations across both line items. We typically provide preliminary forward year guidance during this earnings call. But with Investor Day coming up, we're excited to go much deeper on our outlook for both 2026 and our long-term financial performance in a few weeks. Throughout 2025, our gross profit growth has accelerated, and we've expanded our margins. Most importantly, we've improved our velocity to deliver more for our customers faster. Ultimately, these strong results reflect our focus on building for our customers, and we're incredibly excited to welcome you in person and virtually to our Investor Day on November 19, where we'll share so much more. With that, I'll turn the call back to the operator for Q&A. Operator: [Operator Instructions] And our first question comes from the line of Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: Appreciate it. It's nice to have Nick and Owen on the call. So I'll ask, Owen, the question, if that's okay. I've heard Owen you talk about Cash App actives growth and [indiscernible] on that topic, I know Jack's been pushing towards network density overall. So can you just give us a progress report on that now? When might we see an inflection in network growth, given some of the investments you're making? Owen Jennings: Sure. Thanks so much for the question. We're really happy with where we landed in September. We've made some pretty massive progress here over the past few months. And of course, we still have a lot of work to do, and we see a lot of opportunity ahead. So we reported the 58 million number for September. But the underlying trends are strong as well. So what we've seen is an acceleration in year-over-year growth for monthly actives since we declared this a top priority at Block and at Cash App. And we actually saw that acceleration in year-over-year growth for monthly actives again in October, which is great. I guess stepping back, how we think about growing monthly actives overall is there's really 2 pieces. First, there's net new acquisition for new customers who haven't used Cash App before and then also engagement is a key piece of the equation as we can increase engagement and drive quarterly actives or annual actives to increasingly become monthly active, weekly active, daily active. And so that's really how we've been approaching it. Some of the key focus areas on the development side have been, first, what we call network enhancements, which is basically just looking at our core flows and making sure that it's simple and easy for customers to successfully use our app and complete transactions. On the multiplayer money side, this has been 1 of our key focuses. I know you all saw the launch of pools. We saw 1 million pools created through the end of September and then now 1.5 million pools created through the end of October. And we're really continuing to invest here, not just in pools, but just how we think about social primitives and what we can build to allow our customers to connect with one another and that drives meaningful engagement. And then third is probably on the teens and family side. We continue to invest here. We've achieved massive scale on the teens and family side, we have 5 million monthly active teen accounts that are using Cash App, and we continue to invest to serve them. A couple of weeks ago, we've launched high-yield savings for our teen customers, and we're going to continue building, both for teens and for parents. And then I would say more broadly, we just continue to focus on high quality, high velocity. And that goes for the marketing development side as well as the product velocity side. On the marketing side, we're focused across the funnel, across channels. We're really leveraging incentives to drive customer behavior, and we've seen really strong ROI there. From a product perspective, I think it's not just the network expansion work. It's really everything that we're building on Cash App. I see as contributing to network expansion and monthly actives growth, either on a first order basis or on a second order basis. If we're building useful, simple things for our customers, that's going to reliably compound and drive active growth. So overall, I think we have a lot of room and a lot of opportunity on the active side. We also have massive opportunity on the engagement side. We reported inflows per active grew 10% year-over-year, that's a pretty good -- that's a pretty good signal of just engagement on the platform. Also gross profit per active was up 25% year-over-year in September. And so all of our investments across Cash App Borrow, Cash App Afterpay, post purchase, our banking suite, our Bitcoin products, that's going to continue to drive healthy engagement as well. So that's a bit of a snapshot just in terms of how we're approaching it. I think pretty happy with 58 million, but so much more work to do and a lot of opportunity ahead. Operator: And our next question comes from the line of Tim Chiodo with UBS. Timothy Chiodo: I think this is probably a good one for Nick giving Nick's on the call. So I want to talk a little bit about the field sales teams and their productivity and then a little bit around the GPV and the gross profit contributions that those teams will be bringing, so on the field sales teams, I gather, and if you could put some color around this, that there are certain things that you're doing to help make these sales people as productive as possible, whether it's other tools or systems you have in place, technology you're using? I'm hoping you could shed a little bit of light on that to bring it to life. Gather the paybacks are quite healthy. I think you've talked about the field sales teams being in roughly the 5 to 6 quarter range. And then as a related follow-on, it's very logical to think that these salespeople and the ISO channel, they're going to be bringing on a larger merchant with probably a longer L in the LTV equation. So we'll be around with you for much longer. It's also logical to think that they'll be paying slightly less in terms of their monetization rate per unit of volume. But the absolute GPV and the absolute gross profit growth that they'll be bringing will be at much higher levels. And I was hoping you could shed some light on both of those topics again, the field sales productivity and then the contributions that they'll bring. Nicholas Molnar: Yes, of course. Thanks so much, Tim. Our go-to-market motions in general and field more specifically have been performing really well. As you mentioned, we're seeing really strong paybacks and the marginal ROI on our incremental head count that we bring on to the team continues to scale in a really nice way. But to be honest, we actually have some meaningful room to continue to invest as we focus on that marginal ROI sustaining and growing into the future. Amrita mentioned in her opening remarks, our sales-led NVA was up 28% year-to-date through September and we expect to grow last quarter to over 40%. So I feel like we're going to exit the year with Q4 in a nice way that takes us into 2026. A lot of that has been as a result of how we've shown up culturally through the right tactics, the right sales motions, really gearing our reps up to hit the ground running and be able to close the deal in the least possible time. But we've already significantly scaled our team over the course of the year. If I think about from the start of the year, we had next to no field sales ramped reps, we're now over 100 field reps scaling fast. And so I understand your point from a gross profit per -- gross profit relative to GPV. But while we have scaled our team, it's still pretty early from a field sales perspective. And of our U.S. NVA is coming from field in '25. But as that team continues to ramp, we believe they'll continue to compound. And we're seeing pretty stable margins as we're scaling our team, ISO does have a longer L as you referenced, but I don't think field is in the same category. Certainly, as we move up market, that can mean a different gross profit to GPV profile. But candidly, it's not really how I think about our economics. I think about how do we maximize our variable profit dollar growth head count that we have in the team. And if we can continue investing into our cohort curves and seeing that NVA grow per quarter, I believe that will translate to faster GPV over time, which will ultimately mean really strong gross profit growth. And I know you didn't specifically ask about our self onboarding motion. But while we have seen sales strength, it [Audio Gap] self onboarding. We're seeing Square hold a really strong organic motion, still with 70% of our NVA coming from sellers who self onboard, which is a result of a combination of flow optimization, really leaning in on the AI front. We're now the #1 -- we show up #1 for F&B-related keywords on AI-related search and feeling really good about our self onboarding is continuing to grow and scale some of the best growth rates that we've seen in web and app since 2017, and a lot of that is a function of how marketing has continued to scale, driving really strong lead flow and really strong return on investment. Amrita Ahuja: Now I'll just add a couple of perspectives as well, Tim. Ultimately, our focus and belief is that compounding growth in GPV will drive gross profit, which will drive incremental variable profit dollars, which is our core focus across the business. What we see, as Nick has talked through, ultimately, are indicators of underlying health across that growth algorithm and across the platform from new seller acquisition trends to ROIs to opening up new distribution channels to be able to reach incremental sellers. And I think you see that coming through, whether it's outsized growth in food and beverage at 17%, or with mid-market sellers or larger sellers at 20% or in markets outside the U.S. at 26%. So we're seeing that strategy play out and work. As you know, there's some idiosyncratic things that I mentioned in the interim remarks in last quarter as well around a decision that we made for operational flexibility that hit Q3 by about 2.6 percentage points from a gross profit perspective, ex that operational flexibility point, which we expect to lap in the second quarter of next year, gross profit growth and GPV growth are relatively equivalent to each other in the third quarter, and we'd expect that they would be as well in the fourth quarter ex that change from an operational flexibility standpoint. So our focus again is on driving incremental sellers into our platform through the distribution channels that Nick has talked about, where we're seeing strong execution take hold. Operator: And our next question comes from the line of Andrew Jeffrey with William Blair. Andrew Jeffrey: My question is around the Borrow product and maybe to a lesser extent, BNPL. I think there's been a lot of investor concern about the credit quality of these products and the long-term profitability of these products and the 24% Cash App gross profit growth is awesome. I wonder if you could touch on why you think as we do, that these are superior products for consumers, short-term liquidity products that address really pressing needs that traditional financial institutions have not been able to bring to market. And so maybe touch on the value proposition as you see it and also on some of the distinctive Block brings to market, Cash App brings to market in terms of underwriting, be that data-driven or AI to give investors a sense of why you think that's such a good business as do we. Amrita Ahuja: Awesome. Thanks for the question. Yes. I'll start us off on Borrow. First, Andrew, as you called out the broader purpose of the product and why it's resonated so strongly with our customers. And then secondly, go into some of the metrics where we see it as a good business for us. First of all, these credit products are a really important part of our business in how we expand credit access, especially frankly, the segments of consumers who are often overlooked by the traditional financial system. These products provide financial mobility, cash flow flexibility and growth for our customers. As a result, we've seen incredibly strong product market fit and growth in our system on the back of really healthy unit economics. We're able to do this responsibly fundamentally because of the deep capabilities that we bring to bear from an AI and ML-based underwriting perspective. So zooming into what we're seeing in real time in these metrics, Borrow performance was incredibly strong in the third quarter with origination volume up 134% year-over-year, reaching nearly $22 billion on an annualized basis in the third quarter and even higher growth from a gross profit perspective. This is on the back of a couple of different initiatives. First, just core underwriting model improvements which we were able to deploy across both existing states and new states as well as expansion nationwide on the back of the migration to our bank, SFS, which enabled us to unlock more states, in which we can steadily ramp the Borrow eligibility offering. And then third, providing Borrow eligibility and getting more nuanced with limits for our existing customers who are highly engaged in the platform, whether those are primary banking actives or direct deposit customers. So those 3 strategies at play have helped us expand Borrow, but maintain very healthy risk loss rates, below our 3% target despite this triple-digit originations growth. And see, therefore, annualized net margins at the 24% range in the quarter above our internal targets. Very importantly, we also see that these borrow actives have meaningful lifts in engagement metrics that carry through the entire Cash App ecosystem relative to non-borrow actives. We looked at this from the 12 months ending in August. And what we saw was that borrow actives have 3x higher inflows per active, 2x higher Cash App Card spend. Now 3x higher retention rates relative to non-borrow actives, so it's a key piece of the broad engagement story for us around banking within Cash App. And we think more experimentation and more product innovation here around Borrow can help us drive growth in other parts of our business. So finally, I guess, what I would say is what powers all of this, whether it's Borrow or other lending products like post-purchase BNPL where we've also seen -- earlier in its life but also seen very strong growth is fundamentally our Cash App credit score, which is an internal score that we use that's truly a core asset that we have that we can deploy across the range of our lending products. And we think, ultimately, the model that underpins that is advantageous in that it has data that covers a wide range of financial activity across our entire platform, near real-time insights based on that activity and then advanced modeling using AI, ML and data science over a decade-plus of experience of serving lending products to our customers which ultimately then results in being able to expand access while still maintaining the strong loss rates and unit economics that we've been able to maintain here. So we're incredibly excited about the metrics that we see here with Borrow. We'll obviously be very watchful on a real-time basis on how they trend, but what we've seen so far has been extremely strong momentum. Operator: And our next question comes from the line of Darrin Peller with Wolfe Research. Darrin Peller: I think this is a good follow-up to Amrita, what you were just talking about to some degree. I mean, because even when we back out the growth contribution from Cash App Borrow, I mean, we're calculating an acceleration of Cash App gross profit without the Borrow benefit from what was, I think, around high single digits last quarter to double digits, low double digits this quarter. So it sounds like MAUs, but also the flywheel effect of more Cash App inflows -- Cash App Borrow inflows is driving a lot of it. So maybe just talk through the different levers, putting aside purely the year-over-year comp on Cash App Borrow itself of what you see really driving that and sustain that growth well into the double digits. And if you think it's sustainable now if you're going to have MAU growth continuing to drive that or if there's other variables we should think about too. Owen Jennings: Sure. Thanks, Darrin. I appreciate the question. I'm happy to offer a bit more color here. I think fundamentally, it's important just to think about Cash App as an ecosystem. So we kind of think about the 4 key parts as our network products, inclusive of peer-to-peer, our banking products inclusive of direct deposit, our commerce products and then our Bitcoin products. We've made meaningful progress from a product development perspective and on the marketing side across all 4 pieces. And so all of this is coming together to drive that acceleration in growth that you're talking about. I touched on some of the items on the network expansion and the active side before, and we expect to continue to see that pay dividends. On the banking side, things like direct deposit attach and really seeing that primary banking activity. We've launched some recent experiments and architectural changes that are helping there. I mean on the commerce side, we're operating at tremendous scale, and we're also seeing really healthy growth. And so card GPV is growing at 19% year-over-year. Cash App Pay GPV growing at 70% year-over-year. I think Amrita mentioned the acceleration on the Cash App Afterpay side, going from $2 billion in annualized originations to $3 billion in annualized originations now in early October. And so we're going to continue to invest across the entirety of the ecosystem. And I think what you get there is just a portfolio of diverse products and diverse business lines that come together and are able to deliver that durable growth over and above, something of a steep acceleration on the Borrow side. But I would also, if I may, like we don't really see the world in this, like gross profit ex Borrow sort of way. Amrita touched on this to some extent, but Cash App Borrow and our ability to extend liquidity to our customers is just -- it's a fundamental part of the Cash App ecosystem. On a first order basis, it just has an incredible return profile. We have like -- we have a 30% return on invested capital for Borrow. I've looked all over the place. I haven't been able to find a lending product that has a return profile that looks like that. So on a first order basis, it's fantastic. But then also when we think about the strength of market fit, it's really the second order effects that got me the most excited. When we offer a Borrow loan, a large share of those funds actually move through the Cash App ecosystem. So you get kind of that double hit. And then this is one of the products, such a large share of the U.S. population is living paycheck to paycheck and has to smooth through their pay period that we see tremendous market fit for this offering. And then I think, increasingly, we're going to be able to leverage that as a carrot to incentivize certain behaviors. So we've been doing some experiments in terms of eligibility and limits and fees for our Borrow product and how we can kind of tune that to drive let's say, primary banking activity. And I'm really excited for what that can mean going forward. We'll have some announcements next week at Cash App Releases. And then I'm excited to talk about the durable growth profile for Cash App in depth at Investor Day in a couple of weeks. Thanks. Operator: And our next question comes from the line of Adam Frisch with Evercore ISI. Adam Frisch: Great to have Nick and Owen on the call and I hope that continues. I think a big issue for the right now is the macro versus the company specific. And given the significant and accelerating momentum on both sides of the business, plus a pretty tricky macro backdrop that I think some companies may be using as a crutch for subpar performance, can you speak, Amrita, to your visibility and how all of that is translating into your calculus around the 4Q guide and provide some color maybe on consumer spend. And then, Nick, on the company-specific stuff, if you could speak to your go-to-market strategy and what you're doing to drive such terrific growth acceleration on the Square side. Amrita Ahuja: Yes, Adam, thanks for the question. I'll get us started here on the 4Q guide and macro. Obviously, it's a dynamic environment. We're paying close attention to the range of potential outcomes here. What we used to inform our guidance is what we see most recently in both our third quarter performance as well as in October. What we've seen so far has been strong. Obviously, third quarter performance had acceleration across a number of key input metrics or operating KPIs that indicate the health of our underlying ecosystems, whether it's Square GPV or its inflows per active on the Cash App side, we saw acceleration from 2Q into 3Q. We continue to see really healthy returns on our investment in our go-to-market spend and then obviously strong underwriting outcomes as well across each of the different pieces of our lending portfolio. We saw only isolated impacts from tariffs and sort of the de minimis tax exemption changes that appeared in our Buy Now Pay Later business. But even with that, GMV growth remained strong at 17% or 18% on a constant currency basis in the third quarter. Based on what we saw in October was relative consistency across a number of different metrics that we track, whether it's average transaction sizes, Borrow origination volumes, loss rates, we're not seeing meaningful changes that indicate a change in the macro environment yet. Cash App performance was strong in October. I think you heard Owen speak to some of this earlier. We've seen strong active growth inflows per active and monetization in Cash App. In Square, we did observe slightly slower GPV growth towards the end of October that we believe was primarily weather related, but we're also seeing some of the strongest new volume added NVA that we've seen in a long time across self onboard and sales, obviously off a very large base. So look, ultimately, what we've seen has been healthy, but we're going to be data-driven and read our metrics on a daily basis as ever. And our philosophy here is that we have the ability to shift, whether it's on marketing or underwriting or how we run our business as needed. And those are kind of the key elements that underpin the guide that we put forward, which we think is a strong guide based on the momentum that we've got heading into the fourth quarter. Nicholas Molnar: Thanks, Amrita. And maybe I can just give a little bit more color on the go-to-market side. I spoke a little bit earlier about the strength of self-onboarding growth that we've seen. And more specifically, some of the flow [Audio Gap] AI work, the contribution that marketing has had and similarly, I spoke about scaling our sales headcount, particularly in the field sales team as we're seeing really strong marginal ROI. Just to be clear, I believe we have a huge amount of room to continue to scale our headcount. Our field sales team to date is only effective in our U.S. market, and we have a lot of room to keep growing. We know we have a lot of room as a function of proprietary data that we have available and more specifically, being able to leverage and look at the Cash App Card data to understand our penetration in local geographies and local neighborhoods and local markets, really gives us line of sight of how far we believe we can push our headcount envelope and then begin to scale internationally. We've seen some really strong wins up market, whether it's Katz's Deli or Purdys Chocolatier. We're proving [Audio Gap] just for small businesses and coffee shops that we're able to win large and complex sellers. And we have a massive TAM that we're excited and we continue to execute against, we've seen incredibly strong partnership momentum, 2 specific examples are Grubhub, which saw our ability to bring more of the Block assets to the partnership, but we can look at these as not just a feature exchange or an individual deal, but how do we think about this across Square and Cash App combined. And then similarly, from a Cisco perspective, we're seeing a strong feeling of new sellers joining the platform as a result of the strength of that partnership. So all in all, I feel like just given our ability to articulate a very considered and consistent strategy, we've been able to [Audio Gap] execution across our development teams, product engineering designs through our marketing campaigns, through how we shop from a sales perspective, and it's that coordination that's leading to us winning more against competitions, leading to delivery of features that we've been waiting for, for quite a while that are now coming to fold and seeing real strength in outcomes like multi-location, menu management, food delivery services, just features that we didn't have before that were table stakes for some of these upmarket sellers. So I'm really excited about what's to come, and I believe we'll exit Q4 in a really strong position going into 2026. Operator: And our next question comes from the line of Dan Dolev with Mizuho. Dan Dolev: Great results here. I wanted to ask about Square Bitcoin was announced earlier this quarter, fully integrated payments. I know it's going to be launched later this month, but I wanted to see maybe if you've done any testing or anything that could give us an indication because if it works, it could be huge in our view. So wanted to get your views on that. Jack Dorsey: Yes. So we're really excited to launch this to all of our sellers next week, actually and it's going to be available to everyone, and they just have to make a simple switch in their settings and they'll be able to start accepting Bitcoin. We do have beta merchants that have been on for quite some time and have found it really easy, and it's something that they want to promote heavily because there's no fees associated with accepting Bitcoin. So we've offered kind of placards and just the stickers in ways to show that like this business does now accept Bitcoin. We have a lot of hope for this. I think the challenge is going to be making the payment side and getting people comfortable with paying with Bitcoin. But that's just a matter of making the interface more accessible and more usable. We do a lot there within Cash App and also within BitKey and our Spiral debt team works constantly on payment adoption and making sure that we can see Bitcoin as everyday money. And it's something we're super excited about. And we're going to look for every opportunity to both educate all of our sellers on why accepting Bitcoin is the best option and why buyers would want to use it as well. Operator: And our next question comes from the line of Jason Kupferberg with Wells Fargo. Jason Kupferberg: So you've made it really clear that you feel pretty good about the competitive momentum on the Square side of the business. And I wanted to get a sense, you talked about all that new volume coming in. Is it coming more from sellers, who haven't made the move to a cloud solution yet? Or is it coming more from other cloud-based providers? And then I'm just wondering if there's been any changes in the Square pricing environment, either in terms of seller sensitivity to price or pricing posture that you're seeing exhibited by your competitors? Owen Jennings: Yes, why don't I take this? So let me just start with the pricing point. I don't believe there's been any major significant payment pricing moves that we've made as a result of focusing on our go-to-market and as I scale the team. From my perspective, it's been pretty business as usual. And more specifically, I think a lot of what we've seen is [Audio Gap] we're showing up in a lot more conversations as a result of getting out in the field. The field sales team going from basically 0 to over 100 today, and it will be meaningfully larger by the end of the year. That, from my point of view is a major contributor of our ability to have greater consideration and put us in more conversations to have the chance to win. We're also seeing our telesales growth rate improving and pretty meaningfully internationally, we've seen a significant acceleration of NVA growth. And so very excited, yes, about the U.S. and how we're showing up, but our telesales performance in all our global markets is seeing a highly accretive NVA growth curve. We're also seeing some of the lowest churn rates that we've seen since Q2 2023. And I think a lot of that is a function of the investments that we have made [Audio Gap] talked about earlier, our account management team and how we're showing up and supporting our partners. And just to wrap up the question, a lot of the wins that we're having, yes, some of them are kind of the legacy point-of-sale systems. But we, in recent times, have had like pretty meaningful win backs of those that have gone to direct competitors. And so we're seeing really strong win rates across all aspects of our competitor base -- and many -- once they had left are seemingly coming back as we're continuing to show up and have those conversations. So I'm really proud of the team and proud of what's been delivered this quarter. Unknown Executive: And then just to touch on pricing a little bit. We did update our pricing on the Square side for our software products earlier this year. I think we went through it at Square Releases a few weeks ago. . The reason for that from a customer perspective, a seller perspective, it was really all about simplicity. On the business side, it's really about ARPU expansion and SaaS attach rates. So we used to have more than a dozen individual software products that sellers could attach to. We combine this into a really simple 3-tier system where we have a free tier, we have a plus tier and then we have a premium tier for more complex sellers. It's just a massive improvement in terms of how we've simplified and streamlined the Square ecosystem. When we look at that relative to the competitive set, it's just clearly a lower cost of ownership when you go with Square versus some of our direct peers, we are actually including a lot of things that our competitors are charging separately for. So think like loyalty or marketing tools or team management tools or so on and so forth. And Nick and the sales team are able to kind of show that breakdown when we're having a conversation, and we're trying to win a deal. So when I talk to people on Nick's team, account executives are saying, yes, we're seeing stronger close rates in these deals. When I talk, they're loving the simpler structure. So overall, I think that's a great tailwind. But also I would say there's definitely some deals where we're up against the direct competitor and a cloud-based point of sale, but also we have to remind ourselves, this is a massive TAM. This is trillions and trillions of dollars. I think it's like $1 trillion in TAM just for food and bev and so just secularly, there's tremendous tailwinds here over and above kind of specific pricing dynamics. Operator: We will take our next question from Bryan Keane with Citi. Bryan Keane: Congrats on the results. Nick, I wanted to ask you about your baby Afterpay, maybe you could talk about some of the unique opportunities you see ahead with the asset that might differentiate you from the competition. I think volumes were up 18% on a constant currency basis. But obviously, there's probably a lot of growth to come, especially with the post purchase on BNPL and some of the other initiatives, but I'd love to get your thoughts there. Nicholas Molnar: Yes. Of course, thank you so much for the question. Yes, as you mentioned, GMV was up 18% on a constant currency basis, and gross profit was up 23% year-on-year, the significant driver of growth was post-purchase Afterpay and the Cash App Card, which was key driver of growth in the third quarter. Adoption and our conversion is trending ahead of our expectations. As Owen said before, we crossed $3 billion in origination run rate in early October, and we expect to continue to expand eligibility and increase attach rates and when we compare post-purchase Afterpay to Borrow's early trajectory, we're seeing the Afterpay and the Cash App Card scale in a meaningful way that pace is well ahead of the early trajectory of Borrow, which is really encouraging for us to see. And as we scale, we've had a resolute focus on our loss profile and our loss rates on consumer receivables in Q3 remained in line with our expectations. So healthy loss rates and strong growth rates. We have been very focused on rolling Afterpay out into Cash App, and we begin to turn our attention to the core Afterpay business across the world. We've signed a number of new partners over the last few months, including Uber and Amazon in Australia, Hibbett and Jenni Kayne in the U.S., and we're expanding our commerce network and our advertising business. So yes, I feel like we're focused on the right things as to how Afterpay is showing up both within Block and in partnership with Cash App and with Square, but also as it's core network and really investing in the growth of reacceleration of the core Afterpay business. Operator: And our next question comes from the line of Mihir Bhatia with Bank of America. Mihir Bhatia: I was wondering if you could just spend a few minutes on AI here? Amrita touched on some of the AI tools that you are enabling for sellers. But I was wondering more just bigger picture at Block, Jack. What kind of impact do you see AI having at Block? Just touch on how you are currently -- what you're currently doing with AI? What are some of the use cases that might be interesting here in the short term, like, let's call it, a year or two, and then I guess like really, at the end of the day, is AI going to be more of a cost side benefit for Block? Or is it more of a growth driver? Jack Dorsey: Just to answer that question right away, I would see it as both. I think it will allow us to grow a lot faster, monetize our capabilities even more. Just as one way to envision that is right now on the Square side, for instance, and even within Cash App, people have to navigate our interface to find features and products that we offer. We'll be able to surface them immediately as they need them based on the understanding and the data we have around how they run their business or how they run their financial portfolio on Cash App. So it's definitely something we're looking at for growth. But also, we imagine it really reduces our costs as well, especially at the company level. Our goal, ultimately, like I believe that AI will be transformational for our company. Our goal is to automate our company as much as possible and really take away a bunch of the mundane tasks that we have to do to serve our customers, so that we can focus on more creativity, and we can ship features and products much faster. That has been proving out. We started about 2 years ago with Goose, which is very small projects to help automate engineering tasks. And now it's grounded into something that nearly every single person in the company uses, not just engineering roles, but nearly every single role in the company has touched it and benefited from it and saved some time from their day-to-day so they can focus on more important tasks. And that has contributed a lot more to our overall velocity over the past -- over this year, actually. And we expect that only to increase as we continue to build on this platform. The most interesting thing is Goose allowed us to put a lot of this functionality directly into Square, with Square AI, and we're going to be doing the same thing with Cash App as well. And you'll see some of that next week in Cash App Releases. But more importantly, you'll see it at the Investor Day, where we'll go pretty deep on how we're touching every one of our product services with AI and what to expect from it. On the seller side, we want to build a virtual COO or manager for our customers, our sellers such that it can be very proactive because we have this deep understanding of their business. And on the Cash App side, effectively a virtual CFO so that people can really make the most of their money. And our goal is to help people to even build wealth as well. And AI is going to be instrumental in doing this. And I think we have something really unique in that we have all this real-time living data that comes in every single second of every day and we can tune these models not to be trained off the Internet, but actually to be trained off real human data as it happens. And it can be a whole lot more proactive. So you don't need to come to Square or to Cash App and know which question to ask. It can actually be proactive about things you might want to consider, products you might want to try out, features that you want to turn on and do so in a very friendly and human way that makes sense. And both of these are in testing right now, and we're getting really good feedback from our sellers and individuals. Operator: And our next question comes from the line of Harshita Rawat with Bernstein. Harshita Rawat: I want to ask about Cash App banking users. Good to see kind of the 8.3 million number user growing nicely. You talked about ways to deepen engagement here. You've had marketing campaigns recently, the product velocity appears to be improving. My question is, what do you think you need in terms of brand perception of product or otherwise to attract more inflows into the app, which I know accelerated a little bit this quarter and drive more commerce spend per user, which I think can get a lot higher. Unknown Executive: Thanks for the question. I love this question. It's actually 1 of the key things that I'm going to be focusing on next week at the Cash App Releases event. I think fundamentally, what we need is a platform that supports our understanding of primary banking behavior and what a customer, who is a primary banking active actually is. And so that's really where we've been focused. On the 8.3 million number, that primary banking actives were up 18% year-over-year in September, it's actually accelerated pretty meaningfully in October. So for October, we actually saw 8.7 million primary banking actives, so 400,000 net adds there. And then we saw the year-over-year growth rate accelerated from 18% to 20%. I think the key perspective here is that we don't want to be too narrowly focused on just paycheck deposit actives. It's not actually reflective of the modern earner and how the next generation is actually participating in the economy. And so we've been running a lot of tests and rolling out new products and new platforms that support this world view. And I think we love systems like that because then we're able to really optimize flows to twist knobs and turn dials and we have a track record of doing that across a number of these programs that we've run, like our referrals and notifications program, our instant discounts program Boost. And really, this is connected back to one of the conversations we're having about Cash App Borrow. There are ways that we have within the app to incentivize a certain amount of behavior and bring Cash App Card to the top of wallet. One of the advantages that we have versus some of the other neo banks is we have that base of 58 million monthly actives. And so -- and we have 26 million Cash App Card actives on a monthly basis right now. And so we're able to play this like cross-sell, upsell, attach rate game as well. And so a big part is just driving engagement. In terms of the why and why we're so focused on this, it's just the ARPU and the LTV for primary banking actives is just so much greater than it is for the average customer. So every time that we convert your average Cash App customer or your average Cash App Card customer to a primary banking active, there's a huge ARPU uplift. And so we're going to be pulling a lot of levers here. We're going to be looking at everything we can offer from limits to overdraft coverage, to rewards, to Borrow eligibility to Cash App Afterpay and so on and so forth to build a really, really, really compelling banking suite. And we think that when we go to market with that, and we have campaigns about that, it's going to lead to some of the outcomes that you mentioned. Operator: And we will now take our final question from James Faucette with Morgan Stanley. James Faucette: I want to go back to the work that you're doing on Square and the product and distribution enhancement to us seems like it really could expand the appeal to a broader range of merchants. You made that pretty clear in talking about the responses you're looking to go upmarket, how should we think about, though, the impact to things like pricing and profitability? And I guess 1 of the other questions I have in terms of market fit is, what segments of the market are really responding or what enhancements or the segments where you're seeing traction? What are they really responding to thus far in features, et cetera, on that you can lean into. Owen Jennings: Yes. I'm happy to take this. So why don't I just start at like the Block level, and then I can talk about the Square specific components. From a Block perspective, I think this is 1 of the really strong benefit [indiscernible] to where we're able to go to market leveraging the combined value of Block for our partners and our consumers. So when we're showing up and we're speaking to a partner, we're speaking to them about Cash App's network of 58 million actives, we're speaking to them about the scale of the Cash App Card that already exists on their platform. We're able to illustrate the value of Square, where we have millions of sellers across a very broad set of industries, and we have both Pay Now and Pay Later that is a global network, not just a U.S. specific network. So that means that we can have very strategic conversations with our partners. And that's where I think these like distribution opportunities truly start to unfold because we're having conversations at a different altitude that's looking at what are the benefits that Block could bring as a whole that does create sometimes a more complexity in the partnership motion. But I do think that if we can be a little bit patient, knowing what [Audio Gap] I feel really good about what's to come and how do we think about these things global that are more all-encompassing across our platform. And then when I think about just the overall competitive advantage of Square, number one, we're addressing a very significant TAM. We're addressing a very broad set of verticals. I mentioned earlier around some of the more recent product features like menu management, delivery platform integrations and others from an F&B perspective, which has been our focus. But we are showing up across a broad subset of verticals, and we are starting to bring Cash App into that conversation as well, where we can talk to our Square partners, not just about the features that we can provide them, but we can talk to them about our ability to drive growth, the great work that Brian and team are doing from a Neighborhoods' perspective and how do we start to bring those 58 million in Cash App into the Square sellers and illustrate, we can drive foot traffic into store. Like we can be a growth partner for our sellers, not just a point of sale. And I think that is our fundamental competitive advantage over the long term. I don't think this is about price and profitability. I think it's about scaling the team with the right marginal ROI profile and the incremental headcount and having a team that is appropriately represented for the TAM that we're servicing, and showing up with the right tactics, the right framework, the right ability for an account executive to do a deal when they're standing in front of the seller. And that's all we're seeing today. We're seeing really strong NVA growth, and I believe that it will continue to accelerate into Q4. So thank you for the question. Operator: And ladies and gentlemen, that concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the OceanaGold Corporation Q3 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. And I would now like to turn the conference over to Haley Myers. Thank you. Please go ahead. Haley Mayers: Good morning, and welcome to OceanaGold's third quarter 2025 operating and financial results webcast and conference call. I'm Haley Mayers, Vice President of Investor Relations. We are joined today by Gerard Bond, President and Chief Executive Officer; Marius van Niekerk, Chief Financial Officer; and Bhuvanesh Malhotra, Chief Operating Officer. The presentation that we'll be referencing during the conference call is available through the webcast and our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release and MD&A as well as the risk factors set out in our annual information form. All dollar amounts discussed in this conference call are in U.S. dollars. I will now turn the call over to Gerard for opening remarks. Gerard Bond: Thank you, Haley, and good morning, everyone. The third quarter was a solid one, in line with our expectations, where we safely and responsibly executed to plan. We are now in high-grade ore at both Haile and Macraes, which is why we expect the fourth quarter to be the strongest of the year. This also underpins our confidence in meeting full year guidance, lowering our unit costs and generating significant free cash flow in this fourth quarter. As a fully unhedged gold producer, we continue to benefit from today's favorable gold price environment. Most of the gain in average realized gold price was converted to the bottom line, and we delivered yet another strong quarter of free cash flow generation to the tune of $94 million. We have a superb balance sheet with 0 debt and cash of $335 million, up 12% from the last quarter. This increase in cash is after investing in our business and after the $46 million of capital returned in both dividends and buybacks during the quarter, reflecting our disciplined capital allocation framework. Our balance sheet strength provides us the flexibility to continue investing in our organic growth pipeline, which remains a focus for us. I'm pleased to say that the early works construction activities at the Waihi North project are progressing well, and we remain on track for fast track permit approval of this project by year-end. We are very much focused on maximizing shareholder returns. And this third quarter was one in which we generated strong free cash flow ahead of market expectations, increased our cash balance and returned a record amount of cash in the quarter to shareholders via dividends and buybacks. As of today, we have completed $100 million of share repurchases this calendar year at an average price of CAD 19.64 per share. I'm pleased to say that the OceanaGold Board has approved a substantial 75% increase in our share buyback program for this 2025 year, raising the total amount of planned buybacks up to $175 million. Widening the lens, I want to highlight just how focused we are on generating and sustaining an attractive return on capital. Our rolling 12-month return on capital employed is 17% over the last 12 months. Over the same period, we delivered $422 million of free cash flow, which represents a free cash flow yield of approximately 15% on our average market capitalization over that same period. Both of these metrics demonstrate how we are executing well, how we are successfully converting the strong gold price into bottom line results that we're generating significant free cash flows and that we are deploying capital effectively. Looking ahead, we are confident that the fourth quarter will be our strongest of the year from a production standpoint, and we remain on track to meet our 2025 full year guidance. Our consolidated gold production at the end of the third quarter represents 70% of the midpoint of our guidance range, in line with plan, while our year-to-date all-in sustaining cost is at the top of the guided range. The projected strong fourth quarter production is expected to drive our all-in sustaining costs back within our full year guidance range, which is exactly how we always expected this year would play out. Total capital investment is expected to be in line with guidance. Sustaining capital and growth capital expenditures are anticipated to be higher in the fourth quarter, including further spending on early works associated with the Waihi North project. In summary, we are pleased with the strong operational and financial performance year-to-date. And looking forward, we remain confident that we are well positioned to achieve full year guidance, progress our growth options and continue to increase returns to shareholders. I'll now turn the call over to Marius, who will discuss our financial results in detail. Marius van Niekerk: Thank you, Gerard, and good morning, everyone. This quarter, our focused operational performance translated into a record quarterly revenue of $449 million, supported by a record average realized gold price of just under $3,500 per ounce, which is still well below where spot gold prices are trading today. I'm pleased to highlight a few other key metrics this quarter. Adjusted EBITDA reached $211 million and was up 18% compared to Q3 last year, resulting in a healthy margin of 47%. Adjusted net profit was $93 million and adjusted EPS was $0.40, representing increases of 40% and 48%, respectively. Operating cash flow per share was $0.93, up 41% versus last year. We generated a strong free cash flow of $94 million in the quarter, bringing the year-to-date total to $283 million. The balance sheet is clean. We have 0 debt and our cash balance increased to $335 million. These results highlight our focus on maintaining cost and capital control and reinforcing our financial strength to continue delivering shareholder value. With our balance sheet in the strongest position ever, we have the flexibility to continue funding our exciting organic growth opportunities while also returning capital to our shareholders through our dividend and our upsized share buyback program. In addition to maintaining our quarterly dividend this quarter, we bought back $39 million of shares at an average price equivalent to around CAD 24 per share. Having fulfilled our previously announced $100 million buyback program for 2025, the Board has now approved a 75% increase for the remainder of the year, raising the targeted share buyback to $175 million for 2025. Together with $24 million in share repurchases made last year and our doubled dividend in 2025, by year-end, we expect to have delivered over $225 million in capital to shareholders, and that's over the previous 18 months. This demonstrates our clear commitment to delivering capital returns to our shareholders while maintaining a strong balance sheet and funding our growth projects. I'll now pass it over to Bhuvanesh to discuss our operating performance at each of our sites. Bhuvanesh Malhotra: Thank you, Marius, and hello, everyone. Ore production at Haile was 30,000 ounces in the third quarter, which was our planned lowest production quarter of the year as we advanced phase stripping at Embeda Phase 3, which unlocked fresh ore towards the end of the period. We are confident that the fourth quarter will be a strong quarter comparable to the first quarter, driven by the high-grade ore from Ledbetter 3, positioning us to achieve our full-year guidance. Third quarter all-in sustaining cost was above our guidance range as expected, reflecting the lower production volumes and capital investment on waste stripping and increased sustaining capital. We maintain our all-in sustaining cost outlook for the year as we expect unit costs to decrease significantly in the fourth quarter, in line with the expected improved production profile. During the quarter, we also released some exciting exploration results at Haile, highlighting the high-grade mineralization at several deposits across the property, notably at Ledbetter Phase 4, Horseshoe Underground and the early-stage Pieces and Clydesdale targets. The exploration success enjoyed year-to-date continues to highlight attractive upside for low-risk organic opportunities. Work on Ledbetter Phase 4 trade-off study continues to progress well. We are on track to release an updated NI 43-101 technical report by the end of quarter 1, 2026 with the results of this work. Now on to Didipio. During the quarter, Didipio delivered gold production of approximately 22,000 ounces and copper production of 3,100 tonnes, in line with our full year plan. In the quarter, we successfully completed the dewatering of the decline and expect to be at normal underground mining rates by the end of 2025, keeping us well on track to meet our full year guidance. We continue to pursue our underground optimization plans to support our growth. In the third quarter, we increased our investment in sustaining capital with planned spending on underground pumping infrastructure and ongoing lifts to the tailings storage facility. We expect this investment to continue into the fourth quarter. With the investments in mine water resilience in the second half of 2025, we expect all-in sustaining costs to be around the top of the guided range for the full year. We remain excited about our exploration prospects with ongoing drilling at multiple targets. This quarter, we continue to explore our near-mine targets, Napartan and D'Fox. In the fourth quarter, drilling will resume at True Blue, an area of known mineralization approximately 800 meters away from the Didipio mine. Additionally, resource conversion drilling from the underground is expected to resume shortly following the successful dewatering of the decline. We're making good progress and remain on track to reach our targeted underground mining rate of 2.5 million tonnes per annum by the end of 2026. We expect to release an updated technical report in the first half of 2026, outlining this plan to the market. We remain excited about Didipio's future growth opportunities. Moving on to Macraes. This quarter, Macraes delivered improved gold production of 33,000 ounces as waste stripping at Innes Mills 8 began unlocking fresh ore towards the end of the period. Looking ahead, with access to fresh ore at Innes Mills 8, we are confident in the significant fourth quarter uplift in production, positioning us well to achieve our full year guidance for production and costs. We remain excited about our potential opportunities to unlock value at Macraes. We are continuing to evaluate many options available to extend the mine life given today's high gold price environment, leveraging the value of our industry-leading low mining unit costs. We expect to share more with the market in an updated technical report at the end of quarter 1, 2026. Waihi delivered another strong production quarter of just under 19,000 ounces of gold, maintaining the progress achieved with the underground improvement plan initiated in 2024. This marks the fourth consecutive quarter of stronger performance at Waihi, which is testament to all the hard work done by the team there. This great turnaround at Waihi in recent quarters has positioned the site to deliver gold production around the high end of its guidance range for 2025. Now on to our exciting Waihi North project. I'm pleased to say that our fast track application progressed through the commenting phase in the third quarter and is currently in the panel consideration phase, which includes of responding to requests for information. Our expectation remains that we will be permitted by year-end and will be able to start the underground decline towards Wharekirauponga in 2026. Early works activity continued to progress with the construction of the service trench, civil works and Velos bulk earth works all commencing this quarter. We are on track to spend our guided $45 million this year, helping the project to be ready to start in earnest when we receive that approval. Turning to exploration at Wharekirauponga. Exploration focused on confirming the extent of mineralization of the southern end of the deposit, which remains open. As part of our fast track application, we are also seeking approval to increase the number of drill sites and double the number of allowable drill rigs, which will accelerate efforts to define this exciting deposit. Back at Waihi, exploration drilling is focused on resource definition and conversion and expansion of the Martha underground. With the improved underground performance and solid progress on permitting of the Waihi North project, we remain very excited about Waihi's future. I will now turn the call back to Gerard. Gerard Bond: Thank you, Bhuvanesh. In summary, this was another good quarter for OceanaGold and in line with our full-year plan. We expect the fourth quarter to be our strongest of the year, setting us up well to meet our full year guidance and generate substantial free cash flow at today's gold prices as a fully unhedged gold producer. Our balance sheet is in excellent shape. We returned a record amount of capital to shareholders through dividends and buybacks. Our 2025 buyback program has been substantially increased by 75% and the fast-track permitting approval of the Waihi North project is expected by year-end. We're also targeting a listing on the New York Stock Exchange in April 2026, which we believe will provide enhanced trading liquidity and access to a wider range of potential investors, both of which should drive value for shareholders. All this is possible through the dedicated efforts of the many tremendous people who work at OceanaGold and a big call out of thanks to them for all their hard work. I'll now turn the call over to the operator, who will open up the lines for any questions. Operator: [Operator Instructions] And your first question comes from the line of Ovais Habib from Scotiabank. Ovais Habib: Gerard, congrats to you and your team on a great quarter and really great to see Haile and Macraes in the higher grade ore. Also, really great to see the significant increase in the share buyback program. So that was really good to see and really depicts how confident you guys are on your free cash flow profile. A couple of questions from me, Gerard. Number one, starting off with -- you've got a lot of studies coming up in 2026. There's the Haile tech report, Macraes tech report. You've got the Didipio underground PFS as well. In terms of the free cash flow and free cash flow profile that we see going into 2026, that seems to be very strong. So the question is, do you see any major CapEx projects going into 2026 based on these expected studies? Gerard Bond: Firstly, thanks for the questions. Look, I mean, the cash flow requirements of those studies or the mine plans that will be reflected in those studies will be available in 2026 when we release them. But there's nothing -- unlike, say, the Waihi North project, there's nothing more than we're doing than updating the mine plans for latest reserves, latest reserve assumption and latest estimates of activity and the mine plan itself. There is nothing of a vastly different nature in capital that we're expecting to be associated with any of those 3 assets, Haile, Macraes or Didipio. Ovais Habib: Fantastic. And just kind of moving on to Didipio then. Q3 looked fairly similar to kind of Q2, things have improved. Obviously, there were some underground water issues at the beginning of the year. Is that all now behind us? Any color on that would be great. Gerard Bond: Well, I think Bhuvanesh covered it in the call, and I'll hand it over to Bhuvanesh again. But as he said, we have completed the dewatering of the decline. And by the end of this year, we expect to be at normal underground mining rates in full. Bhuvanesh, anything else to add on that? Bhuvanesh Malhotra: No, I think you covered it well. Thanks, Gerard. Ovais Habib: Okay. And then just moving on to Waihi. Waihi is expected to finish the year around the top end of its production guidance. And this is definitely a big improvement over the past couple of years. Are you now confident in this performance continuing to 2026? Gerard Bond: Bhuvanesh do you want to take that? Bhuvanesh Malhotra: Yes, sure. Thanks, Ovais. Yes, we are very confident about our production profile moving forward from Waihi. I think we now have a very great handle of the mining in out there as well. So yes, we feel very confident about our ability to capture and maintain that rate. Operator: And your next question comes from the line of Harrison Reynolds from RBC Capital Markets. Harrison Reynolds: Congratulations on delivering another strong quarter. It sounds like well set up heading into the end of the year. Wondering if you might be able to provide a bit more detail on these upcoming tech reports for Haile and Macraes. I know you touched on it a little bit in the last question, but sort of trying to understand what they might include. I think about the Macraes mine life extension. And I think that's underappreciated, but trying to maybe think about which phases are actually going to get included in this report. And over at Haile, some of this exploration has been interesting, but I'm wondering, are we going to get details around those targets at all? Or is it just going to be updating production schedules and costs? Gerard Bond: Everyone wants a spoiler alert ahead of the -- you're going to rob all the excitement of February to keep talking. Look, I mean, Haile, we've been saying that for a while now we're studying how we're going to approach the mining of LedBetter 4. It was always in the last technical report shown to be an open pit mine. But as a result of the great drill results we had and the shape of the ore body as defined by that drilling, what the study will do is make a determination and reflect the decision on how we're going to mine that LedBetter 4 ore body. So that's probably the primary change. The -- we've had some tremendous drill results at Haile as foreshadowed, but I don't think much of that's going to alter the mine plans beyond what I've said in relation to Ledbetter 4. At Macraes, its last reserve estimate was done for the whole company was at a reserve price of $1,750 an ounce. And we said that we are going to -- we're looking at having a higher reserve price for Macraes and all sites. And when we update that technical report at a higher reserve price, the amount of mineralization at Macraes is such that you can expect that a degree of mine life extension of some magnitude because it is an ore body that's sensitive to price. And so, at these higher gold prices, and we're always going to make sure that our reserve price isn't chasing too spot gold, we're going to make sure we have a very healthy margin on mining activities at all sites. But Macraes is sensitive to the gold price, and we expect that, that increase will allow us to mine more ore for longer at Macraes. And they are the primary reflections. Harrison Reynolds: That's great detail. And maybe just one more for me. I think it's exciting to see that there's going to be more drills on the Waihi North project post permitting. But can you talk a little bit about what's going to be targeted from those drill rigs? Is that going to be more infill drilling? Or are you going to start to do step outs and define the size of this ore body? Gerard Bond: Yes. Great question, Harrison. I mean, to put it in context, we're doubling the amount -- well, doubling the amount of drill pads that we can drill from. That will give us tremendous flexibility and choice as to how we approach the drilling as opposed to being limited to the drill pads that we have had for a many number of years. And as I said, doubling the amount of drill rigs. We'll always have a choice, and they're not mutually exclusive. We can do a bit of both. It is an exciting ore body. I think there is merit in doing some infill drilling and there's merit in doing step-outs. And again, we're only to date focused on one of the veins. There's also the opportunity to focus on some of the other veins in the region. I think Wharekirauponga, the district has a long period of time to unveil what's possible there. And again, this next year is going to be a step change in drilling activity to help unveil all that. Operator: And your next question comes from the line of Fahad Tariq from Jefferies. Fahad Tariq: At Waihi, it sounds like the underground improvement plan is going really well. You've seen higher throughput, higher grades, lower cost. Are there similar opportunities at other mines in the portfolio to bring costs down? Gerard Bond: Short answer is yes, but I'll let Bhuvanesh color that in for you, Fahad. Thanks for the question. Bhuvanesh? Bhuvanesh Malhotra: Thanks, Fahad, for the question. Yes, there are other opportunities across our portfolio to really factor the cost. Currently, we are undertaking all of those opportunities as well and probably Haile being a nice one to take that into account as well, specifically when you look at the trade-off study between the open pit and the underground. So that's a great example to factor that outcome. Similarly, at Macraes, we can -- we're looking at all opportunities as a part of the mining studies that are in out there as well. And at Didipio, the way we basically have been mining at Didipio, specifically in relation to how our stope sequencing work, we are always looking at those opportunities as to how to get the cost of the all-in sustaining cost down. Operator: And your next question comes from the line of Cosmos Chiu from CIBC. Cosmos Chiu: Maybe my first question is on something interesting that you mentioned in your MD&A. As you mentioned in your MD&A, you'll be releasing your 2026 guidance with full year 2025 results, and it will reflect updated economic influences from current market and operating environment. So I guess my question is, Gerard, is that an indication that you'll be looking at sort of inflationary factors? Or are you looking at sort of changes from the higher gold prices and changing opportunities? You kind of answered that question in your answer to Harrison on the Macraes in terms of potentially bringing in more ore. But is that what we're talking about, inflation? Are we talking about opportunities from a higher gold price? What do you mean by that statement? Gerard Bond: Yes. I mean it's everything costs, right? I mean we start with the physicals and then we have to have an overlay of what it's going to cost and what we're going to be investing in. And the mine plans will direct the activity and the activities can shift ever so slightly depending on what the mine plan takes us to and the experience of the year. And market costs, they can reflect anything, including inflation, exchange rates. I mean, we operate -- 50% of our business is outside of the U.S. And so, we update as to the New Zealand dollar and the peso, input costs and so forth. So it's a comprehensive normal update of what we expect the economics and physicals of the business are going to be. Cosmos Chiu: So pretty much everything. But I guess to ask it more concisely, have you thought about what gold price assumption you might be using for your technical reports coming up that could drive how you run the business at least into 2026? Gerard Bond: Short answer, and I think I alluded to it and we said it previously, we are going to increase the reserve price. The reserve price of $1,750 is too low. So it will go up. It doesn't change the activity set of any of our assets in 2026 at all. And the primary change that -- and it doesn't change much of the reserves of any site with the exception of Macraes because as I said on the call, it's the one that's most sensitive to price. And you can just see the difference between the reserves and the resources at Macraes and the resources at Macraes are booked at $1,950. So as we migrate from reserve to resource, you're going to see some level of those resources come into reserve, and that will extend life, but it won't alter the activity of 2026, all that much from what we expected otherwise. Cosmos Chiu: Great. Maybe switching gears a little bit. Gerard, as we all know, Q3 was going to be the weakest quarter for the year for Oceana . And despite that, you still generated very good free cash flow, $94 million positive free cash flow. Can you remind us of any kind of seasonality in your free cash flow quarter-over-quarter? For example, I know that you need to pay for your FTAA each and every April. But is there anything else that we should be aware? Gerard Bond: Not really, Cos. I mean I think the largest single lump is -- and I'll give Marius time to think and he can color in if I've missed something. But the largest single item of the lumpy spend is that additional government share that's paid in April of every year, and that's flagged in the full year results that we released in February. We -- through the course of this year, we did have some seasonality in the electricity price that we experienced in New Zealand, but it's kind of not all that significant. But -- and then the other seasonality, we can have weather events affecting shipping of copper concentrate out of Didipio, but that all washes out in the course of the year anyway. So nothing material. Marius, anything come to mind or Bhuvanesh? Marius van Niekerk: The only 2 that come to mind is obviously your CapEx spend profile, cars, depending on where you are in that quarter. And then also from a shipment perspective, yes, you have -- you could have weather events impacting it or you could have some stockholding at either site per quarter at the back end of the period. So that would influence, for instance, Didipio this quarter had some sales that came from inventory in the prior quarter. Cosmos Chiu: Great. And maybe one last question. Great to see share buybacks, you've reached your $100 million target, now increasing it to $175 million. But I guess my question is, as Marius mentioned, you repurchased shares at CAD 24. Oceana shares have done very well. Now CAD 31.85. So I guess my question is, is there some kind of upper limit in terms of when you might start considering or reevaluating the velocity in which you repurchase shares? Gerard Bond: Yes. We do have -- we are mindful of value, Cos. We have our own view on value having regard to modeling and various assumptions, and we don't go above that limit. Cosmos Chiu: Okay. And at this point in time, Gerard, can you share with us, are we going to expect share buybacks of $75 million in Q4? Or is that, again, based on what you're observing in terms of value in terms of the share price? Gerard Bond: I can say that we will be commencing that buyback at today's share price. And what happens thereafter, Cos, is, again, subject to the parameters we put around it. But I think what we have shown is that when we said we were going to buy back shares at the start of the year of $100 million, we executed to that. And I think just generally, at a macro level, I think that gold equities, not all gold equities, but certainly OceanaGold equities still have a way to go to reflect fully or even part of the uplift in spot gold. Operator: And your next question comes from the line of Don DeMarco from National Bank. Don DeMarco: First off, to these technical reports, Gerard, what is the timing of both the Haile and the Craisech reports? Are they going to both be out before 2026 guidance is released? Gerard Bond: No. They will come out in the end of the first quarter of 2026. But the essence of them will be reflected in the '26 guidance. Don DeMarco: Okay. And of course, as has been discussed in some of the questions, with the Haile tech report, you're looking at -- you faced with the decision of how to approach LedBetter 4. This analysis is ongoing. We'll look to report for what your decision is. What are some of the variables that you're including in your analysis that might drive the decision grade, CapEx, differences in throughput between the different scenarios in the mine life? What are some of the factors that you're looking at and weighing both options? Gerard Bond: Sure. Great question. Bhuvesh, do you want to take that one? Bhuvanesh Malhotra: Yes, sure. Thanks, Don. So we've been looking at the value-based decision as well. So the decision basically is more about the NPV that we will generate and then the IRR that we'll get out of the decisions that we need to make as well. And as you know, probably in the case of the open pit, given the amount of waste that we need to strip to the ore, that probably is a huge amount of time that we spend in that space as well. So we're taking a value-based decision that probably generates the best outcome. This is what the trade-off studies will be taking into account. Don DeMarco: Okay. Great. And great to hear that Q4 is going to expect to be the best of the year. And really, there's a clear path into 2026 as well. Would you expect that stretch to continue into '26? I mean, in a general sense, and of course, we'll look for details of the guidance, but it seems like a clear path carrying on the strength from Q4 into next year. Gerard Bond: Yes. Whether the quarter volume is exactly the same, but the drivers of that uplift definitely carry through into '26. I mean this has all been about accessing grade at our 2 largest operations, Haile and Macraes this year represent 70% of our projected production. And next year, that combination grows even larger because of this access to the higher grade ore and Innes Mills 8 at Macraes and LedBetter 3 that we've been investing in this year. That's what I think is particularly exciting. We have been investing in the access of those large open pits this year, still generating tremendous free cash flow. And then next year, when you're feeding higher-grade ore that's what's the primary driver of the uplift in gold production in 2026. Operator: And there are no further questions at this time. I will now hand the call back to Gerard Pan for any closing remarks. Gerard Bond: That concludes our webcast and conference call today. Thank you, everyone, for joining us. A replay will be available on our website later in the day. On behalf of the management team and everyone at OceanaGold, I wish you a very pleasant rest of the day. Bye. Operator: And this concludes today's call. Thank you for participating. You may all disconnect.
Operator: Good 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.
Carolina Stromlid: Good morning and a warm welcome to the presentation of RaySearch Q3 2025 Results. My name is Carolina Stromlid and I'm new Head of Investor Relations at RaySearch. With me today are our Founder and CEO, Johan Lof; and our CFO, Nina Gronberg, who will take you through the highlights and financials of the quarter. After the presentation, we will open up for questions. So feel free to submit them in the chat or ask them live. With that, let's kick off today's presentation. Johan Löf: Thank you, Carolina, and welcome again, everyone. Before we go through the Q3 results and highlights, I'd like to give a brief overview of RaySearch and our business. So as you know, RaySearch is a pure software company and we develop software for cancer treatments. We have 4 platforms: RayStation, which is our treatment planning system; RayCare, which is the oncology information system; RayIntelligence is our analytics tool for exploring population data; and RayCommand is the treatment control system. So if you look at the comprehensive cancer center. We have usually the radiotherapy treatment in the basement, you see the treatment machines down there. In the comprehensive cancer center, we also perform surgery for cancer and we deliver chemotherapy and other systemic therapies. So comprehensive cancer center can deliver all the types of treatments that are available for cancer. And RaySearch has so far during our first 25 years been mainly focused on radiotherapy or I would say only focused on radiotherapy. So we do the treatment planning for radiotherapy and also with RayCare, we manage the workflows, et cetera, for delivering radiotherapy. We have recently added a new function in RayStation for liver ablation planning and delivery. So there is a room in this clinic picture where you see liver ablation to the far right. And this is the first time we actually go outside of radiotherapy because liver ablation is interventional radiology. And going forward, we will take care also of the other aspects of cancer treatment. Next year we are entering into chemotherapy where we add chemotherapy planning into RayStation and chemotherapy management into RayCare and further down the line, we will also support surgery in the same way. So our long-term goal and vision is to provide the comprehensive cancer center with all the tools necessary to do whatever goes on in a center like that. So we will support comprehensive cancer care. Many patients receive a combination of treatments. Breast for example, you usually first perform surgery to remove the tumor or the breast and then you irradiate lymph nodes and after that you deliver chemotherapy. So many patients have had a combined treatment like that and I would say there's hardly any software support for that situation. So we want to be able to cooptimize and coordinate such treatments in the future. This slide shows the long-term development for RaySearch in terms of revenues. We go all the way back to 2008. I show this slide because I want to emphasize the importance of looking at RaySearch long term because as I have repeatedly stated over several years is that our quarters fluctuate in terms of revenues. That has been quite common for a long time even though maybe we see a little bit less of that than in the past, but it's still a characteristic of RaySearch because there are some big deals that have fallen on either side into one quarter or another quarter. So it is important to look at RaySearch over a longer period. And if you look at this slide, you see that it's a pretty stable growth over the years. The magenta colored bars are the support revenues so they are steadily increasing and they are now about 39%, 40% of the total revenues. There is a dip that you see in 2020 and 2021 that were of course during the COVID years where we were quite badly affected. But overall, over a longer period, we can see that there is a steady growth. So even if we had a somewhat weaker Q2 this year, Q1 and Q3 are record quarters in terms of revenues. We have all-time high this quarter, but Q1 was very close as well. So basically we have 2 all-time high quarters this year so far and 1 a little bit weaker. So I just want to remind everyone that one has to have a longer-term perspective on RaySearch development. Okay. So now over to the latest developments. So I'm happy to report that Q3 was a strong quarter for RaySearch with record high net sales and improved profitability. I think Q3 demonstrates the strength of our business model and the importance of maintaining this long-term perspective. While revenues can fluctuate between quarters, this quarter confirms the company's continued solid performance. We saw continued strong interest for our solutions in the quarter supported by the deliveries to 6 major particle centers in Asia. Net sales grew by 13% to SEK 332 million reaching the highest revenue we have ever recorded. The increase in net sales lifted operating profit by 44% to SEK 89 million with an EBIT margin of 27%. Adjusting for costs from our global employee conference, EBIT was SEK 103 million corresponding to a margin of 31%. Recurring support revenue continued to grow reaching SEK 130 million in Q3 and which represents 39% of total revenues. So let's move on to the operational highlights of the quarter. Overall, customer activity remained strong with order intake increasing by 70%. Many of our existing customers expanded their installations during the quarter to add more systems and functionality. Roughly half of our license sales continued to come from the installed customer base demonstrating steady demand from the existing customers. Interest in RaySearch solutions remain high across all regions with an increasing number of clinics choosing RayStation and RayCare over other systems. I can mention a few notable examples in Q3. Stanford Healthcare in the U.S. placed a new order for advanced proton therapy. [ AKMS ] Oncology selected RayCare and RayStation for its new cancer center in California. Keimyung University Dongsan Medical Center in South Korea will install RayStation and RayCare at its new proton center. RayStation has been installed at 3 new proton centers and 2 carbon ion therapy centers in China. Auckland City Hospital in New Zealand is expanding its radiotherapy capacity with additional RayStation licenses. The replacement of Philips treatment planning system Pinnacle, which will be discontinued by 2027, continued in the quarter. The German health provider Med360 will deploy RayStation across 10 clinics for Elekta and Accuray treatment machines. And in France, several clinics will replace both Pinnacle and Eclipse with RayStation. Another example of customer activity was the annual ASTRO conference that took place in San Francisco at the end of September. This is a very important event for us and we had a great interest in our offering. Finally, in September, we celebrated an important milestone. RaySearch marked 25 years as a company. For the first time since the pandemic, we gathered all our employees from around the world with an internal conference. This created valuable opportunities for knowledge sharing while also strengthening our company culture and engagement. Together, we will continue to build on this, improving cancer treatments for patients worldwide. In September, we launched a new version of RayIntelligence, which is our oncology analytics platform. It's cloud-based and we have built it with modern technology for scalability and accessibility. It comes with interactive dashboards that you can use to visualize data and understand correlations, et cetera. It's seamlessly integrated with RayStation and RayCare meaning that it listens to everything that goes on in these systems. So without the user having to do anything, RayIntelligence will capture the information that's being generated in RayStation and RayCare. There is also a very powerful SQL scripting interface for customer queries and in-depth data exploration. Some examples of use cases for RayIntelligence is that you can get an overview of the clinical operation. You can get an overview of everything that goes on in your department. You can monitor machines, treatments, toxicities. You can also track treatment quality and look at your population of patients over time, what are the side effects and what are the tumor control probabilities, et cetera. In our systems, we have several machine learning or AI models in certain algorithms and RayIntelligence can also be used to monitor the performance of these machine learning models. RayIntelligence is also a very powerful tool to generate reports that takes data from RayStation, RayCare, but also external sources. This is an example of a dashboard where you follow the treatment planning in a specific clinic. So you can track it over time. You see the time axis in 1 diagram there. You can track it on tumor type so how many plans did we create for breast, how many for prostate, for lung, et cetera. There is also statistics here for the different treatment planners. So how many -- I mean which person did the most plans and who did the least, et cetera. So this is just an example of things that you can see and visualize with RayIntelligence. It's also important to note that although RayIntelligence comes with a large number of predefined dashboards that we have made, the user can have tools in RayIntelligence to create their own dashboards. So it's a very powerful addition and complement to RayStation and RayCare. So in the next slide, we try to visualize how RayIntelligence can be used to gather data. RayWorld, the combination of all our systems are called RayWorld, and we want RayWorld to be a learning system. So what this slide illustrates is that those little squares or rectangles are data points that are being automatically at the back end captured by RayIntelligence from RayCare and RayStation and that data is put in the cloud, in the data warehouse in the cloud. It can be a cloud on-premises, but it can also be a cloud in the cloud, so to speak. Based on this data, we achieve clinical insights. We feed back information. Those networks, neural network symbol there, represents machine learning models going back to our systems, but there are also other data points represented by those dots that are insights that we feed back to improve our algorithms. So we have several algorithms as we rely on historical data like deep learning segmentation and deep learning planning. So that is to improve the performance of, for example, RayStation. We can also improve the operational efficiency of the clinic. So RayIntelligence will help determine bottlenecks in the workflow and then you can take action to remove those bottlenecks. We also want to provide clinical decision support by following the patients over time and knowing exactly what we did to these patients and what the preconditions were. We can improve and we can give recommendations to the clinical teams on how to treat the next patient. And combined, all of this will then improve outcomes and treatment outcomes for our patients. So with that, I would like to hand over to Nina to tell us about the financial development. Nina Grönberg: Thank you, Johan. In quarter 3, we saw continued high activity in the market both from new and existing customers and across the regions. Order intake increased by 17%, which brought the rolling 12 curve upward again, up from the smaller drop that we had in the last quarter. And we had high order intake from support contracts in the period. The order backlog ending at SEK 1.617 billion was also affected by that we had 6 Asian particle sales turning into net sales in the third quarter. High net sales gave us a book-to-bill ratio in the quarter of 0.9 and for the last 12 months it was 1. Despite headwind from the strengthening of the Swedish krona, net sales grew with 13% in the quarter and since the SEK 332 million outcome beat the previous record that we had from quarter 1 this year if only with SEK 0.5 million, we did mark out a new record level. License sales growth was 40% and support sales grew with 8%. The organic growth was 19% mainly coming from new orders, but also from the already mentioned particle sales in Asia, sales that was previously recognized in our order backlog. The high net sales drove EBIT up with 44% to SEK 89 million in the quarter and strengthened the margin to 27%. If we adjust for the costs that we had from our internal conference and a very small currency effect in the quarter, EBIT was SEK 103 million and the EBIT margin 31%. Year-to-date net sales was up 11% and 15% organic-wise. And the year-to-date EBIT margin was 21%. Moving on to the rolling 12 development of net sales and EBIT and also the perspective that we believe give a better and more relevant description of RaySearch business performance. We see that net sales for the last 12 months amounted to SEK 1.292 billion and that gave us an annual growth rate of 14% over the last 2 years. And the rolling 12 EBIT of SEK 274 million means a solid margin of 21% and this, I want to point out, is despite that we've had large effects from nonrecurring costs and currency losses during 2025. Recurring revenue from the support contracts was, as mentioned, up 8% amounting to SEK 130 million in the quarter and corresponding to 39% of total net sales. Year-to-date the support contract growth was 13% and amounting to SEK 385 million and that corresponds to 40% of the total net sales. Rolling 12 development pictured with the blue line in this graph show the steady increase that we have in our support revenue over time. Moving on to the cash flow development. Cash flow in quarter 3 was minus SEK 82 million and strongly impacted by the higher working capital. Though this is not a satisfying outcome, I want to break it down for you and I want to point out that the picture is brighter than it first looked like. There is mainly 3 things that has impacted working capital in the quarter. One of them being the already mentioned Asian sales, which were to large extent prepaid, and that is a good thing. I mean we get paid before we deliver anything and that is something that is common when it comes to our sales in the APAC region. But it also means that no cash flow is generated later on when the sales is recognized. Secondly, we have sales with longer payment terms. In some cases, these longer payment terms is related to tenders and framework agreements and that is something that gives us good and profitable sales, but where we have to accept that we get paid a little bit later. For example, in the last 2 quarters, we had strong sales in the French market and there we have these kinds of contracts. And then we get a smaller portion of the payment when we deliver, but we also have to wait with the invoicing until customer has finalized their testing. In other cases, we have accepted longer payment terms or later invoicing since we can benefit from it in terms of price or in terms of long-term value from the customer relations. And third, a portion of the cash flow outcome is always related to timing of the sales in relation to quarter end, a timing that was not in our favor in the third quarter. Cash flow was also affected by quarter 3 being summer months, which means vacation payouts. Last, but not least, I want to remind you that we have a cash balance of SEK 323 million when we exit the quarter. We have no loans and on top of that, a nonused overdraft facility. Breaking it down further to you and looking at the 3 items in our balance sheet building up the main part of the working capital; the contract assets and the contract liabilities, which is receivables and liabilities we have towards our customers. Here we have been used to having a net that is negative and that means that we have more prepayments from our customers meaning they pay us before delivery than the customers owe us because we have delivered and not get paid. And that is an extremely good position I must say. And now in September, it turned the other way around, but as I see it, we're still in a rather good shape. And as with net sales, we will have fluctuations in these items as well going forward depending on the mix of the customer contracts. And we will of course continue optimizing the working capital in relation to the business. And with that, I hand over to you, Johan, that will give a summary of the quarter. Johan Löf: Thank you, Nina. All right. To summarize the quarter, we achieved record high net sales. Our profitability improved significantly. We continue to see increasing interest in our solutions. There is still a very large potential within our existing customer base giving us the opportunity to sell additional systems as well as additional modules to them. With our leadership in innovation, strong partnership and an expanding and loyal customer base, RaySearch is very well positioned for long-term growth. So we will now open up for questions and I will hand over the word to Carolina. Carolina Stromlid: We will start with questions from our analysts and the first question comes from Mattias Vadsten at SEB. Mattias Vadsten: I think I will start with 3 questions. I think first one, as has been discussed in this case before and in conference calls, the upselling potential is quite massive as it looks and this effect, if I do my calculations, has been quite sort of substantial both over time, but also in particular I would say in 2024 and into 2025. So if you could just confirm this is the case? And also if it is something special happening driving this recent mix? And yes, how the sort of setup looks there going into the future here and into 2026, '27? That's the first question. Johan Löf: Okay. Let's take them one by one, please. Then you can ask the second if you may. Also this quarter, we had about 50% of the license sales from the installed base and the other half from new customers. So this seems quite constant. It's just a behavior of our customers. We have a campaign that we're starting in just a couple of regions where we allow customers to use the systems. We unlock all of RayStation's functionality for a limited period of time and have the customers try out everything that -- all the modules that you can buy in RayStation. They are also free to use that clinically. And after this trial period, which we are experimenting with, but it's about 6 months; they have to decide whether they want to buy it or not because the modules are shut down after that trial period. And it has been very well received in the markets that we have initiated it. We want to do it on a small scale to start with in these countries just to gain experience and then based on that experience, we will open it up to other markets. But we believe that that should benefit the sales to our installed base. Did that answer your question? Mattias Vadsten: Yes. When was this initiative started just as a follow-up? Johan Löf: I didn't hear what you said. Carolina Stromlid: Did you have another question? Mattias Vadsten: Yes. First, a follow-up to this question I asked just now. When was this initiative started? Johan Löf: The letter was sent out maybe 2 months ago, something like that. I don't remember exactly, but it's quite recent. Mattias Vadsten: Okay. Good. Next question is I think you point out, also very well in the presentation, a strong delivery quarter in terms of licenses this time, also new customers sales exceeding orders last 12 months in this line and order backlog, therefore, falling vis-a-vis last year and previous quarter for licenses specifically. So just how you view this and sort of how to think about the future with regards to this? That's the second question. Johan Löf: Okay. The reduction of the order backlog was a direct consequence of those deliveries. But as you may have noted, the order backlog and the order intake for 1 quarter is a very bad predictor for the revenues for the next quarter or future quarters because most of the order intake is still -- or most of the revenues are still RayStation revenues. And most of those, except for the special particle centers, et cetera, most of that order intake is directly converted into revenues. So let's say that we have a strong Q4 quarter, then it would be strong both in terms of order intake and revenues. So that's just the nature of the business. Carolina Stromlid: Do you have any other question, Mattias? Mattias Vadsten: Yes. I have 1 final question, then I will allow other analysts. Carolina Stromlid: We will move over to Kristofer Liljeberg at DNB Carnegie. Kristofer Liljeberg-Svensson: It's Kristofer, I think you have some problem in tech. Carolina Stromlid: We'll try with Oscar Bergman from Redeye. We can come back to the phone questions again and move over to questions posted in the chat. Johan Löf: Okay. I can start with those. Lots of different questions here. There's 1 question. Could you give some color on the share of previous Pinnacle clinics accounting for the license sales in the quarter? Yes. About half of the new license sales to new customers were by converting Pinnacle clinics to RayStation and the other half was converting other systems and that will be then Monaco and Eclipse. This was posted by [ Daniel ]. And he also asks, could you elaborate on the revenue model of RayCare? Is it similar to RayStation in terms of license fee plus support revenue? That was the first question. And yes, it is, but it is a bit higher. So you can assume about 30% higher for a certain clinic, but it's of a certain size. And the RayCare installation would be about 25%, 30% more expensive than the RayStation installation. And then the second question and is how is pricing determined? Is it based on patient throughput and users? It's mainly based on patient volume or patient throughput as is stated here and connections to machines. So the more machines linacs you have, the more expensive RayCare becomes and also how many patients you want to treat with RayCare, that also affects the price. So that's the difference between RayStation, which is mainly based on the number of users. A question from another person here [indiscernible]. Could you come back on Philips discontinuation? How well are you positioned to benefit from this? Is it already visible in your order intake or should we wait until 2027? So I would say that we are very well positioned and we are focusing very hard to convert the remaining connected sites. And it's been visible, I would say, so we don't have to wait till 2027. This has been visible for a few years actually. But it's intensifying now as the clinics cannot wait until 2027. They have to work well before the New Year's Eve of 2026 so they cannot have an interruption. Oscar Bergman has asked several questions so I will go through those. Can we check that they can ask questions? For example, Kristofer has reached out. Carolina Stromlid: No. We seem to have some kind of technical issue so I think it's better to take them written. Yes, it's posted in the chat. Johan Löf: Great. So the first question from Oscar Bergman. The EBIT margin was at 27% and 31% adjusted is above your target that I had previously argued is quite conservative. Are you looking to increase your EBIT margin target now as you have done before when you have exceeded the target? Okay. I agree that it looks quite promising that we will achieve at least an EBIT margin of 25% in 2026 given the current performance. We haven't changed that. Clearly we let it stay as it is, but we will communicate new targets later on, but then that will be communicated in conjunction with the press release or report. But for now we will stick to the at least 25% EBIT margin target and we feel quite confident that we will be able to fulfill that target. Second question is end-of-life Pinnacle. Can you elaborate a bit more on the sales funnel here, specifically your market share of winning these accounts? And also what is a more realistic timeline for these centers to have finalized that transition or should we assume that some centers will still be doing this in December of next year? As I said earlier, I think they will do this well before December next year because there are few months of preparation, et cetera, when you move from 1 system to another before you can start to treat patients. I think we are well positioned. It's very hard to know exactly our share, but I think we have more than 50% of these accounts I think that we win. Number three, I understand a lot of resources are going to getting these Pinnacle clinics. Once that window is closed, how quickly can you shift going after non-Pinnacle clinics. Is there any risk of a temporary slowdown after the Pinnacle opportunity? And as I also stated before, 50% of the new sales are other sites and they are a conversion of Eclipse and Monaco. So that is already running and it varies between different markets. For example in Japan, this Pinnacle conversion has pretty much already happened there. All the new license sales are from converting other systems in Pinnacle. So yes, I don't think there will be a temporary slowdown. We are already converting at a pretty -- converting other systems at a good pace. Number four, a 96% gross margin, about 4 percentage points above the average that we had for many years. Were there any one-offs or something like that that gave this strong margin? Yes, there were 2 things that happened. There were less computers being sold through us. We do offer our customers to provide them with servers and hardware necessary to run our products and we have a decent margin on that as well. But since less of those this time in this particular quarter that helped because it's obviously a lower margin on the servers and the software. The other thing was that the deliveries to the particle centers in Asia didn't come with hardware at this point. So that also helped. So I think that's probably an unusually high gross margin. We can't expect that every quarter going forward.. Number five, the final question here. In Q2, you had received 4 new RayCare orders year-to-date and you mentioned that you expect 4 or 5 more during the second half of 2025. Can you give some update on this is the question? We achieved another 2 orders this quarter for RayCare and we will see what happens during the rest of the year. What we can say about RayCare right now is that the interest has intensified greatly and I think we'll see good orders during 2026 for RayCare. Let's see here. [ Carlos Murrian ]. When will RayCare really start to be material to license sales? Is 2025 proving demand for the product? Okay. I guess I just sort of answered that. RayCare when it really start to be material, we have to look 2, 3 years out. But then it will be I think a large revenue contributor. Okay. There is another comment here is that there is problem with the sound. They can hear analysts, but not us, which is a bit unfortunate. I have a question here from Kristofer Liljeberg. It seems it doesn't work to ask questions on the line so here are the ones from me. Number one, will you be able to track how customers are using RayStation modules during the campaign? The answer is yes. Do you expect working capital to come down again or continue to increase? Nina Grönberg: Yes, that's for me. As I also said during the presentation, it will fluctuate also going forward. But of course I see that the items that we have on the receivable side in the working capital, some of them or a big portion of them will get paid during quarter 4 and quarter 1 next year. But I mean the working capital will also be dependent on the deals or the sales that we do later on here in quarter 4. And right now I don't know how those agreements will look like. So I have no clear answer to that. It will be better I can say. Johan Löf: Kristofer's third question is high gross margin from lower hardware sales. Is it temporary or can it be start of a new trend? As I explained before, I think it's temporary. Number four, how do you view deal flow in Q4? In general, we have good momentum can answer to that. Number five, Seems on track to reach EBIT margin target for next year. How do you view investment needs after that? Okay. Number five, I think we will revise our EBIT margin targets up for the future without quantifying that. But we will reach we hope and we are quite confident that we reach the current EBIT margin target. Before that, we're going to define a new EBIT margin target maybe 3 years out. And in general, we believe that this business will be very profitable going forward. Those were all of Kristofer's questions. I can take 1 more question here. How is RayCare integration progressing with other Varian hardware? When could it be expected an integration of Halcyon? And are you working with other vendors such as Hitachi and United Imaging? That's a good question. We are having discussions with Varian on integrating RayCare also with Halcyon. It's hard to say exactly when that will be clinically available. It will be a couple of years from now, but we have very constructive and fruitful discussions with Varian on this. And then the second part of the question was are you working with other vendors such as Hitachi and United Imaging? We work with many other vendors not United Imaging, but we work with Hitachi on both their OXRAY machine and the proton machine. OXRAY is ordinary linac. They have PROBEAT, which is a proton machine. We work with LEO Cancer Care, we work with IntelliRay, we work with Accuray, we work with [indiscernible], we work with Panacea, we work with [indiscernible]. I don't know if we have mentioned LEO Cancer Care. So we are working. Within the next 12 months, there will be quite a large number of additional interoperability interfaces for new machines for RayCare and within 18 months, there will be even more. So this is progressing very well. I take 1 more question. Are there any discussions with Elekta regarding integration of RayCare? We talk to Elekta from time to time about this and we would very much like to integrate RayCare with their machines. But I cannot say anything more on that currently. Carolina Stromlid: And that concludes today's Q&A. A recording of this presentation will be available shortly on our investor website. And if you have any additional questions, you're very welcome to reach out to us. Thank you for joining us today and we look forward to seeing you again on February 12 for our year-end results. Have a great Friday. Johan Löf: Thank you. Nina Grönberg: Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Synaptics First Quarter Fiscal Year 2026 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Munjal Shah, Head of Investor Relations. Please go ahead. Munjal Shah: Good afternoon, and thank you for joining us today on Synaptics' first quarter fiscal 2026 conference call. My name is Munjal Shah, and I'm the Head of Investor Relations. With me on today's call are Rahul Patel, our President and CEO; and Ken Rizvi, our CFO. This call is being broadcast live over the web and can be accessed from the Investor Relations section of the company's website at synaptics.com. In addition to a copy of our earnings press release detailing our quarterly results, a supplemental slide presentation and a copy of these prepared remarks have been posted on our Investor Relations website. Today's discussion of financial results is presented on a GAAP financial basis, along with supplementary results on a non-GAAP basis, which excludes share-based compensation, acquisition-related costs, and certain other noncash or recurring or nonrecurring items. All non-GAAP financial metrics discussed are reconciled to the most directly comparable GAAP financial measures in our press release and supplemental materials available on our Investor Relations website. As a reminder, the matters we are discussing today in our prepared remarks, in our supplemental materials, and in response to your questions may contain forward-looking statements. These forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance, and business. Although Synaptics believes that estimates and assumptions underlying these forward-looking statements to be reasonable, they are subject to a number of risks and uncertainties beyond our control. Synaptics cautions that actual results may differ materially from any future performance suggested in the company's forward-looking statements. Therefore, we refer you to the company's earnings release issued today and our current periodic reports filed with the SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. All forward-looking statements speak only as of the date hereof. Except as required by law, Synaptics expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Rahul. Rahul Patel: Thank you, Munjal. Good afternoon, everyone, and thank you for joining our fiscal Q1 2026 earnings call. We had an outstanding start to our fiscal year, delivering strong results that reflect the continued momentum in our business. Revenue in our Core IoT portfolio grew by 74% year-over-year, driving 14% revenue growth for the company. Our strength was broad-based across both processors and wireless connectivity. We delivered strong earnings growth, with non-GAAP earnings per share up 35% year-over-year to $1.09. As a company, we are sharpening our focus and aligning our resources to capture the growing opportunity in Edge AI. In the last quarter, we met with customers across the globe and at our Tech Day here in San Jose. Those discussions have affirmed my confidence in our ability to strengthen our leadership in this market. By bringing together our unique capabilities in analog mixed-signal, multi-core processing, and advanced wireless connectivity, we are enabling customers to bring intelligence to the Edge. This quarter, we reached a major milestone in our Edge AI roadmap with the successful launch of our next-generation Synaptics Astra Edge AI processors. Astra introduces a new class of AI-native silicon, built from the ground up to power the next wave of intelligent devices at the Edge. These products represent a decisive leap forward in our Edge AI strategy and reflect our strong execution and firm commitment to leadership in this market. Importantly, Astra is not just a standalone product, it brings together Synaptics' integrated approach to high-performance solutions by incorporating our processing, wireless connectivity, and mixed-signal capabilities. The response from customers, ecosystem partners, and the media has been very positive for the following reasons: First, we developed the new generation of Astra SL2600 series to enable billions of AI devices at the Edge, from battery-powered devices to high-performance industrial systems. It delivers industry-leading price performance to enable intelligence at the far Edge. Its scalable architecture allows our customers to address a wide range of applications, including those that require multimodal human-machine interface, vision, and voice capabilities across consumer, enterprise and industrial end markets. Customers can future-proof their designs as requirements for multimodal compute, power efficiency, application features, and AI models continue to evolve. Second, we introduced Synaptics Torq AI in the new generation of Astra processors. Torq combines a future ready neural processor architecture with open-source compilers, setting a new standard for IoT AI application development. Further, as part of our close collaboration with Google Research, we have integrated their open-source Coral NPU, a machine learning accelerator optimized for energy-efficient AI at the Edge. This silicon-level collaboration enables customers to develop innovative Edge products with AI inference across a broad range of applications. Third, the Synaptics and Google partnership is fundamentally about creating a robust and open software development environment that elevates AI-native Edge IoT product development from a highly fragmented, proprietary ecosystem into a unified, open-source approach. Developers now have access to multiple flexible and scalable programming frameworks, comprehensive software development kits and tools, and a rich repository of resources that include pre-optimized models, multimodal AI applications, and a curated developer experience supporting a wide range of use cases. Our lead customers have begun sampling the new Astra SL2600 devices, and we are already securing design wins. We expect initial revenue contributions to start in the second half of the calendar year 2026. This marks a significant execution milestone for our engineering and product teams, reflecting their outstanding commitment to innovation. Looking ahead, the AI inference compute opportunity is significant as hybrid compute across the data center and the Edge is taking shape. We are already seeing strong early traction and a healthy pipeline of customer engagements. We had hundreds of customers and partners join us at our Tech Day, where we showcased Edge AI use cases such as industrial vision, fleet management, home automation, smart appliances, IoT hubs, and robotics. Moving to our wireless connectivity portfolio, we had a solid quarter with strong execution across our strategic priorities. Our Wi-Fi 7 and broad-market solutions are starting to gain traction, and our roadmap remains firmly on schedule. Development of our wirelessly connected microcontroller with AI, all in a monolithic silicon, is advancing as planned, and we look forward to sharing more in the quarters ahead. Across our Core IoT portfolio, we achieved multiple wireless connectivity and processor design wins spanning a diverse range of end markets, including action and sports cameras, educational and commercial tablets, point-of-sale systems, unified communication platforms, operator solutions, and wearables. We're also seeing increasing customer commitments in home security systems, Matter-enabled IoT hubs, trackers, AI-enabled wearables, and body cameras. As we continue to invest in our roadmap, execute on our engineering goals, and deepen partnerships with our leading customers, we feel confident in our ability to deliver long-term growth across our processor and wireless connectivity portfolio centered on enabling AI at the Edge. Let me now turn to our mixed-signal technology products. In Enterprise & Automotive, our PC products continue to show steady improvement, and our broader enterprise portfolio continues to recover. We have gained market share over the last year, and we expect the momentum to continue into the current quarter. While we continue to see softness in automotive due to subdued market demand, we are benefiting from the continuation of our existing designs and are actively investing in new innovative automotive solutions that will help increase our silicon content. In Mobile Touch, we are seeing strong customer traction with our next-generation touch controller, which features a differentiated multi-frequency architecture designed for foldable OLED phones and other large-screen applications. This new design enables thinner and larger panels and integrates advanced sensing and filtering capabilities to effectively manage display noise. It also supports continuous time sensing, offering customers greater design flexibility and more cost-effective integration. We have secured marquee design wins with a top Android phone OEM and we are also seeing strong interest from OEMs in China for smartphones and tablets. We expect these wins to start contributing to revenue in the next fiscal year. Notably, our content in foldable phones will be more than twice that of our current smartphone designs. As the adoption of foldable phones increases, we are optimistic about the opportunity it creates for Synaptics. Overall, we are seeing steady improvement in our financial performance, with both revenue and EPS increasing sequentially and year-over-year. This progress reflects the strong execution across our organization, particularly from our engineering teams, who continue to deliver on our product roadmap. Our pipeline of opportunities is expanding, and we believe we are well-positioned to build on this momentum. I am confident that our focus, innovation, and disciplined execution can drive long-term growth for Synaptics. I will now turn the call over to Ken to review our first quarter financial results and outlook for our fiscal 2026 second quarter. Ken Rizvi: Thank you, Rahul, and good afternoon, everyone. I will focus my remarks on our non-GAAP results which are reconciled to GAAP financial measures in the earnings release tables found in the investor relations section of our website. Now let me turn to our financial results for the first quarter of fiscal 2026. Revenue for fiscal Q1 was $292.5 million, above the midpoint of our guidance and up 14% on a year-over-year basis driven by strength from our Core IoT products. The revenue mix in the first quarter was as follows: 35% Core IoT, 51% Enterprise and Automotive, and 14% Mobile Touch products. Core IoT product revenues increased 74% year-over-year, driven primarily by increased demand for our processor and wireless connectivity products. Enterprise & Automotive product revenues were flat year-over-year with strength in our enterprise portfolio offset by softness in Automotive. Mobile Touch product revenues were lower than expected, in part, due to supply chain constraints during the quarter. First quarter non-GAAP gross margin was 53.2%, in line with our guidance range. And first quarter non-GAAP operating expense was $104 million, slightly better than the midpoint of our guidance range. Our non-GAAP operating margin was 17.6%, up approximately 110 basis points sequentially and 90 basis points year-over-year. Non-GAAP net income in Q1 was $43.3 million. And non-GAAP EPS per diluted share came in above the midpoint of our guidance at $1.09 per share, an increase of 35% on a year-over-year basis. Now, let me turn to the balance sheet. We ended the fiscal first quarter with approximately $459.9 million in cash, cash equivalents, and short-term investments, up approximately $7.4 million from the prior quarter. Cash flow from operations was $30.2 million in the first fiscal quarter. We repurchased $7.2 million of our shares during Q1 and a total of $15 million of our shares through today. Capital expenditures for the first quarter were $12.2 million, in part driven by lab build-outs to support our R&D efforts. Depreciation for the quarter was $7.5 million. Receivables at the end of September were $119.5 million and the days of sales outstanding were 37 days, down from 41 days last quarter. Our ending inventory balance was $143.1 million, which increased by $3.6 million from the previous quarter. The calculated days of inventory on our balance sheet were 94 days, essentially flat with the last quarter. Now, turning to our second quarter of 2026 guidance. Our guidance is subject to the fluid macroeconomic global trade and tariff environment which continues to remain uncertain at this time. Please refer to our Safe Harbor Statement in the earnings release and in our supplemental materials. For Q2, we expect revenues to be approximately $300 million at the mid-point, plus or minus $10 million. And our guidance for the second quarter reflects an expected mix from Core IoT, Enterprise & Automotive, and Mobile Touch products of approximately 31%, 53%, and 16%, respectively. We expect non-GAAP gross margin to be 53.5% at the mid-point, plus or minus 1%. And non-GAAP operating expenses in the December quarter are expected to be $106 million at the midpoint of our guidance, plus or minus $2 million. We expect non-GAAP net interest and other expenses to be approximately $1 million and our non-GAAP tax rate to be in the range of 13-15% for the second quarter. Non-GAAP net income per diluted share is anticipated to be $1.15 per share at the mid-point plus or minus $0.15, on an estimated 40.4 million fully diluted shares. This wraps up our prepared remarks. I would like to turn the call over to the operator to start the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Ross Seymore of Deutsche Bank. Ross Seymore: I guess my first one for Rahul is a little bit of a longer-term one. Congrats on launching the Astra platform. I know you talked about significant interest and that the revenue contribution would start kind of in the second half of next year. Could you give us any idea on the metrics that we could maybe track externally as to the success of that product, whether it be the TAM opportunity down the road or the number of design wins? Any sort of color that we could monitor as to the slope of the growth that you see coming forward with that product? Rahul Patel: Thank you, Ross, for the question. I think we are really excited about the 2600 series that we launched. As you can tell, from the opening remarks, we have now secured design wins way ahead of when we thought we would be getting award letters, right? Clearly, there's a very wide range of designs coming into the pipeline as a result of what we are bringing in 2600 series products. And at this point, I'll share with you that the product is designed in such a way, it future-proofs IoT systems for multiple years, not only from having the ability to run a lot more capability because of the CPU complex as well as the multi-core processing capability, but also from an AI point of view. And we have a SKU map of pin compatible devices that on the same PCB can be swapped for newer capable devices. And so that scale of technology that's been deployed here in this family of products is very compelling to a wide range of applications. We are seeing from home applications to industrial applications, from things like fleet management applications to robotics, lots of interest. And we have secured designs. And so when I say secured design, we've got a board letters already as we sample the part. I would not be surprised if we go to production sooner than what we had planned for, given the success that we are experiencing in the bring up with the product. And given that, I would anticipate our pipeline would develop very nicely over time over the next few months. Having said that, specifically to respond to your question, at some point, we will give you an update on the pipeline in the form of the size of the funnel. And when I say size of the funnel, I would be specifically talking about design that have been awarded to Synaptics and not the broader marketplace where people talk about the opportunity. We'll be very specific about the designs that have been awarded to Synaptics and the designs that are going into production with Synaptics through that award process. And so that is where we are going to go in terms of giving the ability to track our success with our processor line of products. I believe we are maybe a couple of quarters away from where we can start opening up and giving you that update. The intent also is to give you this update periodically, right? And so I'll keep you apprised of our progress on a going-forward basis. And so give us a couple of quarters or maybe a little bit less than that, and we'll get back to you with how we're going to track the method and the periodicity with which we'll be providing an update. Ross Seymore: And I guess as my follow-up, a little bit of a nearer-term question, perhaps for Ken or Rahul for you, if you wanted to answer. But lots of intersegment volatility versus your original expectations. The Core IoT up-sided significantly, the Mobile Touch down-sided a bit. Can you just talk about what drove those and perhaps how that applies to the guidance that you're implying for the fiscal second quarter as well? Ken Rizvi: Sure, Ross. I mean it's a good question. So in the prepared remarks, we did see -- I'll touch base on the Mobile Touch products. There were some supply constraints there. So that's why you're seeing some increase here as we move from the September quarter actuals to the December quarter guide. And then when we look at the Core IoT business, if we just step back and look over the last 7 quarters or so, I think we've been averaging something like 50% plus year-over-year growth on a quarterly basis. So we've seen very strong growth in that Core IoT segment, driven by what Rahul commented earlier, both processors and the connectivity business. And so there's always some movement from a customer dynamic standpoint that can move quarter-to-quarter. But if you look holistically, we've done very well in terms of the growth rates on a year-over-year basis and very happy not only with the September results overall, but how we've guided in December. Rahul Patel: Yes. Just to add to what I think, Ross, I think even in the near term, if you look at the September quarter and you extrapolate from the guide, you combine the 2 quarters and you look at the half, first half of the year versus the first half of the year -- fiscal year '25. We are north of 60% growth year-over-year. And so a little variation here or there, but the growth remains consistent. And I would add that we feel very comfortable with our guide of 25% to 30% growth for the fiscal year '26. And so looking at all parameters and the fact that if you look at the actual dollars, we are now at a run rate of $400 million in IoT revenues on an annual basis. It's a substantial amount of business. It is growing at a very good clip rate, and we are further excited about the opportunity that our newer products are going to bring to the table. I would also add that the road map is very solidly building out. I did talk in my prepared remarks that we are building a product that is going to be wireless connectivity processor and AI integrated in a single die. And so this thing is going to go into multiple applications. It's going to broaden the coverage of end markets for us as a result between what we have launched in silicon as of now and what is coming in our pipeline in the next couple of quarters. Operator: Our next question comes from the line of Neil Young of Needham & Company. Neil Young: So I just wanted to follow-up. You talked about some of those end markets that you're achieving design wins in. Specifically, are you seeing any outsized strength in any of those markets that you listed? If so, what do you think is driving that? And then on the longer term, which end markets do you see becoming the largest? And then I have a follow-up. Rahul Patel: Yes. I think our big area of focus right now is to tap into the existing markets. However, on a going-forward basis, as AI and the need for AI comes to the far end of the Edge, which we believe is "in design phases in many places," as you can tell from the AR glasses to many wearable devices to many things that you would have from home automation point of view, we see our marketplace expanding dramatically and in a place where we'll be highly differentiated. And so I'm very excited about markets where at the far end of the Edge, where AI plays a huge role for human machine interface and multimodal processing with voice, vision, and other computes for AI inference, along with industrial applications, such as robotics, humanoids. So the gamut is fairly wide open in terms of applications as we have designed our product and software platform. Neil Young: And then looking into the second quarter, if you were to force rank the sequential growth across the enterprise, PC and Auto, how do you see each of those markets shaking out? And then if you could maybe talk about what's driving the strength or weakness in each of those markets. Rahul Patel: Yes. So I would say, as we look at -- you mentioned Enterprise, PC, Auto. So we don't break out the details in those categories. But if you look at the Enterprise and Auto market, as we highlighted on the prepared remarks, we're seeing strength in the enterprise space overall. There's been a nice recovery as we think about on a year-over-year basis, how that's trended. And as we head into the December quarter, you can look at our guide that we're expecting that enterprise and auto space to be up sequentially September through December, which shows some nice sequential growth and growth overall. So that specific area, I would say, as we look into September, more driven by the Enterprise segment, and we would expect some continued strength as we move into December. Operator: And our next question comes from the line of Christopher Rolland of Susquehanna. Christopher Rolland: Congrats on the results. I guess probably, Rahul, for you, as it comes to mobile, you guys have, I think, one major mobile player using your combo chips. But can you talk about possibilities for more, particularly handset OEMs potentially doing their own APs or elsewhere? And how possible are these opportunities for you guys? Rahul Patel: Yes, Chris, excellent question. And you're absolutely right on the money in terms of the opportunity ahead for us in mobile. Clearly, there are many mobile phone OEMs that are going down the path of building their own apps processor, and that effectively presents an opportunity for players like ourselves who have clearly very solid wireless connectivity product to offer; however, don't have the ability to play in a "bundle" with apps processor offering, becomes an opportunity for us with a provisioning of very differentiated market-leading wireless connectivity for phone OEMs who want to build phones and tablets and use wireless connectivity from Synaptics basically. And so we are very excited about that opportunity. We are also engaging with many OEMs in this area. I would also add, you did not ask, but very similar connectivity product can be extended to multiple other marketplaces because of the high-performance connectivity capability it brings to the table. And so there is also leverage going into high-performance set-top boxes, automotive, and other marketplaces with that level of wireless connectivity. And so there's clearly opportunity for us to leverage our strength in wireless connectivity beyond IoT marketplace with mobile and other places basically for wireless connectivity that's going to be high performance. Christopher Rolland: And you were speaking about your road map for new products in the prior question. You also mentioned Astra that you could potentially pull that in. I think it was a 2027 high-volume timetable for shipments. But I was wondering if you could update us in terms of the status on high-volume shipments for the MCU plus combo chip product you are talking about. And perhaps I think you have a broad markets MCU on your road map as well. Rahul Patel: Yes. I think, Chris, again, an excellent question, and thanks for asking this. The product that -- first and foremost, let me -- I think you asked about 2 products. We have what I call is a microprocessor class product, which is the product that we just launched, and it's in the hands of multiple customers in sample stages, and we are getting design awards for. That is the SL2600 series of products or family of products. Those go into production in second half calendar 2026. That's when we start seeing the first revenue realization basically from those products. We would be seeing clearly a lot more momentum and revenue growth as we go from end of '26 -- calendar '26 into '27 and beyond. The highly integrated MCU class processor plus Wi-Fi 7 and Bluetooth integrated monolithic die implementation will sample in the second half of '26. And more likely, you will see at the earliest revenues in the second half of calendar '27 and, obviously, it will ramp from there. And that's what I had discussed in my prepared remarks. Having said that, the teams are building the next generation of products. We also have a semi-custom solution that is targeted for a major customer in the works, and it is expected to sample in the fall time period to that major customer. And so those are the big products that are in flight, and there are a couple of others that are in early stages of design. So the road map is building out very nicely from where we are with Astra line of products and the MCU class of products. Christopher Rolland: That semi-custom sounds interesting. You're going to have to tell us more next time. Operator: Our next question comes from the line of Kevin Cassidy of Rosenblatt Securities. Kevin Cassidy: Congratulations on the great results. Just to dig in a little more on the Core IoT and that strong growth you're seeing. On the wireless side, are you seeing -- is the growth being driven by more units? Or is it -- is there a strong upgrade cycle giving you a higher ASP? Rahul Patel: So Kevin, excellent question. On the wireless side, we are in a ramp-up phase basically. And so the contribution to the revenue is broad-based. And so it's a lot of new designs that are going into production that are contributing. So I can't tell you exactly today there is one particular market segment that's pushing the envelope more than the other. However, I do believe in 2 or 3 quarters from now, things would get to a steady place in terms of one marketplace emerging as a faster-growing segment than the other. And at that point, we'll be able to highlight where the growth is primarily coming from. But at this point, broad-based ramp-up stage, both in wireless as well as connectivity. Kevin Cassidy: Yes, on the enterprise side, are you seeing any potential for a refresh cycle in docking stations? Or is the growth going to come just from PC components? Rahul Patel: I think, Kevin, as we look at that overall enterprise space, I would expect actually both areas as we think about calendar year 2026. I think what we've talked about on previous calls, we haven't seen this year any step function in terms of PC and enterprise upgrades. It's been more steady in terms of the growth. It's been positive, but more steady. And I think that's the opportunity as we look into calendar year '26 if we see a significant upgrade cycle as a result of either Windows 10 or just the longevity of the PCs, which the last time we've had a significant upgrade was back in that '21, '22 period. So that's an opportunity for us as we think about calendar year '26. Operator: Our next question comes from the line of Peter Peng of JPMorgan. Peter Peng: Congratulations on the results. The first question I have is just on expanding into outside your core consumer markets now into industrials, especially with the SL2600 launch and then also the broad markets. Maybe if you can just an update on the initiative there as you kind of build out that channel on that long tail of customers. Rahul Patel: Yes. I think, Peter, first of all, thank you. And then a great question. And so one thing I would share with you is we just put up some of the demonstrations that we had on our Tech Day on our YouTube channel. And so it just probably went live yesterday. It will be great if you guys can check it out. I think you will see some of the industrial applications with our processors being demoed over there from a robotic arm that effectively is developed by a partner that has our touch controller in the palm and multiple instances of touch co1ntroller. It's got our processor, Astra processor in there and it's got our wireless connectivity as well. And so you can see, as a result, the potential of our products. I have said this in my last quarterly call that the combination of our analog mixed signal capabilities in the company and our connectivity along with the processor presents a total solution capability that goes from human machine interface to processing with AI inference capability, and it was -- it is on display in that demo that we have at our Tech Day. And it's a video of that demo as well on YouTube channel, along with multiple demos. We also have a demo of fleet management with our Astra processors on our YouTube channel. And so the other nature of these markets is such that consumer ramps much faster than industrial. And so we expect industrial to be lagging consumer in our ramp in the IoT business versus consumer ramps up faster and refresh cycles, refresh cycles happen much faster as well versus industrial. And so the capability in our product line, the engagement in building out solutions to support industrial applications is absolutely underway. And engagement with our customers is also underway. It's just that the designs for industrials will come a little later in a sizable manner versus consumer. Peter Peng: And then maybe if you can -- I think there's a lot of optimism about smart glasses and so forth. Maybe you can just talk about your engagement and what kind of content opportunities do you think you can have in this opportunity? Rahul Patel: Yes. I think I really don't want to kind of tip a whole lot on this topic, but you are touching a sweet spot for Synaptics' Astra line of products on a going-forward basis. With the product capabilities that I described earlier in the earlier question, clearly, the scale at which the volume needs to experience economic value is out there to be delivered by a solution supplier like Synaptics. And that in itself is a huge opportunity for us that we have our eyes set on in not just AR glasses, but also many variable opportunities on a going-forward basis. The combination of general purpose CPU with the optimal GPU, with the optimal audio processor, with the optimal vision processor and all working with a newer processor embedded. And also, like I said in my prepared remarks, taking the Coral NPU, open-source Coral NPU made available by Google, collaborating with Google to build out that system in the Astra 2600 series is an indication of exactly where we could be going for the variable sets of applications, AR glasses being one of them. And we are really excited about that opportunity, largely because the economic value equations that get addressed through Astra line of products is today up for grabs basically in the marketplace. Operator: Our next question comes from the line of Robert Mertens of TD Cowen. Robert Mertens: This is Robert Mertens on the line for Krish Sankar. I guess, just the first one, I know we talked a lot about your strategy going into Edge AI applications. But are there any core technologies that you think you need to develop either in-house or small tuck-in acquisitions or working with partners to bring into your Edge AI portfolio to be more attractive to the broader customer base, whether it's ultra-low power processing side or integration of your connectivity suite. Just anything there would be really helpful. Rahul Patel: Yes, Robert, excellent question. I think our strategy has been largely to enable best-in-class solution for our customers. And in many situations, it would mean that we would provide a total solution. In some situations, it would mean that we may provide a processor, and the customer may choose some other components to build out the solution. And so we are fairly open in our engagement with our customers. Having said that, the biggest differentiation in our processor strategy is to not go down this path of building out walled gardens. We are a firm believer in open-source. Our software development platforms support multiple open-source communities. Our ability to enable our customers to work with the vast ecosystem of models that are being developed for various applications in form of AI inference capabilities is to enable them to bring those to our platforms much more easily and with very little effort from Synaptics' team. And so, this is our strategy to operate at scale. And this strategy is developed in combination with Google Research. And so here, you have a company that also believes in open-source and enabling the software ecosystem, supporting the Synaptics approach in the bigger picture. And so that is how we are differentiating ourselves versus some of the peer set in the marketplace that have gone down this path of owning software development platforms. And effectively, in our opinion, it holds us back from scaling faster and enabling our customer base and the developer community as a result. And so that is our largest strategy. Having said that, we are always going to be on the lookout for opportunities to inorganically fuel our growth in IoT. And that option is definitely on the table. Robert Mertens: If I could just have one final question. Sorry about that. Just real quick, looking into your Enterprise and Automotive business, I know you've mentioned that the channel inventories have been improving over the last couple of quarters. Backlog levels seem to be normalizing. So just in that framework, what sort of other signs of improvement on a quarterly basis do you see there? I know you expected to rebound a bit into the December quarter. Is that something you expect to continue through the beginning of next year? Or is that more just pull-ins from various projects? Ken Rizvi: So I would say, overall, if you looked at the Enterprise and Automotive segment, within that, the Enterprise segment has done better over the last years, it has continued to improve. I think automotive has been more sluggish, but the enterprise piece has really performed nicely over the last 12 months or so. And I think as we think about and look forward into calendar year '26, which is not too far away, the one other opportunity that's out there is around some of the upgrade cycles and not only for the PCs, but as you think about RTO activities and the like and as people refresh the workstations, those are great opportunities for Synaptics as well. So we're excited about that business in terms of the share that we have and the franchise positions we have, and there's some great opportunities ahead of us as we think about 2026. Rahul Patel: Just to add to what Ken indicated, I think a couple of other things. In the Enterprise segment, we are gaining market share in the PC business, right? And that, despite the market being largely flat to GDP-like growth, we are seeing strength in our business and largely driven by the share gains. And it is something that goes back to our analog mixed signal capabilities in the company. And we continue to do well in that regard versus our peer set in the marketplace. And it's also showcased extremely well in Mobile Touch as well. As in my prepared remarks, I indicated, right, clearly, our product -- our newer generation product that is targeted for the next generation of phones that would launch in the second half calendar 2026 time period showcases how different and differentiating is our analog mixed signal capability in our products and especially in touch area. And I think we continue to do well. We continue to invest very judiciously and bring out really good products that are effectively helping us increase total silicon content in the phone as well. And so really excited about what that business is capable of bringing to the table in the second half of calendar 2026 and beyond. Operator: I'm showing no further questions at this time. I'll now turn it back to President and CEO, Rahul Patel, for closing remarks. Rahul Patel: Before we conclude, I would like to reiterate that the Synaptics team executed very well this quarter. We strengthened our leadership position in Edge AI with the launch of our new generation of AI-native Astra processors, and we continue to innovate on the next-generation of processors, wireless connectivity and mixed-signal products and solutions planned for delivery in calendar 2026 and beyond. Our financial results reflect our ongoing commitment to disciplined execution. I want to thank all my teammates in engineering and across Synaptics for their dedication and hard work in delivering on our commitments. Equally importantly, I would like to thank all our shareholders for their continued support of Synaptics. I look forward to connecting with many of you at upcoming industry events and conferences. Have a great rest of the day. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Vermilion Energy Q3 2025 Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference call over to Mr. Dion Hatcher, President and CEO. Please go ahead. Anthony Hatcher: Good morning, ladies and gentlemen. I'm Dion Hatcher, President and CEO of Vermilion Energy. With me today are Lars Glemser, Vice President and CFO; Darcy Kerwin, Vice President, International and HSE; Randy McQuaig, Vice President, North America; Lara Conrad, Vice President, Business Development and Travis Thorgeirson, Director of Investor Relations and Corporate Planning. Please refer to the advisory on forward-looking statements in our Q3 release. It describes the forward-looking information, non-GAAP measures and oil and gas terms used today and outlines the risk factors and assumptions relevant to this discussion. Vermilion delivered another strong quarter in Q3, demonstrating both operational excellence and financial discipline. Our production came in at the upper end of our guidance range, and we're able to generate robust fund flows from operations in a challenging commodity price environment. Our performance this quarter reflects improvements in both capital and operating efficiencies, driven by the strategic repositioning of our asset base. These structural improvements enabled us to lower the top end of our 2025 capital guidance by $20 million without impacting our production. This speaks to the growing efficiency of our capital deployment. In addition, we lowered our full year operating cost guidance by more than $10 million due to the improvements we are realizing in the second half of 2025. This momentum will carry into the 2026 budget guidance, which includes even lower capital and unit operating costs, reflective of our larger, more cored up portfolio. When compared to 2024, the last full year before we launched our asset high-grading initiative, our production per share has increased by over 40%, where our unit cost structure is down by 30%. This reflects the strength of our repositioned portfolio where 85% of both production and capital is now concentrated in our global gas business. By focusing on these more efficient, longer duration assets, we have better positioned Vermilion for sustainable long-term success. Our Q3 results underscore the resilience and the competitive strength of our differentiated asset base. Notably, our realized gas price in the quarter, excluding hedging gains, was $4.36 per Mcf, significantly outperforming the AECO 5A pricing. In Canada, we realized a gas price that was more than double the AECO benchmark. And when combined with our direct exposure to premium priced European gas, our realized pricing is 7x the AECO benchmark. When you include hedging gains, the realized price increased to $5.62 per Mcf, 9x the AECO benchmark, highlighting the strategic advantage of being a global gas producer. During the quarter, we made a deliberate and strategic choice to temporarily shut in a portion of our Deep Basin gas production and defer the start-up of several wells, resulting in approximately 3,000 BOEs per day of production impact in the quarter. We expect to bring these volumes online in Q4, where pricing is more favorable. During the quarter, we met a portion of our volume commitments by purchasing rather than producing our own gas, demonstrating our commitment to profitable development. We continue to make progress towards key milestones with the development of our global gas assets in Germany, the Montney and the Deep Basin. In Germany, in 2026, we will bring our discovery well at Wisselshorst online and look to expand takeaway capacity over the next 2 years to maximize the economics of this prolific well. We will also advance our plans to spud the follow-up Wisselshorst structure in early 2027 and with a shorter cycle time than our initial exploration well, plan to bring these wells on production in the second half of 2028. In Canada, we will continue to invest in the Montney asset, as we progress towards a significant inflection in free cash flow in 2028. In the Deep Basin, we will run an efficient, consistent 3-rig program and generate strong free cash flow by producing volumes into our existing infrastructure. As we look out over the next 3 years, these projects will significantly improve our free cash flow outlook. I will now pass it over to Lars to discuss the Q3 results as well as our 2026 budget guidance. Lars Glemser: Thank you, Dion. Vermilion generated $254 million in fund flows from operations in Q3 with free cash flow of $108 million after E&D capital expenditures of $146 million. We continue to reduce debt during the quarter and have now reduced our net debt by over $650 million since Q1 2025, bringing net debt to under $1.4 billion as of September 30. This resulted in a net debt to 4-quarter trailing FFO ratio of 1.4x, reflecting continued progress towards strengthening Vermilion's balance sheet. In addition, Vermilion returned $26 million to shareholders through dividends and share buybacks. comprising $20 million in dividends and $6 million of share buybacks during the quarter. This resulted in the company repurchasing 600,000 shares for a total of 2.5 million shares repurchased year-to-date. In total, we have repurchased approximately 20 million shares since mid-2022. Q3 production averaged 119,062 BOE per day with a 67% gas weighting, which was at the upper end of our guidance range. In North America, production averaged 88,763 BOE per day, inclusive of the July divestments of our Saskatchewan and U.S. assets. as well as shut-in gas production and deferral of new well start-ups in Q3 in response to pricing. International operations averaged 30,299 BOE per day, up 2% from the previous quarter due to strong performance across our business units. In the Deep Basin, we ramped up to a 3-rig drilling program in Q3, targeting multiple stack zones across our 1.1 million net acre land base. We drilled 13, completed 12 and brought on production 3 gross liquids-rich gas wells in the Deep Basin. The drill program results to date are exceeding our expectations with test rates indicating deliverability well in excess of our type curves. Internationally, we executed a successful 2 gross or 1.2 net well drilling program in the Netherlands, discovering commercial gas across 2 zones, the Rotliegend and Zechstein. Both wells are expected to be completed, tied in and brought on production in Q4 of 2025. These 2 wells are the latest successes in our 2-plus decades of exploration and development in the Netherlands and combined with recent discoveries in Germany, demonstrate Vermilion's broader European gas exploration capabilities to repeatedly add European gas reserves at a cost of $1.50 per Mcf into a gas market currently in excess of $15 per Mcf. Meanwhile, Osterheide, our first German exploration well continues to produce at a restricted rate of 1,100 BOE per day, generating nearly $2 million per month of excess free cash flow. And our second well, Wisselshorst, is on track for start-up by mid-2026, with preparations underway for follow-up drilling of 2 gross or 1.3 net wells in the Wisselshorst structure. As a reminder, the first well is expected to recover 68 Bcf of gas and our P50 estimate of gross gas in place for the structure is 380 Bcf. We also released our 2026 budget yesterday, featuring an exploration and development capital budget of $600 million to $630 million with approximately 85% allocated to our global gas portfolio. Key investments include drilling and strategic infrastructure in the Montney, a continuous drilling program targeting high-return liquids-rich gas wells in the Deep Basin and drilling and infrastructure capital in Germany and the Netherlands. We expect modest production growth from second half 2025 levels on our continuing operations with annual average production between 118,000 and 122,000 BOE per day, maintaining our commitment to financial discipline and free cash flow generation. Our 2026 budget includes a significant reduction in our overall cost structure with a 30% improvement in capital and operating efficiencies, reflecting the benefits of our repositioned global gas portfolio and our focus on operational excellence. For 2026, we plan to invest approximately $415 million into liquids-rich gas assets in the Montney and Deep Basin, drilling 49 gross wells, which translates to approximately 45 net wells, reflecting our high working interest in Canada. In the Deep Basin, we plan to run a 3-rig program to drill 43 gross wells. Notably, minimal new infrastructure spending is required to support this development, which is a key advantage of our Deep Basin asset. In the Montney, we plan to drill 6 and complete and bring on production 10 wells. In addition, we will continue to expand our infrastructure in advance of total Montney throughput growing to 28,000 BOE per day by 2028, which aligns with the build-out of third-party gas infrastructure. Once we achieve target production, infrastructure and drilling capital requirements will decrease, as we expect to drill about 8 wells per year to sustain production. The combination of higher production and lower capital will pivot the Montney asset to significant excess free cash flow of approximately $125 million per year for 15-plus years, assuming commodity prices of $3 AECO and $70 WTI. Internationally, we plan to invest around $200 million in 2026, focusing on European gas exploration and development and optimizing base production. This includes drilling 1 well at a 50% working interest in the Netherlands and preparing for 2 additional follow-up wells at 64% working interest at the Wisselshorst discovery in Germany in early Q1 2027. We will bring the initial Wisselshorst well online mid-2026 and expand the supporting infrastructure to enable significantly higher production over the next 2 years. We will also invest in economic workovers and optimization projects across our international assets. Higher maintenance spending in 2026 compared to prior years is due to nonrecurring turnarounds, including a planned 32-day turnaround in Ireland, the scope of which is scheduled to occur every 5 years. Our priorities on shareholder returns remain unchanged. We will use excess free cash flow to maintain a strong balance sheet, fund a sustainable base dividend and be opportunistic with share buybacks. I'm pleased to announce our intention to increase the quarterly cash dividend by 4% to CAD 0.135 per share, effective with the Q1 2026 dividend. The dividend payout remains at a modest level even during this commodity price period, and we see the potential for higher return of capital, as free cash flow increases in the Montney, Germany and Deep Basin. I will now pass it back to Dion. Anthony Hatcher: Thank you, Lars. Looking ahead, Q4 will mark the first full quarter of our repositioned global gas portfolio, following an active year of acquisition and disposition activity. We expect fourth quarter production to average between 119,000 and 121,000 BOEs per day, inclusive of the decision to defer the start-up of multiple wells. Based on this performance, our 2025 full year production guidance is expected to be 119,500 BOEs per day. Importantly, we're able to maintain this production outlook, while reducing our E&D capital guidance to between $630 million and $640 million. The $20 million reduction at the top end of our guidance reflects continued improvement in capital efficiency. The capital reduction aligns with the improvement in operating costs, enabling a $10 million reduction in operating cost guidance. We're now entering the next phase of our strategy with a larger, more focused asset base, one that's characterized by longer duration assets, high-return drilling inventory, a more efficient cost structure and a top decile realized gas price. With proven success in exploration and development across our portfolio, the plan to increase free cash flow in our key development assets and an improving outlook for natural gas pricing, Vermilion is very well positioned for the future. In closing, I want to thank the entire Vermilion team for your efforts over the past year in creating our high-grade portfolio and realizing strong efficiencies throughout the business. It's truly been a heavy lift by all, and I'm extremely proud of your work of our team. With that, thank you. We'll now open the line for questions. Operator: [Operator Instructions] And your first question comes from Travis Wood from National Bank Capital Markets. Travis Wood: Could you provide some additional color or further color around Australia in terms of kind of where current volumes would be sitting at and how you're setting that asset up through 2026 and potentially into 2027 with incremental drills and what that capital would look like? Anthony Hatcher: Thanks, Travis. It's Dion. I'll take the call. Yes, Australia, as you know, is a premium pricing there. We get USD 10 to USD 15 premium to Brent pricing, which helps our netbacks. The last year here, we've been focused on optimizing the platform and frankly, getting ahead on some of our maintenance. We're well advanced on that. With respect to the next drilling program, we drill every 2 to 4 years. Tentatively, we planned the next drill for 2027. But frankly, we have flexibility on that depending on rig rates as well as commodity price environment. So we'll be at around 4,000 barrels per day currently, probably drift a little lower next year and then set up for that drilling program likely in kind of mid-2027. Travis Wood: Okay. Perfect. And then probably for Lars, you gave a modest dividend bump on the back of the quarter. How -- and I think you've walked through this before, but just to remind us, what -- or rather, how are you finding that balance of buying back more stock at this valuation versus kind of the base dividend growth, as you look out on the 2026 budget and flexing some optionality around commodity prices, too, I guess. Lars Glemser: Yes. For sure, Travis. Thanks for the question. I think at the end of the day, what we're really focused on is things that we can control and driving per share value. We've got a number of ways to drive per share value. I would say that share buybacks is one of those ways to do it. There are other options as well. And if you kind of look at the portfolio now, we're getting a lot of this infrastructure spend in the Montney behind us. We've got a lot of infrastructure to fill up in the Deep Basin. We've been able to derisk some of these exploration projects in Germany as well. And we want to balance that operational momentum with return of capital as well in delivering per share value over the longer term. Part of that is to continue strengthening the balance sheet as well and so we will have a chunk of our excess free cash flow reserve for debt reduction in 2026 as well. I think the dividend increase that should be viewed as confidence in a lot of these operational activities that we're executing on as well. And in addition to that, we will continue to buy back shares and be opportunistic on that front. Operator: There are no further questions at this time. I'd like to turn the conference call back over to Dion Hatcher for further questions. Anthony Hatcher: Great. I'm going to pass it back to Travis here. I know we had some questions on the Inbox from IR. So maybe we can work through a couple of those. Travis Thorgeirson: Yes, for sure. Thanks, Dion. First one, just for Lars here. So you mentioned in the release a realized gas price of about 7x the AECO price in the quarter. Can you please help me understand the drivers behind this? Lars Glemser: Yes, for sure. Thanks, Travis, for the question. Zooming out here, a lot has changed with the portfolio in terms of the repositioning that we have done. Something that has not changed is we continue to have a very diverse portfolio. And so if you start with that AECO benchmark price, which is the price a lot of our peers use as well in terms of how do we do relative to that. It's not just the European assets that are contributing to a strong corporate realized price. So here in Canada, we actually realized the price in the third quarter of $1.37 per Mcf, which was more than double the AECO benchmark. We've got an active program in terms of selling into the daily and the monthly price index as well. We also have over 26 million Mcf a day exposed to the Chicago market as well. So we're well diversified within our Canadian portfolio. We were also able to strategically shut in and defer wells without meaningfully impacting the liquids production in our Canadian business as well. So a combination of all these led to that outperformance. When you combine the strong Canadian business with our European gas business, that's where you really start to see the impact and benefits of a diversified portfolio. And so the impact of that is we end up with a realized price of $4.36 per Mcf before hedges. Say before hedges, we do have an active hedging program, both here in Canada as well as European gas. The majority of our hedge gain in the third quarter was driven by our gas hedges. When you combine that with the realized price, we get up to $5.62 per Mcf. So a really strong quarter, really shows the benefits of that diversified portfolio, and we are organically investing in both the Canadian assets as well as the European assets. Just a reminder as well, Travis, as we move into 2026 here, I think it's worth noting that a $1 increase in that AECO price, it would effectively add $100 million of excess free cash flow. So lots of exposure to that AECO price and still lots of exposure to the TTF price as well. A $1 improvement in that TTF marker would add about $24 million of excess free cash flow. So we feel that Vermilion is very well positioned to benefit from improving gas prices here to 2026. Anthony Hatcher: Yes. The only thing I can add to that, I think it's worth walking through the details because, again, it was 9x the AECO benchmark. So it's worth thinking through how we're able to deliver that with our differentiated portfolio, but back to you, Travis. Travis Thorgeirson: Thanks, Dion, Lars. Next couple here for Darcy. Could you provide more background on the next steps of the Wisselshorst prospect in Germany? What are the debottlenecking plans? And how are you thinking about drilling follow-up locations there? Darcy Kerwin: Yes. Thanks, Travis. So in Germany at Wisselshorst, as you know, we have the one discovery well, we call, Wisselshorst Z1a that tested at pretty prolific rates, so a combined test rate of slightly over 40 million cubic feet a day. Our intention is to have that well tied in and producing by Q2 of next year, so Q2 of 2026. I think we've talked before that, that initial rate kind of ties into a more local gathering system that will be restricted for some time, but we expect that those restrictions start to go away in 2027, allowing us to bring production kind of up into that 17.5 million cubic feet a day. And then there's some additional debottlenecking options that we expect to have online in 2028 that doubles that to 35 million a day. So that kind of talks about that first discovery well. So on the back of that successful discovery well, we see a number of follow-up locations. We intend to spud 2 of those, so the second and third well into the Wisselshorst structure in January 2027. Timing is partially driven by our ability to secure the rig that we want to use to drill those wells and really doesn't impact our expectation around online time. We expect to get those wells drilled kind of through the first half of 2027 and expect them tied in and producing by second half of 2028. Anthony Hatcher: So maybe I can summarize that. Like I think the takeaway, it's quite interesting. We're excited about Germany, but the simple math is the 1.6 net wells that we drilled with Osterheide and the Wisselshorst well that will come on mid next year, that's going to add about 25 million a day of gas, which is, again, about 25% of our production. The 2 wells that Darcy just walked us through, the 2 Wisselshorst follow-up wells, that will be 1.3 net wells. So once those are on in the second half of '28, that will be another 20-plus million a day of gas. So if you zoom out 3 net wells, it's going to add about 45 million a day of gas, which is almost half of all our European gas production. So again, that's why we're excited about Germany, just materiality of these wells and kudos to the team to be able to get the rig we wanted and do all the preplanning to really reduce that cycle time. So thanks for that, Darcy. Travis Thorgeirson: And then the next one here for Darcy, jumping to the Netherlands. A couple of discoveries in the quarter. Could you give a bit more background on what we're seeing there? Darcy Kerwin: Yes. So in the Netherlands, we drilled 2 successful wells in a field called Oppenhuizen. We discovered gas in 2 zones in each of those wells. We discovered gas in the Rotliegend and Zechstein formations, 2 of the primary formations that we do chase in the Netherlands. We've discovered about 16 Bcf gross of recoverable gas and the F&D costs for those wells are less than $1.50 per Mcf. We talked about tying those wells in Q4 of this year. So both wells are tied into existing facilities now. We're currently producing the first of those 2 wells at a rate of about 15 million cubic feet per day, limited by surface constraints at that location. And we intend to kind of bring the second well on as capacity opens up there. Travis Thorgeirson: Okay. And then the last one here over to Randy. You noted the Q3 drilling program in the Deep Basin has exceeded expectations so far. Can you provide a bit more color on what we're seeing to date in the results? Lee Ernest McQuaig: Sure. Yes. So yes, as Lars had mentioned, we completed 12 wells in Q3. Of these 12 wells, 6 of them tested at over 10 million a day of gas production. And then we also had some strong liquid rates from the other wells in the program. With our focus on profitability, most of these wells were deferred and will be coming on production over the next month. So we'll have a better sense of performance, but those initial test results definitely exceeded our expectations. And then when we think about it on the capital front, the program also did come in under budget, and that's really what we're starting to see is the cost benefits of running a consistent 3-rig drilling program, which we plan to, as we noted in the call, through '26 and into '27. So overall, very pleased with the results of this program. Travis Thorgeirson: Thanks, Randy. Dion, back to you. That's all we have for additional questions. Anthony Hatcher: Thanks, Travis. So with that, I'd like to thank everyone again for participating in our Q3 results conference call. Enjoy the rest of your day. Operator: Thank you. Ladies and gentlemen, this does conclude your conference call for today. We thank you very much for your participation, and you may now disconnect. Have a great day.
Operator: Good morning, and welcome to the Hyatt Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Adam Rohman, Senior Vice President of Investor Relations and Global FP&A. Thank you. Please go ahead. Adam Rohman: Thank you, and welcome to Hyatt's Third Quarter 2025 Earnings Conference Call. Joining me on today's call are Mark Hoplamazian, Hyatt's President and Chief Executive Officer; and Joan Bottarini, Hyatt's Chief Financial Officer. Before we start, I would like to remind everyone that our comments today will include forward-looking statements under federal securities laws. These statements are subject to numerous risks and uncertainties as described in our annual report on Form 10-K, quarterly reports on Form 10-Q and other SEC filings. These risks could cause our actual results to be materially different from those expressed in or implied by our comments. Forward-looking statements in the earnings release that we issued today, along with the comments on this call, are made only as of today and will not be updated as actual events unfold. In addition, you can find a reconciliation of non-GAAP financial measures referred to in today's remarks under the Financials section of our Investor Relations website and in this morning's earnings release. An archive of this call will be available on our website for 90 days. Additionally, we posted an investor presentation containing supplemental information on our Investor Relations website this morning. Please note that unless otherwise stated, references to occupancy, average daily rate and RevPAR reflects comparable system-wide hotels on a constant currency basis. Percentage changes disclosed during the call are on a year-over-year basis unless otherwise noted. With that, I will turn the call over to Mark. Mark Hoplamazian: Thank you, Adam. Good morning, everyone, and thank you for joining us today. I'd like to begin today's call by expressing my deep appreciation for our Hyatt colleagues around the world, especially those recently impacted by Hurricane Melissa. Our thoughts are with them and their families and we're hopeful for their continued safety and well-being. I want to thank the many colleagues who have stepped in to provide care and support, including financial assistance through the Hyatt Care Fund. This care and compassion from the members of the Hyatt family reflects the very best of who we are. Over the past couple of months, I've had the opportunity to visit teams across both Europe and Asia Pacific. I came away deeply inspired by how our colleagues around the world embrace our evolution to a more inside-led and brand-focused organization and continue to bring Hyatt's purpose to care for people so they can be their best to life. Turning to the quarter, I'd like to provide an update on our transactions activity, starting with the sale of the hotels acquired as a part of our acquisition of Playa Hotels & Resorts. On September 18, we sold a property in Playa del Carmen to a third-party buyer for approximately $22 million and net proceeds were used to repay a portion of the delayed draw term loan. This was 1 of 2 properties that were not subject to long-term management agreements with Tortuga Resorts. We remain on track to close the real estate transaction with Tortuga for the remaining 14 hotels by the end of the year. We also continue to make progress to sell several of our owned properties. We have 3 hotels under contract with signed purchase and sale agreements and 3 more hotels with a signed letter of intent. We expect all 6 hotels to close in the early part of 2026. We will share additional updates as these transactions progress. And we remain on track to exceed 90% asset-light earnings mix in the near term. Now turning to operating results. This morning, we reported system-wide RevPAR growth of 0.3% for the quarter, which was impacted by a holiday shift and lapping with onetime events last year. Our luxury brands continue to generate the highest RevPAR growth consistent with trends that we've seen since the beginning of the year. Leisure transient RevPAR increased 1.6% to last year and was up approximately 6% across our luxury brands. Our all-inclusive portfolio continued to deliver strong results, with net package RevPAR up 7.6% compared to the third quarter of 2024, demonstrating the strength of luxury all-inclusive travel. Business transient RevPAR was flat in the quarter, but we saw improved performance in the United States, which grew by 3% compared to last year, with select service delivering positive quarterly growth for the first time in 2025. Group RevPAR declined 4.9%, in line with our expectations, which assumed difficult year-over-year comparisons, including the Olympics in Paris and the Democratic National Convention in Chicago, and the shift of Rosh Hashanah into the third quarter of 2025 compared to the fourth quarter of 2024. Group pace for the fourth quarter is up approximately 3% as we lap easier comparisons due to the holiday timing and last year's elections in the United States. While we are still in the planning stages for 2026, we are encouraged by the forward-looking booking trends. Group pace for full-service U.S. hotels remains up in the high single digits and is expected to benefit from special events like the World Cup and America 250 celebrations. Corporate negotiated rate discussions are ongoing, and we expect average rates to increase in the low to mid-single-digit range in 2026 compared to 2025. Pace for our all-inclusive resorts in the Americas, excluding Jamaica, is up over 10% in the first quarter, reflecting the continued prioritization of leisure travel. We look forward to providing more details on our 2026 expectations during our fourth quarter earnings call. Turning to growth. We achieved net rooms growth of over 12% during the quarter or 7% when excluding acquisitions. Notable openings included the stunning Park Hyatt Kuala Lumpur located in the tallest skyscraper in Asia Pacific, along with the Park Hyatt Johannesburg. In the United States, we welcomed Hyatt Regency Times Square to our system, following an expansive multimillion dollar transformation, marking the first Hyatt Regency property in Manhattan and our 30th property in New York City. We ended the quarter with a strong development pipeline of approximately 141,000 rooms an increase of more than 4% to last year. Momentum across our Essentials Portfolio continues to build following the introduction of the Hyatt Select and Unscripted by Hyatt brands earlier this year. We signed a number of new deals for each brand during the quarter and have many more in discussions. In addition, we signed a master franchise agreement with HomeInns Hotel Group to develop Hyatt Studios across China. Further expanding our upper mid-scale brand presence in China. Under this agreement, HomeInns plans to open 50 new Hyatt Studios hotels over the coming years while building a robust pipeline to fuel future growth across China. At the end of the third quarter, upper mid-scale brands now represent 13% of our pipeline, up from 10% at the end of 2024 and more than half of Hyatt Select, Hyatt Studios and Unscripted by Hyatt opportunities are in markets where we currently have no brand representation, helping to drive organic capital-light growth and increased network effect across our global portfolio. Our strong pipeline and the momentum we are seeing in our upscale and upper mid-scale brands underscore the significant white space that we believe will support strong growth for years to come. Before I close, I want to spend a few minutes highlighting one of the most powerful strategic assets of our business, our loyalty program, World of Hyatt. During the quarter, World of Hyatt surpassed 61 million members, an increase of 20% year-over-year. World of Hyatt continues to be the fastest-growing major global hospitality loyalty program with membership having increased nearly 30% annually since 2017. Today, we have more than 40% more members per hotel compared to our closest competitor, clear proof of the deep engagement and strong preference we've earned from high-end travelers. While growth and scale matters, what truly sets World of Hyatt apart is our purpose. Our program goes beyond transactional awards to create an experience platform that delivers meaningful personal connections, whether it's through our Guest of Honor program, which allows members to gift their top-tier status to others, or the introduction of award gifting, we've redefined what loyalty looks like by making it personal. Being personal also means that our members receive the most consistent and guaranteed benefits in the industry. In addition, we reward deep engagement through our Milestone Rewards program, which delivers differentiated value even after a member achieves the highest elite status. The expanded agreement with Chase, which we announced yesterday, is a compelling proof point of how our differentiated loyalty program can deliver value to shareholders while providing rewarding experiences for members across all stay occasions. The significant increase in economics will be driven by the expanded collaboration with Chase, the continued growth of World of Hyatt membership, the strength of Hyatt's global portfolio of premium brands and Hyatt's robust pipeline. Adjusted EBITDA recognized by Hyatt related to these economics is expected to be approximately $50 million in 2025. We expect this to grow to approximately $90 million in 2026 and more than double to approximately $105 million in 2027, and we anticipate continued growth in future years. We also expect to deepen engagement with our members and continue to evaluate additional card products in the future, building on the success of our current co-branded cards. When a loyalty program is designed with care at its core, it leads to greater guest preference and helps support a powerful commercial platform that delivers more direct bookings and makes Hyatt more attractive to owners. And as we continue to grow our portfolio and expand into new segments and markets, we believe the power of World of Hyatt will continue to fuel preference and long-term value creation well into the future. As I look ahead, I'm encouraged by the momentum in our business and the performance of our brands. Our evolution to a brand-focused organization is designed to position Hyatt to be the most responsive, innovative and highest performing hotel company. and I'm incredibly excited for our future. I will close by expressing my gratitude to all Hyatt colleagues who care for each of our stakeholders every day. Joan will now provide more details on our operating results. Joan, over to you. Joan Bottarini: Thank you, Mark, and good morning, everyone. Over the past year, we've taken steps to align our above property and corporate teams in support of our brand-focused evolution, and we are confident these changes will deliver long-term benefits from multiple stakeholders. Our commercial teams have identified greater capacity to invest in initiatives that are expected to benefit our owners, including technology innovations and marketing efforts to further improve the performance of our brands. We also expect to realize lower run rate adjusted G&A costs over time. We expect adjusted G&A in 2026 will be moderately below full year 2024, despite 2 years of inflation and the addition of incremental payroll and other costs from acquisitions over the last year. As a result of these initiatives, we expect to incur approximately $50 million of restructuring charges this year the majority of which were recorded in the third quarter. Now turning to third quarter results. RevPAR grew 0.3% compared to last year, in line with our expectations shared during our second quarter earnings call. In the United States, RevPAR declined 1.6% to last year, in line with our expectations, driven by select service hotels and the timing of Rosh Hashanah. Business transient RevPAR grew low single digits in the quarter, an improvement over the decline we saw during the second quarter. Full-service hotels were negatively impacted by the holiday timing, which led to lower group contribution in the quarter, while select service hotels were below last year due to softer leisure transient demand. RevPAR outside of the United States performed well, and we saw continued strength in international markets. Europe saw positive RevPAR growth driven by strong international inbound travel despite lapping a tough comparison from onetime events last year. Greater China grew RevPAR to last year due to increases in leisure transient demand. Net package RevPAR growth at our all-inclusive properties grew 7.6% in the quarter, highlighting the continued strong demand for leisure travel. Pace for our all-inclusive hotels in the Americas excluding Jamaica, is up over 8% in the fourth quarter and for the holiday festive period is up over 11%. As Mark mentioned, the sustained demand for luxury all-inclusive travel gives us confidence as we look ahead to 2026. We reported gross fees in the quarter of $283 million, up 6.3%, excluding the impact of the Playa Hotel acquisition. Gross fee growth was driven by international RevPAR performance, new hotel openings and non-RevPAR fees. Owned and leased segment adjusted EBITDA increased by 7%, when adjusted for the net impact of asset sales and the Playa Hotel acquisition. Distribution segment adjusted EBITDA was down to last year from lower booking volumes and lapping a onetime benefit related to ALG Vacation credits from last year. The decline in travel from 4-star and below hotels led to lower booking volumes and earnings flow-through despite higher pricing and cost mitigation initiatives. In total, adjusted EBITDA was $291 million in the third quarter, in line with our expectations. During the quarter, we repurchased approximately $30 million of Class A common stock and have approximately $792 million remaining under our share repurchase authorization. During the quarter, Net proceeds from the sale of a hotel in Playa Del Carmen were used to repay a portion of the delayed draw term loan, and we expect to close the Playa Real Estate Transaction by the end of the year and we'll use the net proceeds to repay the outstanding balance on the delayed draw term loan. As of September 30, 2025, we had total liquidity of approximately $2.2 billion including $1.5 billion in capacity on our revolving credit facility. On October 30, we executed a new credit agreement that replaces the prior facility and provides for a $1.5 billion senior unsecured revolving credit facility, which will expire in 2030. We remain committed to our investment-grade profile and our balance sheet is strong. Before I cover our full year outlook for 2025, please note that we continue to include additional schedules within the earnings release related to our expectations for Playa in the fourth quarter of this year. We've lowered our fourth quarter outlook for Playa by $7 million at the midpoint of our range as a result of Hurricane Melissa, while the full year outlook remains unchanged after a strong third quarter. For modeling purposes, our outlook assumes that we will own Playa's real estate for the entirety of the fourth quarter. I'll now cover our full year outlook for 2025, which does not include the impact of the Playa acquisition or planned real estate sales transaction. The full details of our outlook can be found on Page 3 of our earnings release. We were encouraged by the performance of our hotels over the course of the third quarter. We expect full-service hotels in the United States to deliver higher growth in the fourth quarter compared to select service hotels due to easier group comparisons. We also anticipate our luxury portfolio and international markets to perform well in the fourth quarter, supported by strong demand trends and high-end consumer resilience. We've tightened our RevPAR range and expect full year 2025 RevPAR between 2% to 2.5%, which implies RevPAR growth in the fourth quarter between 0.5% and 2.5%. The quarter is off to a good start with October RevPAR increasing in the United States by approximately 1% and globally by approximately 5%. For the United States, we expect RevPAR growth for both the fourth quarter and full year 2025 of approximately 1%. We expect fourth quarter RevPAR growth outside of the United States to remain an area of strength, especially in Europe and Asia Pacific, excluding Greater China. We're increasing our net rooms growth outlook range to 6.3% to 7%, which does not include rooms added from the Playa acquisition. Gross fees are expected to be in the range of $1.195 billion to $1.205 billion, a 9% increase at the midpoint of our range compared to last year. We've lowered our adjusted G&A range to $440 million to $445 million reflecting the run rate cost efficiencies that we've been able to achieve throughout the year. Adjusted EBITDA for the full year is expected to be in the range of $1.09 billion to $1.11 billion, an 8% increase at the midpoint of our range compared to last year when adjusting for the impact of asset sales. As a reminder, owned assets sold in 2024 accounted for $80 million worth of owned and leased segment adjusted EBITDA last year. Our full year adjusted EBITDA outlook implies growth in the fourth quarter of 9% at the midpoint of our range. Adjusted free cash flow is expected to be in the range of $475 million to $525 million, which excludes $117 million of deferred cash taxes paid in 2025 relating to asset sales that took place in 2024. In the fourth quarter, we'll receive upfront cash of $47 million as part of the amended agreement with Chase. And we are increasing our full year outlook for capital returns to shareholders and expect to return approximately $350 million in 2025, inclusive of share repurchases and dividends. Our capital allocation priorities remain unchanged. We are committed to our investment-grade profile, identifying opportunities to invest in growth that creates shareholder value and returning excess cash to shareholders in the form of dividends and share repurchases. In closing, our third quarter results reflect the strength of our business model and the effectiveness of our long-term strategy. Looking ahead, we believe our talented brand-led organization, strong development pipeline and differentiated loyalty program provide meaningful advantages in today's dynamic environment. As we continue to expand into new markets and segments, we're confident in our ability to drive sustained growth, enhance profitability and deliver attractive returns to shareholders. This concludes our prepared remarks, and we're now happy to answer your questions. Operator: [Operator Instructions] Our first question comes from Steve Pizzella from Deutsche Bank. Steven Pizzella: Just wanted to start on net rooms growth, if we could. Good to see you raise the core NUG guidance for the full year and the pipeline increased. As we start to think about next year, realizing it is still early, but with the trends you are seeing in your pipeline and the positive commentary, how are you thinking about net rooms growth going into 2026 and beyond? Mark Hoplamazian: Thanks, Steve. I appreciate the question. The headline here is organic growth is extremely strong. We are on track to more than double our core organic growth rate from last year to this year. Last year, we had a number of inorganic adds to our portfolio. This year, we are seeing tremendous strength in organic growth, and that's thrilling. We have real momentum in signings as we head into the fourth quarter. That's really the new brands that we launched this year, Hyatt Select and Unscripted are based on the momentum that we're seeing right now, we are expecting continued acceleration of signings through the fourth quarter. In terms of net rooms growth, we have about 38 hotels that we have planned to open in the fourth quarter, 7 of those were opened in October. Just for reference, we actually opened 34 hotels in the fourth quarter of last year, and we feel really good about completing those openings. Now I'll say what I say on this call every year, which is if some hotels end up opening in early January versus December, the growth story and the momentum is not impacted whatsoever. Even if it may impact the actual calculation at December 31. And as you all know, opening a hotel is a complex thing and an educated guess until the first guest actually spends a night. But having said all that, it really looks good at this point based on what we're seeing across the globe. The pipeline additions are also coming about 35% in Asia Pacific and 35% in the U.S. So we're seeing good strength across the board. And very, very confident about 6% to 7% growth again next year. And if I had to take up that, I would say there is more glass half full than glass half empty in that number. Operator: Our next question comes from Smedes Rose from Citi. Bennett Rose: I guess I just wanted to ask you a little bit about kind of what you're seeing so far in terms of group pace in the U.S. and kind of internationally for 2026, anything you can share on that. Mark Hoplamazian: You're going to start? I'll start and Joan can provide additional commentary. So we ended the year -- sorry, end of the quarter, third quarter with pace into '26 up in the high single digits. October was a stunning month in terms of total bookings. Full cycle bookings were up 15% in October, which is quite significant. Having said that, the bookings for 2026 specifically, were actually weaker than we expected them to be. But we have over 60% of the business on the books. In fact, it's probably closer to 65% now. And we have really, really attractive date patterns remaining in 2026 to book. So our confidence about group business coming through really strong into 2026 is very high even in spite of the fact that October itself was somewhat weaker in terms of '26 bookings. But again, full cycle across '27 -- '26, '27 and '28, very strong in general. So really seeing great progression there. And then with respect to Global Group, we've had, I think, pretty consistently strong group ex some difficult comparisons like the Olympics last year, lapping that is impossible to -- it's impossible to lap that positively. And -- so we're seeing group actually alive and well across the board. And Joan, did you have anything that you wanted to add? Joan Bottarini: The only thing I would add is you didn't mention this, Smedes, but we've obviously are encouraged by what we're seeing in Q4, which is what we had expected all year round because of the holiday shift. So we're up 3% in the production that we saw in October is strong for really short-term, high-quality corporate bookings. So we feel really confident about Q3 -- excuse me, Q4. And Mark had mentioned several years out, we're seeing increased levels of booking activity, really, really strong booking activities out, which is positive because that means associations are booking and confident in their future outlook into future years. Mark Hoplamazian: Yes. I mean I think in terms of the actualized business in October, group was up almost 4%. So we're seeing very, very strong group actualized business. Operator: Our next question comes from Ben Chaiken from Mizuho. Benjamin Chaiken: I want to clarify the G&A comment earlier. I think you said 26%, if I heard you correctly, I believe you said 26% down moderately versus 24%, is that versus the $445 million of adjusted G&A, just so we're on the same page. And then can we touch on maybe what's driving that lower? Joan Bottarini: Sure. So Ben, we talked about some organizational changes that we made this year and also some other efficiencies that we realized along the way throughout the year. So that's why we took down our numbers, our expectations for 2025. And the reference below 2024 was for 2026. And so yes, we expect to be slightly down in 2026. We're still in the planning processes for 2026, and we'll give you the full guidance range in our Q4 earnings call. But -- what is really notable is the M&A activity and some incremental resources that we've added, we've been able to look at a 2-year period and expect to be down in 2026. So -- good results coming out of our organizational changes and outcomes for us. Operator: Our next question comes from Richard Clarke from Bernstein. Richard Clarke: Just a question on the $50 million uptick in capital returns. I guess you've got the -- is that coming from the extra $47 million you're getting from Chase and how you're factoring in the $50 million restructuring charge. Just how -- where is that extra $50 million come from? And I guess that's going to mean you're going to return somewhere around sort of 70% of free cash flow back to shareholders this year or adjusted free cash flow. Any reason why that percentage can't edge up next year to maybe closer to 100% of free cash flow going back to shareholders in '26? Joan Bottarini: So Richard, you have the offsets exactly, right. We factored in that bonus that we realized in the negotiation of the new card agreement. And also the offset for this year is for those restructuring charges, which is all incorporated into free cash flow. As we look ahead into next year, we are on track to move much closer to our goal of 50% conversion on free cash flow to EBITDA. So we feel really good about that. We had some onetime items impacting us in 2025, but we're on path for 2026. Operator: Our next question comes from Stephen Grambling from Morgan Stanley. Stephen Grambling: I was hoping you could maybe outline a little bit more on the assumptions that underpin the EBITDA step-up from the co-brand credit card in '26 and '27. As we think about changes in the terms of deal versus future sign-ups of new cardholders or even increased spend in cardholders? And do you include the fees that you'll recognize from the upfront payment? Joan Bottarini: So okay, a couple of things to unpack there, Stephen. I'll start with your last question that the accounting for the upfront payment will be amortized over the life of the agreement. So that's just the accounting recognition. So just a point on that. And then yes, we are really, really pleased with the outcome of the new agreement. And the benefit is clear, as we've outlined -- actually, Mark outlined that doubling our earnings by 2027 is really strong result. And also, it is a benefit to not only HHC but also to the World of Hyatt program, which, as Mark outlined, all of the benefits that, that program provides to our members, but also to our owners. It's a win-win actually across the board with respect to all of our stakeholders. What we would say about the estimates that we put out while they're very strong, we've seen really, really incredible growth in the World of Hyatt program and also in our rooms growth. So as both of those factors increase over the coming years. We think there's upside to these numbers in the credit card fees that we will earn over time. But we've taken a very reasonable assumption related to 2026 and 2027. And we'll continue to update you as those results come in. Operator: Our next question comes from David Katz from Jefferies. David Katz: I wanted to ask about the master agreement with Home Inns. Number one, a little more color on the economic intensity of those, presumably, it's lower because of how those structures usually are. And then secondarily, how are we thinking about it in terms of net unit growth today and what that could provide over time? Mark Hoplamazian: Great. Thanks, David. You know that we've been in business in a partnership with a JV with Home Inns for 5 years now. We launched UrCove by Hyatt in 2020, I believe. And the brand has been remarkably successful. It took a while to really start to gain momentum for obvious reasons given the launch timing. But the brand itself is resonating with Chinese travelers the attractiveness of the brand within the Home Inns portfolio and for Home Inns as a company is very high because it is the highest quality, highest end brand that they have in their entire portfolio. And we are also concurrently growing our World of Hyatt base, which was exactly the intention of being able to serve that next tier down, essentially an upper mid-scale brand in U.S. parlance. The locations of UrCove by Hyatt are extraordinarily attractive. They are adaptive reuse office spaces almost without exception. There are a few new builds, but many, many of them are adaptive reuse offices. In very key locations in primary cities. So the kind of customers that we're going after and being able to attract the World of Hyatt is very, very strong. Now at Hyatt Studios, the program there will be new build and primarily. We have the ability to do adaptive reuse as well, but a lot of them will be new build. And the ability to gain as much momentum for Hyatt Studios in China would not really be available to us without a partner who has basically a development and construction machine, a significant organization that is excellent at what they do. And we've seen the quality of what they've actually produced with UrCove, which gives us tremendous confidence in where we see this going. In both cases, we -- well, there are different economic structures because in one case, it's a joint venture, we earn fees directly. And on top of that, we own half of the venture. In the other case, it's fees. So we will be earning fees on the Hyatt Studios that open. They will benefit from the development of those properties and really being able to utilize an existing resource that they've got. And it helps their network as well because it gives their own over 100 million members of their loyalty program, brands to trade up into. And frankly, over time, we expect those same clientele to trade up further up into our full-service hotels. So as a network effect matter, it's very significant. We will be fee positive for Hyatt Studios and we earn fees directly and have a JV -- 50% JV interest in UrCove. So I think it's been a great partnership. It's expanding, and it's not a situation in which we're basically making $3.50 a year on something that is just for the sake of having a bunch of rooms. In terms of total impact, we're talking about 50 hotels of about 100 rooms a piece, maybe 125. So it's not going to actually have a massive impact on our net rooms growth. So we're not doing this because we can -- with smoke and mirrors, add to our net rooms growth figures. This has got real commercial impact. Operator: Our next question comes from Shaun Kelley from Bank of America. Shaun Kelley: Mark or Joan whoever wants to take it, would love just a little bit more insight on the cost program that your initiatives there, I know. I think we talked about strategically a little bit what you're doing, but just kind of what catalyzed the decision sort of the why now question, it's obviously encouraging, but it takes a lot to move a big organization. And what are some of the key building blocks or things that this can allow you to do a little bit more efficiently, maybe specifically on behalf of the owners, we sometimes hear feedback that these things can have an impact and help streamline some communication there. Mark Hoplamazian: Thanks, Shaun. The ultimate goal here is to move towards an insight-led and brand-focused organization. That sounds like corporate speak, but it's real in the sense that we are going deep on being able to understand the different customer groups that we serve across our portfolio, and they are different. How we get to them? That is distribution channels and marketing are different as well. So we broke our business down into 5 brand groups. And those 5 brand groups will be the way in which we actually operate the business going forward. It happens concurrently with a significant elevation of our practice of agile ways of working, which we have been working on for 4 straight years, which is designed to move more quickly, test and learn and experiment and innovate more quickly. And then the third element is artificial intelligence, expanded use of machine learning and models. We've built several agentic platforms already internally. Some have been solely focused on driving top line. Some have been really focused on cost efficiency and many -- they're all focused on driving performance, including providing a platform that our hotel teams can use to help optimize or improve, I would say, maximize performance of their hotels, which is a direct impact on owners. I just got back from Europe, during which we had an Owners Advisory Council meeting, and I went into some detail about the work that we've done on that last platform that I just mentioned. And there are direct measurable impacts that we can point to actually across all the things that we've done so far. So we have positive results. We're leaning into doing those. When we put these things together, that is the practice of agile, which is inherently cross-functional, we append all the work that we're doing with all-inclusive, and we then look at how we are in service of our brands in a different way than we were before, how we organize the company had to change. And in the course of reorganizing the company, we found tremendous levels of efficiency in how we're staffed. So a lot of that cost gain was in staffing. Some will be also in third-party costs because we are automating a significant number of functions and processes that really are able to be automated at a fraction of the cost of paying third parties to do it for you. And we've just scratched the surface. We are leaning into this very heavily, and you will see this as a tailwind for us for the years to come. Operator: Our next question comes from Duane Pfennigwerth from Evercore ISI. Duane Pfennigwerth: Joan, I appreciate your comments on capital allocation. Maybe you could speak to priorities in the intermediate term. Does the order maybe change? Is deleveraging more of a focus, capital return, maybe less emphasis on finding opportunities that will accelerate your growth further? Joan Bottarini: Sure, Duane. I think with respect to the leverage comment, we've have a commitment in the near term to delever, we are required with the asset sale proceeds from the Playa sale to actually pay down that delayed draw term loan, which I noted in my prepared remarks. So that is on the horizon. And we've also made a commitment to reach investment-grade leverage by the end of 2027. And we've got some asset sales that we're working on right now and some that we expect to also complete by the end of 2027. So that will improve our leverage with those asset sale proceeds. Now I'll let Mark comment on the M&A front and opportunities that we see. But with respect to returns to shareholders, we have been consistent in delivering those returns when we've had excess cash. And that will be the approach that we continue to follow going in. We'll obviously give you some insight into 2026 on our fourth quarter earnings call. But we've realized some incremental free cash flow through this -- through the credit card agreement, and that's the driver of what improved our capital returns guidance for this year for 2025. So we are taking those excess cash and doing exactly what we've committed to. Mark Hoplamazian: Yes. I would just point out that I think it's very important to look at history and our behaviors. You can, I think, have a higher level of confidence that we say what we do and we do what we say. Since 2013, we have consistently continued to prioritize investing -- reinvesting in our own business and returning capital to shareholders initially strictly through share repurchases and then more recently, through both dividends and share repurchases. We repurchased stock every year for the last 12 years in a row despite the fact that we've executed over $5 billion worth of acquisitions. In fact, it's probably close to $6 billion and have transformed the balance sheet in the process. So we believe that return of capital to shareholders is a key priority. We also believe that we can maintain that even as we find strategic opportunities to grow our business, in businesses in segments that are very, very profitable in which we can have a differentiated competitive position. So you can expect us to continue to do that in that way. And with the elevation of the conversion to free cash flow that, Joan talked about earlier, you can also expect that we will find more opportunities to return more capital to shareholders over time. Operator: Our next question comes from Michael Bellisario from Baird. Michael Bellisario: Just on loyalty, can you remind us just how the room night contribution from World of Hyatt has tracked year-to-date, I think it was at 45% last year. And then just looking at how do you keep narrowing the gap to peers? And kind of what does that do for the value prop for owners and developers? Mark Hoplamazian: Yes. Thank you. First of all, penetration has continued to increase. We're still in the mid-40s, but there's incremental progress year-over-year. And the membership growth has continued to be extremely strong. We're compounding currently at over 20% per annum pretty much every quarter that goes by. I think the relative importance continues to grow, because the engagement level of our members, especially our lead members, is very, very high. They stay longer, spend more and are more frequent guests. So the value of our elite membership base is extremely high. And the value of the overall membership base is very high, as demonstrated by the card arrangements that we just renegotiated because we have a higher end customer base. And they are -- have higher household incomes and investment portfolios. I think in terms of the evolution, we believe that we are going to continue on an upward trajectory in terms of penetration. That's important in many dimensions. I just want to remind you that we have maybe the highest group composition in the United States, let's say, about 40% of our business is group, and group customers are not eligible for World of Hyatt point earning and therefore, they don't really count in the context of penetration. And I would say that the -- I would say that even despite that, our total direct channel delivery is in line with our peers. This is an interesting dynamic because when you look at our total delivery through group channels, which is direct, World of Hyatt, hyatt.com and Hotel Direct we are in line with our peers at a fraction of their size. So this is one area everyone talks about size and scale being the magic. Well, this is one area in which apparently being 10x our size doesn't matter. And I think part of that has to do with the compelling platform that we've created and the fact that World of Hyatt creates -- delivers on great experiences, but also great value. The final thing I will say is that we are -- we manage a bigger proportion of our total network than any of our major larger competitors. And that matters because we have very consistent delivery, very, very consistent delivery of benefits. Our elite members do not find wide variability across our hotels. Why? Because we directly control it. We're not influencing, we are actually directly controlling the delivery of benefits at the hotel level, and that matters. Operator: Our next question comes from Brandt Montour from Barclays. Brandt Montour: So a couple of your peers were willing to sort of give some insights or sort of early thoughts on how next year's RevPAR could shape up in the U.S. or globally. And just curious, Mark, from what you're seeing in business transient, what you're seeing in group, what you're seeing in leisure and of course, we have the World Cup. Sort of how do you -- what kind of confidence you guys have going into next year in terms of the RevPAR environment reaccelerating? Mark Hoplamazian: Yes. I mean, I think Joan and I will tag team this. So look, there are a number of tailwinds heading into next year between World Cup and America 250 celebrations. The infrastructure build, it continues at pace. Hyperscalers are moving from planning stage to construction phase in their data center construction. And the minimum size of investment in those projects is $5 billion. Some of them are much, much bigger than that. So there's a tremendous level of activity in terms of mobilization of resources to lean into the data requirements of AI of the future. So I think there's a lot of tailwind into economic activity in the United States, as we look forward. Part of that, I think, is anticipated and maybe driving some of the group pace that we see into next year. Joan? Joan Bottarini: I would just add on -- we are still early in the planning cycle, but the backdrop that Mark just described in the U.S. has given us confidence that we will be at or incrementally positive in the U.S. going into next year. Group is a significant factor to that because you layer in on top of those strong pace numbers and it helps improve with rate. And the demand that, as you look at this year, where we had some of maybe easier comps in the second quarter and the third quarter going into next year for the U.S. is what we would expect. Outside the U.S., we've posted very strong results this year. And what we're hearing from our teams is that we expect those results to be good, continue the momentum that we're seeing demand in international markets continues to be very strong. So while we may be lapping a little bit of tougher comps on that side, we still expect overall globally that we'll be incrementally positive in 2026. Mark Hoplamazian: Yes. Just one final comment, Leisure demand continues to be very strong. We've mentioned all of the various data points that in our script. But leisure just taking a real-time gauge of this. Leisure demand in the U.S. was up 3% globally up 7% in October. So this is not abating. I think there's been incessant questions about can leisure really hold up? Can you really maintain pricing levels, et cetera, et cetera. And the answer is the data continues to prove it. So I'm not sure what else -- what other proof is required we're seeing it in all of our numbers. And yes, we do serve a different customer base. So I'm not making any comments about mid-scale and below. I am making a comment about us. Operator: Our next question comes from Patrick Scholes from Truist Securities. Charles Scholes: Mark, 3 months ago, you had noted you were feeling cautious and conservative about China. How are you feeling today about that market? Mark Hoplamazian: I feel incrementally better. Part of it is, I just got back from China a couple of weeks ago. So every time I'm there, and I'm talking to my teams about what's happening and what they're seeing in the marketplace. It does give me a lot of energy, but even adjusting for that sort of near-term boost of positive 5. What I would say is a couple of things. One, some of the things that we have been known for in China continue to shine in ways that I think are notable. We just opened the first urban Alila hotel in Shanghai, and it is absolutely world-class and stunning in every dimension, not just the physical product, which is amazing, but also the guest experience. We're running materially more than 20% ahead of the brand that used to occupy that hotel, which is a super luxury brand, mono-brand. And that's in a relatively weaker market. And so I think our performance has continued to be exceptional, and I think that is driving continued openings that really are meaningful. So I toured a brand-new Andaz in Macau, over 700 rooms, more hotels going into Macau in the future. I toured the Thompson, which just opened, so it was preopening and Unbound Collection hotel adjacent to the Thompson and this is at a location adjacent to a mini central business district, which is right next to the convention center. So you might think that there's a lot of hand-waving about driving net rooms growth through lower chain scales. But for us, we're seeing strength actually in our core strength, our core strength there, which is the upper upscale and luxury brands. Our food and beverage revenues have been hit hard, I think, based on what's going on in the marketplace. The general pressure from the government remains persistent and that is causing people to be very cautious about, I would say, conspicuous consumption is the way to put it. And therefore, we have adjusted like our whole philosophy is to be agile and pivot and adapt, and we are. So banqueting is weaker, food and beverage is weaker, but rooms business is very strong for our brands in the upper upscale and luxury. And of course, we're not ignoring the upscale and upper mid-scale through the comments that I made earlier on Hyatt Studio. So I would say, in terms of operating dynamics, I think it's positive, the government has shown signs starting to pivot from a policy perspective to be more constructive to support consumer things that drive consumer purchases because it's -- consumer has grown as a proportion of their total economy. They are hyper aware of that. And finally, they are another year into the relatively slow path of resolution of the Evergrande debt overhang. And so capital markets are still not restored to pre-Evergrande levels. But a lot of the properties that I mentioned, not Alila Shanghai, which is a private developer, but many of the others are state-owned enterprises. And so a lot of our inventory is growing there. So our opening schedule, and now I'm talking more broadly about Asia Pacific is very strong, but a lot of it is Greater China. So I feel actually incrementally better. I do. Operator: Our next question comes from Conor Cunningham from Melius Research. Conor Cunningham: If we could just talk a little bit about free cash flow conversion. I think you're targeting about 40% this year, and then you're saying that -- you reiterated the plus 50% next year. It seems like you've had a lot of incremental positives from the credit card deal. You've talked about G&A today. RevPAR reaccelerating into next year. It just seems like the plus 50% feels like a pretty easy threshold for you to get to. So if you could just talk a little bit about the free cash flow conversion, if there's anything on the working capital side of the -- or the hotel sales are limiting that a little bit. Just anything there would be helpful. Joan Bottarini: Yes, Conor, you picked up -- obviously, the credit card deal is going to be helpful into next year. And we had the onetime items impacting us this year. So we're getting back to a normalized rate in 2025, excuse me, 2026. And remember, we will also have incremental fees from Playa going into next year post the asset sale transaction. So that will be helpful and be a meaningful addition to our free cash flow conversion. Operator: Our next question comes from Chad Beynon from Macquarie. Chad Beynon: Mark, I wanted to ask about the impact of the government shutdown so far in the fourth quarter and then on the back of, I guess, it's fairly real time on the back of the FAA's announcement to further cut some airline traffic starting this week, how that could affect travel in the fourth quarter? Mark Hoplamazian: Sure. Thanks for the question. A couple of things. One, government -- direct government business in the Hyatt system is relatively small. So it's not having a material impact on our results and wouldn't. Government-related is actually positive because a lot of defense contractors and other service companies that are serving key elements of the government, I wouldn't say it's uniform, but it's -- in general, it's been positive because there is government activity that continues despite the fact of a broader shutdown. . So I think that the key at this point, it has to do with agility and hotel teams being prepared to pivot. Our hotel teams are relied upon in our world to track their revenue base, their sources of revenue looking forward and to basically insulate themselves as much as possible from things that could be potential risks and rebalance through revenue management and through tapping different distribution channels. We're making that easier for them using some AI tools that are an overlay to our revenue management system. So I have every expectation that whatever impact there actually would have been would be mitigated because they'll pivot on a continuous basis. Looking forward, I think it's naive to think that reduction in air travel won't have an impact on travel. By definition, it does. There are less people flying. And at the same time, I think what I said just a minute ago about agility and being able to pivot is really, really important. There are drive to resources that we often tap. We learned this muscle and strengthened it tremendously during the early stages of COVID. So there will be -- I'm talking specifically about leisure travel now. And so therefore, I think there will be some mitigating factors. I also would just point out that my recollection is when we had a long government shutdown some years ago, the air traffic control dynamics is actually what led to finally getting back to a reopening of the government. And so I think with reduced mobility, there might be more back pressure on lawmakers to come to the table. That's speculative, of course, but just a reference to what happened last time around when there was an extended shutdown. So yes, I think there's a potential risk here because, again, it would be naive to say no, there won't be any risk whatsoever when something like 10% of the capacity is coming out of the system. So right now, lift into some of our key markets is not based on what we can tell from our engagement with our key carriers talking specifically about Cancun, Punta Cana on the all-inclusive side. Really remain encouraged by what we're seeing, and we always have options with respect to charter, if we need extra air capacity. Operator: Our last question comes from Meredith Jensen from HSBC. Meredith Prichard Jensen: Just circling back to what you just mentioned about the ALG business and all-inclusive. I was hoping knowing the importance of optimizing that distribution strategy from ALG. If you could speak a little bit more about this channel and what you're seeing in terms of broad B2B consumer and potentially how broadening the offering to ALG through Playa programs. I know they introduced like ALG Luxe, can continue to increase the mix of client within the ALG. Mark Hoplamazian: Yes, I think I might have lost you at the very end there. But generally speaking, ALGV is a critical distribution channel. I think the visibility it provides to us in terms of what the dynamics are in leisure travel are tremendous. Over 2.5 million individual customers are booking through that platform, hundreds of thousands of travel agents and advisers are linked directly into our systems. And so it is the biggest packaging platform in North America. So it really is a strategic asset in every way. I think we've -- the team has done a superb job of really maximizing the potential of that business through really being disciplined about which markets they serve and getting out of unprofitable markets, but also the pathway that I described earlier with respect to automation and the utilization of AI has also just begun there, too. So what we expect is to be able to render that business into a more and more efficient platform with much better predictive analytics embedded in it and much more higher signal-to-noise ratio and actionable insights from AI that we can actually utilize to make the booking path for travel agents and advisers that much more compelling. So what we are seeing in general is what we have said in the past, which is 4-star and below has been weaker. That's really been the key message our direct production into our own resorts is up year-over-year, has continued to rise every year since we've owned the company. And that is telling because it's both primarily 5-star, which is our portfolio. And secondly, it is an offering. Now you're right, expanded by the Playa Hotels, which is super attractive to the customer base that is booking through ALGV. And with that, I just want to thank you all for taking the time this morning to be with us. We, of course, appreciate your interest at Hyatt and really look forward to hoping -- and hoping that you will visit our hotels and resorts, and you can experience the power of Hyatt Care firsthand. So have a good rest of the day and good rest of the week. Thank you. Operator: This concludes today's conference call. Thank you for participating, and have a wonderful day. You may all disconnect.
Operator: Good day, everyone, and welcome to Saga Communications Third Quarter 2025 Earnings Release and Conference Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Chris Forgy. Sir, the floor is yours. Christopher Forgy: Thank you, Matt, and thank you to your dulcet tones. And thank you to everyone who has taken the time to join Saga's 2025 Q3 Earnings Call. We appreciate your continued interest and support and your participation in Saga Communications, what we believe is the best media company on the planet. I'm here with Sam Bush, and today represents 28 years of Sam doing Saga earnings call. So Sam, congratulations. And with that, I'm going to relinquish the floor to you for now, and I'll save my remarks for later in the call. Samuel D. Bush: Thank you, Chris. This call will contain forward-looking statements about our future performance and results of operations that involve risks and uncertainties that are described in the Risk Factors section of our most recent Form 10-K. This call will also contain a discussion of certain non-GAAP financial measures. Reconciliation for all the non-GAAP financial measures to the most directly comparable GAAP measure are attached in the selected financial data tables. For the quarter ended September 30, 2025, net revenue decreased $528,000 or 1.8% to $28.2 million compared to $28.7 million last year. Station operating expense increased $2 million to $24.7 million for the 3-month period. As reported in the press release, this increase was primarily the result of an industry-wide settlement with 2 of the music licensing organizations we are licensed by. In mid-August, the Radio Music License Committee, which Saga is a member of, announced separate rate-setting settlements with ASCAP and BMI. The settlements established license fees, which applied retroactively for the periods from January 1, 2022, through September 30, 2025, and on a go-forward basis through December 31, 2029. In September, we booked $1.7 million for the periods from January 1, 2022, to December 31, 2024, and another $407,000 for the 9-month period ending September 30, 2025. The fourth quarter impact of the increased rates will be approximately $135,000 over our previously projected music licensing fees. We reported an operating loss of $626,000 for the quarter, which without the settlement would have been an operating income of $1.5 million compared to $1.6 million for the same period last year. We also reported station operating income, which is a non-GAAP financial measure, of $3.5 million for the quarter. Without the settlement, station operating income would have been $5.6 million for the quarter compared to $6 million for the same period last year. It is important to note that the company would have reported net income for the quarter without the music licensing settlement. For the quarter, gross broadcast revenue included NTR, nontraditional revenue, which is mostly events we are involved in, decreased $1.8 million or 6.8%, while our gross interactive revenue increased $1.1 million or 32.6%. Gross political revenue was $73,000 for the quarter this year compared to $677,000 last year. For the third quarter this year, the increase in our interactive revenue made up almost the entire decrease in our broadcast revenue when adjusted for political. I think Chris is going to emphasize this again but we're in radio, so repetition is always a good thing. And I just want to say again, for the third quarter this year, the increase in our interactive revenue made up almost the entire decrease in our broadcast revenue when adjusted for political. For the 9-month period ended September 30, 2025, net revenue decreased $3.1 million or 3.7% to $80.6 million compared to $83.7 million last year. I won't go through the 9-month numbers that were reported in the press release other than to indicate that without the music licensing settlements, station operating expense would have decreased $1.7 million instead of the reported increase of $390,000. Without the settlement, operating income would have been $574,000 instead of an operating loss of $1.5 million and station operating income, again, a non-GAAP measure, would have been $13.8 million instead of $11.7 million. Also without the settlement on a same-station basis for the 9 months ended September 30, 2025, station operating expense would have decreased 3.9% or $2.6 million. Corporate expenses decreased $80,000 for the quarter and increased $74,000 for the 9 months ended September 30, 2025. Corporate expenses included $226,000 for the 9-month period relating to a potential proxy contest initiated earlier this year by one Saga shareholder. This has been disclosed in our previous public filings. The decrease in other operating expense for the 9 months ended September 30, 2025, compared to the same period in 2024 is primarily due to the sale of a nonproductive AM station along with 2 translators in Asheville, North Carolina, the sale of WNDN, FM in Chiefland, Florida and the shutting down of a nonproductive AM station in Bellingham, Washington in 2024. The decrease in other income is due to a onetime gain in 2024 related to the sale of Saga's equity investment in BMI when the organization was sold. In addition to what Saga and I have already said -- in addition to what I've already said, I want to emphasize that for the quarter, total interactive revenue was up 32.6% and for the 9-month period, up 17.1% with a 54% profit margin for both the quarter and the 9-month period, excluding sales commissions for the quarter and for the year. Pacing for the fourth quarter is currently tough as we are up against $2 million in political we booked in the fourth quarter of last year. This was $1.6 million in October, $389,000 in November and $10,000 in December. For the fourth quarter, we are currently pacing down approximately 11%, including political and 4.7% when political is excluded. On a positive note, our interactive pacing is strong for the fourth quarter being up 32% as of now. The company paid a quarterly dividend of $0.25 per share on September 19, 2025. The total dividend paid was approximately $1.6 million. To date, Saga has paid over $140 million in dividends to shareholders since the first special dividend was paid in 2012 as well as has bought back over $58 million in Saga stock. The company intends to pay regular quarterly cash dividends in the future. Further, as part of our overall capital allocation plan for 2025 and beyond and as stated in the press release on October 17, 2025, the company entered into an agreement to sell telecommunications towers and related property and other assets located at 22 sites for a total cash purchase price of approximately $10.7 million. Sales proceeds net of brokerage commissions and certain adjustments in the amount of approximately $8.7 million were paid to the company, with the remaining cash proceeds of $1.8 million, representing 4 sites being deposited into an escrow account pending final landlord consents to assign the ground leases where the towers are located. We also entered into long-term leases at each of the sites to allow us continued use of the towers at a nominal cost. We are continuing to work through the tax and accounting implications of this transaction, which will be disclosed in our future filings. As we have previously stated, we intend to use a portion of the proceeds from the sale to fund stock buybacks, which may include open market purchases, block trades or other forms of buybacks. All said, we believe Saga is in a strong financial position to improve profitability as our digital initiative improves both local radio and interactive revenue. The company's balance sheet reflects $26.3 million in cash and short-term investments as of September 30, 2025, and $34.2 million as of November 3, 2025. We currently expect to spend between $3.25 million to $3.75 million for capital expenditures in 2025. We currently expect that our station operating expense will be flat for the year as compared to 2024. This takes into consideration the expense reductions we have made, offset by the music license fee settlement with ASCAP and BMI as well as for our continued investment in our ongoing revenue initiatives. Without the music licensing settlement expense, we would expect station operating expense to decrease by 2% to 3%. We anticipate that the annual corporate general and administrative expense will be approximately $12 million for 2025 compared to $12.4 million in 2024. And with that, Chris, I'll turn it back over to you. Christopher Forgy: Did you say crass? That's kind of crass, Sam. Congratulations anyway on your 28 years of earnings calls. Over the past several years and we have -- past several months, I'm sorry, Saga's elite group of leaders and employees, Saga's corporate team and Saga's Board of Directors have been extremely busy in the Saga verse. Since early this year, we have been diligently installing Saga's blended digital strategy, including the comprehensive training and development of Saga's market leaders, sales managers, media advisers, on-air content creators and our directors of content creation. We've made additional strategic investments in R&D and resources to assist our team members to run faster in the Saga's blended strategy. This in order to achieve our objective of 2x gross revenue, most of it digital, in 18 to 24 months by capturing just 5% of the available search and display dollars available in our 27 Saga markets. We've added acumen and expertise to our Saga Board of Directors with expertise in digital, M&A and the financial audit and consulting space. We are committed to sell one tower and the land the tower is on to a local developer as well as some excess land we own. And we are also in the process of listing and selling the company-owned home in Sarasota, Florida following multiple hurricanes that pounded Florida's West Coast. And we have completed, as Sam said, the sale of several Saga towers, not because we needed the money but because of a larger strategic plan to return value to shareholders through stock buybacks and other capital allocation. This while continuing Saga's robust quarterly dividend strategy. As a part of the tower sale, I would like to personally thank and show our appreciation to Executive Vice President and CFO, Sam Bush; Senior Vice President and Controller, Cathy Bobinski; Vice President of Engineering, Tom Atkins; Vice President of Finance and Board Secretary, Katie Semivan; and Financial analysts, Cynthia Loerlein and [indiscernible], for their efforts to help us complete the sale of these towers. This was a Herculean effort and it's much appreciated and it's still continuing. We're not quite done yet. Finally, we have -- we finally have and continue to make strategic expense reductions at the market and the corporate levels to allow us to reinvest in our transformational digital strategy to enable us to be more nimble. We're also selectively utilizing, as we've stated earlier, in AI to help improve efficiency and performance and to cut costs and to increase margins. And over the next few months, we will continue to bring much of our digital deliverables into the house to allow us to better serve our team members and ultimately, our customers, again, to provide efficiencies, increase scalability and increase margins, all of which will require the acquisition of people to accomplish this feat. Saga has come a long way in a very short period of time, yet we are far from finished. To fully understand how far we've come and why we believe Saga's blended strategy will work, we really need to go back to the beginning to the principles of what Saga was built on in the first place when Ed Christian founded the company. Internally, we refer to this with an old Latin phrase, Finis Ab Origine Pendet, which means the end hangs on the beginning. Saga focuses on small and medium markets. Case in point, 21 of our 27 markets are smaller than Market 100. Our acquisition strategy focused on markets with state capitals, state universities, nonclosable military bases, strong ag business, large retirement communities with high net worth like we have in the villages in Ocala, Florida. And on the ground, Saga's market employees are known, liked and trusted in the local communities in which they serve. We pour ourselves into the local marketplace. Our leaders get involved in city government, raise money for important causes where money raised stays in the local community. We get belly to belly with influencers and decision-makers to move local business forward. Saga is really woven into the fabric of the communities in which we serve. But the name Saga has never mentioned. It's all about our local media groups and the name like the Columbus Media Group, for example. Finally, Saga does on average $1 million to $1.5 million more a month in local direct revenue than we do in local agency revenue. And as we stated, local direct revenue is the primary driver to Saga's blended strategy. I hope this is starting to make sense to you now. Saga was 10 years late to the digital party. We started this digital transformation way behind the curve, and we have the luxury of observing and learning from iterations and reiterations of our broadcast brethren. From a digital advertising perspective, Saga is really a cash flush start-up. And what we know is this, the local advertising market is overdue for disruption. And it just so happens that Saga Communications operates in the size markets where we can have strong impact and influence on the local communities in which we operate, and that includes the advertising community. These local advertising markets are ripe for disruption. Why? Because businesses are pouring more and more money into digital advertising every year but the rapid growth of digital budgets has outpaced the ability of advertisers to completely understand them and to use them effectively. There are too many digital providers and too many conflicting solutions. Businesses don't know who to trust. In this case, trust, simplicity, clarity with a click visit call and search approach, focused on the consumer journey, not the product-based selling that usually takes place wins. And advertisers are fed up with ineffective campaigns and empty promises. They don't really like what they are buying, know what they're buying, and they don't really like who they're buying it from. And there's a shift in consumer behavior. Advertising strategies haven't caught up with the journey people take when they buy. In other words, search and display is broken and there is a gap where tech meets human behavior. So focusing on the influence of the ads on the real consumer journey when a consumer interacts with a product or service will allow us, we believe, to not only win the market but also redefine it. And internally, we have begun seeing measurable returns on the yeoman's efforts that our team members have put into this transformation, and I want to underscore yeoman's efforts. We have found that local direct advertisers who were not pitched to blend, we lose 29% of our existing radio business that we had. And with local direct advertisers that bought a blended product, their radio spend increased by 9% and their overall radio and blended spend increased by 27%. Now we just simply need to scale it. And finally, this biggest and most encouraging news comes from Sam's report that he mentioned not once but twice, and I'm going to mention it a third time because frequency sales. And again, the biggest and most encouraging news comes from Sam's report. During today's earnings call, and to make sure you didn't miss it, I'm going to make sure you didn't miss it. This above all else, proves that there are green shoots popping up as it relates to our digital transformation. The blend is gaining momentum. Again, for the third quarter 2025, the increase in Saga's interactive revenue made up almost completely the decrease in our broadcast revenue when you adjust for political. The question has always been, can we run fast enough in the blend to outrun the downdraft in the sector? Well, hope is not a strategy, and this may be an indication that perhaps we can. But make no mistake, although we are still in the infant stages of our digital transformation, this transformation is hard, really hard. It's taxing and it's working. We have the very best, most committed and passionate team of broadcasters I have ever had the pleasure of working with and serving, and they are the engine that make the blended transformation a reality. Thank you to all of you again for your time and your interest and your support and involvement in Saga Communications what we believe to be the best media company on the planet. Sam, do we have any questions? Samuel D. Bush: We did. We got questions from 3 different shareholders and an analyst. And I'll start with Michael Kupinski's question from NOBLE Capital. The first 2, he had 3 questions but the first 2 are interrelated, so I'm going to read both of them and let you address them jointly. Can you give us some color on the tone of the market, pacings into the upcoming quarter, local spot versus digital versus national? And then the second part of that is, while Saga does not get a lot of national advertising, it had been a key revenue growth driver for the company. How is this category performing going forward? Christopher Forgy: So I'll address the last vertical first. National is weak in the fourth quarter. And it has had a little bit of a tradition in coming in later and later, which impacts our forward pacing. And Saga has 2 outstanding national sales managers and Tom Howe and Bruce Werner and a really proactive partner in Katz Radio. Unfortunately, we don't really control a lot of what happens in that vertical. As Sam mentioned, overall, total revenue pacing, excluding political, is down 4.7% for the quarter. Local pacing is consistent across the quarter, and digital pacing is still pacing plus 32% for the quarter, which is why we are running to the Saga's digital transformation in the first place. I hope that answered the question. Samuel D. Bush: I think it made a great start towards it. Historically, advertisers reacted favorably in anticipation of Fed rate cuts given the favorable influence they had on the economy. As we have seen in many radio company results, the Fed rate action has had no impact and the radio spot advertising remains weak. Any thoughts on why there is this anomaly? Christopher Forgy: Well, first of all, Sam, I don't believe it's an anomaly. And by no means, what I'm about to say is directed at the person who asked this question, and it's the economy, stupid. On Main Street, there's a delayed reaction, in my opinion, to rate cuts by the Fed. In our world, rate cuts impact our 2 largest economic indicators as to how radio will perform going forward, and they are housing starts and auto purchases. The 50 basis points reduction the Fed has dribbled out, kicking and screaming, simply has not gotten to Main Street just yet. We believe spot radio's downdraft is more a function of the macro decline in the sector and not the rate cuts or lack thereof. And as I said, not really based on the interest rate reduction. Samuel D. Bush: Very good. Thank you, Chris. We did have 2 additional questions from 2 shareholders, and I'm going to combine them because they were similar in nature or augmented each other. There was a question as to why there wasn't a concrete plan for a buyback, including timing and amounts once the tower sale closed. And I would say there was a number of complexities to the tower sale. And we, Saga had very specific expectations for the final terms and conditions as well as there were certain real estate transfer issues that had to be dealt with and are still being dealt with, shown by the fact that 4 of our towers, the sites are still in escrow, and we're working through, which we will work through but we're working through the timing and the complexities of getting the real estate aspects of those transactions, those pieces of the transactions closed. It wasn't until days before the closing that we actually felt comfortable with the final sale proceeds. As Chris stated, we didn't sell the towers because we needed the money. We sold them because it was the right thing to do from a capital allocation standpoint. So again, we didn't feel comfortable with the amount until a couple of days before the closing and as to what the final sales proceeds would be and when the closing would take place. And that's information that was necessary -- is necessary for the Board to know when considering final buyback plans. Buybacks are still a priority for a portion of these proceeds as we have previously stated. There will be more clarity to this in the near future as the Board continues to look at the amount and timing and make some final decisions. And I think that's it. We appreciate all of you joining, and I think we can turn it back over to Matt to wrap up the call. Christopher Forgy: Thank you, Matt. Operator: Thank you. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Greetings, and welcome to the Park-Ohio Holdings Group Corp. Third Quarter 2025 Results Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Chairman and CEO, Matt Crawford. Please go ahead, sir. Matthew V. Crawford: Thank you, Kevin, and welcome to our third quarter call. Our third quarter was highlighted by our continued transformation into a leaner, more predictable business through the business cycle. While many end markets, particularly here in the U.S., where we derive a majority of our sales, showed mixed demand, we were able to demonstrate consistent operating profit and margin performance. While we did not -- while we do not anticipate a meaningful rebound in demand during the fourth quarter, we do expect to build on these initiatives as we move into 2026 and will also benefit from new business and strong backlogs. We use the word transformation here quite a bit, and I want to be more precise regarding what that means as we move towards 2026. Our transformation began several years ago as we challenged our capital allocation model and shed assets that were either underperforming or we felt were ill-suited for a higher growth, higher margin and less capital-intense business. We then began to invest more urgently in those businesses, which we have great opportunities for significant operating leverage and include clear competitive moats. While this model continued to support some level of acquisition, we were and are more focused on long-term competitive advantage, the right kind of products and services and customer partnerships. During 2025, we have seen this transition take hold. While mixed demand signals from our diverse customer base have muted the improvements in our operating execution and quality of earnings, we see the improvements and also have seen a more consistent stream of earnings results despite the underlying volatility. We firmly believe that in 2026, will be another important step forward as we combine these productivity improvements with new business and strong backlogs. Equally important is that we expect to do these things while reducing debt meaningfully during the fourth quarter and we will continue that trend into 2026. I want to thank and applaud the effort of our entire Park-Ohio team as we manage the challenges of today with an eye toward the exciting times ahead. Pat, can you cover the third quarter, please? Patrick Fogarty: Thank you, Matt. Our third quarter results were generally in line with our expectations for the quarter given the mixed industrial environment, and we continue to see positive trends in each of our business segments. Before I get into the details of our third quarter results, I want to provide a few highlights achieved during the quarter. First, as we previously announced, we refinanced both our senior notes and our revolving credit facility, extending maturity dates by 5 years and strengthening our balance sheet and liquidity. We incurred bond-related expenses of $2 million related to the redemption of our previous bonds, including a noncash write-off of unamortized costs. These expenses reduced our GAAP earnings during the quarter by $0.11 per share. In connection with the refinancing of our bonds, we received upgraded ratings on the new senior secured notes from Moody's, S&P Global and Fitch Ratings. Second, we continue to make strategic capital investments in new technology and information systems, capacity expansion and margin improvement initiatives. These investments will enable sales growth and higher profitability in the future. And finally, new equipment orders in our industrial equipment business continue to be very strong with new bookings and backlogs at record high levels at most locations. Our business strategy focuses on end market and application diversification beyond traditional end markets. Most notably, we continue to see strong order activity in the electrical steel processing to support both expanded application usages and electrical grid infrastructure and in the defense markets for munitions and shell production and armored vehicle protection plating. Bookings year-to-date are highlighted by an order from a major steel producer totaling $47 million for induction slab heating equipment for high silicon steel production. Further enhancing the strong demand for our induction products is our global operational footprint, enabling our customers to diversify their supply chains with local content to help minimize their risk and reduce their overall costs. Backlogs as of September 30 were up 28% since year-end and are expected to remain strong heading into 2026. Turning now to our third quarter results. Third quarter revenue totaled $399 million and was stable in each business segment sequentially. The year-over-year sales decline was a result of lower end market demand, most notably in certain North American industrial end markets, which more than offset growth in Europe, where demand from electrical end markets continues to be strong. Third quarter gross margins of 16.7% were slightly below prior year's gross margins, demonstrating our pricing discipline and operational consistency despite modest volume pressure in certain end markets. Adjusted EPS was $0.65 per diluted share in the quarter compared to $0.66 in the first quarter and $0.75 in the second quarter of this year. Results in the third quarter underscored cost control and productivity gains, offsetting higher interest expense of $1.1 million from our new senior secured notes, which reduced adjusted EPS by $0.07 per diluted share. We generated EBITDA of $34.2 million in the quarter. As a percentage of net sales, our EBITDA margin was 8.6% in the quarter. On a trailing 12-month basis, our EBITDA as defined totaled $140 million. In the quarter, we recorded an income tax benefit on pretax income of $4.5 million, driven by ongoing federal research and development credits and other discrete tax items. We expect our full year effective tax rate to range between 13% and 16%, reflecting the positive impact of ongoing tax initiatives. During the quarter, our working capital initiatives drove positive operating cash flow of $17 million compared to $9 million last year. We are currently estimating fourth quarter free cash flow to be strong and range between $45 million to $55 million. Full year free cash flow is estimated to range between $10 million to $20 million, driven by reduced working capital levels in each business. Our liquidity continues to be strong and totaled $187 million as of September 30, which consisted of approximately $51 million of cash on hand and $136 million of unused borrowing capacity under our various banking arrangements. Turning now to our segment results. Supply Technologies net sales of $186 million in the quarter were in line with sales in both the first and second quarters of this year. Sales were down compared to a year ago as lower customer demand in certain key end markets, including industrial equipment, bus and coach and consumer electronics, partially offset increases in electrical, heavy-duty truck, semiconductor and agricultural end markets. Geographically, total sales in Europe were stronger year-over-year, but were offset by lower sales in North America and Asia on a year-over-year basis. Our proprietary fastener manufacturing business performed well in the quarter despite a slight decline in demand for its proprietary products, primarily in North America. Adjusted operating income in this segment totaled $18 million, an increase sequentially compared to last quarter and a decrease from $21 million in the prior year due to lower year-over-year sales. Adjusted operating margins increased 100 basis points to 9.9% in the current quarter compared to 8.9% last quarter and down from 10.5% a year ago. The overall operating margins in this segment continue to exceed historic levels due to efforts to improve operating efficiencies in our warehouses and manufacturing plants around the world. During the quarter, we completed the consolidation and expansion of certain facilities in the U.K. and Ireland in support of expected growth in the electrical distribution market, supporting the data center build-out. We recorded $1 million in expenses related to these activities and have added back these onetime nonrecurring costs to arrive at adjusted earnings per share. We expect further expansion resulting from investments to optimize warehouse operations and manufacturing capacity around the world. Although current demand in several end markets has remained stable to slightly down year-over-year, we expect improved demand trends and average daily sales levels in 2026 in certain end markets, including power sports, agriculture, semiconductor, consumer electronics and aerospace and defense. In our Assembly Components segment, sales improved sequentially to $97 million in the quarter. The sequential improvement compared to last quarter reflects increased production and new program launches beginning to ramp up. Segment adjusted operating income was $6 million compared to $6.1 million last quarter and $6.6 million a year ago. In this segment, we continue to win new business in each of our product lines, which includes fuel filler and fuel rail products and molded and extruded rubber and plastic products. We are currently launching over $50 million of incremental business across all product lines throughout 2026. During the quarter, we incurred costs to expand our production capacity, improve asset utilizations and expand our rubber mixing capacity to accommodate the sales growth in each of our product lines. These nonrecurring costs are added back to arrive at our adjusted earnings in the quarter. In our Engineered Products segment, sales were $116 million compared to $124 million a year ago, with the decrease driven by lower demand in our forged and machined products business and lower levels of production in our industrial equipment facilities in North America and Asia. Aftermarket sales remained strong during the quarter throughout most of our global service centers. In our Forged and Machined Products Group, the lower sales were driven by lower railcar demand and the closure of a small manufacturing operation last year. New equipment bookings were $174 million in the first 9 months of the year. And as I mentioned, we expect to achieve record annual bookings exceeding $200 million this year. Our capital equipment backlog continues to be strong, totaling $185 million, an increase of 28% compared to backlogs at the end of last year. In addition, order intake from aerospace and defense and power generation customers continues to be strong in our forging plant in Ohio. During the quarter, adjusted operating income in this segment was $3.7 million compared to $5.2 million a year ago. The decrease in profitability in the quarter was a result of the lower sales levels in our forged and machined products business. We continue to implement plant floor improvements in this part of our business and our 2 forging plants, which will drive higher margins as sales volumes improve. I'll conclude my comments with an update on our current expectations for the full year. We expect full year 2025 net sales to be in the range of $1.600 billion to $1.620 billion and adjusted earnings per share to be in the range of $2.70 to $2.90 per diluted share. We also expect full year free cash flow to be in the range of $10 million to $20 million and fourth quarter free cash flow between $45 million to $55 million. Now I'll turn the call back over to Matt. Matthew V. Crawford: Thanks, Pat. We'll now open the floor for questions. Operator: [Operator Instructions] Our first question is coming from Steve Barger from KeyBanc Capital Markets. Christian Zyla: This is actually Christian Zyla on for Steve Barger. First question, kind of a 2-part question. First, how are you accounting for the recent large orders in your EP backlog? Is that percentage of completion or completed contract? And then maybe just broader, do you expect that large order from last quarter to be largely delivered in '26? I guess that would imply double-digit growth rate in EP, assuming a steady business otherwise. So can you just help us square that circle and how you're thinking about EP? Patrick Fogarty: Absolutely, Christian. This is Pat. Our contracts in that part of our business are accounted for using the percentage of completion method. So as it relates to the large order of $47 million, it represents 5 pieces of equipment. We expect 3 of the 5 to be recognized during the course of 2026, with the latter 2 in the following year in 2027. Matthew V. Crawford: Christian, I would just add that I think we said it a lot, but I want to be crystal clear. We are seeing electrical infrastructure, industrial electrification, whether it be the single order we talked about or a myriad of orders related to graphite and other things that are important to, again, the grid and battery technology are underpinning significant growth in this business, not just around that one order, around a myriad of orders globally. So this is a very, very exciting part of our business, and we will see it begin to impact maybe a little bit at the end of the year, but really into 2026 and beyond. This is not something that is stopping. This is something that is beginning. So we feel that, that big order is really important, but also symbolic for what is happening in industrial electrification where we are extremely well positioned, both from an OE perspective and an aftermarket perspective. So this is one of the most exciting. And I think, as you know, why we have focused in our transformation a fair amount of energy around our business that focuses on this. But as Pat points out, these things are not built overnight. Even if you take percentage of completion, it will be a little bit choppy, but we'll begin to see the benefit of it clearly going into 2026. Christian Zyla: Completely understood. And I guess with those comments, just doing the math, I think $50 million of orders this quarter for EP solid momentum. The backlog is at, I think, record highs from what we can see. So I guess a question on that is with the orders that are coming in the new business and part of EP's margin performance in this quarter, are you having margin pressure from some of those front-end investments of your projects? Does that abate as we go into '26 and '27 as you see that business ramp? Or just how should we think about the ramp of those contracts in that business related to the margin cadence? Matthew V. Crawford: No, that's a great question. Really good question. So you're going to -- I'm going to have to harp on transformation again. Let me start by saying, again, I didn't misspeak, but I want you to understand the value stream we're talking about here. This is not just graphite and steelmaking. This is also mining. rare earth mineral mining, the Caterpillars of the world, all the people that make mining equipment. I mean the distribution of the value stream and where we're seeing the benefit is remarkable. Again, we haven't seen much in the way of mining in a long time, and we are. So I think there is some transition going on in the order book. I would also highlight defense. I know it's not related to this, but highlight defense as well. There is a transition going on vis-a-vis our order book. And I think that we have seen this year sort of a period of time in the third and fourth quarter where we were filling the order book and preparing to respond to this. We were onboarding people and preparing our facilities for what we think is a pretty long run. And to some extent, clearing out some old jobs that we've mentioned in the past that had some challenges. So I do feel as though there has been margin pressure, not from the customer standpoint, not from the market standpoint, but really around preparing this business for what we anticipate is going to be a heck of a run here on this backlog. So -- and I would also highlight that to say where we are seeing very strong performance is in the aftermarket. So we continue, I think that's, as we've discussed, a razor-razor blade model. And our expectation is that continues to underpin and pay for this transition as we modernize our key facilities, both here in Europe. So we're making some investments here around long-term competitiveness. So you're right, we are seeing some cost pressure as we as we bring people on board to prepare for these orders, we are seeing some investment around modernizing these facilities, preparing for these large orders. But this pipeline is a lot bigger than just that one order, I can tell you that. And you're seeing it in the order book. And it's not just steel. It's all aspects of that value stream as well as defense and others. Christian Zyla: Got it. And then if I could just follow up on that. Do you expect that margin pressure to then flip into a benefit in parts of '26? Or is that a '27 event? Just how should we think about it in terms of the ramp versus the execution of the contract and when that business starts kind of flipping and performing as you expect? Patrick Fogarty: Yes, Christian, I would -- this is Pat again. Clearly, margins will begin to improve as each individual contract is priced uniquely. So -- but clearly, there -- under the percentage of completion method, we're estimating our end margin on each of the jobs and recognizing that as we complete the job during the course. So coupled with aftermarket strong margins, we would expect margins in the industrial equipment side of our business to continue to improve. And keep in mind, this part of our business historically was our highest margin business. And so between the repricing of the new jobs and various value drivers that we're implementing in each of the manufacturing facilities around the world will clearly have a benefit on future margins. Matthew V. Crawford: Christian, I don't want to overstate. I hate to not be positive, but there are -- and again, we're just finishing, I think, in closing out. As Pat mentioned, some of these jobs take 18 months to complete. So a few of the jobs that have impaired profitability in 2025 have been related to orders that were placed a year or 2 ago, where there are some challenges around inflation, around execution, around labor. Those are the kinds of risks that we're just not seeing in the marketplace now. And you might or might not ask about tariffs. That's a positive for us here, not only in terms of our customers' health, but also in terms of our global footprint allows us to be exceedingly nimble versus our competition on where and how we make this product. So all of the above, every one of those things I just talked about is a positive for margin accretion. I don't -- to Pat's point, I don't really know another way to talk about it other than to say, for years, this business operated at 10%, and there's nothing about it that's worse today than it was then. The aftermarket mix is better. The margins are strong. The customer relationships are strong. Our locations and where we operate are appropriate and cost effective. Like I said, we're spending some money to modernize some of the locations, which I think is great. This is an exciting time. So yes, I would expect to see meaningful progress in 2026 and not the end of 2026. Christian Zyla: Great. I appreciate that answer. If I could sneak in one more, and we appreciate you letting us take the time for the questions. But just last question on free cash flow, Pat. Your guide of $45 million to $55 million would be a record free cash flow quarter. Can you just talk about what's embedded in that expectation? I mean, is that largely working capital benefits, less CapEx that quarter? And then just what drove the overall difference or reduction from last quarter? Patrick Fogarty: No problem. Let's talk about the reduction from the guidance. The previous guidance was $65 million for the second half of the year. Our guidance for the quarter takes down the results of the third quarter, which was $7 million of free cash flow. What we're seeing throughout every one of our businesses is the growth in working capital that we've seen year-over-year has primarily been in receivables and a little bit in inventory. We're seeing the harvesting of many accounts and various working capital items in the fourth quarter, primarily receivables. In inventory, there -- the management of Supply Technologies is reducing receipt activity, which will help lower inventory based on the revenues they're seeing in the fourth quarter and the first quarter. But more importantly, is the reduction of days on hand and the ability to manage lead times better. As we ended last year with the threat of tariffs, there was a lot of prebuy activity, a lot of excessive order taking by our supply base and delivering into our facilities in the first half of the year. We now see lead times reducing dramatically. So that helps days on hand. That helps our inventory levels, and we're seeing that happen. It began to happen in the third quarter, but significantly reducing levels in the fourth quarter. Matthew V. Crawford: Christian, I might say it a different way, too. I might just say that by historical standards, we are still not where we need to be in terms of our working capital efficiency. So this -- the fourth quarter begins to bring that back into line. It doesn't get us where we need to be. There's nothing underlying -- no fundamental issue on that. It's as Pat described, our customers push-pull in terms of tariffs, push-pull in terms of demand planning as well as new product launches that, in some cases, have been delayed, but we will see come to fruition as we get into 2026. So all those things have made us less efficient managing working capital than we have been in the past, and we see a significant move stride forward, some of which because new products will launch, some of which there's a little more clarity, if possible, on tariffs or at least supply chains and some of which I think is because we're not necessarily expecting a big uptick in the economy, but at least people are getting accustomed to how to manage their supply chains. Operator: Next question is coming from Dave Storms from Stonegate. David Storms: I want to start at a high level here. The latest macro headwind -- potential macro headwind is this government shutdown domestically. Are you seeing any impacts of that ripple through to your business lines? Matthew V. Crawford: I don't have any explicit examples of that. I mean we know it can't be good, right? We have not -- we -- as you know, Dave, we've seen a lot of strength across the business from defense. I am sure it has slowed down the internal workings of some of the major orders or some of the updates or scope changes, the kinds of things that happen under the hood every day. So I don't want to suggest that we're not probably seeing a little bit of adverse effect, but not in a way that would be important to explicitly discuss. David Storms: That's perfect. I just wanted to check to see if... Matthew V. Crawford: No, it's a great question. David Storms: Moving on, I did want to touch on Supply Tech, too. It sounds like you're seeing some volume pressure in a couple of end markets and a couple of different geographies. But it seems like pricing is still holding up. How sustainable do you think this is? Do you feel like we're maybe reaching an inflection point where margin can maybe get back to growing further in Supply Tech? Matthew V. Crawford: Well, I think that we did an incredible job last year, I think, in managing price. I think we've done a good job today with some of the tariff exposure -- or this year with some of the tariff exposure we had. I think where we are today is more focused on strategic initiatives around growth, a return to growth to provide the operating leverage that we know exists in that business, which should take us to higher levels. And equally, some of the investments that we've talked about that will be transformative in terms of our costs and how we go to market. And I talk a lot about competitive long-term advantages. Some of the infrastructure investments we're making around how we distribute products and how we manage data are going to be meaningful over years to come. So I do think there's opportunity on the margin side. But to be clear, I think it's less today about pricing than it is about competitive -- improving our competitiveness as well as getting operating leverage that comes with some incremental volume. What's tough to manage in any business is volatility, right? It's not as simple as significant changes. It's the month-to-month variability. So when you see across Industrial America, a gross number of being things being -- build rates adjusted for inflation being down a little bit, that's one thing. The volatility is what's particularly hard to manage. And we've seen a lot of that this year. So I compliment the Supply Tech team and their service model being able to respond and react to somebody going from flat to down 10% one month to up 10% the next month. It's not as simple as everything just being down a couple of percent. So it's been difficult to manage this year. And again, against the backdrop of what we expect to be a strong 2026. So you got to manage that as well. David Storms: Understood. That's great commentary there. And just kind of sticking with that, as you're adding improvements of macro theme for the last year or so has been the implementation of AI. Are you seeing any areas to strategically implement AI to further enhance your operations? Matthew V. Crawford: Well, we can spend a long time trying to define AI. But I'm going to answer emphatically yes, in one particular way and then a good conversation going forward. But I'm going to answer emphatically that our investments in information technology over the last couple of years, which now include harnessing AI around cleaning data, around managing data, around investing in data management tools. These, I think, have been the building blocks to position ourselves for some of the use cases we're seeing on AI. So when I think about business improvements that we'll see in 2026 and efficiencies we'll garner from the business, a lot of that, I think, is just from how we manage data differently and the quality of data we have today in our business. So -- particularly in supply technology, which is really a data business in many ways. So that is where I think we're beginning to see the benefit and where we're beginning to see the building blocks of some of the use cases that are going to actually drive efficiencies in the business. So we do see incremental improvement in the context I discussed. And I think that as we build better and broader use cases across the business, that's going to be a bigger opportunity for us. But the benefits today are more just on the data management side, AI or not. David Storms: Understood. And then one more for me, if I could sneak it in here. you pretty explicitly mentioned that your outlook for 2025 is meaningful cash generation with the goal of debt reduction. Are there any metrics that you could put around that debt reduction maybe in terms of market debt levels or time lines? Patrick Fogarty: Yes. Well, the debt reduction as a result of the strong free cash flow in the quarter, clearly will happen. When you look at the amount of the free cash flow for the full year, $10 million to $20 million after the payment of our quarterly dividends, you can extract the debt reduction from that. So it's roughly $5 million to $10 million year-over-year. And as we step into next year and expect an improvement in free cash flow, that debt reduction will increase. David Storms: But explicitly in the fourth quarter, the end of this quarter, the end of the fourth quarter, what do we expect to reduce debt? Patrick Fogarty: Of the $45 million to $55 million, we would expect $35 million to $45 million of debt reduction. Matthew V. Crawford: Yes, that's, I think, the answer to your question. David Storms: Quarter-over-quarter. Matthew V. Crawford: Quarter-over-quarter, we're expecting $35 million to $40 million of debt reduction from free cash flow. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. Matthew V. Crawford: Great. Thank you all, and thank you for your very important questions. It allowed us, I think, to highlight some of the positive changes happening in the business. We look to not only close out the year strong, but also to begin to set the table as we are for a really successful 2026. Thank you for your time today. Bye-bye. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, and welcome to QuinStreet's Fiscal First Quarter 2026 Financial Results Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference call over to Vice President of Investor Relations and Finance, Robert Amparo. Mr. Amparo, you may begin. Robert Amparo: Thank you, operator, and thank you, everyone, for joining us as we report QuinStreet's Fiscal First Quarter 2026 Financial Results. Joining me on the call today are Chief Executive Officer, Doug Valenti; and Chief Financial Officer, Greg Wong. Before we begin, I would like to remind you that the following discussion will contain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties that may cause actual results to differ materially from those projected by such statements and are not guarantees of future performance. Factors that may cause results to differ from our forward-looking statements are discussed in our recent SEC filings, including our most recent 8-K filing made today and our most recent 10-K filing. Forward-looking statements are based on assumptions as of today, and the company undertakes no obligation to update these statements. Today, we will be discussing both GAAP and non-GAAP measures. A reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release, which is available on our Investor Relations website at investor.quinstreet.com. With that, I will turn the call over to Doug Valenti. Please go ahead, sir. Douglas Valenti: Thank you, Rob. Welcome, everyone. Fiscal Q1 was another good quarter of performance and progress for the company. We delivered record revenue and exceeded our outlook for both revenue and adjusted EBITDA. Auto insurance demand remained strong. Home services continued to grow at double-digit rates, and adjusted EBITDA remained strong, inclusive of heavy investments in new media and product [Technical Issue]. We expect further significant growth in auto insurance revenue and margin in coming quarters and years due to strong product and market fundamentals and to our rapidly expanding product, market and media footprint. Auto insurance carrier results are good. Consumers are shopping and marketing budgets continue their relentless [Technical Issue] but still early shift to digital and performance marketing. While carrier spending is expected to remain strong, uncertainty about tariffs and their eventual impact on claims costs appears to be delaying what we expect to be another significant inflection up from here in carrier marketing spend. In the meantime, we are preparing for the next leg up in auto insurance by investing in new media capacity and in dramatically expanding our product and market footprint to drive growth and expand margins now and into the future. We also expect continued strong growth in our noninsurance non-auto insurance verticals, and we are investing aggressively there as well. Overall, our total addressable market opportunity is already enormous and growing, and we continue to deliberately, contiguously and successfully expand our footprint. We estimate that we are less than 10% penetrated in our current footprint of addressable market. We expect to grow total company revenue at double-digit rates on average for many years to come. We also continue to focus on margin expansion with a near-term next milestone goal of reaching 10% quarterly adjusted EBITDA margin in this fiscal year, which, as you know, ends in June. Our levers to grow EBITDA margin are threefold: one, growing and optimizing media to catch up to auto insurance demand; two, growing higher-margin products and businesses; and three, capturing operating leverage from top line growth and from efficiency and productivity initiatives. Some examples. Auto insurance margins are expected to expand 5 points this fiscal year and are already up over 2 points just since July, with margins in new faster-growing product market areas of auto insurance running at more than twice those of our core click marketplace. Also, margins in big new media areas in auto insurance and across the company are now past breakeven and expanding further as they scale. And our exciting QRP and 360 finance products are expected to grow well over 100% this fiscal year and to nicely contribute to expanded profitability. Another area of current and future investment and excitement is artificial intelligence or AI. We are confident that we are going to be an AI winner. We expect AI to accelerate our already fast-growing markets by improving consumer access, interface and engagement in digital media. We also believe that we will disproportionately benefit from AI due to our structured proprietary data and our over 17-year history of successfully applying AI as a competitive advantage. We have dozens of new AI projects underway across the company and business, and they are already improving consumer satisfaction, client results, media efficiency and productivity. And they are already adding revenue and expanding margins. Finally, before I share our outlook for fiscal Q2 and the full fiscal year, I am pleased to announce that the Board of Directors has authorized a new $40 million share repurchase program. The authorization reflects the strength of our underlying business model and financial position and confidence in our long-term outlook for the business. Turning to our outlook. We expect revenue in fiscal Q2 to be between $270 million and $280 million and adjusted EBITDA to be between $19 million and $20 million. We expect full fiscal year 2026 revenue to grow at least 10% year-over-year and full fiscal year adjusted EBITDA to grow at least 20% year-over-year. With that, I'll turn the call over to Greg. Gregory Wong: Thank you, Doug. Hello, and thanks to everyone for joining us today. Fiscal Q1 was another record revenue quarter for QuinStreet. For the September quarter, total revenue was $285.9 million. Adjusted net income was $13.1 million or $0.22 per share, and adjusted EBITDA was $20.5 million. Looking at revenue by client vertical. Our financial services client vertical represented 73% of Q1 revenue and declined 2% year-over-year to $207.5 million. Auto insurance momentum accelerated in the quarter, growing 16% sequentially versus the June quarter and 4% year-over-year against a very tough comparison. Noninsurance financial services, which included personal loans, credit cards and banking, declined 10% year-over-year as the year ago period included a very large limited time promotional offer that benefited our credit cards vertical. Our home services client vertical represented 27% of Q1 revenue and grew 15% year-over-year to a record $78.4 million. Other revenue has been consolidated into our home services client vertical to more accurately depict the operational structure of that business. Turning to the balance sheet. We closed the quarter with $101 million in cash and equivalents and no bank debt, and we remain in a strong financial position. In the September quarter, we repurchased $7 million worth of company shares and subsequent to quarter end, another $10 million worth of company shares, exhausting our previously authorized share repurchase program. In our October 30 Board meeting, our Board of Directors authorized a new share repurchase program of up to another $40 million. We continue to have a rigorously disciplined approach to capital allocation and continue to prioritize: one, investing in new products and initiatives for future growth and margin expansion; two, accretive acquisitions; and three, share repurchases at attractive levels. We will continue to be measured in our approach and remain focused on maximizing shareholder value. As we look ahead into Q2, I'd like to remind everyone of the seasonality characteristics of our business as I do every year at this time. The December quarter, our fiscal second quarter, typically declined sequentially. This is due to reduced client staffing and budgets during the holidays and end of year period, a tighter media market and changes in consumer shopping behavior. This trend generally reverses in January. Moving to our outlook. For fiscal Q2, our December quarter, we expect revenue to be between $270 million and $280 million and adjusted EBITDA to be between $19 million and $20 million. We expect full fiscal year 2026 revenue to grow at least 10% year-over-year and full fiscal year adjusted EBITDA to grow at least 20% year-over-year. With that, I'll turn it over to the operator for Q&A. Operator: [Operator Instructions] Your first question is from Jason Kreyer from Craig-Hallum. Jason Kreyer: Wonderful. Doug, just wondering if you can give some more details on the media investments that you made in the quarter, how those are performing. Specifically, you kind of teased out some of the faster growth areas where you're seeing better margin performance. Just curious more details on that. Douglas Valenti: Sure, Jason. We have been focused on growing our proprietary media campaigns and scaling those pretty dramatically in response to the market demand in auto insurance and in response to the competitive pressures we've seen against scarce media and auto insurance because of the spike in auto insurance demand. And those campaigns have done -- have both scaled nicely over the past few months and have now gotten beyond -- well beyond breakeven and our margins there are expanding and are expanding nicely, but we expect there's a lot more to come. And as I indicated, we've already seen about a 2-point improvement in our auto insurance margins overall since July and expect at least 5 points by the end of the fiscal year. And those campaigns are -- will be a big contributor to that. Other contributors include new products and services in auto insurance beyond our historic click marketplace that are also getting to good scale and also have significantly better margins. I don't want to talk a lot about the details of those, so I don't want to give our competitors a road map to everything we're doing. But suffice to say, they're very contiguous. They're good scale. They're highly effective and proprietary as well, and we expect those to continue to scale and to again, continue to contribute. By the way, those numbers for auto insurance do not include QRP. QRP margins are treated separately from auto insurance. And QRP, as I indicated, also continues to scale very nicely, and we expect to be quite profitable this year to reach profitability and be nicely profitable this fiscal year as well as it gets to quite good scale. It grew last year. Last year, it grew by 294%. This year, we expect to grow at least 70% plus in QRP, while the 360 product on the home services side is going to grow at even faster rates. So -- we're seeing a lot of good scale and expansion from us in new media, incremental products and services in auto insurance, our new breakthrough products, the QRP and 360 and other businesses across the company, including home services that have better and higher margins in auto insurance. So a lot of good things going on, on the margin expansion front. Jason Kreyer: Yes. Certainly seems promising. I wanted to follow up on your tariff comments. It seemed like last quarter that a lot of the tariff concerns had pretty well abated. Now it sounds like maybe those are back on. I'm curious if there's a new round of tariffs causing concern or if the carriers are kind of reacting more to tariffs in recent months more than they were this summer. Douglas Valenti: No new tariffs, but no resolution of -- not much by way of resolution of existing tariffs. In fact, some of them went up for some countries affected. We can only go by spending behavior of our clients and by public -- any public statements or public information. Spending behavior-wise, the clients are spending strongly, and we expect them to continue to do so, but they're not yet spending at the rate that we would expect given their very strong financial performance. One of the things that we note is mentioned in the public filings is the risk and difficulty in quantifying the exact impact of tariffs. And so it -- we would say that -- and that's one of the few things that's mentioned when it comes to why they might not be spending more than they are relative to their performance. So we would just point out that, that remains a risk factor that they identify and one that they identify as one that's difficult to quantify the exact impact of, which probably implies that they're being a little bit more conservative than they would be otherwise. And I think as things get more clarified, there'll be -- we would expect, given, again, the engagement we have with them, the performance that they are reporting and the performance that we know that they have with our products, we expect a lot of room for another big leg up from here. And I think those of you that follow anybody else in our space has heard the same thing, I think, from all the others in our space as well. We're getting kind of very similar reads on the market. Operator: Your next question is from Zach Cummins from B. Riley Securities. Zach Cummins: Doug, I was curious if you could just talk a little bit more about the spending trends you're seeing broadly among your auto insurance carriers. I know for a good part of the past 12 to 18 months, a lot of the recovery has really been driven by just a couple of major carriers. But just curious if you've seen any sort of evolution in spending trends here in recent months among your carrier partners? Douglas Valenti: We've seen a broadening of spending, Zach. I mean I'd say that some of the non-biggest players have grown their spend at a significantly higher rate this -- over the past year or so then have the larger players -- larger players are still spending strongly and plan -- as they've indicated to us, plan to continue to do so. So I didn't mean to imply for a minute that the tariffs were a risk factor to current spending levels. I think they're just a factor in how fast we get to what we believe is going to be a pretty significant next leg up in spending for carriers. But we're seeing a broadening trend, a lot of very healthy spending from a lot of different clients. And I think record numbers of clients spending -- if you want to pick a metric of $1 million a month, yes, we've got a record number of clients doing that now. And so that would be a data point for the broadening trend. But deepening, broadening of spend, a lot of deep engagement of clients with the various products and very, very healthy activity. Zach Cummins: Understood. And a follow-up question, Greg, I really appreciate the additional segment detail regarding Q1. Just as we look at the full year guidance and the implied ramp in the second half of the year, anything we should keep in mind in terms of like credit card offers or anything to that extent in the credit-driven verticals that we should be building into our model? Gregory Wong: No. I think about the guidance overall, Zach, is what we expect to see is continued strong spend within auto insurance, although we expect a leg up once we -- you get more clarity around tariffs, et cetera, that Doug was talking about, we do expect to see a leg up. That is not baked into our outlook because we just don't know the timing of that. So I'd tell you, continued strong spend of the carriers and then what you would typically see is typical seasonality in the back half and then continued progress against our other initiatives as well as the noninsurance business is how I'd characterize the outlook for the year. Operator: Your next question is from Patrick Sholl from Barrington Research. Patrick Sholl: I was just on the -- following up on the credit-driven verticals, have there been any indications in like the current macro environment of any changes in like the monetization of that -- of those categories in terms of like the customer profile that's coming through those media channels? Douglas Valenti: I would say not -- they are not significant changes, but the trends. And the trends are that the lower-end consumer is under more and more pressure. And so we're seeing very healthy demand for credit and debt-related relief products and also in some cases, personal loan products, which are -- which serve more of that demographic than the upper end of the income spectrum. The middle and upper end of the income spectrum continue to be very healthy. The banks reported it yet again. We're seeing it yet again. The demand for credit cards, credit card debt is at record levels, but delinquencies are not. They're at quite low levels. And so there continues to be trend-wise a bifurcation. Our credit card business is primarily aimed at upper income consumers. So that works for us. And our [ M1 ] financial products business tends to be aimed at helping lower-end consumers. So that works for us there. The only other business that we have in that area is the banking business, which is a source of funds business. And that market is still growing very rapidly. It was kind of dormant during the 0 interest period. And once interest rates came back up, that market really has taken off, and we have very, very strong demand from a very broad range of clients, and we continue to do very well there. And again, the only trend there is that interest rates are more normalized now. Even if they come down a little bit, they're still -- the source of funds accounts are open again. And so -- and banks are utilizing that to raise capital. So those would be the general trends, but nothing significant, no significant changes or inflections that we've seen. Patrick Sholl: Okay. And then within the Home Services segment, I guess, have you seen any sort of like change in like activity there driven by lowering interest rates? Or is that more going to flow through the financial services sector? Douglas Valenti: We have not. We see -- we continue to see robust demand for home services. And we have all the business opportunity and market opportunity we can stand and we will have, I think, for decades to come there. It's a massive market. It's healthy. Performance marketing works very well. They're done well, and we do it better than anybody. And our clients tell us that, by the way. And there -- it's a matter of continuing to execute and implement and execute and implement. We're doing that every day. And as you've seen, we're growing at very consistent, very good rates and probably limited only by our capacity to execute, not by market demand. So we're very early in our penetration there. The market is quite healthy. Consumers have a lot of equity. They have a lot of capacity to fund products or projects. And they haven't been relocating as much, which means that there aren't as many new projects associated with moving in, but there are a lot of new projects associated with nesting and fixing up where they are. So on balance, just a super healthy market. Homeowners are in very good financial shape in general, and we're very early in our penetration of that very large market. Operator: [Operator Instructions] And your next question is from Elle Niebuhr from Lake Street Capital Markets. Unknown Analyst: So first, wondering how we should think about mix shift impacts on gross margin into 2026, especially as the carrier budgets remain healthy. Douglas Valenti: That's a great question. The carrier budgets are healthy, but we haven't really modeled the next leg up in growth for this fiscal year. So if, in fact, we stay at steady state and then just grow with seasonality as we enter this insurance shopping season in the March quarter, we're likely to see that mix -- where the mix has shifted pretty dramatically to auto insurance over the past 1.5 years or so. They're starting normalizing more and that mix shift trend will soften. And in fact, we may actually see growth of other products and services and businesses faster, [ grow ] faster than auto insurance. If that's the case, that's generally speaking, until and as we get these new media campaigns both for auto insurance, generally speaking, that will expand gross margin. And we indicated, as I indicated in my prepared remarks, we are targeting getting to a 10% adjusted EBITDA in the back half of the fiscal year, which would be, of course, the March or June quarters and that would be a component of that -- a factor in that. Unknown Analyst: Got you. And then with that margin expansion, do you see that coming from auto mix or operating efficiency? Or where do you see that expansion coming from? Douglas Valenti: Yes, 3 main areas. One is the mix and initiatives, particularly the new media initiatives in auto insurance continuing to scale and continuing to expand and continuing to help grow our margins there. The growth of our higher-margin businesses, as I indicated just now when we talked about that, either the new products for 360 and QRP or home services, some of our other businesses that are structurally higher margin, growing faster or at least not falling back in the mix. And then certainly efficiency and productivity initiatives, which we have a ton of going on. And just to give you a data point on that, just to make sure that's real, it's real to you. In the past 2 years, we've gone from like $600 million a year in revenue to $1.2 billion a year in revenue. In that period, we have gone from 902 employees to 928 employees. So we've doubled revenue by adding 26 employees. So when I talk about efficiency and productivity initiatives, we really have efficiency and product initiatives and they're working very well. Operator: Thank you. There are no further questions at this time. And that concludes our question-and-answer session for today. Thank you, everyone, for taking the time to join QuinStreet's earnings call. Replay information is available on the earnings press release issued this afternoon. This concludes today's call. Thank you for joining. You may all disconnect your lines.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Marex Q3 earnings call. [Operator Instructions] I will now hand the conference over to Adam Strachan, Head of Investor Relations at Marex. Please go ahead. Adam Strachan: Good morning, everyone, and thanks for joining us today for Marex's Third Quarter 2025 Earnings Conference Call. Speaking today are Ian Lowitt, Group CEO; and Rob Irvin, Group CFO. After Ian and Rob have made their formal remarks, we will open the call for questions. Paolo Tonucci, Chief Strategist and CEO of Capital Markets, will join us as usual for Q&A. Before we begin, I would like to remind everyone that certain matters discussed in today's conference call are forward-looking statements relating to future events, management's plans and objectives for the business and the future financial performance of the company that are subject to risks and uncertainties. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are referred to Marex's press release issued today. The forward-looking statements made today are as of the date of this call, and Marex does not undertake any obligation to update their forward-looking statements. Finally, the speakers may refer to certain adjusted or non-IFRS financial measures on this call. A reconciliation schedule of the non-IFRS financial measures to the most directly comparable IFRS measures is also available in Marex's earnings release issued today. A copy of today's release and investor presentation may be obtained by visiting the Investor Relations page of the website at marex.com. I will now turn the call over to Ian. Ian Lowitt: Good morning, and welcome to our third quarter 2025 earnings call. I am pleased to announce another very strong quarter with our performance at the top end of the preliminary range we published on October 8. As you will see, we have continued to outperform. And in today's remarks, I will look to explain how we have evolved the firm to generate this growth and how we've increased our earnings resilience. In the first 9 months of the year, we generated an adjusted profit before tax of $303 million, up 26% compared to the same period last year. This included $101 million in the third quarter, up 25% year-on-year. We have maintained our momentum from the first half of the year despite the more challenging operating environment for some of our businesses. Given the slowdown in exchange volumes since April, some typical summer seasonality as well as the distraction and disruption caused by the short report, we are extremely pleased to have delivered such a strong quarter, our second highest on record. We are grateful for the engagement we've had with our clients and investors and for their support during what has been a challenging period, one we are pleased to have put behind us as reflected in our performance. Our Clearing segment continued to perform very strongly. Average clearing client balances have increased every quarter since Q1 2024 and grew again this quarter, up 4% from Q2, notwithstanding some modest impact from the short report, which has since normalized. We experienced one of our highest ever client onboarding quarters, converting several new large clients during the summer from the strong pipeline we previously highlighted. This reflected in increased commissions and higher clearing net interest income as growth in client balances offset the impact of lower rates. Our balances will, of course, fluctuate to some extent with asset prices and exchange margin rates, but we aim to deliver continued growth in balances to offset further anticipated rate cuts. Our Prime Services business continued to be a standout success and a driver of growth and margin improvement for our Agency and Execution segment. As a reminder, this is a business that had $85 million of revenue when we bought it from TD Cowen in December 2023. On the Marex platform, it has generated $171 million of revenue in the first 9 months of the year. As the Prime business grows across each of its 3 components: Outsourced trading, prime of prime and on-balance sheet prime, we remain attentive to the associated risks. The primary risk is client leverage, which we manage carefully and keep at a relatively low level. The on-balance sheet business is very diverse, both by client and the portfolio of positions. Our Hedging and Investment Solutions business delivered a strong performance as market conditions became more supportive after a challenging Q2. We also continue to expand our product capabilities and geographic reach to access more clients. All of this more than offset a weaker quarter for Market Making in what was a challenging market environment. We continue to see opportunities for growth through disciplined M&A and have an attractive M&A pipeline for the remainder of the year and into 2026. We recently announced the acquisition of Winterflood, which we expect will provide us with an opportunity to transform our existing U.K. equity Market Making business. The Aarna and Hamilton Court acquisitions are performing well, while Agrinvest is providing opportunities to expand our business more broadly in Brazil. These M&A opportunities, along with our organic initiatives are contributing to our geographic diversification as our international investments are starting to bear fruit, particularly in the Middle East, APAC and Brazil. Rob will provide more details on our segmental numbers shortly. We believe this quarter's strong results validate our strategy. On Slide 5, we have laid out some of the key metrics that we use to assess our performance. Third quarter revenues grew 24% to $485 million, delivering an adjusted PBT of $101 million, up 25% year-on-year. Revenues in the first 9 months of the year grew by 23% to $1.45 billion, while margins expanded to 20.9%. Revenue per front office FTE increased to $1.31 million on an annualized basis. Our growth is driven by the addition of new producers as well as our improvements in producer productivity. For the first 9 months of 2025, productivity improvements accounted for around half of our growth. Looking now at the operating environment in more detail on Slide 6. As I mentioned earlier, we are pleased that we've been able to maintain our momentum from the first half of the year even in a more challenging market environment in Q3. In Q3, exchange volumes were down 8% year-on-year and 14% lower than in the second quarter, while volatility also declined to its lowest level in the past year. On the positive side, equity valuations were buoyant with markets at all-time highs, which is supportive of our Prime business and to a lesser extent, our Solutions business. With this backdrop, our third quarter profits were up 25% year-on-year and down just 5% compared to our record second quarter, which included record volumes in April. We aim to set up the firm to deliver growth through a variety of market environments, and our third quarter performance is evidence of our success. This is partly due to the evolution of our business mix, as I'll describe on the next slide. Over the past 2 years, we have looked to strengthen our earnings resilience through product and geographic expansion. Our evolving business mix is now more diverse than it was at the time of our IPO. In 2023, around 70% of our profitability came from Clearing and Agency and Execution in energy, both of which are strongly correlated with exchange volumes. An additional 10% came from Agency and Execution in securities, which was also somewhat correlated with exchange volumes. While every area of the firm has grown since then, the share of profit that is strongly linked to exchange volumes is now around 54% today. As we've described in previous quarters, the most significant incremental contribution has come from Prime Services, which now accounts for nearly 1/4 of our total profits. Prime profits are like Clearing, recurring and dependable and based on client balances. They are high-quality, durable earnings that generate high returns. Within Agency and Execution in Securities, we have grown businesses such as FX, which provide trading revenues that are not captured in exchange volume metrics. These efforts to diversify our firm are not accidental, but rather a deliberate strategy to grow in a way that enhances our earnings resilience. It's also worth noting, as Rob will discuss in more detail, that within Clearing, NII has remained essentially flat in the $50 million to $60 million range despite rates being down 100 basis points from the peak in Q3 2024. Our ability to grow balances has offset those rate reductions and commissions have increased with client balances. This helps explain our strong performance in Q3 and how we've been able to outperform during a period of somewhat lower exchange volumes. With that, I'll hand it over to Rob, who will take you through the financials in more detail. Crispin Robert Irvin: Thanks, Ian, and good morning, everyone. We are very pleased with the strength of our performance this year. We generated $1.45 billion of revenue and $303 million of adjusted profit before tax in the first 9 months of the year. As Ian mentioned, we achieved this performance despite operating in a less supportive environment for some parts of our business. In Q3, we delivered both revenue and adjusted PBT at the top end of our previously announced preliminary range. Q3 revenue of $485 million was up 24% versus last year. We saw continued strong growth in Clearing and Agency and Execution as well as a strong performance in Hedging and Investment Solutions. Together, these more than offset a softer performance in Market Making, demonstrating the value of our diversified model. Total reported costs grew 24%, in line with revenues. Front office costs were up 23%, reflecting strong revenue performance and continued investments in future growth. Control and support costs were up 26%, primarily driven by higher compensation costs tied to strong performance and investments in our support functions, which include investments relating to recent acquisitions and our compliance with Sarbanes-Oxley. Margins were broadly stable versus the third quarter of last year at 20.7%, delivering adjusted PBT of $101 million, up 25% year-on-year. Our adjusted return on equity remained very strong at 27.6%, all of which meant we delivered an adjusted basic EPS of $1.01 per share, up 23% year-on-year. Focusing now on our segmental performance. We're showing performance over the last 5 quarters to give you a clearer sense of the trends within each business. Starting with Clearing, which grew 14% versus the prior year, driven by growth across all revenue lines, record client balances and higher volumes. I'd highlight the stability in Clearing net interest income despite the continued downward trajectory in interest rates as we have grown client balances to more than offset this. And our new client pipeline for the remainder of the year remains strong. Adjusted profit before tax margins declined slightly to 50% due to continued investments in regional expansion, including APAC, South America and Continental Europe. Agency and Execution continued to deliver strong growth with revenue up 52%, reflecting the breadth of our client franchise and strong client engagement. Securities was the largest overall driver of growth in this segment with revenue up 82%, driven primarily by Prime Services. As Prime has become a more meaningful contributor, we've provided a quarterly revenue breakout. In the third quarter, Prime revenues rose to $57 million, reflecting continued client growth and momentum. Securities ex Prime also delivered strong growth, notably in equities, rates, credit and FX. The acquisition of Hamilton Court, which completed on the 1st of July, contributed $20 million in revenue this quarter, in line with our expectations. Energy grew 7%, driven by continued growth across our large oil, energy and environmental desks. Versus the prior quarter, Energy declined as activity in the third quarter moderated following record volumes in the first and second quarter. Adjusted profit before tax margins improved from 15% to 26%, driven by growth in higher-margin activities, particularly Prime Services and productivity gains from restructuring. Turning to Market Making, where revenue declined by 16%, reflecting challenging market conditions across different asset classes. Robust performances in Securities and Energy were offset by weaker results in Metals and Agriculture. Securities saw growth from equities, credit and FX. This is also where you'll begin to see contributions from Winterflood once the transaction closes. Energy performed strongly, benefiting from higher client hedging activity versus the prior year. Metals declined in the third quarter amid ongoing uncertainty surrounding global tariffs as well as a tough comparison. Base metals, where we have significant footprint, was soft due to reduced client activity and lower volatility of precious metals, where we currently have lower exposure, performed well, supported by price strength in silver and gold. Agriculture remained under pressure as ongoing tariff-related uncertainty and elevated commodity prices, particularly in cocoa and coffee, which reduced liquidity and open interest. Our performance was broadly in line with the second quarter. Adjusted profit before tax margins reduced to 16% reflecting lower revenues. Solutions revenues grew 36%, delivering its strongest quarter on record with growth across Financial Products and Hedging Solutions. Hedging Solutions grew 20%, driven by robust client demand and continued momentum in FX. Financial Products grew 54%, reflecting strong performance in equity-linked structured notes. Margin rose to 25%, reflecting the strong revenue growth. Despite this margin improvement, we continue to incur elevated costs associated with platform investment and new hires to support future growth. Now looking at the first 9 months of the year. Clearing grew 15% on last year with growth across all revenue lines. The addition of new clients has led to higher volumes and client balances. Margins remained strong at 50%. Agency and Execution was the strongest performer with a 51% increase in revenues and strong profit growth as margins expanded to 25%. This was driven by growth in both Securities and Energy. We saw strong performance in all asset classes within Securities and strong demand in Energy, reflecting record volumes in the first half of the year. Market Making revenues decreased by 6% as lower revenue in Metals and Agriculture were partly offset by growth in Energy and Securities. Finally, Solutions revenue increased 10%, mainly due to growth in Financial Products, where margins were lower from the ongoing investment in our new technology platform. Previously, I presented our volume data at this point. However, given the evolution in the mix of our business that Ian spoke about, we plan to update this as part of our year-end process. You will still find the exchange volume data slide in the appendix for consistency. Turning now to net interest income. NII for Q3 was $38.6 million, down $25 million compared to Q3 2024. Interest income was up modestly at $194 million, driven by total average balances growth of $4.8 billion, which broadly offset a 100 basis point decline in the average Fed fund rate. Interest expense increased to $155 million as we had an additional $1.7 billion of average structured note balances and 2 senior debt issuance. We continue to hold significant levels of liquidity as we went through the third quarter, allowing us to position the firm strongly to support our clients and grow organically, which creates a headwind to NII. Compared to the second quarter, NII was up $4 million, driven by growth in average Clearing client balances. Clearing balances increased to $13.3 billion as we continue to add new clients, resulting in stable Clearing NII as this growth has more than offset the reduction in average Fed fund rates. Looking now at our balance sheet. As a reminder, on this slide, you can see that 80% of our balance sheet supports client activity. These are high-quality liquid assets. Once we net off assets and liabilities by client activity, we are left with a corporate balance sheet that carries corporate cash and other assets against group liabilities, including our structured notes portfolio and senior note issuance. Total assets increased to $33 billion at the end of September, driven by growth in client balances and Clearing and growth in Securities, which includes Prime. We continue to manage our capital and liquidity risk prudently, maintaining significant headroom above minimum requirements to ensure we are well positioned in periods of market stress. At the end of the third quarter, total corporate funding was $5.8 billion, up from $3.8 billion at year-end, with $1.5 billion of surplus liquidity above our regulatory requirements. This also supports our investment-grade credit ratings from both S&P and Fitch. In September, S&P reaffirmed our rating, reflecting our robust performance and strong balance sheet. Finally, we announced again a quarterly dividend of $0.15 per share for the third quarter of 2025 to be paid to shareholders on December 3. We are a proactive and involved risk management approach at Marex. In Market Making, we are a client flow-driven business and do not take a directional view on prices. However, we do carry a small level of inventory to source client demand and capture the trading spreads. Average daily VAR was $3.9 million in the first 9 months of 2025 and remains at a very low level relative to the growth in the overall business. In terms of credit risk, we had a realized credit loss of $800,000, representing just 0.1% of revenues and reflecting our proactive and disciplined approach to credit risk management. Now I'll hand back to Ian for concluding remarks. Ian Lowitt: Thanks, Rob. So in conclusion, at our Investor Day in April, we outlined our expectation of delivering sustainable profit growth in the 10% to 20% range. Around 10% of this is expected to be organic, with the remainder, which we estimated to be around 40% of our total growth coming from inorganic opportunities. We have a strong track record on that front and remain confident that we can continue delivering given the pipeline of opportunities ahead. Since going public, we have consistently outperformed market expectations, and we're particularly pleased to have maintained this outperformance during the current quarter despite a less supportive market environment. This success is due to the diversification of our franchise. Of course, we remain mindful of headwinds, including rate reductions and lower exchange volumes as we have seen this quarter. As you've heard on this call, we're delivering consistent Clearing NII despite rate cuts as our growth in client balances has absorbed this. And our diversified business has continued to perform strongly despite weaker exchange volumes as we have continued to add new clients and capabilities. Together, this demonstrates how we position Marex to outperform this quarter and how we have set up the firm to continue to grow through a range of market environments. I'm pleased to report that the fourth quarter has started very strongly, and we remain optimistic about the remainder of 2025 and the year ahead. We're in the middle of our 2026 budget process, and it's exciting to see all the opportunities before us as our markets develop. Settlements in stablecoins, event contracts, crypto prime brokerage, there are just so many opportunities for us in addition to all the other organic opportunities we've discussed with you before. With that, I'll hand it back to the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Chris Allen with Citi. Christopher Allen: I guess I just wanted to start off on the fourth quarter commentary, noted off to a strong start. Maybe just if you could provide some color just in terms of where you're seeing improvement? Is it from an environmental perspective, client additions or just some of the new acquisitions coming up to speed? Ian Lowitt: Chris, yes, look, I think we're seeing sort of strength across interestingly, all of our businesses. So we're actually seeing strength in Clearing. We're seeing strength in Prime. We're seeing strength in our Agency and Execution. We're seeing strength in elements of our Market Making, and we're seeing actually record levels in our Solutions franchise. So it really does have the feel of all of the parts of the firm are sort of performing well. I mean, I think when you look at exchange volumes, they're up marginally on sort of the prior month. So really, it just feels like the momentum that we had as we came out of sort of Q3 has continued into Q4. October was a record month for us. And I think on the basis of what we saw in October and what's continued, albeit it's only 2 days into November, I think we would be certainly expecting -- notwithstanding the fact that we don't know what will happen in the last 2 months, we would certainly expect on the basis of October to have a record quarter in the fourth quarter. Christopher Allen: And then just for a follow-up question. Obviously, you're seeing good client additions in a couple of different businesses. Maybe you could talk to the pipeline for clients, specifically in Clearing and Prime in the months ahead. Ian Lowitt: Let me take the question on Clearing and then Paolo is here, and he can sort of talk to the opportunities in Prime on the client side. I mean, what we're seeing is really just a continuation of what we've been describing to you for quite an extended period. So what we're seeing is a combination of the normal addition of small and medium-sized clients that are looking for essentially single clearance. And then we're seeing our ability to bring on board some of the sort of largest, most sophisticated sort of players. And those have very long sort of lead times to them. So just in the last couple of weeks, we've brought on board one client that I think we've probably been talking to for almost a year, very large client, and they're just coming on now. So the good side of this is you have a very accurate sense of the pipeline. And it just feels like the same things that we've been seeing before are playing out, which is there are a bunch of large players that are looking to diversify their clearing. They're looking for a firm with the skill set that Marex has, its orientation around client service. And they find our offering sort of intriguing. And we're just having more and more great conversations with clients. And as we grow out globally and as we add more products, we can solve more of their problems and we're winning more mandates. What would you add to that? Paolo Tonucci: And just in terms of the Prime business, similar to Clearing, very strong pipeline, probably as strong as we've ever seen. And the mix of those clients is also, I would say, sort of improved. So more interest from the sort of larger and more active participants in the market. I mean, certainly, going back to your earlier point about what's driven performance, what's likely to drive performance. Certainly, the fact that equity markets have been so buoyant has helped. But I suspect that actually most of -- the vast majority of our improvement has been driven by the incremental clients that we brought on. Operator: Your next question comes from the line of Ben Budish with Barclays. Benjamin Budish: Can you guys hear me okay? Ian Lowitt: We can, Ben. Benjamin Budish: Maybe my first question, it sounded like at the end of your prepared remarks, you mentioned crypto as an emerging opportunity in addition to Prime and other sources of organic growth. Just curious, I think you do a small bit of that currently. Could you maybe just give us a little color on what your exposure is today and how you think about that opportunity set maybe over the next few years as the regulatory environment is clearly changing in a more constructive way? Ian Lowitt: Yes. I mean, look, I think we actually have built a lot of the building blocks that we need to be able to offer clients a pretty comprehensive set of services in the space. So the focus of our efforts to date has been around sort of clearing crypto futures on exchange and supporting our clients with regard to that. And we've also provided our clients with a series of services around certain sort of settlement capabilities they've been looking for with regard to ETFs that they have launched, and that's been sort of another area where we've participated. We're in a position where we can sort of cross-margin clients with sort of their crypto margin posting together with sort of other products. And then within our Solutions business, although it's not sort of a big part of what we do, we've needed to build out capabilities so as to sort of custody assets in part because while it's not a big part of what we do in structured notes, some of the structured notes issuance that we do has returns that are linked to crypto. So the opportunity that we really see for ourselves is essentially fleshing out the range of services that might loosely be termed sort of prime brokerage for crypto, which are probably not very different to the set of services that clients look for when they look for sort of FX prime brokerage. So they're looking for you to be able to buy or sell sort of crypto. They're looking for you to be able to take on stablecoins. They're looking for you to be able to take stablecoins or crypto as collateral. They're looking for you to be able to settle across multiple exchanges on their behalf, just as you would as a prime broker. They're looking for you to potentially be able to provide them with limited amounts of leverage. And I think that we're in the process of sort of building all of that out. And it's a very exciting opportunity. The market is changing. The world feels like it's moving to 24/7 trading, including sort of tokenized versions of treasury or equities. And it feels like a set of opportunities that on the back of our client relationships and the capabilities we have and our sort of scale as an organization that we'll be able to take advantage of. Benjamin Budish: All right. Very helpful. Maybe just one follow-up. Just coming back to the Prime side, and all the extra disclosures and commentary quite helpful. Can you just maybe talk a little bit about where the customers have been coming from? I think it's a lot of U.S. business, but have they been sort of cross-sells against the existing customer base? Has this been the result of maybe a business that needed some investment, which you've then done since you acquired that business a few years ago? And then going forward, similarly, do you see this as a cross-sell opportunity? Is it organic, net new? How do you think about those bits and pieces in terms of go-to-market? Ian Lowitt: Yes. Thanks, Ben. I mean, in terms of the geographic split, the majority of the growth has been in the U.S. I mean, it's where we have a more mature offering and where we probably have the majority of our sales teams. It's not to say that there's no growth in other areas, but I mean, the proportionate growth has been in the U.S. In terms of the mix of sort of new clients versus existing clients that are being offered this service, that's actually been a pretty even split. A lot of our clearing -- a lot of the relationships have been introduced by Clearing. They're clearing relationships that have been servicing businesses that have needs for a broader sort of prime offering. So I would think half of our new clients have come from that source. The other half are sort of a mix of opportunities and relationships that have sort of been worked on for some time. And for a variety of reasons, we weren't able to offer the full set of services. Some of those are ETF managers. ETF managers have become a sort of an interesting sort of subsector, but the sort of traditional prime clients still represent the majority of assets under management. And that's just the sort of typical range of hedge funds and family offices, some trading groups that we can now offer them a much more comprehensive set of products, I think, is the sort of main driver. And then the stability of our offering versus what they've sort of experienced in the last couple of years, I think, has been very helpful. Operator: Your next question comes from the line of Alex Blostein with Goldman Sachs. Alexander Blostein: I was hoping to expand a little bit on the earlier discussion around crypto coins, prediction contracts, but maybe as it relates to retail investors, in particular, I guess, what role do you guys see Marex playing in that ecosystem? How are you thinking about connecting to some of the retail brokerage platforms where a lot of their activity obviously originates. So maybe help us kind of think about what you see the addressable market really here for your business and which part you're looking to participate in? Ian Lowitt: Yes. I mean, I suspect that the opportunities are a little different in the different parts of that ecosystem. So if you're just talking about, for example, event contracts, I think that this is -- it's an area that is generating quite a lot of interest and excitement. There's a lot of work that's going on with regard to potentially having some of those contracts listed on the actual exchanges, in which case, there's sort of a requirement for an exchange clearer. So we are in discussions with some of our clients who are aggregators of retail flow, particularly the ones outside the U.S. who are interested in being able to offer those types of products to their clients. So [indiscernible] contracts, either for financial instruments or if it evolves into a series of contracts that are broader than just financial instruments. They would want to be able to offer those to their clients. And that's the way in which we've chosen to participate with retail flow. So we are the clearer for a lot of the retail flow aggregators outside the U.S., and that's a way for us to participate in that. I mean, in terms of, for example, stablecoins as payment, I mean, there may be a retail angle to that. It's not one that we're exploring at all. But we engage with many of our clients who have shared with us what appear to be some genuinely interesting use cases with regard to payment and stablecoins and are engaging with us in helping them to provide those services. So I believe quite strongly that, that will sort of take off over the near term and that will represent an opportunity for us. I mean, obviously, coming off stablecoin as a method of payment will be a view that people want to have stablecoins available as a source of collateral. That creates sort of a set of opportunities, which is how do you convert a stablecoin into something that generates interest, if it's going to be utilized for the purpose of collateral. Then if you're dealing with that, there are a whole slew of additional prime opportunities that I think sort of arise with that. But that is -- that at least for us at the moment is much more of a sort of sophisticated financial player opportunity. So the retail stuff feels like it's around event contracts, and we will be working with people who clear through Marex to get access to exchange. And these other opportunities, we're likely to pursue with some of our more sophisticated sort of financial counterparts. Did that answer your question, Alex? Alexander Blostein: Yes. No, that makes a lot of sense. Second question, I wanted to just follow up on the point made earlier around liquidity buildup, and you guys obviously issued a little bit of debt early in the year. You continue to utilize the structured notes as part of the funding as well. Where are you sort of in building some of the maybe excess capacity? I don't know if that's a good way to frame it. But as you think about sort of excess capital that maybe exists within the ecosystem today, that's kind of truly deployable, what's that amount today? What is the ROE you're targeting for that? And is that sort of enough to support the business over the next, call it, 6 to 12 months? Or do you see yourself sort of coming back to market seeking incremental liquidity? I don't know if that makes sense, but that's the nature of the question. Ian Lowitt: Yes. I mean, I'm very sensitive to the differentiation between sort of liquidity and capital. I think of capital as equity. So there's sort of a question about equity, and then I think there's a question about liquidity. So I think that -- where I think we are with regard to liquidity is the following. We want to establish ourselves as a regular issuer in sort of the U.S. so that there's just sort of a broad sort of understanding of our credit and broad acceptance of our name so that we are able to tap into that market if we ever want to. So if there was a big acquisition or whatever, that sort of tapping into a large investment-grade pool is available to us. And that's a strategic objective that we have. And so this year, we sort of issued into the U.S. even though we didn't have a specific need for the cash, we felt that, that was something that we want to do. And I'm almost certain that we would look to sort of continue that into next year. So establishing a debt program in the U.S. is very important to us. And if you're not issuing sort of $500 million slugs, you really don't have the kind of size that's interesting to investors. And so that's what I think you should anticipate, not for any reason other than you need to be a frequent issuer in order to establish yourself. I mean, you've got a sense of how fast the firm is growing. So even in a year like this, it looks like we've been growing near the sort of 25%. And hopefully, you have a sense from sort of the commentary that we're pretty excited about sort of the prospects we have next year. And we recognize that as we grow, we want to maintain the firm as sort of super safe from a liquidity perspective. So I think you should expect that we will come to market for debt, notwithstanding the fact that we already have sizable surpluses, mostly because we're comfortable carrying those surpluses and we want to sort of be in the market and a frequent issuer. With regard to equity, we do recognize that as sort of the constraint. There has to be one on the firm, and it's equity. So we have to be very mindful of how we deploy it. We're running quite a bit above sort of the 10% strongly capitalized level on the RAC ratio, and that represents sort of excess that we are carrying, but we're still generating 27% ROE on average. And as we look to deploy our equity, we really don't want to be dilutive. So we're looking for plus 20% returns when we're talking about acquisitions or internal deployment of that capital. And as we look in our budget process and we look at our opportunities next year, then certainly over sort of 6 months or longer, we are confident that we can continue to support that growth with the internal capital generation that comes with the level of earnings that we're also delivering. Operator: Your next question comes from the line of Dan Fannon with Jefferies. Daniel Fannon: I wanted to follow up just on the competitive environment. You guys have obviously been having success in adding clients and clearing balances. Just curious if you've seen any change in dealer behavior given the regulatory changes that are softening up for them? Or any shift in the competitive backdrop as you think about the prospects of additional market share gains going forward? Ian Lowitt: I mean, it's sort of interesting. I mean, this is sort of my perspective on it and then interested in Paolo's perspective as well. I mean what we see from the banks is much more active involvement in trading and looking for us to help them access market liquidity, which is completely noncompetitive activity and actually help support our business. What we are not seeing is a sort of different level of competition for sort of clearing, which, again, as we've shared on some of these calls, is not a surprise to us because of sort of the very long lead time associated with clearing mandates as well as the fact that you need to make a lot of investments as well as the fact that you need to invest in organization and sort of capabilities. So we're not seeing a change with regard to that. And we're not really seeing a change with regard to sort of pricing on structured notes or any of these other products. So at the moment, it does not feel as though the lower sort of capital requirements that are sort of being imposed on banks by this current administration's regulators is affecting our prospects. I don't know what you would... Paolo Tonucci: Yes, no, I'd agree with that. I think we've seen 1 or 2 spots where there's been a little bit of incremental competition. On the stock lending side, we've seen a couple of new entrants somewhat aggressive with pricing. But that doesn't really -- it's not really disrupted our progress with acquiring prime clients. I mean, it has a sort of very marginal effect. You can see a little bit of that in the third quarter versus the second quarter where there was a bit of sort of rate compression, but very much at the margin. Beyond that, I think the sort of the combination of sort of expertise and the sort of quality of the offering sort of remains a really important differentiator. And we typically are seeing, whether it's sort of clearing or prime, pretty consistent competition. It is competitive. It's not that we have a completely free field, but no one sort of competing really on pricing other than, as I said, a little bit of sort of compression on some of the stock lending. Daniel Fannon: Great. That's helpful. And then just as a follow-up, you talked about an active potential M&A pipeline. I just would like to get a little more context around that versus prior periods. And as you think to 2026, do you anticipate that being a more active year than what you guys have done so far or will do in 2025? Paolo Tonucci: Yes. I think it's all lining up to be a very active '26. I think there's still a couple of months left in '25. So we're still hoping to sign at least a couple of sort of agreements, but '26 really is sort of lining up very well. I think the continued sort of interest from companies in joining the sort of Marex organization and being sort of part of our platform really has driven a lot of that sort of reverse inquiry. So we're benefiting now from many companies wanting to be part of Marex and sort of coming to us. And even in the competitive processes, and you will be aware of some of those, even the competitive processes, we often start in a very good position because of the sort of track record of successful M&A. So I think '26 will be a strong year. Operator: Your next question comes from the line of Bill Katz with TD Cowen. William Katz: Ian, just maybe a qualifying question first. You mentioned that, obviously, we still have another 2 months to go, but it could be a record quarter. Is that revenue, volume, earnings, all of the above? I'm just sort of curious of where you -- I just want to make sure I understand where the deeper momentum might sit. And then I have a bunch of follow-ups. Ian Lowitt: Yes. I mean, just when I say records, I actually just care about profit. So I think it's -- when I say a record quarter, it's a record profit quarter. That said, I mean, I think we'll be on track for a record revenue quarter as well. So it will be a combination. But really, when I say record, my focus is on profit. William Katz: Okay. Maybe a broader question for you. A lot of my other questions were asked already. Just as we think through tokenization and blockchain technology, could you talk a little bit about maybe the pros that you could see for the business? Does it unlock any efficiencies for you that could also potentially accelerate the M&A pipeline for you? And then conversely, is there any risk to any of the businesses as things move from sort of the TradFi into the DeFi platform? Ian Lowitt: Yes. I mean, here's sort of what we see at the moment. So I mean, around tokenization, the big benefit is that these markets can sort of operate 24/7. And so in one form or another, we think that the way that is likely to play out is that people will be able to transact not just sort of crypto 24/7, but there will be tokenized versions of treasuries and equities and a range of other assets. And it's sort of hard for me to see how you do that away from sort of tokenization. So I think that, that's clearly going to be an opportunity. And to the extent that there's sort of more activity in the world because people are trading more days and more hours, I think that's good for our business. I think that there's also sort of a tokenization opportunity around sort of stablecoins and again, the fact that it's sort of 24/7, and it means that people can make payments weekends, they can make payments at night. All of those kinds of things, I think, will also add to the activity and out of payments in stablecoin will come a whole sort of slew of other services that people will look for with regard to sort of stablecoin. And again, I think that, that's additive to our business. In terms of the concern that somehow we move to tokenization for everything and that, that potentially disrupts sort of clearing and the clearing ecosystem, I must express some level of sort of skepticism around that. I do think that the activity is going to sort of continue -- or a lot of that is going to continue to be cleared on exchange. If we get sort of our cash sooner rather than later, that's a good thing rather than a bad thing. And I've never understood how for very, very large sets of data like a clearing house, you sort of have benefit of being tokenized where what you've got to do, you've got to sort of keep track of more and more nodes and at some level, that feels like that should not give you economies of scale, but at some level, this economies of scale. So it's conceivable that there are changes to the exchanges and the exchange ecosystem, but we can't anticipate what those are. We don't see those as sort of being real. What we do see, though, is a series of opportunities. And we believe that we're setting ourselves up to capture those, and we think we have sort of the organizational nimbleness to position ourselves well. And critically important, we have relationships with a series of the most sophisticated players in the space, and we're working together with them. And that's an absolutely massive competitive advantage for us as we determine how these things are likely to play out because you're not sort of building things with a view that at some point in the future, somebody might find it useful or interesting. You're engaging in things that sophisticated clients are talking to about today that would be very helpful and that they're willing to engage in, in size. William Katz: Okay. If I could maybe squeeze a third one in, I apologize for maybe overstaying my welcome. But just another big picture question for you as you sort of think through 2026 and very encouraged by the momentum of the business and the pipeline. So maybe a two-parter. Can you give us an update on just how things are progressing with Winterflood, Valcourt, just in terms of initial expectation that you've had a little bit more time to work with those platforms a little bit? And then the broader question is, as you look to next year, how do you sort of see the interplay between revenue growth and margin opportunity? I appreciate that some of these deals come on at suboptimal margins, take some time to get you there. But how do you sort of see the interplay driving profit before tax growth year-on-year? Paolo Tonucci: Yes. Thanks, Bill. I mean, in terms of the progress that we have made with all of the acquisitions, I mean, including those that are closed, Aarna, which was the Abu Dhabi acquisitions, now Marex Abu Dhabi, that's sort of -- it's on track. It's in line with our expectations. I think the Hamilton Court acquisition has outperformed expectations, and they've had also a record month in October. And I think we're starting to see some of the benefits of linking that into our wider client base. And the margins there, you can see that will improve. Margins are somewhere in the sort of high 20s, low 30s. I think that, that will sort of improve with revenue growth as they settle into being part of the bigger platform, Winterfloods, I expect will show a similar pattern. From what we can see, although we don't have all of the details, it looks like they've had a very strong last quarter. Certainly, it looks like it's, from a revenue perspective, one of the best quarters they've had in the last 3 years. So we're quite optimistic that, that business is actually building up some momentum and we'll accelerate that. But it will start a relatively low margin. It's not going to -- we're not going to be getting a 30% -- or a high 20% PBT margin. I think from an ROE perspective, it will probably be quite accretive, though. So I'm optimistic about that. Valcourt is a small business, but where there's more value in the accounts that are opened up, and we're seeing that coming through, but that won't move the needle. That won't move the needle in terms of profit or margin. And generally, I think the trend that we're seeing has been an improvement in margins. The improvement in margins has been sort of very broad-based. But obviously, the area where we still have the lowest margins are the Agency and Execution ex Prime. And that, I think, benefits from some of the new desks settling in and maturing. And we have had a large number of new desks. And we've -- as you've seen, we've become much more active in credit, much more active in FX. So I think you can expect some margin improvement, I think, from the sort of low to mid-teens up into the sort of higher teens. And that will drive the overall group's margin improvement because they're quite large revenue streams. Ian Lowitt: I mean, just sort of for clarity, we haven't closed Winterfloods yet. So we're waiting on approval from the regulators. But obviously, to the point of your question, we are engaged with some of the folks there. And so we are learning more about their business. But obviously, that hasn't closed yet. We hope to close this year, but if that doesn't happen, we would expect it to close early next year. I think with a sort of general point with regard to 2026, I think that as we've indicated, we expect that -- we're hoping that margins will improve, but we really are not looking to improve margins dramatically because we continue to invest. And we think that that's the right decision to make to position the firm for long-term success. And so while we hope that margins improve and they should, as a result of some of the things that Paolo was describing and other things that we have going on inside the firm, we don't see ourselves dramatically changing margin in part because the business mix doesn't change that quickly. And also we want to continue to invest in support and control. We want to continue to invest in opportunities that are likely to generate returns for us in the future. And we're confident that, that's the right way to sort of operate. So '26, we'd expect margins to get better, but not dramatically better. Operator: Your next question comes from the line of Ben Budish with Barclays. Ian Lowitt: Ben? Operator: Please, Ben, go ahead. It seems like Ben Budish has disconnected. We'll go to the next question coming from the line of Carlos Gomez-Lopez with HSBC. Carlos Gomez-Lopez: The first question is about the fact that you are a frequent issuer in the debt market. Have you considered to retap the AT1 market as well? And what do you think of pricing in that space? Second, in terms of the long-term ROE of the business, when you went public, I think you were comfortably at something like 20%. You are now comfortably around the 27%. I know that you are more focused on margin than ROE, but where do you think you will stabilize in the long run? Ian Lowitt: So with regard to AT1, I mean, I think we remain sort of interested in AT1. And at some point, it will sort of come back on to the menu of things that we might do. I don't have a sort of current price of where we think we'll be able to bring AT1. I don't know, Paolo, if you have... Paolo Tonucci: Well, yes, but we sort of -- we stay close to all of these issuances and prices are interesting, but we don't need to issue at the moment. And we have a maturity in 2027. So we have a little bit of time before we have to make that decision. But we're certainly close to that market. Ian Lowitt: Yes. And then with regard to ROE, I believe that we can continue to operate in and around sort of the current levels of ROE, so somewhere between 25% and 30%. I mean, as you say, we don't manage to it. So I'm comfortable, for example, that we're carrying some amount of excess equity, which is, I think, desirable and creates optionality for us. I mean, we could be driving up our ROE if we reduce the level of equity. But I think that equity represents -- it's sort of critical to sort of support the growth of the firm. And so I think we're sort of happy to do that. But given the mix of what we do, which is essentially supporting flow rather than holding any positions, that's an inherently high ROE activity. And my hope and expectation is that we'll continue to operate in that 25% to 30% range. Carlos Gomez-Lopez: That's very clear. And if I can follow up, and I'm sorry to ask this, but can you give us an update on all the litigation that you as a public company now you have to face and how much that is costing all of you, the management team, in terms of time and effort. And again, sort of I guess that's something we need to be updated on. Ian Lowitt: Yes. I mean, look, I think that -- I mean, one of the things that sort of happens with a short seller report is there are -- these class action lawsuits that sort of follow inevitably with those. Our lawyers in New York are extremely confident that they will be able to get that dismissed because it's sort of groundless. The costs associated with it are not significant. And so it feels, at least at this point, more of a sort of distraction and sort of a nuisance more than anything else. And so I wouldn't draw much from it. It's just a natural consequence, the same law firm sort of follows all of these sort of short reports and sort of files these class action lawsuits. Obviously, we don't know exactly how that plays out. But at least based on the advice that we have received so far, it doesn't feel like it's sort of consequential. Carlos Gomez-Lopez: Very clear. Ian Lowitt: All right. Well, thanks, everybody. Thanks for joining us. Thanks for all the questions. We look forward to continuing the conversation with the analysts and with investors over the next period. We're really, as you've hopefully got a sense of from the answers to the questions, sort of excited about our prospects, both in terms of sort of newer opportunities as our markets evolve as well as the sort of standard opportunities that come from sort of share gains in our products. And so we're excited about and enthusiastic about where we think we'll end the year and then our opportunity set in '26. So thanks for joining us, and we look forward to continuing the conversation with you all. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, and welcome to the Assured Guaranty Limited Third Quarter 2025 Earnings Conference Call. My name is Becky, and I'll be your operator for today's call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to our host, Robert Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead. Robert Tucker: Thank you, operator, and thank you all for joining Assured Guaranty for our third quarter 2025 financial results conference call. Today's presentation is made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The presentation may contain forward-looking statements about our new business and credit outlook, market conditions, credit spreads, financial ratings, loss reserves, financial results or other items that may affect our future results. These statements are subject to change due to new information or future events, therefore, you should not place undue reliance on them as we do not undertake any obligation to publicly update or revise them, except as required by law. If you're listening to a replay of this call or if you're reading the transcript of the call, please note that our statements made today may have been updated since this call. Please refer to the Investor Information section of our website for our most recent presentations and SEC filings, most current financial filings and for the risk factors. This presentation also includes references to non-GAAP financial measures. We present the GAAP financial measures most directly comparable to the non-GAAP financial measures referenced in this presentation, along with a reconciliation between such GAAP and non-GAAP financial measures in our current financial supplement and equity investor presentation, which are on our website at assuredguaranty.com. Turning to the presentation. Our speakers today are Dominic Frederico, President and Chief Executive Officer of Assured Guaranty Limited; Rob Bailenson, our Chief Operating Officer; and Ben Rosenblum, our Chief Financial Officer. After their remarks, we will open the call to your questions. As the webcast is not enabled for Q&A, please dial into the call if you'd like to ask a question. I will now turn the call over to Dominic. Dominic Frederico: Thank you, Robert, and welcome to everyone joining today's call. We continue to build value for Assured Guaranty shareholders and policyholders during the third quarter and first 9 months of 2025. Adjusted book value per share of $181.37 and adjusted operating shareholders' equity per share of $123.10, both reached record highs at the end of the third quarter. Year-to-date, Assured Guaranty earned adjusted operating income of $6.77 per share. This is an increase of approximately 17% compared with the same period last year. Third quarter financial guarantee production was strong. We produced $91 million of PVP in the quarter, 44% more than in the third quarter of last year and 42% more than in the second quarter of 2025, as transactions coming to market return to a more typical business mix for Assured Guaranty. Rob will provide more details on this later in the call. For the first 9 months, we generated a total of $194 million of which U.S. public finance business produced $152 million. We benefited from record U.S. municipal bond issuance and strong investor demand for our municipal bond insurance including both from institutional investors on some very large infrastructure transactions. Additionally, our U.S. public finance secondary market business flourished with $1.5 billion of insured par, representing 2.5x the amount of secondary business we insured in all of 2024. Non-U.S. public finance and global structured finance contributed $42 million of PVP collectively during the first 9 months. Production in these business lines tend to be more episodic than in U.S. public finance because their transactions are fewer, generally larger and typically have longer lead times. In structured finance, we've been building our subscription finance business which is characterized by many smaller, shorter duration and renewable transactions. Rob will provide more details on this. Our investment portfolio performance has been enhanced by the greater use of alternative investments in recent years. We continue to see excellent performance from our alternative investments, whose inception to date annualized internal rate of return, including from funds managed by Sound Point and Assured Healthcare Partners was approximately 13% through September. In terms of our share repurchase program on November 5, the Board of Directors authorized the repurchase of an additional $100 million of our common shares, bringing our current authorization to just over $330 million. I'm looking forward to a successful fourth quarter in which we have already booked some sizable transactions. We continue to look for strategic opportunities to expand our current insurance businesses into new sectors and new markets and to diversify our revenue sources further to support prudent sustainable growth. I will now turn the call over to Rob. Robert Bailenson: Thank you, Dominic. In the third quarter, the PVP across our 3 insurance business lines was $91 million. This result was led by our core business, U.S. public finance. We closed U.S. public finance transactions totaling $7.9 billion of par in the third quarter compared with $5.4 billion in the third quarter of 2024. The third quarter of this year saw a marked change from the previous 2 quarters in the business mix of U.S. municipal bonds that came to market. Many BBB issuers held back from coming to market during the first 6 months of the year. This resulted in a skew toward higher rated transactions in the available market for our insurance during the first half of the year. However, in the third quarter, issuance by BBB credits came back from its temporarily lower levels and the mix of sectors and of underlying credit ratings in the municipal bonds we insured came more in line with our typical production mix, which contributed to strong third quarter results. For the first 3 quarters of the year, U.S. municipal bond issuance increased by more than $50 billion over what was already a record issuance during the first 9 months of 2024. And total primary market insured par volume rose 18%. We continue to lead the industry, ensuring 63% of the total insured U.S. municipal market par sold in 9 months 2025, compared with 57% in 9 months 2024, ensuring approximately $21 billion of primary market par through September 30. Also year-to-date Assured Guaranty ensured some of the largest transactions that came to the municipal market, reflecting the continued institutional demand for our guarantee and the increased price stability and market liquidity our insurance can provide. For example, on a sold basis, we insured 14 transactions of $100 million or more in the third quarter. Year-to-date, we insured over 40 transactions of $100 million or more. For the third quarter, this included approximately $650 million for the Massachusetts Development Finance Agency, $600 million for the New York Transportation Development Corp., New Terminal 1 at JFK Airport. $422 million for the city of Orlando and $372 million for the Illinois Municipal Electric Agency. Additionally, AA issuers and investors have continued to derive value from our guarantee. In aggregate, during the first 9 months of 2025 we issued 132 policies on bonds with AA underlying ratings across the primary and secondary municipal markets, totaling $5.8 billion of par. Further, our secondary market U.S. public finance strategy continued to produce strong results. We generated $32 million of PVP in the first 9 months of 2025, compared with $5 million in the first 9 months of 2024. The company's $1.5 billion of par written in the secondary market represented 7% of our U.S. public finance par written in the first 9 months of 2025 compared with 2.4% in the first 9 months of 2024. With $4 trillion of municipal bonds outstanding, this business has plenty of room to grow. Non-U.S. public finance added $5 million in PVP for the quarter and has contributed $19 million in PVP year-to-date. Year-to-date contributions or from several primary infrastructure finance and regulated utility transactions throughout the U.K. and the European Union as well as secondary market transactions for U.K. subsovereign credits. Global structured finance contributed $8 million in PVP for the quarter and $23 million in PVP year-to-date. Global structured finance's year-to-date PVP contribution came primarily from subscription finance and the upside of a transaction in Australia that provided protection on a core lending portfolio for an Australian bank. As Dominic mentioned, our global structured finance business has increasingly moved towards repeatable business. which generates future premiums as we see with subscription finance. And since these are shorter duration transactions, we also benefit because we earn the premiums more rapidly and can recycle that capital. For example, the new business we insured in the first 9 months of this year will mature within 5 years, and we will earn all the premiums during that period. This time frame is 2 to 3x faster than the structured finance business we were insuring just 5 years ago. We are looking forward to a solid finish for the year. I'll now turn the call over to Ben for more details on our financial results. Benjamin Rosenblum: Thank you, Dominic and Rob, and good morning. Adjusted operating income in the third quarter of 2025 was $124 million or $2.57 per share which compares with adjusted operating income in the third quarter of last year of $130 million or $2.42 per share. In comparing third quarter 2025 to third quarter 2024, it's important to note that investment income portfolio and the scheduled premiums from the financial guaranty insured portfolio, both contributed more to adjusted operating income in the third quarter of this year than the comparable period of last year. . As of September 30, 2025, our deferred premium revenue was $3.9 billion, consistent with last quarter. Large premium transactions as well as supplemental premiums on certain existing transactions contributed to the stable warehouse of earnings that offset amortization on the existing insured portfolio and demonstrate the strength of our underwriting and new business development efforts. Earnings from the investment portfolio come in several forms with different earnings recognition methods. The majority of our investments are available for sale, fixed maturity and short-term securities that are in net investment income. This portfolio earned $11 million more in the third quarter of 2025 than it earned in the third quarter of 2024 due to several factors. First, certain CLO equity tranche investments that were previously in a CLO fund reclassified to the available-for-sale fixed maturity portfolio. Net investment income in the third quarter 2025 included $9 million related to the CLO equity tranches, whereas in the prior year, the change in the NAV of the CLO fund was $8 million and was reported in equity and earnings of investees. And second, net investment income on the externally managed fixed maturity portfolio increased by $4 million as our managers reinvested into some corporate securities that were higher yielding. Offsetting these increases was a reduction in earnings of $7 million from the short-term investment portfolio as interest rates and our average balances declined. In addition to the CLO equity tranches, we have other alternative investments whose changes in NAV are reported in adjusted operating income. Earnings from this portfolio tend to be more volatile than earnings from the fixed maturity portfolio. In the third quarter of 2025, the change in NAV from these alternative investments was a $25 million gain compared with a $28 million gain in the third quarter of 2024. On an inception-to-date basis, as of September 30, 2025, our aggregate alternative investments have generated an annualized internal rate of return of 13%, substantially greater than the returns on the fixed maturity portfolio. While adjusted operating income in the third quarter of 2025 reflects a modest decline compared with the third quarter of 2024, this was primarily attributable to the amount of benefit related to improvements in U.S. RMBS recoveries. In both periods, we increased our recovery assumptions on second lien charged-off balances, which resulted in a $26 million benefit in the third quarter of this year and a $29 million benefit in the third quarter of last year. These assumption updates are based on observed trends over the past several years. Last year, we also updated recovery assumptions on first lien transactions. However, these assumptions remain static this year. Overall, we saw positive results in our third quarter loss development with a total net economic benefit of $38 million, primarily related to legacy RMBS exposures and a non-U.S. public finance exposure. As I mentioned last quarter, the largest below investment-grade exposure in the investment portfolio, which was obtained as part of a loss mitigation strategy was paid down in the third quarter. While there was no significant impact on income associated with this final resolution on an inception-to-date basis, we received over $100 million more than we paid out. In October, a commercially leased building that was part of a loss mitigation strategy for a troubled insured exposure was sold. We expect to realize an after-tax gain associated with the sale and final resolution of this exposure in the fourth quarter of approximately $10 million to $15 million more than we paid out. These outcomes showcase our multifaceted approach to loss mitigation, combining vigorous legal defenses, enforcement of our rights under financial guarantee insurance contracts and financial flexibility as well as our ability to extract value from the underlying collateral of our workout credits. Turning to capital management. In the third quarter of 2025, we repurchased 1.4 million shares for $118 million at an average price of $83.06 per share and also returned $16 million in dividends to our shareholders. Including our Board's approval earlier this week of an additional $100 million in share repurchases, our remaining authorization is $332 million. In terms of our current holding company liquidity position, we have cash and investments of $272 million, of which $35 million resides in AGL. These liquidity balances reflect the $213 million cash component of the $250 million stock redemption approved by the Maryland Insurance Administration that was implemented in August. Share repurchases, along with adjusted operating income and new business production collectively contributed to new records for adjusted operating shareholders' equity per share of over $123 and adjusted book value per share of over $181. While adjusted operating income varies from period to period, the consistent quarterly increases in these book value metrics reflect the value of our key strategic initiatives, which build shareholder value over the long term. I'll now turn the call over to our operator to give you the instructions for the Q&A period. Operator: [Operator Instructions] Our first question comes from Marissa Lobo from UBS Group. Ameeta Lobo Nelson: So first, on the changes to the investment portfolio you outlined, including higher-yielding corporates and CLO equity. How are you thinking about the ongoing allocation to these higher-yielding sectors in light of current macro trends? Benjamin Rosenblum: Were always work with our outside investment managers, and we have an internal group that looks at our investments as well, both our treasury and functional alternative investments. And our idea is to obviously both optimize the yield on our investment as well as maintain a safe portfolio with adequate liquidity in the event we have a loss. Ameeta Lobo Nelson: Okay. And just looking at the listing of the low investment grade, could you talk a little bit about the issues with the Brightline transportation exposure and what's causing some of the pressure on those deals? Dominic Frederico: Well, Brightline, as you know, is a new operation. They're having the total growing pains of a startup. They had a problem with both the choice of the lines and the number of the cars you're able to put on the availability for service. We're very comfortable with the structure, with our exposure. You remember we're in the senior most section of the capital stack, significant equity and subordinated debt is beneath us. So in terms of our view of it, they're having the typical growing pains as they get better at their management of both availability and route structure, it will basically work itself out. Ameeta Lobo Nelson: And finally, just looking at the opportunity set. I was curious if there's a place for AGO to get involved in the current data center CapEx cycle? Dominic Frederico: I'll let Rob -- but yes, absolutely. Robert Bailenson: Yes, we are actually evaluating the data center, and we are -- we look at that opportunity every quarter as well as other opportunities we have executed in new areas like liquid natural gas, and we are actively looking at data centers as well. Dominic Frederico: It's an asset that led to [ self structure ]. Operator: [Operator Instructions] our next question comes from Tommy McJoynt from KBW. Thomas Mcjoynt-Griffith: Along the same line of that previous question. But more broadly speaking, I guess, what do you guys view as the pipeline to grow written premium into 2026. So as you guys look about the various opportunities for increased infrastructure spending, any other structured credit pieces. If you could just talk about the pipeline into 2026? Robert Bailenson: Well, we see great opportunities with all 3 of our financial guaranty lines of business. In U.S. public finance, as you've seen, we've made a big investment in secondary market both internal resources as well as modernizing our systems where we can interact much more quickly with our asset managers and investors that are looking for secondary market opportunities. As you can see, we've had great success this year, and we continue to see that as an opportunity going forward and a growth opportunity given that the market is 90% uninsured, there are a lot of credits that we can actually provide value on. It also demonstrates the trading benefit and trading value that we see in the market, and it helps us on the primary execution and also those primary executions help us in the secondary market as well. In global structured finance, we're looking at core lending portfolios of banks and also regulatory capital that's needed in -- for these Europe -- most of the European and Australian banks. And as you can see, we've executed significantly in the fund finance sector, and we see continued growth opportunities there. And in Australia, we're looking at infrastructure as well, like airports and other utilities. So we're very -- we feel very strongly going forward in the sector. Dominic Frederico: Yes, I think we're very bullish on the ability of the company to produce and what production is going to look like going forward. As you look in the current quarter, it kind of reinforces our view of the domestic public finance market that we were getting hurt by a mix of business for the early quarters and this quarter kind of returned to normal and so the activity that we're able to book through that cadence. If you look internationally, as Rob says, we've got tremendous opportunities kind of across the globe where we have the law in our favor or rule of law, and those markets are expanding in terms of both asset classes, as you somebody mentioned, in terms of data centers, it's an opportunity that we've seen coming strongly. Obviously, we're concerned about the power sources for some of those things, but that's part of the underwriting equation. As Rob said, we shifted to a different type of structured finance. It's shorter term, earnings quickly, releases capital for recycling, will provide a better ROE to the bottom line of the company. Those opportunities, as more counterparties we identify and able to get an agreement with, we'll continue to expand that market and become a significant part of a repeatable business. So we look for good revenue sources to meet our underwriting criteria, and we think that there's a great opportunity globally to the type of businesses that we write and the success we've had as I said, the quarter, I think kind of verifies that or give some validation to that premise. Robert Bailenson: I also want to just reiterate, we've been actively opening up new counterparties in both Europe and Australia, that want to trade with us for their core lending portfolios and risk-weighted assets. And as we open up these lines to these banks and trading with these banks, we help them in many areas, not just in fund finance, but other parts of the balance sheet that they need risk-weighted asset protection. Thomas Mcjoynt-Griffith: Got it. And switching over to the Puerto Rico side, there were some positive developments during the quarter with the Oversight Board and some consolidation in the creditor groups. What's the onus for you guys to get more positive on -- where you'd have to book a favorable reserve development particularly around that PREPA exposure? Like what type of events would you need to see? Dominic Frederico: Well, Tommy, 2 things. One, you just cost me money because I bet the room we would not get a PREPA question. So now I'm down some bucks, thank you very much for that. What's going to really get a recognition of the value that we placed on the reserve and the claim is a deal. And obviously, we've had 3 deals that have been rescinded on us by the government. And we think we're in a very preferred position relative to being a creditor based on the appellate decision recently in terms of the perfected of our lean and the size of the claim. Now this administrative expense for the might has been disappearing. We've been steadfast in our direction in our view that we're going to defend our legal rights. And a great example is if you look at the current year, there are 3 transactions that reflect the full recovery of any paid losses or paid losses, if any, as well as an additional return on the fact that we held to our legal rights and litigated or negotiated ultimate settlements in our favor. And if you go back to RMBS, I look at it, we're 4 for 4. I don't expect to go 4 for 5. Operator: This concludes the question-and-answer session. I would now like to turn the conference back over to our host, Robert Tucker for closing remarks. Robert Tucker: Thank you, operator. I'd like to thank everyone for joining us on today's call. If you have additional questions, please feel free to give us a call. Thank you very much. Operator: This concludes today's conference call. Thank you all for attending. You may now disconnect your lines. Have a great day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the 1stDibs Q3 2025 Earnings Call. [Operator Instructions] I will now hand the conference over to Kevin LaBuz, Head of Investor Relations and Corporate Development. Kevin, please go ahead. Kevin LaBuz: Good morning, and welcome to 1stDibs earnings call for the quarter ended September 30, 2025. I'm Kevin LaBuz, Head of Investor Relations and Corporate Development. Joining me today are Chief Executive Officer, David Rosenblatt; and Chief Financial Officer, Tom Etergino. David will provide an update on our business, including our strategy and growth opportunities, and Tom will review our third quarter financial results and fourth quarter outlook. This call will be available via webcast on our Investor Relations website at investors.1stdibs.com. Before we begin, please keep in mind that our remarks include forward-looking statements, including, but not limited to, statements regarding guidance and future financial performance, market demand growth prospects, business plans, strategic initiatives, business and economic trends and competitive position. Our actual results may differ materially from those expressed or implied in these forward-looking statements as a result of risks and uncertainties, including those described in our SEC filings. Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them, except to the extent required by law. Additionally, during the call, we will present GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which you can find on our Investor Relations website, along with the replay of this call. Lastly, please note that all growth comparisons are on a year-over-year basis, unless otherwise noted. I will now turn the call over to our CEO, David Rosenblatt. David? David Rosenblatt: Thanks, Kevin, and good morning, everyone. The third quarter was a breakthrough period for efficiency and execution, demonstrating our commitment to financial discipline. We delivered revenue and GMV at the high end of guidance and critically, disciplined expense management drove adjusted EBITDA margins to negative 1%, a 13 percentage point improvement year-over-year, well above the high end of guidance and our best as a public company. We now expect to generate positive adjusted EBITDA in the fourth quarter and for the full year 2026. Reflecting this strong financial performance and our clear line of sight to free cash flow generation, our Board has authorized a new $12 million share repurchase program. Generating free cash flow creates an opportunity to return capital, particularly if we continue to trade at a discount to our assessment of intrinsic value. We are also proving that this efficiency doesn't come at the expense of market leadership. We continue to grow and gain market share even in a tough environment. This combination of operational execution and financial rigor is the story of the quarter. The core of our third quarter effort was to build a more efficient growth engine. We achieved this by realizing a net head count reduction, new performance marketing efficiencies and other cost savings totaling $7 million annually, while growing our product development capacity. We believe that our growth potential is unlocked by investing in product and engineering. Historically, we disrupted this market via technology, and we are committed to maintaining that principle. In September, we executed a targeted reduction in overall headcount, not only to save cost, but to reallocate capital, shifting head count away from sales and marketing roles and into technology development. The net effect is a strategic shift in our workforce composition. While overall head count is lower, we are actively increasing our product and engineering team. Our conviction is simple. The most scalable and highest ROI way to meet the core needs of our buyers and sellers is through technology. This strategic realignment was anchored by the arrival of Bradford Shellhammer in August as our new Chief Product Officer and Chief Marketing Officer. This isn't just an efficiency play. It's a growth strategy. We are now primed to modernize our marketing channels, shifting investment towards high engagement formats like social video and personalized communications. Driving growth via content and community. This marketing reorganization in combination with increasing our product development capacity significantly enhances our operational agility and allows us to deliver richer, more consistent value at every customer interaction. The focus in the third quarter was on architecture and foundation. We began a deep review of our highest leverage opportunities in 4 core business drivers: fueling new buyer growth retaining and engaging existing buyers, improving monetization and ensuring seller success. We are currently developing our 2026 product road map and are excited to share more details during our fourth quarter earnings call. Turning to the third quarter. funnel performance demonstrated clear evidence that our product-led strategy continues to produce results. Our ongoing optimization efforts drove our eighth consecutive quarter of conversion growth, proving the compounding impact of our continuous product iteration. We also saw AOV strength during the quarter. While we observed a slowdown in traffic, the combination of conversion growth and rising average order value drove GMV acceleration. That success in conversion was driven by specific product initiatives designed to increase buyer trust. Our most significant launch in the third quarter directly targeted a major point of buyer friction pricing. Competitive pricing is a key pillar of our product strategy. The objective here is to ensure that the marketplace offers fair and transparent item prices and shipping costs. Over the past year, we have built the foundation for this through the full rollout of our machine learning-based pricing models across all verticals, which bring transparency to a historically opaque market and reinforce buyer trust. In the third quarter, we introduced the technology to enforce another component of the strategy, price parity. With tools like Google Lens and browser extensions, making it easier than ever for buyers to comparison shop, price inconsistencies between platforms can undermine buyer trust and damage our brand reputation. Potentially creating an incentive for buyers to circumvent our platform. To combat this, we launched the first phase of an automated enforcement mechanism that ensures that items listed in our marketplace are priced at or below their price on competing sites in accordance with our terms of service. So far, nearly 90% of identified violation have been remedied by sellers. This is a critical step in reinforcing trust as pilot data showed that items updated at parity saw conversion increases. This initiative moves our policy from soft guidance to consistent automated enforcement, ensuring a more confident and frictionless experience for buyers and driving higher GMV for compliant sellers. Price parity proves that our team can solve complex problems to make sure that we can tackle even more ambitious initiatives faster, we are making significant advancements in integrating AI into our product development process. We view AI as a powerful tool to drive both internal efficiency and customer value. This quarter, our focus was on maximizing employee productivity. Within engineering, we estimate that over 25% of all new code is being written by AI, accelerating our development process. By building AI into our workflows, we are ensuring that our new leaner cost structure maximizes output and product velocity. Beyond engineering efficiency, we are actively incorporating an AI component into every major initiative in our road map. We also continue to make progress in our advertising program by leveraging our high-quality, high-intent audience. For our core sponsored listings, the third quarter focused on efficiency, expanding inventory and optimizing the ad load for better seller visibility. More strategically, we successfully launched our first non-endemic advertiser in late-September. This validates the value of our audience, but the revenue opportunity is still nascent and will develop over time. Moving to the health of our supply. The third quarter underscored our commitment to high-quality, high-performing inventory. We ended the period with nearly 1.9 million total listings, marking continued growth, up 1%. As anticipated, the number of unique sellers continues to stabilize following our 2024 pricing actions. We ended the quarter with approximately 5,800 unique sellers indicating that the major headwind from the essential seller program is now largely behind us. This disciplined strategic focus resulted in a healthier, more valuable marketplace with the churned cohort having a minimal impact on GMV and listings. This strategic pruning allows us to reinforce our core value proposition. Our 2025 seller sentiment survey confirmed that 1stDibs is now the primary sales channel for our sellers, surpassing their own showrooms for the first time. This finding underscores the platform's growing relevance and reinforces our unique position as the premier essential destination for luxury design. Because we've successfully aggregated supply around the highest quality dealers, we expect to be in a strong competitive position, when the luxury market rebounds. Given the significant product enhancements we have delivered to our dealers, we believe the platform now offers a dramatically higher ROI for our sellers. Our ability to deliver this high ROI is a direct result of sustained investments in marketplace technology. To ensure that we can continue to invest in the technology that powers their success, we executed a subscription pricing action on certain seller cohorts on October 1. This marks our first broad-based increase for this segment, since 2019. This decision reinforces the status of the platform as an essential sales channel, underpins the platform's long-term sustainability and provides a tangible tailwind to our recurring revenue. In closing, the third quarter was defined by focus and execution. We successfully executed a major strategic realignment, fundamentally redesigning our organization to prioritize high ROI technology investments and further reduce our cost structure. The results, we delivered our best adjusted EBITDA margin as a public company, confirming that this realignment represents a major step forward on our path to profitability. Our commitment to reaching adjusted EBITDA positive is absolute and we have maintained this rigor, while successfully reallocating capital to technology that will serve as the engine for our future expansion. We continue to gain market share and we now have the durable financial model needed to capitalize on the next phase of e-commerce growth. We've built the foundation. Now we're ready to accelerate. Thank you for your continued support. I will now turn it over to Tom to review our third quarter financial results and fourth quarter outlook. Thomas Etergino: Thanks, David. Good morning, everyone. Our record third quarter margin performance validates the comprehensive effort to improve efficiency that we began in 2022 by protecting and growing our technology investments, we have structurally lowered our operating expenses, while enhancing our long-term growth trajectory, setting the stage for sustainable margin expansion in the years ahead. Our commitment to efficiency is clear. Operating expenses were down 6% year-over-year and down 10% when excluding severance costs. This reduction is fundamentally changing the profitability curve of this business. Third quarter performance confirms we are making good progress on our path to profitability by structurally lowering our breakeven point. I will now walk you through the details that support these outcomes. From a funnel perspective, third quarter results validate the effectiveness of our product road map. Our ongoing optimization efforts drove our eighth consecutive quarter of conversion growth, which accelerated during the period. AOV also rebounded. While we observed a partial offset due to softening traffic growth, driven in part by a reduction in performance marketing spending, the combination of conversion growth and AOV rebound drove the GMV acceleration. GMV was up 5% in the third quarter versus down 2% in the second quarter. On-platform average order value of nearly $2,700 and median order value of approximately $1,300 were both up 10%. This dynamic was driven by a slight mix shift towards higher-value orders. In addition, the year-ago period also included auction orders, which have below-average AOVs, creating an easier comparable base. Returning to funnel trends. Traffic softened driven by lower paid traffic, where we tightened efficiency thresholds and reduce performance marketing spending. We ended the quarter with over 75% of traffic from organic sources, up 3 percentage points year-over-year. This organic strength is a key financial advantage, reflecting the power of our brand and a low dependence on performance marketing to drive traffic. Both our core buyer segments, trade and consumer grew GMV. This broad-based growth confirms the platform's value proposition with the Trade segment driving slightly stronger growth year-over-year. Vertical performance highlights the diversification of our marketplace. Art, which accounts for a low teens percentage of total GMV was the fastest-growing vertical, up double digits. We also saw strong GMV growth in jewelry and vintage and antique heat furniture. Active buyers totaled approximately 63,200 at quarter end, up 1%. Turning to supply. We ended the quarter with approximately 5,800 unique sellers, down 17%. As seller count continue to normalize following our 2024 pricing actions. We closed the quarter with nearly 1.9 million listings, up 1%. This outcome shows that the elevated churn from our pricing optimizations were successfully isolated to low-impact sellers, resulting in de minimis financial impact in both GMV and listings. Our focus remains on the quality of our supply base. Moving on to the income statement. Net revenue was $22 million, up 4%. Transaction revenue, which is tied directly to GMV was approximately 75% of total revenue with subscriptions making up most of the remainder. Take rates declined approximately 40 basis points year-over-year due primarily to a mix shift in order value. Gross profit was $16.3 million, up 9%. Gross profit margins were 74%, up 3 percentage points year-over-year. Gross profit margins included a nonrecurring insurance recovery related to a prior shipping matter, which contributed approximately 1 percentage point to our reported margins. On an adjusted basis, gross profit margins were at the high end of our 71% to 73% guidance range. Sales and marketing expenses were $8 million, down 13%. Excluding severance charges of approximately $800,000, sales and marketing expenses were down 22%. This outcome is a direct reflection of our continued expense discipline and the strategic realignment we executed in September. We realized savings from lower personnel costs and simultaneously tightened our performance marketing efficiency thresholds. Sales and marketing as a percentage of revenue was 36%, down from 44% a year ago. Technology development expenses were $5.9 million, up 8%, driven by higher headcount-related costs due to our annual merit increases awarded in March and additional bonus awards in the quarter. As a percentage of revenue, technology development was 27%, up from 26% a year ago. General and administrative expenses were $6.4 million, down to 7% due primarily to lower headcount-related costs. As a percentage of revenue, general administrative expenses were 29%, down from 32% a year ago. Lastly, provision for transaction losses were approximately $790,000, 4% of revenue, flat year-over-year. Total operating expenses were $21 million, a 6% decrease, excluding severance cost of roughly $800,000, operating expenses were down 10%. The strategic realignment executed in September fundamentally changes our profitability equation. The estimated $7 million in annual savings structurally lowers the revenue level required for us to break even. A reduction in performance marketing spend is the largest component of these savings achieved by raising our efficiency thresholds for new consumer acquisition. While this deliberate decision will reduce our paid traffic volume, it confirms our commitment to self-sufficiency. We are leveraging this reduction to create a more efficient cost structure that can achieve profitability with minimal reliance on top-line growth. Adjusted EBITDA loss was approximately $240,000 compared to a loss of $3 million last year. Adjusted EBITDA margin was a loss of 1% compared to a loss of 14% a year ago. Moving on to the balance sheet. We ended the quarter with a strong cash, cash equivalents and short-term investments position of $93 million. We maintain a robust cash position, but our future focus is on free cash flow generation. Following this quarter's success in cost reduction, we now have a clear line of sight to generating positive adjusted EBITDA and free cash flow. This confidence is why our Board has authorized a new $12 million share repurchase program. As we ramp free cash flow generation over time, our financial flexibility increases, allowing us to be opportunistic with capital deployment. Given our belief that our shares are currently trading at a discount to their intrinsic value, this represents an excellent opportunity for shareholder value creation. Turning to the outlook. Our guidance reflects quarter-to-date results and our forecast for the remainder of the period. We forecast fourth quarter GMV of $90 million to $96 million, down 5% to up 2%. Net revenue of $22.3 million to $23.5 million, down 2% to up 3%, and adjusted EBITDA margin of positive 2% to positive 5%. Our GMV guidance reflects continued conversion and AOV growth, a slowdown in traffic due in part to our higher efficiency thresholds in performance marketing. This trade-off is strategic we are accepting lower traffic and lower near-term order volume in exchange for significantly higher margins and better unit economics. Our revenue guidance reflects the full quarter benefit of the seller subscription price increase, which took effect on October 1. Our adjusted EBITDA margin guidance reflects structural efficiency gains from the lower performance marketing and personnel costs following the September strategic realignment. Seasonally higher revenue and gross profit margins at the high end of our 71% to 73% range. In addition, our fourth quarter expense base reflects a temporary tailwind of approximately $300,000 from the strategic realignment. The immediate savings from the reduction of sales and marketing roles creates a short-term benefit to margins that will moderate as we onboard the product and engineering roles over the next few quarters. In summary, the third quarter was a pivotal period. We continue gaining market share, while structurally reducing the revenue needed to breakeven. The cost reductions we implemented led directly to our best adjusted EBITDA margins as a public company. This gives us high confidence in our outlook. We are tracking to achieve positive adjusted EBITDA and free cash flow in the fourth quarter and for the full year of 2026, assuming low single-digit revenue growth. A major financial milestone that proves we are successfully building a capital efficient and resilient business model. We appreciate your continued support and look forward to updating you on our progress in the coming quarters. Thank you. I will now turn the call over to the operator to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Ralph Schackart with William Blair. Ralph Schackart: Maybe just kind of kick things off. Can you provide a bit more color on the rationale and the benefits you expect from your September strategic realignment. It sounds like you've made some fairly significant changes here, particularly in performance marketing, strategy. But if you sort of outlined the major benefits you expect beyond just the important sort of movement to positive EBITDA? And then I have a follow-up. David Rosenblatt: Ralph, sure. So this September realignment was really the most recent stage of a process that began 3 years ago in order for us to get to breakeven. And I think it's worth noting that in total, this process has reduced our GMV breakeven by almost $250 million. Throughout the process, we've really been focused on all parts of our cost structure. Headcount, performance marketing, which you mentioned, as well as external vendor relationships. The goal for this 1 was really twofold. First, to achieve adjusted EBITDA profitability in the fourth quarter of this year and then also to maintain that profitability and also reach positive free cash flow for the full year '26. And then second, importantly, to reallocate head count and non-headcount investment from sales and marketing to higher ROI engineering and product development. And so we're now at a point, where roughly 50% of our head count is in product engineering, which I think is a good place to be. Ralph Schackart: Great. And it sounds like you had a pricing increase, I think you said on October 1. Can you give us a sense of the order of magnitude there and how the platform has performed, since you push through the price increase? David Rosenblatt: What was the second part of the question? Ralph Schackart: Just on the price increase, what the reaction has been from -- as a result of pushing that through? David Rosenblatt: Yes. So I mean, in general, we try to make sure that our prices to sellers align with the value that we create. We've obviously made a lot of improvements and investments into the platform. Since 2019, yes, we really haven't meaningfully changed rates over that time. And so this was a very targeted combined subscription increase and also in -- at certain price points, commission increase. The subscription part of it only impacted about 20% of our sellers and amounted to roughly a 10% increase on those 20%, and we saw no meaningful increase in churn. As a result, I think because of the sort of proportionality between value creation and the costs that we charge our sellers. Operator: There are no further questions at this time. This concludes today's call. Thank you for attending, and you may now disconnect.