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Operator: Good morning, ladies and gentlemen, and welcome to the International Airlines Group Third Quarter 2025 Results Call. [Operator Instructions] I would like to remind all participants that this call is being recorded. I will now hand over to Luis Gallego, Chief Executive Officer, to open the presentation. Please go ahead. Luis Martín: Thank you very much. Good morning, everyone, and welcome to the IAG third quarter results. Today, I have with me Nicholas Cadbury, our CFO; as well as members of the IAG Management Committee. This has been another good quarter for IAG, and we are on track for another very good year. Our strong fundamentals underpin our best-in-class value creation over the long term. We are continuing to see robust demand for travel across the group. Our leading network and brands have helped to deliver a strong revenue performance in the quarter with PRASK broadly flat at constant currency against a record quarter last year. Our transformation initiatives are delivering effective cost control, supporting our competitive cost base on which we are delivering market-leading margins at 22% for the quarter and over 15% on a last 12 months basis. As Nicholas will show you, every single one of our airlines has reported a margin over 20% this quarter. This was also one of the best summers operationally that we have ever had, which is also supporting positive NPS performance. Our balance sheet continues to be strong, giving us optionality around our capital allocation, whether that is investing in the business at high rates of return or reducing our gross leverage as we take and encumber aircraft deliveries or as we increase our dividends, as we are doing with this set of results for our shareholders. And we intend to announce further returns of excess cash to shareholders at full year results in February. So for the short term, we are confirming that our outlook for this year is unchanged. And in the longer term, we are confident in our strategy to create value for our shareholders. And on that note, I will hand over to Nicholas to take you through the details for the quarter. Nicholas Cadbury: Thank you, Luis. Good morning, everyone. I'm pleased to announce another strong set of results. On the left, you can see the breakdown of the key drivers of the profit increase we've delivered in Q3. These are shown on a constant currency basis, with the impact of FX shown separately. We delivered a passenger revenue increase of EUR 177 million or 2% up. Cargo revenue decreased slightly as we cycled over the elevated yields in the Red Sea disruption in 2024, and other revenue continued to perform well, with the increase including higher IAG loyalty revenues, together with increased third-party revenues from Iberia's MRO business. As we guided, the performance of nonfuel costs continue to improve quarter-on-quarter, and the increase was partially offset by lower fuel prices. We split out the FX into a separate item, and you can see that we had an EUR 8 million overall headwind from FX and profit, with benefits from the weaker U.S. dollar more than offset by weaker sterling euro in the quarter. Overall, we increased profit by EUR 40 million on the record performance in Q3 last year. By OpCo, Iberia, Aer Lingus and Loyalty showed strong profit growth, whilst BA and Vueling profits were slightly down year-on-year. BA is shown in euros here, and so it was impacted by the depreciation of sterling against the euro, driving a larger reduction in euro terms than in sterling terms. Now let's look at the operating company's performance in more detail. Aer Lingus increased its operating profit by EUR 31 million to EUR 170 million, and its operating margins by 3 percentage points to 21.6% despite competitor capacity growth in Dublin. Q3's performance was driven by the expansion of its networks, particularly on the North Atlantic and the impact of the industrial action of approximately EUR 30 million in Q3 last year. British Airways saw its operating profits declined slightly by GBP 18 million, and its operating margins remain high at 20.2%. Unit revenues fell 1%, driven by the expected softer trading in U.S. sold North Atlantic economy leisure and by 7% capacity growth in European short haul. Nonfuel unit costs increased by 3%, driven by employee pay deals and resilient costs not being fully offset by the transformational benefits. Iberia continued to report strong results with operating profits increasing EUR 56 million to EUR 510 million, and its operating margin increasing 2.2% to 23.7%. Iberia also saw softness in the North Atlantic driven by competitive capacity into Madrid. However, it was fully more than offset by the continued strong demand in the South Atlantic routes. Nonfuel costs increased by 2.2% primarily due to resilience costs and higher ownership costs from the new aircraft. Vueling operating profit was EUR 20 million lower at EUR 272 million, but at a high operating margin of just over 25%. Good nonfuel unit cost performance was offset by a decline in unit revenue driven by slightly weaker demand, particularly in Benelux and Germany and the U.K. as well as the effect of investing and strengthening some of its core markets, which was not fully offset by the strong demand in other markets. IAG Loyalty reported GBP 141 million in operating profit, up GBP 16 million year-on-year at a margin of nearly 19%. Moving on to our revenue performance in more detail. Overall demand for travel continues to be strong, driven by demand for our network and our strong brands. The performance was in line with the guidance we gave in an outlook at the interims. We grew capacity by 2.4% with unit revenue declining by 2.4% and around 2 percentage points of which was due to currency movements, so only marginally down on underlying basis against a record quarter last year. If we look at the performance by region, North Atlantic capacity increased by 2.9% with unit revenue decreasing by 7.1%, it's really important to note that around half of this was due to currency headwinds from both weak U.S. dollar and sterling against the euro. The trends were similar to those we reported at the interim results. We continue to see some softness in U.S. point-of-sale economy leisure and an impact on our transfer flows of U.S. direct capacity growth into secondary markets in Europe. Premium demand held up well. South Atlantic continues to be the star performer in the network. Unit revenue increased 0.6% on a capacity increase of up 2.9%. Iberia's performance continues to be strong with the routes to Argentina continuing to perform well, along with routes to Venezuela, Ecuador and Colombia. Europe unit revenues decreased by 6% on a capacity increase of 2.4%. I've already mentioned weak demand for Vueling, weaker demand for Vueling and the additional capacity from British Airways. In addition, there are FX headwinds from the weak sterling euro, representing about 2 percentage points on unit revenue impact with Iberia and Aer Lingus performing better. To finish off, Asia Pacific performed well and Africa and the Middle East and South Africa, partly saw the impact of additional capacity to Saudi Arabia and South Africa. Just turning to Q4. So far, we are pleased with the revenue performance with passenger route revenue held positively year-on-year, including the North Atlantic. We did have a particularly good month -- good in-month booking in December last year following the elections, so we do have some tougher comparatives over the next few weeks. Despite this, we are confident about the long-haul market in particular. And while it's a bit further away, H1 is so far looking positively. Just to note, as you've seen the currency impact on PRASK in Q3 was minus 2%. In Q4, we currently see higher adverse FX on revenue of around 3.5 percentage points, most of which is usually the average sterling to euro rate, which was about EUR 1.2 last year. And this year, it looks like it will be around about EUR 1.15. Clearly, the majority of the translation FX impact on revenue is offset by a favorable impact on costs. I guided last quarter that the increase in our nonfuel unit costs this year will be weighted to the first half of the year, and I'm pleased that we're broadly flat in Q3 compared to plus 4.6 increase in Q2. This is a good performance overall and in line with our expectations. Currency benefited the unit costs by about 2%. Employee unit costs increased 2.9% due to agreed salary increases, which were only partially mitigated by productivity benefits for more punctual operations. Supply and cost inflation was more than offset by procurement-driven transformation initiatives, part of our wider transformation program. Ownership unit costs increased by 9% driven by investments in new aircraft products and IT. Fuel unit costs reduced by almost 11%, driven by lower commodity prices and the fuel consumption savings from the new generation aircraft we're investing in. We continue to expect nonfuel unit cost to increase around 3%, in line with the guidance I gave you at the last quarter. And likewise, on fuel, we continue to expect fuel costs to be around EUR 7.1 billion. This slide shows our financial results for the 9 months down to net profit. Operating profit increased by around 18%, and pre-exceptional profit after tax increased by approximately 20% to EUR 2.7 billion, which, in addition to a lower share count from our share buyback program drove a 27% increase in adjusted earnings per share. I'm pleased to report that our balance sheet continues to strengthen, gross leverage reduced to 1.9x, down from 2.6x at this time last year, driven by the regular maturity of our aircraft financing and paying down IAG bonds. Net debt was relatively flat year-on-year despite the shareholder returns and net leverage decreased to 0.8x due to the year-on-year profit improvement. We still plan to give approximately 2/3 of our expected 25 new aircraft deliveries unencumbered, and we still expect to spend approximately GBP 3.7 billion on CapEx this year. This is my final slide. I want to remind you about how we think about capital allocation, which is core to how we create long-term value for our shareholders. Our first priority is to make our balance sheet strength targeting net leverage below 1.8x through the cycle, which is a proxy for investment grade. Our second priority is to invest in the long-term strength of the business at high rates of return with a focus on rebuilding our fleet, improving our customer experience and enhancing our digital capabilities and advancing our sustainability agenda. We're, of course, committed to a sustainable dividend return, and I'm delighted to announce an interim dividend of EUR 220 million. This represents approximately 50% of the anticipated annual total dividend, and as with the earnings per share, the dividend per share will also benefit from the share count production. Furthermore, with the current GBP 1 billion share buyback program nearly completed, we intend to announce further returns of excess cash to shareholders at our full year 2025 results at the end of February. We are confident of the strong end to the year and feel that this is a more appropriate time for the Board to make the decision in line with pre-COVID practices. And on that positive note, I will now hand back to Luis. Luis Martín: Thank you very much, Nicholas. As usual, I would like to remind you of our strategy that focuses on 3 strategic imperatives. Firstly, our strong core. We are deploying our capacity in a disciplined focused way to leverage our market-leading positions. And we are building our brands by investing in new, more efficient aircraft and better cabins and services alongside more efficient operations. Secondly, we are building up our complementary capital-light businesses, in particular, IAG Loyalty. And thirdly, we have a robust financial and sustainability framework. We consistently executing these imperatives we can deliver and maintain targets that we think are both best-in-class and appropriate for our business through the cycle. As I mentioned earlier, we have now delivered a 15.2% margin over the last 12 months which is market-leading. Fundamentally, we believe that delivering earnings growth at these levels of margin and return on capital will create substantial value for our shareholders. As usual, there are a lot of things going on around the group, and we have highlighted a few initiatives on this slide. Our network strategy is to focus on our core markets with increasing scale in our tax, we offer our customers more choice of destinations and frequencies. We focus on delivering improvements to the customer journey in our aircraft and on the ground and through a combination of the human touch and digital innovation. A good example of this is our announcement yesterday that we are going to partner with the Starlink to provide high-speed connectivity in all of our airlines with the rollout likely starting early in 2026, and our punctuality, as a driver of both customer satisfaction and efficiency is amongst the best in the world, and in particular, has been excellent over the summer despite many external headwinds. On-time performance improved across all airlines with British Airways achieving the best OTP at Heathrow since 2012, up by 10 points year-on-year. And NPS also continues to improve around the group with Vueling NPS hitting a record high this summer. Finally, we are pleased to announce today that IAG Loyalty has signed a multiyear partnership extension with American Express. Moving on to our outlook, our expectations for the 2025 full year are unchanged. As Nicholas has explained, we are booked positively so far for Q4, including the North Atlantic, so we are on track to deliver another very good year of revenue and earnings growth, margin progression and strong shareholder returns. Demand for travel is strong and our fundamentals are proven. We have leading market positions, a great network, powerful brands and an attractive customer base. Through the transformation program, we are delivering the margins that we are reporting today. And we still have a significant number of initiatives to roll out gross revenue, costs and operations. So we believe that we can continue to deliver strong value creation for our shareholders through the cycle. So I will finish by summarizing those key elements of that business model and our long-term investment case, strong markets, strong execution and strong value creation. And on that note, we will turn the call over to Q&A. Operator: [Operator Instructions] Your first question comes from the line of Alex Irving of Bernstein. Alexander Irving: Two for me, please. We heard from -- first of all, we have some of your peers about a less peaky summer, but with the summer extending into Q4. Does that match your assessment? If so, is that a 2025 factor or a lasting change? And what does that mean for how you manage the business? Second, on the North Atlantic, we saw Alaska launch in Heathrow. Do they get that slot in your existing joint business? If so, why? And should we see that as a precursor potentially adding them into the business? Luis Martín: So for the Q4 and Q1, we currently have about 80% of the Q4 book. The overall revenue performance is good and the passenger revenue is held positively versus last year. And we need to take into consideration that last year was very strong with total PRASK up 3.1% in general and in North America was up 14%. So performance is different by region. We see improving trends in North Atlantic. And currently, revenue is quite positive. We see also a strong October and November in North Atlantic. South Atlantic, as we said in the presentation, continue to be strong. And in Europe, we continue seeing some softness in intra Europe. But with lately, we have seen improving. Rest of World is also positive. And what we can see for Q1 right now with revenues around 30% the levels of revenue that we have are also above last year. So in general, the trend that we see is positive. So Q3 was a little weaker. As we said North Atlantic point of sale, nonpremium and transfer traffic had an impact in that. But we see that the situation is improving since then. And about Alaska, maybe you want to comment, Sean. Sean Doyle: Yes. Look, I think Alaska a very important partner to American and BA and we have a very good connecting partnership over Seattle and to places in the West Coast where they've developed the network over recent years. It would be premature to talk about entry into any joint business, but we work with Alaska on a very constructive basis, and we would have helped them through the kind of slot process in advance next summer. Operator: Your next question comes from the line of James Hollins of BNP Paribas. James Hollins: One for Sean, please. Maybe if you could give us a quick update on the very sort of current news on the U.S. shutdown. And clearly, international flights are protected, but whether you might perceive there's a little bit of reticence on late bookings on your transatlantic network. And while you're on, maybe update on your BA digital transformation, I think we're getting into the upcoming? And then for Nicholas, full year cost, I -- let me put it this way, is there a good chance you beat the 3% guide, particularly with FX and obviously, the performance you've had so far? Or is there anything specific on costs in Q4 that would mean you don't beat 3%? Sean Doyle: Just on shutdown, I think it's early stages. But right now, we're not seeing any impact. And I think one thing I would say is, we have -- it's November. So there's lots of kind of ability to reaccommodate across networks if there is an impact. We flight to 27 points directly in the U.S., and we work with American closely and start selling over those networks. So I think right now, it's business as usual, and we're not seeing any effect. But I think our direct network out of London, if there is any marginal impact on connecting traffic, we'll have plenty of capacity to kind of reabsorb any rebooking that we need to do. In relation to digital transformation, yes, we are entering an exciting phase. About 50% of our bookings on dotcom now are going through what we call our new booking flow, and that's showing very encouraging results. We're happy with conversion. We're happy with the performance, and we're very happy with the CSAT. We'll begin to scale the number of bookings we put through that platform as we head in towards the December, January sale period. So the vast, vast majority of bookings heading into next summer will have come through that new booking flow. And we're in a position that we start rolling out the app phasing element of the digital transformation early in 2026. So yes, it's exciting, and we're very encouraged by what we're seeing. Nicholas Cadbury: Yes. Just on the cost side, James, we've got all the MC here. So thanks for putting them under a bit of pressure overall. We're sticking with our kind of 3% guidance at the moment. You can see FX is moving around quite a bit at the moment overall, but we think that's still -- we're holding on for that at the moment. But we're pleased with the progress we've made, particularly with supplier costs overall, particularly the kind of process improvements we're putting and the kind of procurement savings we're doing. So we're pleased with how that's going. Operator: Your next question comes from the line of Stephen Furlong of Davy. Stephen Furlong: Maybe for Luis, just talking about or thinking about into next year, even into next summer. I'm just thinking about the competitive environment, maybe you could talk -- maybe go through the regions again because I'm thinking about things like, let's say, in LatAm, is there any change? Obviously, you have Turkish investing in Air Europa. I don't know on the other side. In the U.S. or North Atlantic I'm thinking about like United or I think it's delta expanding a lot of capacity. And then for yourselves in terms of capacity, maybe you'd be able to grow a bit more at Heathrow, if there's a bit of an improvement with the trends, et cetera. So just talk about the competitive dynamics as you see over the next 12 months in general terms. Luis Martín: So I can't comment on the capacity that we see for the next quarters. We need to take into consideration that still the people they are working in the programs for summer next year. But what we see for example, for Q4 and first quarter of 2026, is that capacity from London Heathrow, North Atlantic, London Heathrow is going to decrease in comparison to previous year. So that's going to help. We see that the other hubs, the traffic with North Atlantic are going to be more difficult. So Dublin, for example, the people, they are adding a lot of capacity in winter that is not usual. So we see in the Q4, an increase of capacity of around 16% and in the first quarter, 15%. So we are going to have a very tough competitive environment there. Madrid North Atlantic, Q4, we are going to have an increase in capacity of around 5% and the first quarter, 10%. So it's true that Q3, the increase of capacity was higher and other people they are moving capacity from Madrid to other regions in Spain. If we look at Latin America, from London, we see a decrease in capacity in the last quarter and also in the first quarter. Madrid is going to have an increase of around 4% in the Q4 and around 7% in the Q1. So -- but even with this increasing capacity, we are seeing strong yields and strong load factors. And the intra Europe is different in the different subs that we have, Heathrow Europe is going to be almost flat. Madrid Europe is going to be around 7%, Barcelona Europe around 4%. And Dublin Europe, again, high increase of capacity of around 12% in the fourth quarter and 15% in the first quarter. So the competitive environment, North Atlantic, we see positive trend, it's true that others are adding capacity. But in the joint business, we keep our market share and also in number of premium seats we continue with a very good position. And the other topics that you said, for example, Turkey with Air Europa, I think is going to be an investment of 26% in the company. I suppose they will try to develop the business, but we don't see an impact of that in the short and medium term. I don't know if there was another question. Operator: Your next question comes from the line of Jaime Rowbotham of Deutsche Bank. Jaime Rowbotham: Two from me, please. First, almost certainly for Nicholas on buybacks. On Slide 11, you reiterate the plan to return cash to maintain leverage of 1.2x to 1.5x net debt to EBITDA. It's obvious question, but if we assume you're still at 0.8x by year-end, it would imply a quite staggering EUR 3 billion to EUR 5 billion of potential headroom. Is it as simple as that, Nicholas, and presumably, at the lower end of that range, you could leave some buffer for potential M&A opportunities like TAP? Second question is just really on short haul. Could you remind us what the plan is for Vueling next year? I think there were some clues there in what Luis said about capacity out of Barcelona. It seems like the short-haul environment is a little bit tougher for you. You talked about weaker demand, Benelux, Germany, U.K., not offsetting strength in other areas. So some comments, please, on short-haul outlook and the plan for Vueling. Nicholas Cadbury: Yes. So I'll just start with shareholder returns. So this year, we'll have returned by the time we get to the year-end, we returned GBP 1.2 billion of share buybacks and GBP 400 million of dividends over GBP 1.6 billion in total. We haven't quite finished the share buybacks, so we'll finish that over the next month or so overall. We've kind of held back kind of doing the next shareholder return to year-end. Just to get it back into a normal process. We did was an exceptional one that we did last year was because it was the beginning of the process, but we'll just get back into the normal swing of it. It's a normal year-end decision that we have overall. But hopefully, we've kind of said in our statement that we're confident in going to give you share -- further returns later on in the year overall. Just in terms of the kind of way we think about it, as you said, we've got that range of 1.2x to 1.5x net leverage below that overall. I think kind of right at the moment, we've got some increasing capital coming over the next few years. And as you say, the TAP, so we'll probably manage more towards the bottom end of that range rather than the top end of that range overall, but that still gives us kind of quite a lot of flexibility overall. We've had 1 or 2 analysts kind of saying that not giving shareholder buybacks for this quarter may show kind of lack of confidence in the kind of future trading, I think, kind of after the strong quarter we just had and the fact that we've just said that we're booked positively for the year-end as well and kind of confidence in our overall strategy, we kind of find that that's obviously a personal statement, but it's doesn't reflect the confidence we have in our own business. Luis Martín: About the short-haul and maybe Carolina can expand on the Vueling. But the Q3, the point-to-point traffic was okay. We suffered in the transfer traffic, as I said previously. In the Q4, what we see is that competition is high. In Q4, intra-Europe capacity is going to raise around close to 6%. But we have different performance in different countries. For example, there are markets that are working very well for us. We need also to take into consideration the impact of the FX in the Q4 that is going to be relevant. But maybe Carolina, if you can comment on Vueling. Carolina Martinoli: Sure. If we look at Q3, I think it's a mixed bag. There are different things. So some markets work very well, domestic worked very well for us. As Nicholas said before, we had some specific markets with a weak performance. Germany, U.K., Netherlands, Netherlands very linked to the tax situation there. But we have a very strong position in Barcelona, and we offer from there over 100 routes, it's a constrained airport, and we have 1/3 of domestic traffic. So we are very used to face strong competition, but we are positive about our ability to compete. If you look at our RASK, A good part of that is self dilution. So we have decided cautiously to invest in some markets, Canary is a good example. We have grown over 30% in Canary but we are already seeing the results of that investment. So although you are right, it's going to be very competitive, I think we have a good position to compete in our core markets. Operator: Your next question comes from the line of Savi Syth of Raymond James. Savanthi Syth: Maybe for Nicholas, I'm not looking for guidance or anything like that, but I was wondering if you could talk a little bit about as you look out to 2026 just across the kind of the main cost items. Just generally, what you are expecting in terms of inflation and anything, any kind of offsets or headwinds or tailwinds that we should think about? Nicholas Cadbury: Yes. We're not giving guidance for 2026 overall at the moment. I think all I'm going to say just on the cost base as well, we've given kind of clarity for the last kind of 2 quarters on this year, which we're confident delivering. We've just delivered a good quarter on the cost base overall. So that will be up about 3% year-on-year on nonfuel cost. I'm expecting kind of the transformation program and also with kind of some -- hopefully, some kind of easing inflation overall that, that kind of number should moderate into next year overall. Savanthi Syth: That's helpful. And if I may just also ask just on the demand side, if you could kind of give a little bit more color between just kind of corporate versus premium versus kind of maybe the economy leisure. Luis Martín: Yes. I think that if we look at the business traffic, year-to-date, we have volumes around in total at group level of around 70% of the volumes that we had in 2019 and revenues close to 87%, so situation is improving but slowly and with a very different performance in the different airlines. So for example, in British Airways 62%, 63%, 82% in revenue, in Iberia, close to 80% in volume and above 100% in revenue and in Aer Lingus close to 100% in volume and similar in revenue. So with this, we expect to finish 2025 with business revenue above what we had last year. If we look at the volumes in Q3, we saw a decline in comparison with last year. But what we see now in the Q4 is positive, for example, in British Airways, we are seeing now growth in North Atlantic, both U.K. and North Atlantic point of sale. So we think that this is going to help to that recovery. But in any case, as I said, in some way, we are in a stable situation and the improvements slowly. In any case, when the COVID started, we said that we were expecting to come back to levels of revenue of around 85% of the revenues we have in 2019, and we are above that. And the good news is that we are delivering these strong results with this percentage of business traffic. What it means that our model is very -- is working very well also with the premium leisure traffic. Operator: Your next question comes from the line of Harry Gowers of JPMorgan. Harry Gowers: Two questions, if I could. The first one, just if I could ask on your positively booked revenue comments for Q4, if you could maybe clarify how positively booked we're talking? And could we end up seeing RASK higher year-over-year for Q4 versus last year? And then the second question, I was just wondering if you could go into some color on the U.K. point of sale on transatlantic and also U.K. point of sale on short haul as well and if we're seeing any demand weakness or price sensitivity? Nicholas Cadbury: Yes. So just -- Harry, I'd love to give you more detail, but that's about as much as we can give you that it's booked positively overall. I mean, we're currently -- we've had a good October and November, particularly we've seen actually point of sale in North America being good on both sides, actually from U.K. and from the U.S. as well and actually the U.S. leisure point of sale in the last few weeks has been a bit better as well, which is good to see. The only thing we're just calling out is we had a particularly strong December last year across the Atlantic. After the Atlantic, it was a bit of kind of pent-up demand. And if we saw it very strong. So we're just about to enter those weeks, but we're feeling pretty positive about it overall. So I think that's all we can say overall. And ASK is going to be up about 2.3% in the quarter as well. Sean Doyle: Yes, just on the U.K. segments in terms of the booking profile, Q3, we were positive across both business and premium and non-premium leisure and Q4, it's a little bit more positive, but we don't commit to the specifics. So yes, we're seeing stable demand is the best way I would describe it, and that's relevant, I think it's prevalent in both Europe and/or our U.S. markets, as Nicholas said. Nicholas Cadbury: Does that answer your question, Harry? Harry Gowers: Yes. Operator: Next question comes from the line of Conor Dwyer of Citibank. Conor Dwyer: I'd like to come back a little bit to the buyback question. Nicholas, you obviously already talked a little bit about managing towards the lower end of that range of 1.2x to allow for some potential M&A, things like that. But obviously, that still implies basically you can pay out more than your free cash over the next few years. Is that really how we should be thinking about this? Or are there other things in there that might, let's say, move that leverage number away from that kind of level? And second question was actually on the Loyalty. So growing revenue by about 7%, obviously, that growth has been extremely high in recent years. I'm just kind of wondering, are you now kind of viewing that business as a bit more mature now? Should we be really kind of thinking that as a kind of mid-single-digit percentage growth business? Nicholas Cadbury: Just on the share buyback. I mean, we set out the guidelines on where we want to manage our balance sheet to overall. And I think when we did that, we kind of said the things that we'll be looking out for it's a forward-looking thing rather than a backwards necessarily. So we'll be looking forward to how does the outlook look. We're feeling pretty positive about that at the moment. We also looked at what M&As on the horizon, TAP maybe potentially overall. And there's also kind of CapEx, what's our CapEx commitments looking forward as well. Now CapEx, as we know, is about EUR 3.7 billion this year, next year, probably more about EUR 4 billion, but we know over the next few years after that, it starts to ramp up, and that's why we could be managing towards the bottom end of that and making sure we've got some good headroom and ready for that overall. Adam Daniels: On the loyalty side, just to come back on that specifically, yes, we are continuing to see -- if you look at the year-to-date performance because there are some specifics around promotions around particularly on issuance of the points. So if you look at it across the year, we're still seeing double-digit growth in terms of the currency that's being issued and there or thereabouts on usage of those points and how those points redeemed. So I think we're seeing a continued growth and the continued double-digit growth that we've seen over the previous years. Operator: Your next question comes from the line of Ruairi Cullinane of RBC Capital Markets. Ruairi Cullinane: First question on Cargo revenue decline. Should we expect similar dynamics in Q4, given another strong prior year comp? And then just sort of coming back to the unit revenues. Do you think North Atlantic trends you've seen is suggestive of the Liberation Day headwind, which may now be fading, given the improvement looking forward? Nicholas Cadbury: Yes. On Cargo, yes, you're right. I think we're seeing actually the supply, the demand for Cargo is still relatively good. And you can see that our weight we're carrying is still up overall. But we're just seeing some softness in yields. And as we said in the call, that's really based on the fact that we're anniversarying the high yields we had as there was a lot of disruption over the Red Sea last year overall. And that's just the supply chain around that is just kind of normalizing overall, and you'll see that probably into Q4 as well. North Atlantic, I'm not sure we can -- anything else we can really say about that overall. I mean, Liberation Day was in April, overall. Luis Martín: Yes, as we said in Q3, we were below what we expected. But since then, we see a recovery. And as Nicholas said before, we see an improving trend, which is strong October and November, and we are booked positively. So I think the effect of the Liberation Day is, by far away. Operator: Your next question comes from the line of Andrew Lobbenberg of Barclays. Andrew Lobbenberg: Can I ask 2 questions. One on what labor relations lie ahead? I think there are some at BA, but perhaps you can correct me on that and whether there are any elsewhere in the group? Second question, I'd quite like to hear your thoughts around the situation at Aena, where I mean, obviously, you want lower airport charge, I can imagine. But it appears that the airport companies becoming something of a political football in Spain, and its plans to develop the infrastructure are potentially being threatened. So where do you sit, obviously, you do want beautiful facilities for very low cost. But how do you think about your key partner providing infrastructure in Spain being such a political football? Luis Martín: So about the labor situation, I think we have closed the most important agreements at group level. We are still negotiating some places like Iberia, with the ground staff. Maybe, Marco, you can comment on that later. We have now a situation -- a difficult situation in Manchester, where, as you know, we have a strike and it's probable that we are going to continue with a strike. And in Aer Lingus, they need to negotiate agreements with different collectives and in Vueling also, some of the agreements they expire at the end of this year and they are negotiating. So maybe you can comment maybe, Lynne, the situation in Manchester. Lynne Embleton: Yes. The -- just about Manchester in context, first of all, it takes 2 aircraft in Manchester base applies transatlantic. We're mounting through the strike. We've been accommodating -- we are accommodating more than 90% of our customers in strike date so far. We reached agreement with United on 2 separate occasions, and they've got the recommended deal for their members, which the members rejected. So we've benchmarked there. We've been working through ACAS. I think the key thing here is we need to be cost competitive, Manchester needs to be able to perform financially, it needs to justify its asset allocation. We're part of a group where capital is constrained and distributed where returns can be made the most and I'm very conscious of that when we look into our industrial relation situations. Luis Martín: Okay. Maybe, Marco, you want to comment on the ground staff. Marco Sansavini: Yes. Indeed. In terms of the labor relations in Iberia last year, there was a major milestone that was achieved. It was to set the new collective agreement with our pilots that, as you know, is a system where we share the benefits of and the results of the company, not only linking the pay evolution and the one-off evolution and a payment to the EBIT results of the group, but also to the productivity of our staff to the NPS and the OTP, so the capability to deliver to our customers. And the same has been achieved this year with our cabin crews. And we're just starting now the process of opening the negotiation with our brand personnel, and we are confident that the same scheme and system, of course, with the nuances for the specific collectives can be applied also there. It's very beneficial also for the people. And one remark, as you know, we also introduced the possibility for people to buy shares and become shareholders. And more than 1,000 of our staff currently have subscribed to that. That is another element of sharing the benefits of the resource of the company. And maybe a comment in terms of the Aena situation. Of course, our strategic plans implied the necessity of an alignment with Aena, and we have a common view of bringing to the full potential of the Spanish both operating companies and infrastructure. Of course, that needs to be done at an affordable price, it's the same view that the group has with regard to the U.K. So and we are in close contact with Aena to ensure that, that will happen. Andrew Lobbenberg: Can I just check? Is everything done and dusted on CLAs at BA? Or are there any... Nicholas Cadbury: Yes. our collective agreements go to the end of '26 and mid- '27, so we concluded those over the last 18 months. Operator: Your next question comes from the line of Patrick Creuset of Goldman Sachs. Patrick Creuset: Just coming back to your comments on Q4 trading, please. When you say booked passenger revenue for Q4 is up year-on-year including on the Atlantic. Just double checking that, that is after the FX headwind that you flagged or is this constant currency? And then secondly, if we look at your ASK guide of 2.3% for the quarter, again, coming back to your comment on increasing passenger revenue overall, and that would imply RASK at least somewhere around flat year-on-year, consensus standing at minus 2% for the quarter. So is that a fair interpretation? And then on the basis of that, looking at consensus expectations of somewhere around EUR 5 billion -- just shy of EUR 5 billion of profit for the year. Do you sort of feel comfortable with that? Nicholas Cadbury: Just you're right. The guidance we've given on the positive booking includes the FX. So it's not in constant currency overall it takes account of the currency impact as well. I'm afraid I can't give you -- I'm not going to give you PRASK guidance for -- with North Atlantic for Q4 overall, exactly, I think we said we were positive overall. I mean that's taking account the ASK growth as well, but we've got positive momentum on that overall. And so the last question on consensus, yes, you're right, consensus is just under GBP 5 billion. And if we weren't happy with that, we would have to say something, and we're not saying anything. Operator: Your next question comes from the line of Muneeba Kayani of Bank of America. Muneeba Kayani: I just wanted to touch on this new Amex partnership extension. How should we be thinking about it in terms of impacting the loyalty, top line margins? And then just related to that, overall margins into next year, you're very much at the top end of your midterm guide. You talked about positively unit cost inflation being better next year, you're seeing good demand trends. Like how are you thinking about that margin into next year, please? Adam Daniels: Yes. Just starting on the Amex agreement. Yes, so we're very pleased that we've reached an agreement with a -- long-term agreement with American Express. That continues the good work that we've done previously in terms of that. That agreement includes the British Airways co-brand, the Membership Rewards business and the acceptance of Amex across the different airlines this time to include LEVEL as well. So we're delighted that we have this multi-year agreement, and that will help the loyalty business as we go through the next few years to have that agreement in place, and we look forward to working with Amex in the years to come. Nicholas Cadbury: Yes, just on guidance, we're not giving guidance next year, but I mean I think kind of with the dynamics that we're seeing, we still see strong demand for travel, we still see a constraint in supply of aircraft into the market next year. Overall, we've got our transformation program, which is both driving our own revenues and also the kind of costs under control, which I said should moderate overall. So if you put those dynamics together, there's no reason why we shouldn't be at the top end of our guidance and sustain there overall. Of course, it depends on where fuel is and inflation ends up overall. But I think we're feeling confident in that. Operator: Your next question comes from the line of Gerald Khoo of Panmure Liberum. Gerald Khoo: One, if I can. There's been a lot to talk about the sort of ongoing strength in premium leisure. I was just wondering whether you could give an indication as to the relative importance of premium leisure within the Premium cabin. I know you probably won't give an exact figure, but just something to give a rough indication of how important that is proportionately? And what -- in terms of that trend of growth, what could derail it? What could cause that premium leisure strength to reverse or soften? And certainly, I think there was some talk about strong short-haul capacity growth at British Airways. So I just wanted to kind of understand where that was and why that was done, please? Nicholas Cadbury: Yes. Just in kind of premium leisure, yes, we don't disclose the kind of precise mix we've got on premium leisure Premium seats. If you look at it, it's different by different airlines, of course, if you look at British Airways, we've got about 45% of our seats are Premium overall, but a significant part of that is leisure. We've got about 20% of our overall customers and corporate customers. And more of that when you look at SME businesses overall, but they're important part of our growth. And you can see that in terms of corporate customers overall, they're still down year-on-year, but actually that's been filled very successfully by the demand for leisure, particularly at the front end of the plane. So it still continues to be strong. In terms of derailing one of the concerns we had as you get up to the -- we're approaching the U.S. -- U.K. election, which feels like it could be targeted more at the -- our customers at the wealthier end of the line. So you would expect maybe some slowdown, but we're seeing the opposite of that at the moment as well. So the people have got money, they've got money at the moment. Sean Doyle: In terms of short-haul capacity, there's probably 2 dimensions driving it. One is we have been replacing A319s with A320s and 321s at Heathrow. So that's a chunk of gauge. We've also been reorienting the network to fly to probably more of the Southern European leisure markets, which gives us a stage of that effect, which increases ASKs. And we've been continuing to build back our Euroflyer businesses at Gatwick. So that's operating kind of 25, 26 aircraft, which is probably where it was back in 2017, '18. So there are kind of 3 drivers of that capacity increase. And we've had some gauge benefits as well at London City, where again, we're adding some ASKs, but again, primarily into longer sector leisure markets, which were robust over summer. Operator: Your next question comes from the line of James Goodall of Rothschild. James Goodall: So just firstly, following up on Muneeba's question on Amex. Has there been any changes in commercial terms with Amex as a result of the new agreement? And how should we think about the cash remuneration element going forward? And then secondly, just given the strong on-time performance in all entities in Q3. Can you quantify what the benefit was to both revenue and costs from lower disruption in the quarter, please? Nicholas Cadbury: Yes. I mean the Amex card, it's a commercial sensitive agreement, so we can't really give any details in terms of the specifics overall, both in terms of, kind of, be it margin and cash, I don't know if you want to add anything. Adam Daniels: No, I just have to say, I think that's right. But clearly, we're very happy with that agreement. It works for both our South American Express, and we're very pleased to have extended it for the long term. Luis Martín: And about disruption cost, in the case of BA this year, the costs were almost half, 45% less than the growth that we had last year. Operator: Your next question comes from the line of Jarrod Castle of UBS. Jarrod Castle: Two as well. It seems like the MRO business is doing pretty well. So if you could just give a little bit more color in terms of pipeline of work and what you're seeing there? And then just secondly, I mean, a lot of attention to Loyalty. And obviously, the changes happened, I think, it was April this year. Loyalty members, they're going to get their tier status. I would imagine sometime in March next year. Just interested, within the different tiers, gold, silver, bronze at BA, has the mix changed, i.e., or some of the gold members as a percent of total mix slipping down or some of the silver going up? And what are signings like into the loyalty program at the moment. So any color on how you see that evolving going into March? Luis Martín: Maybe, Marco, you want to comment on MRO, mainly the engine business. Marco Sansavini: Yes. The engine business is still cycling over the post-COVID phase. So indeed, as you say, is recuperating, you see that a lot of the non-airline revenue growth has been driven by the growth of maintenance. So it's coming back to pre-COVID levels of profitability, and we are currently in the phase of setting the stages of the next longer-term view of the strategic opportunities there. So I think we will come back in time on that. Sean Doyle: In relation to the club and the relaunch, I think it's performing as we would expect, I think the tier sizes are broadly tracking the way they were last year. But we are hearing anecdotes of people who are higher-value customers getting their tier quicker. So we don't expect to see so much movements in terms of tier sizes. But we do think that the club tiers will be rewarding our higher revenue customers more quickly and more fairly. Adam Daniels: Yes. And I think I'd add to that, just in terms of the club, you asked about where the numbers are, we are still seeing some good growth in terms of people joining the club, both in terms of BA Club and Iberian Club. Active members, so that's somebody who's done something in the last 12 months is up double digits. So we're seeing a lot of activity. And we're also starting to see, which we talked about last quarter, people increasingly using their holiday as a method of obtaining tier point. So that's another trend that we're seeing. Operator: Your next question comes from the line of Alex Paterson of Peel Hunt. Alexander Paterson: Yes. So just continuing that theme of holiday sales to BA club members. Has that really benefited the third quarter? And if I look ahead, your -- the number of ATOLS that you have paid for is flat year-on-year. So if I think about then where is the growth in IAG Loyalty going to come from? If it's not from the number of holidays? Is it -- are you going more upscale? Or is it the growth is going to come from more Avios issuance? Adam Daniels: Yes, thanks for that. Yes, in terms of club members, we are seeing more revenue coming from club members, that's up on where we were in terms of if you look at it year-to-date. And we are expecting that to continue. So -- and you're right in thinking that the quality of revenue that come from those members tends to be strong. And so that's definitely where we're seeing some of the growth. In terms of ATOLs, I've always said that ATOLs are bit of an art rather than a science. And so we certainly plan to grow the business into '26. And in Q3, we definitely saw that growth in a lot of areas, I would highlight Greece is probably the region that's had its strongest summer certainly for us. So yes, that growth continues. Operator: There are no further questions. I will now hand back to Luis Gallego for final remarks. Luis Martín: Okay. So thank you very much. Thank you very much, everybody, for being here today. As we said at the beginning, a strong set of results, positive trend in bookings for the third quarter and first quarter. So we continue -- we are going to continue executing our strategy that is delivering better results than average. Thank you very much.
Operator: Good day, everyone, and thank you for standing by. Welcome to the Quebecor Inc. financial results for the third quarter 2025 conference call. I would now like to introduce Hugues Simard, Chief Financial Officer of Quebecor Inc. Please go ahead. Hugues Simard: Ladies and gentlemen, welcome to this Quebecor conference call. My name is Hugues Simard. I'm the CFO. And joining me to discuss our financial and operating results for the third quarter of 2025 is Pierre Karl Peladeau, our President and Chief Executive Officer. Anyone unable to attend the conference call will be able to access the recorded version by logging on to the webcast available on Quebecor's website until January 5. As usual, I also want to inform you that certain statements made on the call today may be considered forward-looking, and we would refer you to the risk factors outlined in today's press release and reports filed by the corporation with the regulatory authorities. Let me now turn the floor to Pierre Karl. Pierre Péladeau: [Foreign Language] and good morning, everyone. So more than 15 years ago, recognizing a huge opportunity in Quebec and across Canada, Quebecor set out on a growth strategy based on wireless. First, launching as an MVNO, then building our own network and further acquiring Freedom Mobile. We have never wavered in our resolve or direction. We invested wisely and established ourselves as a better alternative to the big 3, a solid market disruptor with the best growth momentum and the strongest balance sheet in the Canadian telecom industry. As proof that our strategy is paying off, we continue to outperform our competitors, and I'm proud to report our strongest quarterly wireless service revenue growth since the acquisition of Freedom Mobile. As well as an impressive loading performance of 114,000 net addition in the quarter with more than 323,000 new lines year-over-year despite a generally softer market. Collectively, Videotron, Freedom and Fizz now have over 4,328,000 mobile active lines, a significant milestone achieved in quite a short time in a competitive market. Each of our 3 brands continue to improve its performance quarter after quarter, resonating more and more with Canadians across the country with innovative and affordable product and services. We have created a healthy competitive environment, giving Canadians more choice, lower prices and a better experience, all the while improving our profitability, growing cash flow and continuing to reduce our leverage to maintain the lowest ratio in the Canadian telecom industry. We will spare no effort as we press on with our strategy of sustainable, profitable wireless market share growth. I will now review our operational results, starting with our telecom segment. So our telecom segment continued to deliver strong operational and financial results both in wireless and broadband, reflecting the disciplined execution of our growth initiatives, the strength of our brand portfolio, and our commitment to provide innovative and reliable services to our customers. Our service revenues are up for a second consecutive quarter at 2%, fueled by a 6.4% increase in mobile and 1.1% in Internet. Our mobile service revenue grew by $27 million in the quarter, surpassing our Q2 performance and our best since we completed the integration cycle of Freedom Mobile results. This results from our adding 323,000 new net line over the last year despite the Canadian market affected by lower immigration levels and organic growth, but also from our effective pricing strategy with a balanced and cohesive positioning of our brand. Our consolidated mobile ARPU continued to improve its performance, recording its best since the acquisition of Freedom Mobile, which bodes well for the next few quarters despite a market that remains unpredictable and highly competitive, especially in Quebec where discounting is comparatively and, in our view, irrationally heavy. At this point, we expect current market conditions to continue through the upcoming holiday season's promotional period, but we intend to maintain our disciplined approach, focusing on the quality of our products while continuing to rapidly improve our network. Specifically, on ARPU, we are very pleased with our second sequential quarterly increase, reaching $0.35 and $0.05 compared to $0.34 and $0.76 last quarter, a $0.29 gained in the 3 months. Our year-over-year performance continued to improve with a $0.66 decrease this quarter compared to a drop of $2.30 in Q2 as compared to the same period last year. Our effective mitigation of the dilutive impact of the prepaid services of Fizz and Freedom was an important contributor. As you will have noticed, we adjusted our wireless subscriber base by 51,000 to eliminate 0 revenue accounts, which translated into an approximately $0.40 ARPU pickup. To be completely transparent and contrary to our competitors, we adjusted our ARPU numbers retroactively. With our ever-improving network quality and stellar customer service, more and more Canadians enjoy the richness and peace of mind of our plans, which continues to strengthen our market position and share. Freedom's marketing plans are honest and transparent without any fake employee purchase program, new customers only or B2B offers. We have been upfront with all Canadians since day 1, offering them better services at everyday best prices. Canadians have clearly embraced our approach as evidenced by our significant churn improvement, ARPU and market share growth. An internal survey even reveals that the global satisfaction score of Freedom customers approaches that of Videotron. We are very proud to have successfully transposed the key contributors of our great success in our own market to the other regions of Canada. In terms of new adds, as I alluded to at the beginning of my address, we delivered 114,000 new net lines to our mobile customer base in the third quarter, a strong growth considering the softer market this year. This performance is also attributable to our effective retention strategy, which kept our consolidated churn among top of the industry and thus helped to defend Videotron's solid market position in Quebec and to continue to improve Freedom performance. In wireline, our service revenues continue to improve as we recorded for a second consecutive quarter our lowest decline in year-over-year. Fueled by Internet revenue growth of $3.3 million and net additions of 10,500 in the quarter, these results are very encouraging as we are only still scratching the surface of the opportunity with new services like Freedom home Internet and Fizz TV. We are also counting on the expansion of our Helix technology-based Internet and television services in new territories where they will complement our wireless services already available. Since the end of the second quarter of 2025, Videotron has announced the expanded coverage of more than 180,000 new households in Drummondville, Magog, Rimouski, Saint-Hyacinthe, Trois-Rivieres, Salaberry-de-Valleyfield and Huntingdon, as well as in many cities in Saguenay–Lac Saint-Jean region. Customers will now be able to benefit from a full complement of telecommunication services in competitive packages. We intend to enter these new markets with a disciplined pricing strategy in line with our pricing elsewhere in Quebec, counting on state-of-the-art Helix solutions and our second to none client experience to make ourselves a strong contenders in this territory. In addition to our wireline footprint, we are also expanding our wireless coverage and services areas in the Haute-Mauricie region in partnership with Ecotel and with the support of the Quebec government. This will significantly improve mobile communications in this region of Quebec, making it possible for more than 10,000 residents to subscribe to Videotron mobile services and enhancing connectivity along several highways. Freedom Mobile is also continuing to increase its service coverage now in the Ontario region of Chatham-Kent, where the resident of this large and growing region can now access our fast and reliable wireless network. These expansions reflect our continued progress in delivering on our ongoing commitment to always give our customers more with state-of-the-art advanced technology. This is but one reason why Videotron was ranked as Quebecor's preferred telecommunication provider in a recent Leger survey. Videotron stands out for its remarkable results, confirming its position as an undisputed leader in customer service among telecommunication providers in Quebec, while being recognized as the most reliable and trustworthy telecommunication company in Quebec. Turning now to our Media segment. TVA Group generated EBITDA of $18.5 million in the third quarter of 2025, an increase of $6 million compared to the same period in 2024. This favorable variance is primarily attributable to the impact of streamlining initiatives undertaken over the past 2 years as well as certain favorable nonrecurring retroactive adjustments. These measures are helping, but are in no way sufficient, to mitigate the impact of the structural crisis threatening the sustainability of Quebec television industry, particularly due to the accelerated decline in advertising revenues compounded by the negative impact on the absence of foreign blockbusters in MELS' studios. Having acted recently and respondly over the years by implementing numerous measures and a number of major restructuring plans to address the crisis, TVA Group has done its part. It is high time for our government to take the necessary action on their end. After countless advocacy efforts, hearings and meetings with successive CRTC chairpersons, Canadian heritage ministers and Quebec culture ministers over the years, we can only repeat yet again that we urgently need real action and long-term solution to protect our industry. It was particularly disappointing that the federal government in its budget deposited this Tuesday completely ignored our industry and turned a blind eye to the crisis that is hitting television broadcasting so hard. There is no tax credit for television journalism, no tax incentive for advertising in Quebec and Canadian media, and no information about when the digital services tax already paid by private broadcaster will be refunded. Furthermore, CBC/Radio-Canada annual funding had been increased by $150 million without any requirement to eliminate advertising on its platform and to curb its unfair commercial competition with Canada private television broadcasters. Regrettably, this new government has missed an opportunity to support an industry facing ever-growing challenges and job losses at an alarming rate. Regarding the Quebec government, we reiterate that it must quickly introduce concrete measures to implement the recommendations in the report of its task force of the future of Quebec audiovisual industry filed in October 2025. I will now let Hugues review our detailed financial results. Hugues Simard: [Foreign Language] On a consolidated basis in the third quarter of 2025, Quebecor recorded revenues of $1.4 billion, up 1%, EBITDA of $628 million, up $34 million or 6%, resulting from improvements across all of the corporation's business segments. Cash flows from operating activities increased $36 million to $582 million or 7% compared to the same quarter last year. In our telecom segment, total revenues grew by 1% or $13 million, a first favorable variance since Q1 of last year when we completed the integration cycle of Freedom Mobile results. This positive delivery is largely attributable to our strongest mobile service revenue growth of 6.4% fueled by a significant customer growth, but also by the favorable improvement of our mobile ARPU in the last quarter, resulting from strategic market positioning of our multiple brands and our pricing strategies. This quarter, mobile revenues were offset by our lowest wireline services revenue declines in more than a year, resulting from our effective strategies and mitigating the impact of organic declines of these services. Combined with rigorous cost management initiatives, our EBITDA reached $602.5 million, increasing by $16.6 million or 2.8%, our highest EBITDA growth since Q1 2024. As a result, our EBITDA margin improved by 0.8%, ending at 49.5% compared to 48.7% in the same period last year. Telecom CapEx spending was up by $13 million in the quarter, regulating the timing difference explained in Q2 for wireless equipment deliveries required for our 5G and 5G-plus network expansions and subscriber equipment rentals. Even with that regulation, we still anticipate higher investment levels in the last quarter to stay on track with our objectives, mainly expanding and improving our mobile network. Accounting for these investments, our quarterly adjusted cash flows from operations increased $3 million or almost 1% due to our solid EBITDA growth. Our Media segment recorded revenues of $152 million or 2% decrease, an EBITDA of $23 million, a $9 million favorable variance compared to the same quarter last year. Our Sports and Entertainment segment revenues increased by 7% to $68 million, and EBITDA was up by 28% to $15 million. We reported a net income attributable to shareholders of $236 million in the quarter or $1.03 per share compared to a net income of $189 million or $0.81 per share reported in the same quarter last year. Adjusted net income, excluding unusual items and losses on valuation of financial instruments came in at $242 million or $1.05 per share compared to an adjusted net income of $192 million or $0.82 per share in the same quarter last year. For the first 9 months, Quebecor's revenues were down by 0.3% to $4.1 billion, and EBITDA was up by $4 million to $1.8 billion, partly impacted by a $44 million increase in stock-based compensation charges. Excluding this factor, EBITDA would have increased by $48 million or 3%. EBITDA from our telecom segment grew 2%, an improvement of $38 million over last year, excluding the impact of stock-based compensation. At the end of the quarter, Quebecor's net debt-to-EBITDA ratio decreased to 3.03x, still the lowest of all our telecom competitors in Canada. We remain committed to further deleveraging in the coming quarters and intend to continue operating in this low 3 range, consistent with our current financial strategy. Our balance sheet remains very strong with available liquidity of over $1 billion at the end of the third quarter. I would also like to highlight the success of our recent refinancing where Videotron issued $800 million of senior notes yielding 3.95%. This demand -- the high demand from investors, it was very strong with a book more than 3x oversubscribed, and we were able to negotiate very favorable conditions, most notably the lowest 7-year credit spread seen in the Canadian telecommunications sector, a convincing testament to the strength of our financial foundation, our disciplined management and our growth prospects. The net proceeds will be used for the redemption of our -- or Videotron's rather 5.125% senior notes maturing on April 15, 2027. During the first 9 months of the year, we also purchased and canceled 3.7 million Class B shares for a total investment of $140 million. We thank you for your attention, and we'll now open the lines for your questions. Operator: [Operator Instructions] First, we will hear from Maher Yaghi at Scotiabank bank. Maher Yaghi: [Foreign Language] I would like to first ask you the strong performance in wireless, you mentioned that it came from lower churn and also improved gross loading. Can you maybe dissect a little bit more what drove that strong performance in the quarter? Q3 usually is a strong quarter for Freedom, but how are you thinking about Q4 so far? And which markets -- which submarkets in wireless you still haven't been able to gain market share from that you think over time could provide you more growth down the line? Hugues Simard: Thanks, Maher. So in wireless, yes, I mean, as you said yourself, the Q3 and the back-to-school period is -- has historically been a very strong quarter for us. These are the target markets that we -- that particularly resonate well with us. And again, even though organically and in terms of immigration and all the things we've talked about, the market is a little softer, we've been able to maintain our performance. And why have we been able to maintain our performance? It is because we are increasingly resonating with other cohorts whereas the freedom of the past used to be very strong with first-time buyers and immigrants and people looking for a deal or the cheapest deal. We are now able to attract and retain customers that are willing to -- they want a bit more, that want better performance. We have an increasing number of 5G-plus customers because we have been expanding the access to 5G-plus to many more of our customers. Fizz is also continuing to perform increasingly well quarter after quarter, which should not be a surprise because you will remember us telling you that Fizz was created with a very specific objective -- with very specific objectives in mind, and that was to go after and to target the younger, more urban, more digital savvy generations, which are representing the future. And I think we are showing that we're better than our competitors at reaching out to these people, to these customers. In terms of going forward in the following quarters, I think you will see if you look back that we are very -- not stable, but very consistent in our penetration, in our growth. We are continuing to retain our customers more longer, so churn is down. Our ARPU is going up. So this is really the story in this one. Look at our wireless service revenues, $27 million more in the quarter, which flows down to margin with -- considering our very disciplined cost containment. That's basically how I would call the story of -- the wireless story of the quarter, which bodes, as we said in our -- as Pierre Karl said in his note, bodes very well for the historically competitive Q4, where we intend to continue to perform very well. Pierre Péladeau: That's a pretty good answer, ain't it? Maher Yaghi: It's a very good story for sure, very good story. Maybe just one… Pierre Péladeau: May I add just one thing, is -- well, we all know that when Freedom was under the previous ownership for whatever reason, I mean, historically, the weakness was the network, the quality of the network. And I think it's important to mention that we are investing in the network. And we've been always Videotron an enterprise culture, considering that we need to deliver the best product in our available customers. So we inherit a good brand and certainly also some very good people in this organization. But now I think that we've been doing what is appropriate to improve our product by investing in the network. We will continue to do so and we will continue to do it on a disciplined basis as we've been doing, obviously, in Quebec for the last about almost 15 years now. Maher Yaghi: Yes. And maybe just to touch on the improvement in the cable segment revenue growth rate with the pricing that you passed last December starting to really kick in. But I'm trying to gauge that with Karl's -- your prepared remarks. You specifically called out the very aggressive pricing competition happening in Montreal and Quebec in general on the combo plans, very low prices. Is it easy to pass another price increase this year like you did last year amidst the competition that we're seeing right now in the marketplace? Pierre Péladeau: Well, obviously, you can easily expect that you're going to have an answer for that. But I'll tell you, we're used to that. We've been always in the same kind of environment. So there is nothing new for us. And what we're doing to make sure that we're for this situation is by being as much as disciplined as possible, watching our core cost. And we've always been in that kind of business and we will continue to do so. Historically, pricing between Quebec and all the other areas in Canada for whatever product, it was the same for cable, it's the same for wireless had been lower. So is our competitor, our main competitor, the blue guys have been trying to get market share by having lower prices than elsewhere. They certainly, in the past, being able to benefit from a higher margin elsewhere. Are they using this to compete even more aggressively in Quebec? It's not impossible. But they can do whatever they want. At the end of the day, we're going to continue to be the preferred supplier of Quebecers for many reasons, one of which is that we're offering better customer service and our products are of higher quality. Operator: The next question will be from Stephanie Price at CIBC. Sam Schmidt: It's Sam Schmidt on for Stephanie Price. I wanted to ask a question about ARPU. The declines have been improving sequentially for the last few quarters. How do you think about the timeline to return to positive ARPU growth? And it was strong in this quarter. Any onetime items to call out there? Hugues Simard: I'm sorry, I missed your first name. You're replacing Stephanie, right? Sam Schmidt: Yes. Sorry, it's Sam Schmidt on for Stephanie Price. My first question was just around the ARPU declines that have been improving sequentially for the last few quarters and how you're thinking about a timeline to return to ARPU growth. Hugues Simard: Yes. It's -- you saw our performance. We're very confident. ARPU is turning the corner, and I would expect that corner to be very, very soon. Sam Schmidt: That's helpful. And then just one more for me on mobile equipment revenues. How are you thinking about device financing heading into Black Friday? Hugues Simard: With discipline, how would I say, continued disciplined, reasonable offers. We've said this in the past that Black Friday is a time of the year where we can easily go crazy and lose our shirt, as we say, on equipment device -- on equipment or device subsidies. And we certainly do not intend to do that and to continue to be, as I said, disciplined and reasonable in our equipment offers for the rest of the year. Operator: Next question will be from Matthew Griffiths at Bank of America. Matthew Griffiths: Just on churn, firstly, if I could. It seems as though across the industry, everyone is reporting churn being lower this quarter on a year-over-year basis. I was wondering if you had any comments about how much of your churn benefit in the quarter is just kind of that halo effect of industry churn falling. Or were there things that you were doing that you kind of can see that there's -- that would have been responsible on your side for reducing the churn? And then secondly, if you can make any comments on the kind of decision and how you evaluate the network expansion question. Specifically, you mentioned this quarter expanding the wireless network into the Chatham-Kent area. So if you could share kind of just how you evaluate it, how many more opportunities you see for this going forward, it would just be helpful on our side. Hugues Simard: Matt, thanks for your question, Matt. On churn first, probably a little bit of both, to be fair. Our churn, as you know, started from very high with Freedom, the highest in the industry by far, and is now fairly equal to the lowest of the industry. And that was mostly due to the improvements to our network, its performance, its coverage, its reliability, roaming packages, marketing agility, customer experience. I mean it's a -- who knows -- and bundling opportunities. There are so many factors that collectively contributed to this lowering or this decrease in our churn. Now that it has reached, as I said, a very competitive level, then obviously, it becomes naturally a little bit more affected or more influenced by maybe more market-related metrics. And it is our goal to maintain that churn through the various improvements. I mean we're nowhere done. I mean it's not as if we're at the end of the -- of our plan here in terms of improving everything that I've talked about and going after different cohorts, as we said earlier. And as our experience keeps getting better with our customers, we're very confident on the churn level that we have not only reached the industry's best, but that we will maintain the industry's best. Of course, there are the investments that Pierre Karl talked about that will continue. We're taking this very seriously. When we relaunched -- when we bought and relaunched Freedom, we said very clearly that we went about very diligently about fixing all the pain points and making sure that the experience was quickly very much better. And we still have work to do. This is a never-ending work, and we certainly intend to, as Pierre Karl said, continue to invest in our networks and also in our marketing agility to make sure that we continue to resonate with Canadian customers. As to the network expansion, this is the -- these decisions are made on a -- it's a bit of a -- how would I say, it's a bit of a balance between going after strong and interesting regions with -- and balancing it with the investments needed in these regions. So this is something we have a plan, and we're continuing to be very diligent and very disciplined about our network expansions going forward. Focusing on the MVNO areas where we're starting to resonate well, where we're building the business, you will remember us saying that we're not going to build and hope that people come. We will launch MVNOs and where it will make sense for us, we will prioritize network investments. And I think that's the good business way to do it, and that's still what we intend to continue to do. Operator: Next question will be from Jerome Dubreuil at Desjardins. Jerome Dubreuil: The first one is on the free cash algorithm. We were seeing a bit of EBITDA growth, but also CapEx increases. So I'm wondering if you're seeing a potential for free cash growth in the coming year or if value is going to be created more through deleveraging and buybacks. I appreciate there was the share-based comp situation this year. But essentially, will absolute EBITDA growth outpace CapEx growth in the next few years? Hugues Simard: Thanks Jerome, [Foreign Language]. I think you're seeing it in the numbers. We look at our performance in terms of generating margin, generating cash, which provides us with the opportunity to continue to invest in the network, which we had said we would. And from -- I think you will remember, again, us saying from the beginning of the year or even last year that we were going to maintain very strong, stable cash flow, even though we were intending to invest more in our network. So in terms of buybacks, as you know, we flexed in the past on this, and we will continue to do so. And dividends will be -- we will continue stay true to our dividend increase, reasonable increase that we've had in the past. We're still in the soft in the -- not in the soft, in the best spots that we announced between 30% and 50% of our payout. So we feel pretty comfortable with our continued capability to generate cash, very strong cash flows that then give us the leeway to continue to invest in the network and the -- eventually in the network builds. Jerome Dubreuil: I'm just going to push a little bit on the capital allocation point here. You said in the prepared remarks that you're probably happy with leverage in the low 3s. It seems like you're getting real close to destination here on the balance sheet side. So does that mean that we should be expecting a ramp-up in the buybacks probably? Or is that a fair assumption? Hugues Simard: It's not an unfair assumption, but I wouldn't necessarily agree to it now this morning. Pierre Péladeau: And Jerome, I think that we should say it's a prerogative of the Board of Directors. And look at the sequence previously where we've been changing our balance sheet policies. I guess that we should -- that would be a good example or a good illustration of what we can expect being the situation in the future. Operator: Next question will be from Vince Valentini at TD Cowen. Vince Valentini: Let me spin that free cash flow question just more specifically to the near term. Hugh, you've done $1.06 billion of free cash flow through the first 9 months of the year. In the fourth quarter of last year, you did over $300 million in free cash flow. Is there something material in terms of timing issues we should be thinking about for the fourth quarter? Or are you going to -- like, you're going to smash through $1.2 billion or $1.3 billion of free cash flow for the year? Hugues Simard: Vince, no, we've talked about this, I think, last quarter. There are some timing issues. Our CapEx did increase a little bit in Q3, as you've seen, but there still is some timing ahead of us -- timing issues ahead of us in terms of CapEx, which you should expect to be higher in Q4. So I wouldn't go all out in our expectations of us breaking the bank in terms of cash flow. It will be a very strong cash flow and we will more than deliver what we had said we would deliver, Vince. But yes, there definitely is going to be a catch-up in CapEx towards the end of the year -- between now and the end of the year, yes. Vince Valentini: But you would definitely expect to have positive free cash flow in the fourth quarter? Hugues Simard: For sure. For sure. Yes, yes. Vince Valentini: Okay. The second thing, your Internet adds were a bit better than I expected. Is this in Quebec in your core Videotron business? Or are you starting to see some benefit from Freedom Internet in the rest of the country using TPIA? Hugues Simard: Well, a little bit of both. It is in Quebec, but it is also in Freedom home Internet is performing well. Fizz Internet is performing well. So it's -- we are in a very competitive situation and an ever-increasing competitive situation in Quebec. But we've talked about the quality of our services and network. And so we've been performing well essentially everywhere in terms of broadband. Vince Valentini: Okay. And last one, I don't know if there's any materiality to this, but as you know, I'm a happy customer. These roaming SIM cards that you guys have and people on other carriers are allowed to use them when they're traveling, how are you counting those? Are they being counted as a subscriber in the third quarter sub adds? Hugues Simard: No, no. No, they're not -- if you've turned on that SIM card, as I know for a fact that you were finally successful in doing, Vince… Vince Valentini: Yes, I did. Hugues Simard: After some help, you are not counted as a subscriber, no. Vince Valentini: So that is actually -- it is obviously service revenue. So it's going to be helping your ARPU even more than just the underlying trends in the business going forward? Hugues Simard: Yes. That's correct. And by the way, it's high time that you do become a customer of Vince. We're counting on you. Vince Valentini: I'm waiting for your Black Friday offer. Pierre Péladeau: Thanks for your business, Vince. Operator: Next question will be from Aravinda Galappatthige at Canaccord Genuity. Aravinda Galappatthige: Just a couple of quick ones from me. Hugues, you mentioned that one of the reasons for the success of Freedom sub trends is because you're kind of going into other cohorts that the old Freedom did not. I mean should we translate that comment as suggesting speaking to sort of the prepaid-postpaid mix? Any comment around how that mix has changed as you sort of progressed with gains on the subscriber front? And then secondly, just a small follow-up. The wireless ARPU redefinition, can you just clarify what that was? Hugues Simard: As to your first question, Aravinda, postpaids and prepaids for us, we're continuing to perform well on both. We have -- we're a bit agnostic, to be honest, and have continued to work well. So on all the cohorts that I talked about, I think that was more of a general comment applying to both to both postpaid and prepaid -- not specifically a move from one to the other. But we -- to be quite transparent, we're continuing to perform well on postpaid. And your second question, sorry, I've forgotten was to do with what? Aravinda Galappatthige: The ARPU redefinition. I think it was a small definition change of $0.40. Hugues Simard: Yes. Yes, it's about $0.40. We've restated it. But as those were $0 accounts, you'll see that it's almost consistently $0.40 over the last so many quarters that we restated. Operator: Next question will be from Drew McReynolds at RBC. Drew McReynolds: So a couple for me. Maybe for you, Hugh, on the CapEx trajectory in telecom. It looks like you're running a little hotter than the initial kind of $650 million or so of CapEx. Just wondering, and I think your commentary from Q4 would say you come on above that. Is there any kind of change overall to the kind of medium-term trajectory on CapEx from your perspective? And then just tied to that, we are seeing a pretty efficient kind of cable CapEx intensity come down from -- with some of your cable peers. Just wondering your cable CapEx, how you expect that to trend again through the medium term? Hugues Simard: Thanks, Drew. So on medium-term CapEx, both wireless and wireline, we will -- as I said earlier, we will, in Q4, be a little bit higher. That doesn't necessarily change our midterm -- what we said about the midterm that we are -- and we've said this before, that we're in a -- we're continuing to invest, and we're continuing to improve and ultimately expand as well our networks. And as such, it will be -- you should expect a gradual CapEx increase over the medium term. Nothing -- again, gradual, nothing -- no CapEx wall. I have some of your colleagues unfortunately use the term in the past. I don't think there's anything to be worried about, but just very reasonable and very sensible investments in both of our wireline and wireless network going forward. So no change to our midterm CapEx trajectory. Drew McReynolds: Just in the MD&A, you alluded to some favorable kind of provisioning in Q3 within telecom. I'm assuming the 2.8% year-over-year telecom EBITDA growth ex the provisioning is still a reasonably good growth rate. Can you just comment on quantifying those provisional -- favorable provisions? Hugues Simard: I won't give you the number, obviously, Drew, but it's -- no, I think your statement is fair. There's no -- yes, there was some provision adjustments as we do in a number of quarters and almost all quarters and as everybody does, but it's not material enough to impede or to change the conclusion on our increase in profitability for the quarter. Drew McReynolds: Okay. No, that's great. And last one for me, just the usual fixed wireless impact in Quebec, just how that's kind of contributing to the competitive environment, if at all? And that's it for me. Hugues Simard: To be honest, nothing significant. It is -- and by that, don't misread us. We're not saying that this is something to be dismissed. As we said in the past, fixed wireless is -- we're not saying it's not a thing. It may very well become a thing. And we are certainly in our own shop, looking at opportunities for fixed wireless. But certainly, to your -- in answer to your question, so far the impact on us has been very limited in our home turf of Quebec. But we are definitely -- and we've got the teams already lined up to start reflecting on how we will turn that into an opportunity for us in our various markets outside of Quebec. Aravinda Galappatthige: And congrats on great wireless results. Operator: Our last question will be from Tim Casey at BMO. Tim Casey: Hugh, just one modeling question and a couple of others. Working capital is running very positive so far this year. Should we expect a reversal in Q4 or maybe into Q1 next year? And what's driving that? Is that cash management or is it just timing? Hugues Simard: Tim, no, you should -- the answer your question, there should not be -- I don't see any material difference in Q4 or Q1 of next year in terms of working capital. It is -- to be honest, it is something that we've been focusing on for the past year or so, 1.5 years, where we recognized -- I think sometimes you have to be -- you have to question yourself on various occasions. And we weren't as efficient in working -- in managing our working capital as we should have been in the past. And we've tightened up a lot of things and I think it's showing. But we certainly intend to continue to perform well on working cap. And I wouldn't expect -- I mean, there's no bump either way that you should expect in the next quarters. Tim Casey: Okay. Just 2 for me. On the 50,000 subs you removed out of the base, can you give us any color on why they were $0 subs? Was this an aggressive promotion from the relaunch of Freedom? Were they -- was it an enterprise deal? What was happening there that they were so poor ARPU? And second one, as you think about expanding out of footprint on wireline, do you expect to retain similar type economics maybe on a margin basis? I would -- or should we assume that it will be dilutive to ARPU on the wireline side? Hugues Simard: Tim, to your first question, the 50,000 or 51,000 were $0 accounts. It's basically people who had opened an account but never -- or had a SIM card, mostly from before the acquisition and who never really bought a package. So they -- we had them as an account, but they weren't active and they weren't generating any revenue. So we just took them out. In terms of our out-of-footprint wireline, we -- again, our intent is to remain very disciplined and very -- I think that was your question. If I'm not answering the right question, you can ask me. We certainly -- as we've said in our notes today, both Pierre Karl and I, we intend to -- whether it's out of footprint wireline or eventually fixed wireless, whatever, it is our intent to remain very disciplined. And I think if I may make the point right now, we have been and for quite some time, been very disciplined and very predictable in our approach. We say what we're going to do, and we do what we said we were going to do, which I don't think can be said for everybody in telecom in Canada. But we certainly, in terms of wireline, intend to continue to apply that philosophy, if I can call it that. Pierre Péladeau: So we would like to thank you all attending this conference call and expect the same for our next quarter that will be our year-end. So don't miss Hamilton game, the Alouettes against the Tiger-Cats on Saturday. Hugues Simard: And you should root for the Alouettes, right? Pierre Péladeau: Sure. Thank you very much and have a nice day. Hugues Simard: Thanks, everyone. Operator: Thank you. Ladies and gentlemen, this concludes the Quebecor Inc.'s financial results for the third quarter 2025 conference call. Thank you for your participation and have a good day.
Emanuel Hilario: [Audio Gap] New premium holiday menu focused on Wagyu and premium seafood, aligning with today's selective diners who are more intentional about what they choose to dine. At Kona Grill, we are strategically expanding our menu to reduce reliance on categories facing current market pressures. The brand has historically been centered around seafood, sushi, and our distinctive bar experience, but we are seeing headwinds across those core areas. Our menu diversification introduces broader culinary options that appeal to more frequent dining occasions and are less sensitive to economic fluctuations. Our Friends with Benefits loyalty program continues to gain momentum with over 6.5 million members. During the quarter, we added over 200,000 new members. Newly enrolled guests are showing the most repeat participation in the program. We are focused on growing a best-in-class program that fuels long-term business growth. Our key objectives with the Friends with Benefits loyalty program are: one, maximize membership size by converting members from other TOG marketing programs; number two, drive organic sign-ups through increased awareness and engagement; and number three, increase member engagement within the program to strengthen brand connection and repeat visits. We have also upgraded our brand websites, Benihana, STK, Kona Grill, and RA Sushi now feature fresh, mobile-optimized designs that are increasing both traffic and conversion rates. These digital enhancements, combined with our loyalty platform, position us to compete effectively as national chains ramp up promotional activity. Priority 2, capital-efficient growth. The newly redesigned Benihana location we opened in San Mateo, California, early this year has become the top-performing restaurant opening in the brand's 60-year history. This outstanding start validates the effectiveness of our redesigned restaurant format. In this redesign, we made several meaningful changes to the Benihana footprint. We relocated the sushi station to the back of the house to create more Techniaki table capacity, expanded the bar seating area, modernized the interior with a brighter, more contemporary look, and created a dedicated takeout station that improves overall restaurant flow. We are now implementing this learning system-wide, adding 2 to 3 Techniaki tables per restaurant to create meaningful capacity increases that directly boost revenue potential. This success gives us confidence that future locations can achieve $8 million in annual sales with a restaurant-level profit margin in the mid-20% range. Franchise momentum continues to accelerate. We opened our second Benihana Express location in Miami in the second quarter, with more in development. The Express format offers the full menu without Techniaki tables, generating strong franchise interest while enabling asset-light expansion. Over time, we expect franchise licenses and managed locations to represent over 60% of our total footprint. We are also expanding Benihana into more nontraditional venues. We currently operate in 3 professional sports stadiums, generating 9 million fan impressions annually, with additional airport and arena opportunities under discussion. Across our portfolio, we have opened 4 company-owned venues and 1 franchise location year-to-date, with additional fourth quarter openings planned, bringing our total 2025 openings to 5 to 7 new venues. In the fourth quarter, we already opened an STK in Scottsdale, Arizona, and plan to open a company-owned STK in Oak, Illinois, and our Kona Grill San Antonio relocation. Relocations remain a key strategy to unlock strong returns in existing markets. By prioritizing nearby high-quality real estate opportunities in areas that already embrace our brands, we can increase capacity, optimize traffic, and better position our brands for long-term success. For example, our recently relocated Westwood STK has delivered margin improvement over the previous location. Remodels are also showing promise and success. During the third quarter, we remodeled our dated Tampa Bay Kona Grill. With modest capital investment, it has delivered a significant turnaround in same-store sales performance. Priority 3, portfolio optimization. We have taken decisive action to strengthen our portfolio quality through strategic location optimization. After conducting a thorough evaluation of our Grill concepts portfolio, we closed 6 underperforming locations in the second quarter and 1 additional location in the third quarter within challenging trade areas. These were primarily older units, which would have required substantial capital investment. Looking ahead, we have identified up to 9 additional Grill locations to convert to either Benihana or STK formats through the end of 2026. These conversions represent an excellent capital allocation opportunity. They require about $1 million in capital investments, and the average STK generates over $1 million in annual EBITDA. Our first conversion of a RA Sushi location to an STK location has already happened in Scottsdale, Arizona, which opened at the end of October. After completing all planned conversions, we will operate all profitable locations that we expect to generate approximately $10 million in restaurant-level EBITDA and over $100 million in revenue, with all units maintaining positive cash flow. Priority 4, balance sheet strength. With approximately $45 million in liquidity, we have the means to invest in growth while maintaining discipline. Our Board authorized a $5 million share repurchase program last year, and we view our stock as an attractive investment. Additionally, we expect to further reduce discretionary capital expenditures in the coming year across all of our brands, allowing us to strengthen our balance sheet while enhancing financial flexibility. Finally, I'm optimistic about our fourth quarter. This is historically our strongest period, and we are better positioned than ever to capitalize on that strength. 2024 marked our first holiday season with Benihana in the portfolio, and we set records across every holiday with exceptional demand. This year, we have made targeted investments to capture even greater holiday demand. Our enhanced reservation technology, streamlined operational flow, and comprehensive team training initiatives position us to execute flawlessly during our busiest periods. A key operational focus is optimizing Benihana table efficiency. We are targeting a reduction from 120 minutes to 90 minutes table turns throughout the fourth quarter, which will significantly expand our capacity to serve more guests during the busy dinner periods. The items that I have outlined today are fundamentally execution-driven and within our direct control. We are not relying on macroeconomic recovery or waiting for consumer sentiment shifts. Instead, we are focused on strategic initiatives that position us to deliver strong results regardless of broader economic trends. Before I turn it over to Nicole for the financial details, I want to thank our teammates. Every day, they live our mission of creating great guest memories by operating the best restaurants in every market that we operate by delivering exceptional and unforgettable guest experiences to every guest every time. They are at the foundation of everything we do. With that, I'll turn it over to Nicole. Nicole Thaung: Thank you, Manny. As a reminder, beginning this year, we are reporting financial information on a fiscal quarter basis using 4 13-week quarters with the addition of the 53rd week when necessary. For 2025, our fiscal calendar began on January 1, 2025, and will end on December 28, 2025, and our third quarter contained 91 days. Let me start by discussing our third-quarter financials in greater detail before updating our outlook for 2025. Total consolidated GAAP revenues were $180.2 million, decreasing 7.1% from $194 million for the same quarter last year. Included in total revenues were our company-owned restaurants' net revenue of $177.4 million, which decreased 6.9% from $190.6 million for the prior year quarter. The decrease was primarily due to a 5.9% reduction in consolidated comparable sales and the closure of underperforming restaurants from the prior year period. Management license, franchise, and incentive fee revenues decreased to $2.8 million from $3.4 million in the prior year. The decrease is attributed to lower management license and incentive fee revenue at our managed STK restaurants in North America and reduced franchisee revenues due to exiting 2 license agreements. It is important to note that our sales at our managed STK in Las Vegas have notably improved quarter-to-date. Additionally, we exited our management deal with STK Scottsdale and converted a former RA Sushi to a company-owned STK. Now turning to expenses. We continue to implement targeted cost management initiatives, including strategic adjustments to our protein sourcing to reduce costs and a temporary hiring freeze that will optimize our labor structure. Company-owned restaurant's cost of sales as a percentage of the company-owned restaurant's net revenue increased slightly to 21.1% from 20.9%. This was primarily due to sales deleveraging, coupled with higher-than-anticipated inflation in certain commodity costs. This was partially offset by additional integration synergies from our Benihana acquisition. Company-owned restaurant operating expenses as a percentage of company-owned restaurant net revenue increased 140 basis points to 67.6% from 66.2% in the prior year quarter. This was primarily due to investments in marketing, general cost inflation, and fixed cost deleveraging driven by a decrease in same-store sales. Restaurant operating profit decreased to $20.1 million or 11.3% of owned restaurant net revenue compared to $24.5 million or 12.8% in the prior year quarter. On a total reported basis, general and administration costs increased $0.5 million to $13.3 million from $12.8 million in the same quarter prior year, driven by increased marketing expenses. When adjusting for stock-based compensation of $1.2 million, adjusted general and administrative expenses were $12 million compared to $11.2 million in the third quarter of 2024. As a percentage of revenues, when adjusting for stock-based compensation, adjusted general and administrative costs were 6.7% compared to 5.8% in the prior year. Depreciation and amortization expenses were $11.5 million compared to $9.4 million in the prior year quarter. The increase was primarily related to depreciation and amortization of new venues and capital expenditures to maintain and enhance the guest experience in our restaurants. During the quarter, we completed our regular assessment of the recoverability of the net book value of our fixed assets. A noncash loss on impairment may be necessary when the net book value exceeds the future expected cash flows of the restaurant, and can happen due to economic factors, end of lease, or restaurant performance. As a result of this assessment, we identified 5 restaurants that required impairment charges that totaled $3.4 million, mostly related to grills that we plan not to extend the leases on. Preopening expenses were approximately $700,000, primarily related to the preopening rent for restaurants under development and payroll costs associated with the preopening training team as we prepare restaurants scheduled to open in the fourth quarter of 2025. Preopening expenses decreased $1.4 million compared to the prior year period. Operating loss was $7.9 million compared to an operating loss of $3.6 million in the third quarter of 2024, mostly impacted by the $3.4 million in noncash loss on impairment. Interest expense was $10.5 million compared to $10.7 million in the prior year quarter. Provision for income taxes was $59.1 million compared to a benefit of $4.9 million in the prior year quarter. The increase in income tax expense is primarily the result of the establishment of a full valuation allowance against our deferred tax assets during the third quarter. This is a noncash income tax expense item that was recorded because of management's assessment of the future usability of our deferred tax assets and liabilities. Net loss attributable to Wes Hospitality was $76.7 million compared to a net loss of $9.3 million in the third quarter of 2024. The 2025 loss was primarily driven by the noncash loss on impairment and the noncash recognition of the valuation allowance. Net loss available to common shareholders was $85.3 million or $2.75 net loss per share, compared to $16.4 million in the third quarter of 2024 or $0.53 net loss per share. The previously discussed noncash loss on impairment and establishment of the deferred tax asset valuation allowance represent $2.02 of the third quarter 2025 net loss per share. Adjusted EBITDA attributable to The ONE Group Hospitality, Inc. was $10.6 million compared to $14.9 million in the prior year, a decrease of 28.9%. We finished the quarter with $6 million in cash and cash equivalents and restricted cash. We have $28.7 million available under our revolving credit facility. And as of quarter end, we had $5.5 million outstanding on our revolving credit facility. Under current conditions, our term loan does not have a financial covenant. Now I would like to provide some forward-looking commentary regarding our business. This commentary is subject to risks and uncertainties associated with forward-looking statements as discussed in our SEC filings. We remind our investors that the actual number and timing of new restaurant openings for any given period are subject to factors outside of the company's control, including macroeconomic conditions, weather, and factors under the control of landlords, contractors, licensees, and regulatory and licensing authorities. Based on the information available now and our expectations as of today, we are updating the following financial targets for fiscal year 2025. Please note, this does not include the potential impact of tariffs on broader economic conditions. We project total GAAP revenues of between $820 million and $825 million, which reflects our anticipation of consolidated comparable sales of negative 3% to negative 2%. Managed franchise and license fee revenues are expected to be between $14 million and $15 million. Total company-owned operating expenses as a percentage of company-owned restaurant net revenue of approximately 83.5%. Total G&A, excluding stock-based compensation of approximately $46 million, adjusted EBITDA of between $95 million and $100 million, restaurant preopening expenses of between $5 million and $6 million; an effective income tax rate of between 1% and 4% when excluding the valuation allowance and the items subject to valuation allowance. Total capital expenditures, net of allowances received from landlords, of between $45 million and $50 million. And finally, we plan to open 5 to 7 new venues. I will now turn the call back to Manny. Emanuel Hilario: Thank you, Nicole. Before we open it up for questions, I want to emphasize how excited we are about the future of our business. Although the current environment is challenging, our future looks bright. With our strengthened portfolio and our expanded franchise capabilities, we are well-positioned to capture the significant opportunities ahead of us. We thank you for your continued support and look forward to sharing our progress in the quarters ahead. Nicole and I look forward to your questions. Operator? Operator: [Operator Instructions] We'll take our first question from Joe Gomes with NOBLE Capital. Joseph Gomes: So I want to start out the last couple of quarters, you talked about Benihana having 2 quarters in a row of same-store sales growth, in STK 3 quarters in a row of positive traffic. And I might have missed it, but I didn't hear that discussion today. I was wondering if you could give us a little update on those. Emanuel Hilario: I mean, I think probably the best thing to do is talk about maybe our traffic overall as a company. I think if I look at the third quarter, 2025, I think that's been our best quarter in traffic, actually, for the whole year. As a consolidated company, I think we were down 6.9% in traffic for the third quarter, whereas in the second quarter, we were down 7.5%. And in Q1, we're down 7.8%. So the third quarter this year was by far our best or better traffic quarter. The big difference for us in the third quarter, though, is that until the end of the second quarter, beginning of the third quarter, we had about 7% effective pricing in there. So that offset part of the traffic experience that we were having. And then, going into the middle of the third quarter around August, we began lapping some pricing from last year. And we just saw a lot of noise in the middle of August in traffic. So we decided to just hold off on the pricing. And so our pricing in the third quarter was only plus 4% for the quarter. So we effectively lost about 3 points of pricing in the third quarter. So I would say from my perspective or our perspective, we made significant or we're doing improvements on traffic, which is one of the reasons why going into the fourth quarter, and we put some pricing in effect right at the beginning of November, I think that we've basically put the pricing back on. And with the sequential improvement in traffic, I think we feel pretty good about the sales position going into the fourth quarter. Joseph Gomes: And what do you think is driving the traffic improvement in the fourth quarter so far? Emanuel Hilario: On the third quarter, I'd say the sequential improvement in the third quarter, I think, is really a testament to the value of the proposition and the marketing that we've been doing. We also, as I mentioned in my prepared statements, we do have some macro forces that haven't really supported sales. For instance, if you look at our across of our portfolio, our concentrations of restaurants are in California, Arizona, Florida, and Texas, and then we have the other, which is about 50% of our concentration of sales. And if I just look in the third quarter alone, I think there was a lot of macro pressures, for instance, in our California sales sequential between the second and third quarter actually got negative by 7 points. So there's some geographical pressures that came in that quarter since the third quarter. We've seen some of that loosen up a little bit, but certainly in September, we saw a lot more pressure in our traffic in California, which is, by the way, one of the reasons why we put the pause on our pricing actions, just because we saw the traffic in there. So again, I think that the combination of the sequential improvement in traffic in the quarters, and now I feel as if California is getting slightly better. And last but not least, as I mentioned also in my prepared statement, in the month of December, taking the turn times at Benihana from 120 minutes to 90 minutes creates a significant lift in availability and tables, and capacity to take more business. Joseph Gomes: And then one more for me, if I could sneak one in. Maybe just can you give us a little color on your efforts on the Benihana franchising side. I know that's something that you're hoping to see a little faster growth. So just want to get an update there. Emanuel Hilario: Yes. So I mean, we did open one in the second quarter in Florida. And then our activities on the franchising side have also yielded. We now have a deal that's almost done for some Benihana Express-type operations in California. We also have a potential franchise deal for the Bay Area that's also shaping up. So we've made significant improvements on the pipeline. So now our team is out there working with these potential individuals and closing these deals down. We've also made some improvements to our pipeline for license sites for STK. So we do have both the franchising move forward on the pipeline for Benihana and also STK, as we've gotten some more leads and are actually getting very close to announcing some additional license deals for STK. Operator: We'll take our next question from Anthony Lebiedzinski with Sidoti. Anthony Lebiedzinski: So Manny, I think also last quarter, you called out Las Vegas as being a market where you saw some, I think, softness. Can you comment on that? Did you see that as well? And have you seen any improvements fourth quarter to date? Emanuel Hilario: Yes. So I will caveat my response on Vegas on the fact that it's our experience. We only have, let's call it, 3 or 4 restaurants in that market, actually 4 in total. But our experience right now with STK is that it's actually improving for STK. So we've seen an improvement in our business on that side. Again, as I mentioned earlier, part of that has to do with the shifting in the conference and convention schedule. I think if you follow Vegas, you probably are aware that there was a shift in the convention calendar. So that's definitely benefiting us in the fourth quarter, having a more robust conference schedule. I think the other restaurants, though, I would say that it's more of a little bit of a mixed bag. So I haven't seen the same improvement that I've seen on the STK business. Anthony Lebiedzinski: And then you gave us some numbers on the loyalty program, which looks like it's doing well in terms of sign-ups. Can you give us maybe some details, as far as like what the average ticket or frequency or anything else, can you share about the loyalty members versus non-loyalty members? What do you see in terms of behavior from them? Emanuel Hilario: Yes, great question. So we have about 6.5 million people who are in the program. A lot of those members came through our conversion of memberships from other programs. So we have Benihana on the programs. We had Kona Grill Rock. And that's the case. So we brought everybody into the same common program, if you will, into that loyalty program. And since then, we've done about 200,000 sign-ups of new members coming into the program. We're early. So I'm going to give you what I've seen so far because of all the brands we have, Kona Grill is the one that has been on the loyalty program much longer than anyone else because we were already utilizing Konivor, which was the legacy program from Kona. And for that particular brand, it's actually been helpful. So we've seen a frequency increase in the use of the program. So we feel the early returns are very promising because we have members in that program who've been around for longer. And I think the new program and new activations that we're doing with it have driven a little bit more interest. But again, as I said earlier, it's early. I think we rolled it out only earlier this year. I think that we will continue to pick up momentum with it going forward. But again, I think that as I look at the overall story for the quarter, I think that the third quarter being our best traffic quarter for the company, I think it bodes well for all the initiatives and the actions that we're taking with marketing and everywhere else. Anthony Lebiedzinski: And then I guess my last question before I pass it on to others. In terms of recent price increases, I know it's still early on, but any early read on the reaction to the price increases? Have you seen any customer pushback to those higher prices? Or do you think that you'll be able to successfully pass those along? Emanuel Hilario: Yes. I mean, I think we start rolling out those price increases in late October in some places. And so we're really, really early on it. But, again, I think the way that we did our pricing increase this time is that we really tried to wait until we think the timing is a little better. I think this has actually started our seasonally better months, weeks, whatever you want to call it, actually, for the next 36 weeks is really our high season period for us. So I think putting the price right at the beginning of the high season is actually a good strategy for us. Have we seen any noise in terms of feedback? The answer is not. We follow it obviously through all our listening tools and social media, and everything. So we have not seen anything above and beyond what we usually see on the pricing. Operator: We'll take our next question from Mark Smith with Lake Street Capital Markets. Mark Smith: I wanted to dig in a little bit more into Benihana comps here in the quarter. They came down more than we've seen here recently. Can you just talk about traffic and tickets at Benihana? Emanuel Hilario: Yes. I think for the quarter for Benihana, as I mentioned earlier, that we had pricing coming off. Benihana was the one that had 5 points of pricing might have actually been a little higher than 5 points that we did not replace in the quarter. So if I look at their differential in same-store sales year-to-date to what we performed in the third quarter, I would attribute it mostly to the pricing, not taking the pricing action. And again, I want to reiterate this, if I look at our same-store sales by geography, California was by far the most impacted of all markets in our portfolio, and the Benihana portfolio does have a bit of weight in the California market, some of our higher-volume restaurants. So again, I think that I would say that the 2 items on the Benihana would be not replacing the 5 points in pricing that we came off and then the additional pressure in the California market. Mark Smith: And then just on the impairment that you took in the quarter, was all of that on Grill Concepts? Or was there anything on any of the other brands? Emanuel Hilario: Yes. I think the majority of the impact was on Kona Grill. And then we did have a very minor amount coming out of our STK in downtown New York just because that lease is up. We're in the last year of that lease, and we're moving the restaurants, actually relocating the restaurant around the corner. So that will be a reload. But right now, we just have some additional amounts in the books that we have to accelerate. And by the way, there were assets that we couldn't move over to the new location because a lot of the assets may move to the new location. Mark Smith: And then just talking about changing locations here. Can you just walk us through a little bit more on your, maybe the economics of the conversions? I think you said $1 million maybe on spend, but just the economics there and then, maybe your outlook on these that you plan on converting, how many maybe to STK, how many to Benihana. And I'm curious, sorry to throw a lot on you here. Do these come with a new lease signing? Or do you typically keep the lease terms that you currently have? Emanuel Hilario: Well, so a very good question. So the first one we did is Scottsdale. It was a RA Sushi restaurant. And in that one, we converted to an STK. It took us, I think, from beginning to end, somewhere between 6 and 8 weeks, to do the full conversion. The cost of the conversion, I'm putting it at about $1 million in a round number. And it was a very effective refurbishing of the restaurant, and we kept the majority of all the infrastructure. So it was very cost-effective in that. And the question on the lease is that one, actually, we actually got an extension on the lease by choice. So we got another 5-year option just because we like the real estate. When you go to that property, you'll notice that it's in an A plus, I'm going to call it A, I'm not going to give it A+, but let's call it A real estate with very good lease terms and a good presence there. And we've already reopened it. I would say that we just opened the door. We didn't really do much marketing. We're actually starting the marketing push in the next couple of weeks. And I've been so far been very happy with what it's happened there. Obviously, as you know, our model for STK, brand-new STK, is about $8 million in volume with margins around 20%. So I would expect that STK to be in that range of value. It's in a market that we've already been in. So we have pretty good experience there. So I feel pretty good about that one. Now we have other, I think, up to 9 other sites that we're looking at converting and the cost should be around that same $1 million type tag, if you will, price tag and the conversion cycle should be relatively fast, and we'll do the same thing in terms of taking advantage of existing infrastructure in electrical, HVAC, kitchen, plumbing, et cetera. So we think those will be very effective. Again, what really drives that decision is the quality of the real estate. That's one of the things that we're really happy about, The ONE Group is we have great real estate, and that's one of the things that having multi-brands like we do gives us a lot of flexibility and gives us an opportunity to really leverage the strength in the real estate. Mark Smith: Would there be much of a difference in the cost or maybe return metrics on converting to Benihana versus STK? Emanuel Hilario: I mean, again, another great question. I think the difference between Benihana and STK conversion is actually the mechanical cost because with the tables in the dining room, we have to do more upgrading on the exhaust system, and sometimes electrical systems if we add electrical tables. So it's a little bit more on the mechanical side. And it may take a little bit more time because we actually have a lot more engineering and architectural work into it. So it's a little bit different from a process. But our view on it is that the cost will still be around $1 million in either one. And so we don't foresee a lot of cost incrementality in there. Again, I mean, we have a lot of real estate in malls and other places that make a lot more sense for Benihana than STK. So that's part of our decision on Benihana is that Benihana is a great concept for mall-type locations. Operator: We'll take our next question from Jim Sanderson with Northcoast Research. James Sanderson: I wanted to go back to the issue of pricing. I think you mentioned you exited the third quarter with a global price of about 4 percentage points and that you took a price in November. What should we expect as far as the impact of menu price on fourth-quarter same-store sales? Emanuel Hilario: So I think the bigger part of that increase was Benihana around slightly above 5 points on pricing. So that will weigh in heavily. And then STK and the other brands, we had about 2 to 3 points on pricing. So the other ones are very modest. I would call that just cleanup pricing. So I would say, overall, somewhere around 4.5% to 5.5% on a weighted basis would be the impact of the new pricing layer. James Sanderson: And that probably will last for the next 36 weeks, give or take. Is that the right way to look at that? Emanuel Hilario: That's right. James Sanderson: Could you talk a little bit more about bookings? I think you mentioned in the press release that you were optimistic given the level of holiday bookings. Maybe you can tell us any comparison with respect to last year at this time? Emanuel Hilario: Yes. I mean, we actually just reviewed the books this morning. Nicole and I did a review of our bookings to progress right now. Frankly, since COVID, if I look at the month of November, looking into December has been one of the months where I've actually seen a significant amount of progress on the number of bookings that we've seen in events. Obviously, that also reflects a little bit of the fact that we have a very experienced. We have a very good sales team. So that team has become very good at working in the current environment of sales. And again, the convention business and a lot of the stuff that used to happen in the third quarter last year also got moved into the fourth quarter this year. So definitely, that helps bring up the books into the fourth quarter. James Sanderson: And can you remind us what share of the fourth quarter is related to holiday bookings or special events, that type of thing? Emanuel Hilario: I would say about 15% of our business comes from the group event business in the fourth quarter. James Sanderson: Also wanted to shift gears on Benihana. You mentioned a lot of changes taking place in the design of the store that you're going to be implementing. Can you give us a sense of when that change will be implemented across all Benihana stores? And any feedback on helping us understand how to quantify the increased capacity, how that potentially could benefit AUVs? Emanuel Hilario: So our planning for that is we typically say that our CapEx is about 1.5% to 2.5% of sales on existing stores. So we're not putting together a special allocation of capital for that. We will do that revamp within our typical allocated basket, if you will, of CapEx. And so it will take a little bit of time to do that. But our changes will be more around our priority, one is getting rid of the smoke in the dining room. So we do have some things that can help with that. So we're working on that right now for a lot of our restaurants. HVAC. I think I've mentioned HVAC in previous calls. And then the third priority is adding tables because on Fridays and Saturdays, we can really use more tables in the restaurants. So we'll be upping those tables as we go. And then I'd say the next level of priority, things like the artwork, is pretty compelling. The new artwork that we put in the San Mateo location, which we've defined for the brand, is actually very cool. So we really want to start working on that. And then over time, it's just the key with Benihana is to continue a very strong maintenance program, which we do have in place. We have a very high-quality facilities team that keeps these things maintained. But as time goes on, with our typical basket of capital, we'll try to take care of that. As you probably picked up on my prepared statements and on the press release, we're also tightening down and keeping down the amount of CapEx that we're using because we want to work on the balance sheet. So it's all about balancing all those things, and that's where we'll fund the capital B from our regular CapEx basket. James Sanderson: A bit of a follow-up question, just to make sure I understood the lower CapEx in 2026 that you mentioned. So, how should we put that into perspective based on the plan you have in place this year? How is that CapEx number going to change. Emanuel Hilario: Yes, very good question. So we're focusing our capital on the conversions, which are about $1 million per restaurant. And then on new brand restaurants of the world, we're only focusing on restaurants that we can do for $1.5 million or less on the whole cost of the restaurant. So we're really working our low-cost real estate inventory. And also the other thing, too, is we're not doing any new leases right now because we have a pipeline of about 12 leases. So we stopped doing leasing, and we're going to work through the existing pipeline of leases. James Sanderson: And last question for me. I just wanted to better understand the Benihana Express. I think you mentioned that it could eventually become a sizable portion of your portfolio. Can you describe any changes to what the AUVs are store margins and how that's different from, let's say, a larger Benihana? Emanuel Hilario: Yes. I mean, the box will be much smaller. So we're trying to keep the restaurant -- let's just hypothetically right now, keep it around 1,000 square feet. So the economics are different from a top-line perspective just because of size. And then there will be no tips on tables in the property. All the food will be ordered and picked up, and taken away. And then we'll have some tables in the property and chairs, but there will be very limited seating. And so it will be a much smaller compact box. And so expect revenues. Right now, Nicole and I talked about somewhere around $1 million to $1.5 million, but a very, very low cost of build-out because there's nothing really to put in there. So we'll probably build that for around $500,000 to $600,000 in cost. So it will be a very effective box. Think of it most as a fast casual grab-and-go, take your food back home, or you may choose to eat there, but it will be a more casual environment. James Sanderson: Just to follow up on that. How do we look at the cash return or the cash-on-cash return to franchisees with be reviewing? Emanuel Hilario: Yes. I mean, we think that because of the lower cost of goods and the fact that we'll be able to be effective labor in that box, it will be a very high ROI. I think the store level margins, even after royalties, can be in the 15% to 20% range. So it will be a very good return vehicle for potential franchisees. The ones that we're talking to are super excited about it, and we look forward to testing that model out. Operator: We have reached our allotted time for questions. I will now turn the call back over to Manny Hilario. Please go ahead. Emanuel Hilario: All right. Thank you very much, Brittany. As I always close my call here. I want to thank the team once again. I'm very impressed and very pleased as to how the team put above and beyond effort and really showed progress in the third quarter, as our traffic numbers show. So I appreciate that. And we look forward to a great fourth quarter in terms of traffic and sales. And as always, I appreciate your support of The ONE Group, and I look forward to seeing you out in one of our restaurants. Everybody, have a great day. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Welcome to Strategic Education's Third Quarter 2025 Results Conference Call. I will now turn the call over to Terese Wilke, Senior Director of Investor Relations for Strategic Education. Mrs. Wilke, please go ahead. Terese Wilke: Thank you. Hello, everyone, and welcome to Strategic Education's conference call in which we will discuss third quarter 2025 results. With us today are Robert Silberman, Chairman; Karl McDonnell, President and Chief Executive Officer; and Daniel Jackson, Executive Vice President and Chief Financial Officer. Following today's remarks, we will open the call for questions. Please note that this call may include forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The statements are based on current expectations and are subject to a number of assumptions, uncertainties and risks that Strategic Education has identified in today's press release that could cause actual results to differ materially. Further information about these and other relevant uncertainties may be found in Strategic Education's most recent annual report on Form 10-K, the 10-Q to be filed and other filings with the Securities and Exchange Commission as well as Strategic Education's future 8-Ks, 10-Qs and 10-Ks. Copies of these filings and the full press release are available for viewing on the website at strategiceducation.com. And now I'd like to turn the call over to Karl. Karl, please go ahead. Karl McDonnell: Thank you, Terese, and good morning, everyone. We are pleased with our third quarter results, especially the sustained strength in our Education Technology and Services segment, supported by strong growth at Sophia and Workforce Edge. On an adjusted constant currency basis, SEI's revenue rose 5% from the previous year. We continue to advance our efforts to leverage technology, resulting in operating expense growth of less than 1%, operating income growth of 39% and a 400 basis point margin expansion. We did incur restructuring costs in the third quarter related to our ongoing productivity initiatives, which accounted for most of the difference between our GAAP and our adjusted results in the third quarter. Adjusted earnings were $1.64 compared to $1.16 from the prior year, an increase of 41%. Turning now to our segments. Our Education Technology Services division generated continued strong growth during the quarter with revenue and operating income increasing by 46% and 48% from the prior year to $38 million and $16 million, respectively. And notwithstanding our continued strong investment in ETS, which included a 44% increase in expenses, ETS' operating margin increased slightly on a year-over-year basis to 41.7%. Sophia Learning, our direct-to-consumer portal that offers high-quality college-level courses and has increasingly become a key component of many of our strategic corporate partnerships, grew both average and total subscribers and revenue by 42%, driven by strong growth in both consumer and employer-affiliated subscribers. ETS' share of SEI's operating income continues to grow and now represents 1/3 of consolidated operating income, reflecting progress with our employer-focused strategy. U.S. Higher Education total enrollment decreased slightly from the prior year, but was more than offset by higher revenue per student driven by fewer drops, less discounting and students taking more courses on average. This resulted in revenue growth of 3% from the prior year. Employer-affiliated enrollment once again remained strong, increasing approximately 8% from the prior year and now represents 33% of all U.S. Higher Education enrollment, an increase of 290 basis points from the prior year. In addition to the strength in our employer affiliate enrollment, U.S. Higher Education's health care portfolio generated strong total enrollment growth of 7% from the prior year. Health care is a critical part of our portfolio, representing half of all U.S. Higher Education enrollments and almost 40% of enrollment from employer partners. Recently, we commissioned a survey in partnership with The Harris Poll, which highlights the ongoing burnout facing the health care workforce and the projected shortfall of clinical health care workers. This research emphasizes the importance of investing in employees' growth and making continuous education a key part of strategies to retain talent. Full survey results can be found on our website at strategiceducation.com. U.S. Higher Education operating expenses decreased by $6 million from the prior year or a reduction of 3%. As a result, U.S. Higher Education operating income almost doubled from the prior year to $23 million, and its operating margin increased 520 basis points. Turning now to our Australia and New Zealand segment. ANZ's third quarter total enrollment decreased 2% from the prior year, driven by the continued regulatory restrictions on international student enrollment. Using constant currency, revenue decreased 2% to $70 million and operating income decreased from $15 million in the prior year to $13 million this year. Notwithstanding the decline in total international enrollment, we are encouraged by the continued progress with domestic enrollment growth and recent guidance from the Australian government that our international caps will increase 3% in 2026. Finally, regarding capital allocation, in addition to our regular quarterly dividend, we repurchased approximately 429,000 shares during the quarter for a total of $34 million. As of the end of the third quarter, we have repurchased over 1.1 million shares for $94 million, leaving us with $134 million remaining on our share repurchase authorization through the end of this year. And finally, as always, I'd like to take this opportunity to thank all of my colleagues here at SEI for their ongoing commitment and support to our students and our employer partners. And with that, Shue, we'd be happy to take questions. Operator: [Operator Instructions] And our first question will come from the line of Jasper Bibb with Truist Securities. Jasper Bibb: I wanted to ask two on U.S. to start. I guess, first, what drove the healthy revenue per student gain in the quarter? And what should we expect on a revenue per student basis over the next few quarters? And then second, a lot better margin than we anticipated in the U.S., too. Just hoping to get a bit more detail on the expense reductions there. Daniel Jackson: Jasper, it's Dan. On the revenue per student, Karl mentioned lower drops and higher seats per student. It was also some lower discounts, and I think we'll see some benefit from that through the balance of the year. So there'll be some upside on revenue per student at U.S. Higher Ed. Karl McDonnell: And on margins, Jasper, we've said before, we're in the midst of a pretty aggressive productivity initiative that's designed to essentially remake our entire expense base. We've got -- through technology and artificial intelligence notably, we've got six different categories that touch all parts of the organization. Our expectation is that we'll probably be able to save upwards of $100 million in operating expenses by the end of '27. Jasper Bibb: Okay. No, that's great. Could you maybe frame where you're at on that journey to $100 million in annual operating expenses? And is that only coming out of the U.S. business or that's company-wide? Karl McDonnell: It's company-wide. In my prepared remarks, I referenced the restructuring that we completed at the end of the second quarter, beginning of the third quarter. On a run rate basis, that equated to probably $30 million of expense reduction. So I'd say there's another $70 million or so over the next 2.5 years. Some of that, we're going to reinvest as growth capital to continue to support the various businesses and some of it will show up as increased margin. Jasper Bibb: Okay. That's great. For U.S., could you maybe frame the relative growth rates for Strayer and Capella at this point? And can you talk about how you're managing each of those businesses in the context of trying to get back to mid-single-digit enrollment growth at the segment level? It sounds like you might already be at mid-single digit for Capella and Strayer is declining. Is that accurate? Karl McDonnell: I'd say that Capella has been stronger. The weakness that we've seen at Strayer is primarily attributable, as it has been in prior cycles, to a reduction in non-affiliated students, but it's also a function of just, frankly, more efficient marketing dollars at Capella. So we don't necessarily -- we're not fixated on spending a set amount at both Strayer and Capella. We tell the U.S. Higher Education management team, solve for whatever is going to result in the overall highest growth for U.S. Higher Education as a division. And over the last 18 months or so, that's been much more effective at Capella. So we've worked to grow Capella at a higher rate of growth than Strayer, and we're seeing that in the performance that's playing out. Jasper Bibb: And then I wanted to ask about Australia/New Zealand, encouraging news on the international student caps. Are you still expecting that business to return to total enrollment growth in 2026? Karl McDonnell: Total enrollment growth, I would like for it to return in 2026. Definitely new student growth in 2026 when we anniversary the caps. It generally takes 4 to 6 quarters of new student growth to overcome any declines you've had over the preceding 4 to 6 quarters. So getting to total enrollment growth by the end of '26 would be a little bit of a stretch goal, but I would definitely expect new student growth beginning in the first part of '26. Jasper Bibb: Okay. Got it. Maybe I misremembered the comment from the last call. Last one for me. As you see it today, do you think the '26 for the company level would align with the notional framework you outlined a few years ago at the Investor Day? Karl McDonnell: Yes. We are very anchored on our notional model. Nothing that I see now at either the revenue line or the expense line, which we obviously control, leads me to believe that we won't be able to hit the targets that we laid out at our Investor Day. Operator: [Operator Instructions] Our next question will come from the line of Jeff Silber with BMO Capital Markets. Jeffrey Silber: I wanted to start with Australia/New Zealand. I know many folks on the line don't necessarily follow what's going on, on a daily basis. Can you just remind us exactly what has happened, what the changes were compared to what we thought might have happened a few months ago? Karl McDonnell: Well, the change is -- the change from when we bought it is that the Australian government has put in place hard enrollment caps for international students. And in our case, that resulted in a reduction of approximately 30% from what we had when there were no caps. And international students historically at Torrens represented about half of any new student cohort that we had. The change that we didn't further anticipate that happened at the beginning of this year is the government went further and put much more tighter controls and restrictions on the ability of an international student who already has a Visa and who is already in Australia from transferring to another institution, which frankly was the source of most of the growth that we had at Torrens because it's a very common practice in Australia for universities to charge a pretty significant tuition premium for international students. And we at Torrens effectively have tuition parity between international and domestic students. So there was a strong incentive for students to enroll at Torrens because they were going to save a significant amount of money. The change is that we, Torrens, have to essentially vet any transfer student the same way you would as somebody coming in offshore when they're just applying for Visa. So you have to vet things like the amount of finances that they have onshore, you have to vet their ability to return back to their country and their willingness to return back to their country when they're done with the studies. It's a significant headwind. And the product of that headwind is that far fewer students are transferring. But regardless whether it's the offshore students coming in for the first time or the international transfer students, we're going to anniversary these caps mid-'26. We've seen pretty strong domestic new student enrollment growth throughout '25. So when I was answering Jasper's question, I expect that we'll be growing new students in 2026. And hopefully, that will translate into total enrollment growth by the end of '26. But by the time we fully anniversary these restrictions heading into '27, we expect that business to be growing. Jeffrey Silber: Okay. That's really helpful. I appreciate it. Why don't I move back to U.S. Higher Education, and I appreciate you guys calling out your health care exposure. Can you just remind us -- I know there seems to be some concern on the street between what they call pre-licensure and post-licensure programs. Can you just remind us of the exposure in those two boxes? Karl McDonnell: We are not in the pre-licensure field in nursing. We are in the post-licensure with the RN to BSN program, and that's a FlexPath program, which is the largest program at Capella. And we've seen, I'd say, a little softness in that program. They are in the BSN throughout 2025. But we further believe that we're advantaged because that's also our largest program from an employer-affiliated enrollment standpoint. And as I've said in my prepared remarks, that part of our business remains strong. Jeffrey Silber: Okay. Great. And just one more. I know also there's some concern on the government shutdown, specifically those companies that might have exposure to military and veteran students. Can you talk about any potential impact you've seen and what you think the impact might be going forward? Karl McDonnell: Yes. To my knowledge, we haven't seen any impact. And when I think about our largest clients like CVS Health or Best Buy or Dollar General, they're not really impacted by the government shutdown per se. So as of yet, Jeff, we haven't seen any adverse impact. Daniel Jackson: Jeff, this is Dan. We have very few direct military students. So the exposure there is really insignificant. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. Karl McDonnell for any closing remarks. Karl McDonnell: Thank you, everyone, and we look forward to joining you in February to discuss our fourth quarter and full year results. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Good day, and welcome to the NCR Atleos Q3 2025 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Melanie Skijus, Head of Investor Relations. Please go ahead. Melanie Skijus: Good morning, and thank you for joining the Atleos Third Quarter 2025 Earnings Call. Joining me on the call today are Tim Oliver, Chief Executive Officer; Andy Wamser, Chief Financial Officer; and Stuart MacKinnon, Chief Operating Officer. During the call, we will reference our third quarter 2025 earnings presentation available through the webcast and on our new Investor Relations website at investor.ncratleos.com. Today's presentation will include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Risks and uncertainties include, but are not limited to, the factors identified in today's earnings materials and our periodic filings with the SEC, including our annual report. During the call today, we will also refer to certain non-GAAP financial measures, which the company uses to measure its performance. These non-GAAP measures are reconciled to their GAAP counterparts in the presentation materials. The webcast this morning is being recorded and will be available for replay by accessing our Investor Relations website. With that, I will turn the call over to Tim. Timothy Oliver: Thanks, Melanie, and thank you to everyone for joining us on our call this morning. I will start this morning by quickly reviewing the quarterly operational performance and strategic progress from a more forward-looking and qualitative perspective. I'll leave the quantitative review to Andy. I will then provide some context on the current business environment and its consideration in our outlook. I'll end by reiterating the compelling Atleos story and describing a capital allocation strategy that anticipates steady growth and free cash flow. And then Stuart, Andy and I will take your questions. Having now passed the second anniversary of our spin from legacy NCR, our separation process is complete. The magnitude of the effort and of the accomplishment cannot be overstated. We bifurcated or duplicated 140 years' worth of IT systems and hardware. We physically separated hundreds of global locations. We established dozens of new legal entities. We migrated over 700 critical customer connections and completed over 200 transition service agreements. I'm very pleased that the resources formerly dedicated to this effort can now be focused on growing Atleos. From the outset, we described 2 fundamental goals that we knew would be essential to the eventual valuation of our company. First, establishing a quarterly pattern of transparent and predictable financial performance; and second, deploying free cash flow to reduce leverage and then begin returning free cash to shareholders. In the third quarter, our seventh full quarter as a separate publicly traded company, Atleos extended a series of steady financial performance that has repeatedly been consistent with our expectations and our external guidance. The resiliency of both Atleos business model and its employees that drive it, augmented by prudent contingency planning have allowed us to overcome exogenous shocks like 50% import tariffs, persistently high interest rates, disrupted supply routes and dramatic shifts in immigrant work payrolls. As we enter the fourth quarter, we have also crossed the originally targeted threshold leverage level of 3x and are on path to be at about 2.8x at year-end. While we were unable to repurchase shares in Q3 due to trading window restrictions, we expect to begin repurchasing Atleos shares in the upcoming trading window and to establish a 10b5-1 plan that dictates the repurchase program thereafter. For those following along in the presentation from the Investor Relations website, I will start on Slide 5 that provides a quick visual of our vertically integrated self-service offering. As digital transaction and asset types proliferate, the translation to and from physical assets becomes increasingly complex and is accelerating the outsourcing of self-service banking and the cash ecosystem. Banks and retailers are demanding more efficient and lower friction physical transactions and more capable devices and at convenient and safe locations beyond the branch. Our service infrastructure and installed base of machines is purpose-built to solve these needs. We become essential to any transaction that requires physical authentication and the ability to dispense or accept or even safe keep valuable physical assets. NCR Atleos is uniquely positioned to benefit from either of the 2 solutions, a shared financial utility ATM estate or outsourced bank-specific fleets. Both growth vectors leverage a common Atleos infrastructure that is world-class, has unmatched global scale and delivers significant cost leverage. Turning to Chart 6, which describes our Q3 performance against our qualitative and financial goals. The third quarter was an exceptional quarter from a strategic and competitive perspective. We grew efficiently by delivering robust hardware revenue that augments our leading installed base with record production from our manufacturing facility in Chennai. We drove incremental revenue from the global service fleet by accelerating our outsourced services business. Our Service First initiative elevated service levels and is being recognized by our partners and rewarded by our customers. And we embraced simplicity, reducing inefficiencies across the company, optimizing our production and supply chain operations, redesigning the organization to speed decision-making and investing in systems and people to make us easier to do business with. Core top line growth was 6%, led atypically, but not unexpectedly by traditional hardware revenue and the conversion of services backlog. This growth was partially offset by lower payroll card transactions in the U.S. network business. Profitability ramped nicely and was at the high end of our expectations due to an advantageous hardware revenue mix, accretive outsourced ATM-as-a-Service revenue growth, fixed cost leverage and direct cost productivity in our service organization. These were all partially offset by higher cash rental costs and higher tariffs. Shifting to Chart 7, which describes the self-service banking segment. This is primarily a service business comprised of a global installed base of over 500,000 ATMs sold to financial institutions that run our subscription software and rely on Atleos servicing agreements for the duration of their deployment. Traditionally, ATM services have been centered on maintenance and repair, but increasingly, banks are opting to outsource more or even all of the services necessary to run and manage their ATMs. We now have over 120,000 machines that we support beyond traditional break/fix, including those that are fully outsourced Atleos. Segment financial performance was strong. Revenue grew an impressive 11% in the third quarter, benefiting from increased demand for our recycler product, coupled with acceleration in outsourced services. Services and software combined grew 5%. And ATM-as-a-Service was the primary source of services growth and continued to gain momentum with meaningful additions to total contract value to customer count and to backlog. This segment generated significant profit growth with margins up across each hardware, software and services. Scalable services growth and advantageous hardware mix were augmented by indirect productivity efforts, all contributed to margin expansion. Demand across the product portfolio and especially our recycler product has exceeded expectations. In early 2024, we launched an effort to strengthen our manufacturing capabilities to prioritize our engineering effort and to increase throughput for next-generation recyclers. This effort has now reduced our delivery lead times from months to weeks. Demand for our ATM outsourced services is also strong and accelerating, posting 37% growth in Q3. We have streamlined the sales process and improved conversion rates, resulting in our best quarter ever for ATM-as-a-Service bookings, approximately $195 million of total contract value, including our first as-a-service customers in Latin America and in the Middle East. Backlog remains strong in this business, and we expect the fourth quarter implementations to be the highest of the year. Our Service First initiative is working. Already industry-leading service levels continue to trend upward in the third quarter. We completed our annual customer satisfaction survey in the third quarter, and the results showed an impressive 30% improvement in our Net Promoter Score from already solid scores in the prior year. We will use the detailed data from this survey to focus on areas that need improvement, and we'll follow up with every customer comment and request. Our efforts to simplify how we operate are generating positive business outcomes. Following the successful test run of our AI-driven dispatch and service optimization model in Canada, we launched for all of North America in the second quarter. These AI tools have delivered meaningful improvement in both first-time repair and time to repair metrics through automated dispatching. We will roll these tools out in the U.K. and Europe in Q1, and we'll test a third AI tool in North America in 2026 that is focused on preventative maintenance. Turning to Chart 8, summarizing the Network segment. The Network segment is our utility banking business that consists of approximately 80,000 owned and operated ATMs in 13 countries that are placed in blue-chip retail locations where consumers can meet their regular banking needs. The network business continues to grow the number of network cardholders, the number of client financial institutions, the types of transactions resident on the machine and the geographies. Similar to Q2, positive trends in surcharge-free transactions, cash deposits and TAP were more than offset by significantly lower payroll card transactions in U.S. cities with large migrant workforces and lower dynamic currency conversion transactions due to fewer international visitors. The net result was an overall modest decline in segment revenue. These 2 effects seem to have stabilized at new levels in August and September. And that said, our rolling 12-month ARPU was up slightly, and our machine count grew to about 81,000 machines, offsetting the recurring reduction we've seen from pharmacy closures. Growth in this segment typically results from expanding the number of cardholders, extending the footprint of the network or growing the transaction capability of the machines in the network. In Q3, Allpoint executed an important branding agreement with a top 10 U.S. bank and added deposit capability with the world's largest credit union. Our emerging transaction types were equally successful. ReadyCode further expanded its presence in digital payments through an agreement with Coinme, and volumes from gig workers are recovering quickly from a contractual pause. Cash deposits were up 90%, with particular lift from cap-based deposits. Our newer fleets in Greece and Italy are outperforming expectations in these cash preferred economies. And we continue to build a pipeline of partnerships and integrations to increase transaction opportunities and volumes with a focus on fintech issuers and wallet providers. And finally, on Chart 9, I summarize our investment thesis. First, our comprehensive portfolio is unique and allows Atleos to be indifferent to the self-service solution our customers prefer, whether there's a full outsourcing of traditional infrastructure or membership and access to a shared financial utility network. Second, our scale is unmatched, enables world-class service and efficient incremental costs. Third, the outsourcing of the cash ecosystem and physical transactions by banks and retailers is accelerating, and we are the obvious choice to take on that work. Fourth, we understand the importance of a new small-cap company like Atleos to establish a track record of consistency and transparency. Seven quarters in, our financial performance in every quarter has been very similar to our guided ranges. And finally, we expect to generate predictable free cash flow at steadily improving free cash flow yields sufficient to simultaneously improve our balance sheet and repurchase shares. Before Andy walks you through the detailed results, I'd like to express my appreciation to the 20,000 strong Atleos employee base. If you subscribe to any of our social media channels, you know that our recently celebrated Atleos Brand Week highlighted a positive, dedicated and engaged global team. Our continued success is entirely due to our collaborative spirit and our collective effort. Together, let's close out a successful 2025 and carry momentum into 2026. And with that, Andy, over to you. R. Wamser: Thank you, Tim. Building on Tim's comments, the company continued to drive strong performance in the third quarter, making good progress on our plans for the year, advancing our long-term growth strategy and delivering solid financial results. The strong momentum we have built in ATM-as-a-Service, coupled with our robust hardware order book and sales pipeline, has us on track to meet our operating and financial objectives for the year. Starting on Slide 11. I will focus my comments on core results for the third quarter as the Voyix-related business continues to wind down and impact comparability with the prior year period. As a reminder, Voyix-related comps have increasingly become less meaningful as we progress throughout the year. In 2026, the Voyix-related revenue will be negligible. The key message in the quarter is that we are delivering strong financial results and successfully overcoming various macro-related impacts on our business. Results for the quarter either met or exceeded the upper end of our guidance ranges and included 6% core top line growth and a 7% increase in EBITDA, including 8% growth in the core business, strong margins and an impressive 22% earnings per share growth. We achieved 4% growth in our services and software businesses, including an acceleration in ATM-as-a-Service growth of 37% year-over-year. Hardware was up 24% year-over-year, in line with our expectations. We achieved strong results with high recurring revenue alongside a second sequential quarter of meaningfully higher hardware sales versus recent years. Strong growth in our higher-margin recurring businesses, coupled with productivity improvements, drove adjusted EBITDA in the third quarter to $219 million, an increase of 8% year-over-year in our core business. The primary source of EBITDA growth was the self-service banking segment and was partially offset by a decline in the Network segment and a slight increase in corporate costs. Adjusted EBITDA margin of 19.5% expanded approximately 40 basis points from the prior year with strong margin expansion for self-service banking, more than offsetting margin compression from the Network segment. Net interest expense decreased $12 million compared to the prior year, benefiting from a lower debt balance, lower variable rates and lower credit spreads achieved in our credit facility refinancing late last year. The other income and expense line increased by $5 million year-over-year. The non-GAAP effective tax rate was approximately 19% for the third quarter compared to 18% in the prior year. Non-GAAP fully diluted earnings per share increased an impressive 22% year-over-year to $1.09. On Slide 12, we present our third quarter 2025 free cash flow reconciliation and strong financial position at quarter end. We generated $124 million of free cash flow in the third quarter, which was in line with expectations and supportive of our full year outlook. We expect to deliver a nice step-up in free cash flow in the fourth quarter as adjusted EBITDA increases sequentially and we recover investments in working capital. Net leverage exited the third quarter at 2.99x and was an improvement of more than 0.5 turn compared to the prior year. We made $20 million of debt principal payments in the quarter and finished under $2.9 billion of debt. Our unrestricted cash balance was just over $400 million at quarter end and resulted in a net debt balance of under $2.5 billion. Based on our financial outlook and capital allocation priorities, we expect net leverage to be approximately 2.8x as we close out the year. Turning to Slide 13. The self-service banking segment delivered exceptional financial results in the third quarter. Starting in the upper left, revenue grew 11% year-over-year and reached a new quarterly high of $744 million. The primary driver of top line growth was 25% growth in hardware deliveries, which reflects continued higher demand related to the industry refresh cycle and uptake of our recycler product. Hardware demand remains robust and should drive another step-up in revenue in the fourth quarter. Our services and software businesses continued to generate healthy growth of 5% on a combined basis with banks increasingly outsourcing more services to us. Moving to the chart on the top right, SSB grew adjusted EBITDA an impressive 21% in the third quarter to $196 million, also a new quarterly high. The key takeaway here is our ability to drive significant incremental profit through efficient, profitable growth and continuous productivity improvements. Segment adjusted EBITDA margin expanded 220 basis points year-over-year to above 26%, with margins up across each line of business. This strong performance includes absorbing approximately $7 million of gross tariff impacts in the quarter. Moving to the bottom of the slide, KPIs reflect healthy fundamentals of the business. On the bottom left of the slide, the mix of recurring revenue was 57%, with recurring revenue still comprising a majority of the business, even with one of the strongest hardware quarters in recent years. Annual recurring revenue, or ARR, was up year-over-year, reflecting the continued build in recurring services and software revenue from our existing installed base. Next is Slide 14 and our ATM-as-a-Service outsourcing business. As a reminder, our Bank Outsourcing Solutions business resides within our self-service banking segment. Advancing our customers through the continuum of ATM outsourced services to full outsourcing is a key strategic priority for the company. We break out primary operational metrics separately to help investors better understand and track our progress. Starting at the top left of the slide, revenue grew 37% year-over-year to $67 million for the third quarter, led by 24% growth in unique customers and a favorable mix shift to North America, which is our highest margin geography. We also expanded to 2 new geographies in Q3, closing our first deals in Latin America and the Middle East. The chart on the top right highlights the strong profitability of our ATM outsourced services business with gross profit up an impressive 65% year-over-year and gross margin up 700 basis points to 40%, benefiting from faster growth and margin expansion in NAMER. Moving to the bottom of the slide, KPIs also demonstrate the positive trajectory of the business. On the left, ARR continues to build and was up 37% year-over-year to $268 million, and we are on track to exceed $300 million of annual recurring revenue as we close out the year. We finished the quarter with a strong backlog, up approximately 100% and the sales pipeline to deliver our growth target for the year. On the right, you can see the healthy revenue uplift we generate from our ATM-as-a-Service business with third quarter average revenue per unit or ARPU of $8,300, which is well above segment and total company averages. The modest sequential downtick in ARPU for the third quarter was influenced by a higher mix of asset-light customers onboarded in recent quarters. Such fluctuations are expected because the base is still relatively small, so variables like region, scope and timing of onboarding can impact ARPU for the quarter. Over the longer term, we expect this performance metric to trend upward from growth in higher ARPU regions like North America and Europe. Moving to the Network segment on Slide 15. Segment revenue of $328 million was down 1% year-over-year. As we exit this year, we see positive fundamentals in the business, which is demonstrated by an increase in device count, an increase in new retail customers, deposit volumes and new geographies. As we look at Q3 results, cash withdrawal transactions were approximately 4% lower than the prior year, with mid-single-digit decreases in the U.K. and North America. As mentioned in our second quarter call, North America continues to be impacted by several factors beyond our control. An acquisition of one of ReadyCode's key digital payment partners, coupled with shifts in immigration policy have affected certain consumer segments. We continue to see lower utilization of prepaid payroll cards given certain government policies. Excluding those items, we estimate North America withdrawals would have grown low to mid-single digits. In Q3, we expanded our presence in Canada with the addition of Access Cash. The asset added over 6,000 ATMs to our network fleet in one of our key markets. We have also seen an improvement in dynamic currency conversion transactions as travel to the United States began to recover and stabilize in the third quarter. Additionally, our ReadyCode platform continues to attract strong interest from leading wallet providers, fintech innovators and money service businesses. In Q3, we successfully stabilized transaction volumes by onboarding several new partners, leveraging our seamless digital-to-cash and cash-to-digital capabilities. We also deepened our strategic Allpoint relationships, expanding access through key retail partnerships. As a result, we are seeing a solid rebound in transaction volumes, driven by our commitment to delivering surcharge-free access for gig economy users, unlocking value and driving sustained growth. We generated strong top line trends from sources other than withdrawals, helping to diversify the business and support future growth. Our utility deposit network continues to gain strong traction with deposit volumes up 90% year-over-year and reaching an all-time high, clear evidence of market enthusiasm and a fundamental shift toward modern banking solutions. Moving to the upper right. Adjusted EBITDA for the third quarter was $93 million. The year-over-year decrease in EBITDA was expected and was primarily due to a $9 million increase in vault cash costs resulting from the wind down of previous hedges and macro-related transactional headwinds. Adjusted EBITDA margin was 28% in the third quarter, and we are on track to maintain this margin performance in the fourth quarter. The metrics at the bottom of the slide highlight key elements of our strategy. The chart on the left shows our last 12-month ARPU remained strong and continued to move higher by 2% year-over-year in the third quarter. On the right, you can see our ATM portfolio finished the quarter at approximately 81,000 units, which is up both year-over-year and sequentially. We anticipate ATM network units will remain relatively flat as we close out the year, while we focus on driving new transaction types and other opportunities to monetize our fleet. Turning to Slide 16 for our approach to capital allocation. Over the past 7 quarters, the company has demonstrated the ability to generate profitable growth and significant free cash flow. We continue to have a clear and compelling path to strong financial results with margin levers in the business providing outsized earnings growth potential and improved free cash flow conversion. Our capital allocation priorities are focused and disciplined, continue to reduce debt, investing in our business, pursuing strategic bolt-on acquisitions and returning capital to shareholders. Our guiding principles remain consistent, a balanced approach designed to deliver the highest long-term value for our shareholders. As we exited the third quarter, we successfully achieved our net leverage target of below 3x, reinforcing the strength of our balance sheet and our financial flexibility. We take a disciplined approach to investment opportunities, ensuring that both strategic innovation investments and bolt-on M&A meet rigorous return thresholds. Reflecting confidence in the forward outlook of our business, you will recall that our Board authorized a $200 million share repurchase program that has a 2-year duration. In the fourth quarter, we will begin to repurchase our shares in the open market and also through a 10b5-1 plan. With the capacity of our business to generate significant and improving free cash flow, we have unique flexibility to return capital to shareholders, while at the same time, strengthening our capital structure and investing for future growth. In short, we are confident in our ability to deliver predictable growth, disciplined capital deployment, improved free cash flow conversion and strong shareholder returns. Moving to Slide 17 for financial outlook. Given solid third quarter results and positive momentum heading into the fourth quarter, we have reaffirmed the full year 2025 guidance ranges presented earlier this year. We have confidence we will deliver full year 2025 free cash flow conversion in excess of our 30% target. Looking beyond 2025, we anticipate further improvement in our free cash flow conversion, approaching 35% of adjusted EBITDA over the next 12 months. This progress will be driven by continued margin expansion, particularly in recurring long-term services, monetization of our network ATMs, lower debt costs through recent and anticipated rate cuts and ongoing working capital efficiencies. Concluding my comments, Atleos had a successful third quarter and sets us up well to achieve our plan for the year. We delivered solid financial results, had great operational execution and made progress on our key strategic goals to grow efficiently, prioritize service and embrace simplicity. We are reaffirming our guidance ranges for 2025 as we effectively manage higher and uncertain tariffs and macro-related headwinds on our business. Our risk mitigation actions have been successful and are ongoing. To put a finer point on the year with 9 months behind us, we are tracking toward the high end of our guided range for revenue given stronger hardware demand trends versus our original assumptions. In line with our previously provided comments for adjusted EBITDA, we expect to deliver results at the lower end of the guided range. The adjusted EBITDA outlook reflects the impact of previously discussed tariff increases and broader macroeconomic pressures. Finally, both adjusted EPS and free cash flow performance in 2025 continue to track at the midpoint of our original guidance with internal initiatives executed to reduce interest and tax expenses and as we benefit from working capital efficiency improvements. We are moving into 2026 with confidence in our approach and our ability to drive continued profitable growth. With an unmatched platform of ATM solutions, we are focused on expanding our leadership and delivering significant value for shareholders. With that, I will turn it back to the operator. Operator: [Operator Instructions] We will take our first question from George Tong with Goldman Sachs. Keen Fai Tong: You talked about how the network business was affected by lower prepaid card transaction volumes. Can you elaborate on how prepaid volumes played out during the quarter and exiting the quarter, if there were any improvements in trends seen? Timothy Oliver: Yes. Thanks for asking that question. They got better. So they stabilized at not great levels, but they've stabilized. They stopped getting worse. So I think those who are being paid differently or have chosen not to be paid at all and gone somewhere else to work, that effect has now stabilized, which means that, that downdraft should abate, and we expect to see this business return to growth in the fourth quarter. Keen Fai Tong: Got it. That's helpful. And then can you provide an update on how you expect tariffs to impact the business in the fourth quarter and beyond? Timothy Oliver: Yes, that's a good question. We wish we get to answer that question. So here's what we've done. We scrambled to reduce costs and change where we ship some machines from to minimize the impact of tariffs this year. I think ultimately, the total impact of tariffs will be between, say, let's call it $25 million for this year. Any changes to the tariff at this point, we're already halfway through the quarter would be, I guess, helpful and set a better stage for '26. There's expectations that the tariff rate that's currently at 50%, 5-0 percent will come down to something closer to 15% to 16% when negotiations with India result in a positive outcome. We'll plan for next year at the 25% rate. Our budgeting process will presume a 25% rate, which would cause tariffs to be modestly higher year-over-year, so go from $25 million to say, $30 million. If it stays at $50 million, it's $20 million worse than that. And if it goes down to $15 million or $18 million, it's $10 million or $12 million better than this year. So there's a range of potential outcomes. I think the right place for us to be right now is presume a 25% number, which is right down the middle of what we've seen. But there's very -- we're very hopeful that we'll see something closer to 15% to 18% in the not-too-distant future. When we see that number, it will be helpful to margin rate. I don't know, Andy, if you want to add anything to that? R. Wamser: No. I mean you hit the key points. So Tim is right, the gross tariff impact will be possibly $30 million for this year. I would say, though, that if you follow the news, which we do track, probably on an hourly basis, that the expectation that something should be announced here imminently. And as Tim mentioned, it's in that 15%-ish range. So we will see, and we'll also see what the Supreme Court says. Timothy Oliver: But we presumed no change to the tariff rate in our guidance for the fourth quarter. We presume it stays at 50%. Operator: We will take our next question from Matt Summerville with D.A. Davidson. Matt Summerville: I want to ask one first on the network business. What percent of the transactional mix today is traditional withdrawals versus what it was 2 or 3 years ago? And can you talk about the relative profitability of withdrawal transaction sets versus non withdrawal as you try and expand beyond kind of that historical dependence on withdrawal? Timothy Oliver: Thanks, Matt. So remember that the transact -- withdrawal transactions in the United States have actually been a grower for us for a period of time. And the surcharge-free transaction volume has always been more than sufficient to offset the modest declines in surcharge transactions. The only thing that's changed in that dynamic because the surcharge fee continues to grow very nicely is this prepaid card. The prepaid payroll card is down about 15% to 16% year-over-year, which translates into a downdraft on the business. The other parts of the world, we see withdrawal transaction volumes that are very strong, particularly in cash-intensive economies. The U.K. is an exception to that. The U.K. has been on a downward trend for the last 4 or 5 years, really even predating the pandemic. And so we continue to -- that hasn't changed. That's been the same for some period of time. I think if you look at the Network business, approximately 75% of that business is U.S.-based. And so the phenomenon we're talking about would impact approximately 75% of the total revenue, if that's helpful. But Stuart, you want to add? Stuart MacKinnon: Yes. I want to address your second question sort of in terms of percentage of our revenue that is withdrawal-based versus the other factors we have in the network business, such as ReadyCode transactions, deposit transactions, branding and other revenue drivers. Withdrawal transactions still make up the majority of the revenue in the high 80s, I would say. And -- but we're starting to every quarter, essentially offset that with -- you've heard about the 90% increase in deposit transactions. Those are our highest margin transactions and the ones that we are seeing the most demand for as banks look for alternate locations to serve their customers depending on their branch footprint consolidation activities. Matt Summerville: Got it. And then as a follow-up to go over to self-service banking for a second. You threw a lot of numbers out there on the as-a-service stuff, and I want to make sure I kind of understand. So you're going to exit '25 with an ARR at $300 million or more. You had $195 million, I believe, of contract bookings. How does that -- what I guess would be the total as-a-service backlog? And early read, obviously, but where do you think based on all that TCV and bookings, where do you think the exit rate for '26 could look like for that business? Timothy Oliver: I think we're going to have another year of approximately 40% growth rate in that business. It's going to grow about 40% in the fourth quarter. You'll recall that we had hoped to have the machines come on a little more linearly this year than they did in 2024. They didn't. They were back-end loaded. But we'll have a really nice ARR as we exit the year, which will, let's call it, lock in a lot of the growth that we were expecting in 2026. So think about a 40% growth rate in Q4 and a 40% growth rate in 2026. And you'll remember that we hope this business -- at one point in time, we rolled this business out, we thought the growth rate might be higher than that. But what's been clear is the adoption rate has been not slower because of demand. Demand has been strong, but slower because of the time that it takes to both complete the sale and ultimately implement the solution. So we've rolled the devices onto the system, onto the as-a-service program a little bit slower than we would have liked to. So we feel very good about backlog. The $195 million, we probably should be doing something like that in most quarters. We're going to keep that 40% growth rate going, right? That number was $175 million last quarter. It's $195 million this quarter. It needs to grow with the business. That total contract value, if you divide that by 6, that's typical an average duration for a contract in there, that would give you a sense of how much that $195 million would impact the ARR going forward. R. Wamser: And Matt, maybe just one thing to emphasize is that growth of 37% is also coming with phenomenal margins. So the gross profit was up 65% in the quarter, and we saw a gross margin expansion of 700 basis points. So I think the point there is not only the backlog continuing to be strong, but it's also a very high-quality backlog in terms of what we're able to generate from a top line and then from a flow-through perspective. Matt Summerville: Got it. And if I can just sneak one more in. What does the ARPU look like as a service backlog today? And how are you thinking about maybe pivoting over to the hardware side of the business? How are you thinking about the duration of the hardware cycle? R. Wamser: Sure. Yes. So I'll take the first question. So as we look at the ARPU in the backlog today, it's effectively flat from where we are for where we were for Q3. Some of that has to do with just timing of some incremental deals that we had in the APAC region, which is a little bit lower. But I wouldn't read too much into that. The sales team is doing a phenomenal job in terms of trying -- of getting new contracts in NAMER and EMEA. And so the backlog can change in terms of that average ARPU, but we are really confident in terms of -- as Tim talked about the TCV that we signed up and the team is doing a great job building on to that. Timothy Oliver: Yes. And I'll take the second one because it's a really good story. We're going to put into service about 20% more devices this year than we did last year. We're going to sell 60% more recyclers this year than we did last year. We're -- the growth rates in our hardware business are even surprising us. That has a lot to do with terrific service levels from Len's organization that are wowing our customers has a lot to do with the really concentrated effort we made on the recycler that Stuart led, and the team pulled off nearly flawlessly. So I feel great about where we are. I look at some of our nearest competitors, they've got relatively flat performance in hardware. I don't even know how to do that math. The market is very, very good. Bookings are very strong. Demand is high, and we expect that trend to continue into next year. Now at some point, we'll hit that -- this high level, but I anticipate hardware revenue being up again next year even on some very difficult comparisons. So we couldn't be more thrilled. We don't like to talk about hardware around here too much. We obviously we're a service company. But when you can lock up these 5- to 7-year contracts on devices that are very lucrative for us beyond the hardware sale, we feel great. So the mix is right. The profitability is strong. Sometimes we get a mix that's high in hardware. We see profitability go down because it's lower margin than the services side. The productivity we generated there and the price point on the devices we ship have all caused it to be more profitable than we would have thought. So taken all together, our hardware business is killing it right now, and I think it's going to continue. Operator: [Operator Instructions] We will take our next question from Dominick Gabriele with Compass Point. Dominick Gabriele: I guess when you're -- well, first, let's just stick with the recycler because it just sounds like that is becoming a larger and larger contributor. You talked about the 60% more recyclers just now. Is there any chance that you'd be able to give us an idea of how much revenue that makes up and what the revenue story is going forward on the recycler business? I still have a follow-up, too. Timothy Oliver: I don't think I'll distinguish between the more traditional device, either the multifunction or just the dispense device. But we'll continue to give you the growth rates in the recycler, if you'd like. I think remember that our growth rate is probably somewhat self-inflicted, right? We didn't ship as many machines from a recycler perspective, we would have liked to last year. And our competitive position wasn't as good as it needed to be. And I think what you're seeing this year to a certain extent is 2 things. One, our recycler is very, very good and performing exceptionally well. We're proud to put it into service, and we've got some of the larger banks choosing to go with our solution and getting our machines into their labs. So I think that matters a lot. It's also true that larger banks are starting to buy a preponderance of their fleets as recyclers. There's just an underlying dynamic. They are fully bought into the recycler. The upside associated or the upside associated with profitability and downside -- lower costs associated with putting a recycler in place. So I think it's twofold. One is we're doing a hell of a lot better job with our recycler product than we did a year ago. And secondly, our big bank customers are choosing recyclers nearly every time when they import a new machine. Dominick Gabriele: Great. I appreciate that. I guess if maybe you could just walk through some of the puts and takes and you talked about the tariff piece, which was really helpful. But maybe even beyond that, can you talk about kind of the headwinds and the tailwinds, the puts and takes to adjusted EBITDA growth that were in 2025? Just trying to think about the trajectory of the business as we exit '25 into '26, given... Timothy Oliver: Yes. It's a very fair question, and I knew this is going to come up, right? It's time for you all to start to build models into 2026. And Andy would kill me if I started to talk about '26 guidance and rightly so. So right into our budgeting process now. I think whatever happens in tariffs, we'll figure out a way to absorb it like we did this year. We'll just -- we'll figure that out, right? We did it this year, we'll do it again. I have a hard time believing that tariffs will be much of a headwind next year, which suggests to me maybe they're a modest tailwind. We will get lower interest expense next year. It's helpful to us. We've got -- every time they reduce interest rates by 0.25 point, we pick up or we pick up annually. R. Wamser: It's about -- well, if you think about just the U.S., we're talking about just the U.S. Fed. We about $2.6 billion in cash. So if you think about today, we've had 50 basis points, so that's -- cut that in half, that's $13 million on a full year basis. We get another point, again, just add another, call it, 6.5 or so. Timothy Oliver: Yes. It's hard to rely on those. We've built more into our budget for each of the last couple of years than we've actually seen. I'm hopeful we'll see one right here at the end. They've always been a little later than we would have liked to, so you don't get the full year effect. But in general, thinking about '26, taking all that aside because it all seems to -- at least I think we've converted what were headwinds and tailwinds in each of those circumstances. I think it's going to be a year a lot like this one. You're going to see 40% growth in ATM-as-a-Service. You're going to see terrific hardware numbers, more difficult comps in the second half of the year, but it will be really terrific. You're going to see a recovery in the network business that cost to start growing again in the fourth quarter and getting back to respectable growth rates as the year plays out. And I think in aggregate, you're going to see a growth rate from us is 4% to 5%. We're going to grow profitability twice that fast. We're going to generate more cash flow with convergence going from 30% to 35% or better next year. So I think it's -- if you kind of use that as your construct to put the model together and think through kind of project forward what we're feeling this year, I don't think a lot is going to change. Dominick Gabriele: And maybe actually, if you don't mind, maybe just one last one. The hardware sales in the quarter are obviously good for the quarter, but it feels like they set up the opportunity for a long-term contract effectively, right, through the life of the machine and there's knock-on effects from that device being put in place over the next multiple years. And so maybe could you just talk about, given that the demand for your products seems to be increasing, how that could flow through the income statement and financial metrics in the kind of years to come, next 12 to 18 months? Timothy Oliver: Growing that installed base is the most important thing we're going to do this year. It is our right to sell software on a subscription basis and to service those devices for 5 to 7 years in duration, has everything to do with our ability to put them in place and a good customer who trusts us to do that for them. So despite the fact we don't tend to talk about hardware very often because we're not a device company, we are a service company. But our service business relies on the success of the hardware business and relies -- our software business relies on the success of those devices. It's been very strong. Or to say it differently, when you miss on a device, you've missed on that revenue stream for 5 to 7 years, and it's a very painful thing to do. So yes, this is really, really important, and it's going to see -- when you see growth next year in the service revenue away from ATM-as-a-Service. You've got ATM-as-a-Service that's just you're picking up more services around the same devices, you're also going to see growth in software and services associated with that fleet getting incrementally larger such that the software and service pull-through is stronger. So this is a very important year. And if this cycle of replacement continues to be strong, we believe that it will, it's a very good time to have people like your hardware because it's -- you're booking 5 to 7 years' worth of revenue. It's probably 4x the cost of the device itself. Operator: We will take our next question from Antoine Legault with Wedbush Securities. Antoine Legault: Just on the vault cash, you mentioned you have about $3.6 billion in vault cash. That obviously drives interest expense, and I appreciate that the Fed has been cutting rates and you benefit from that. But just thinking about that notional amount, do you have any ability to -- or discretion to flex that number up or down? Is that $3.6 billion sort of the right number? Could this be optimized further depending on network activity in quarters where activity is a bit lower? Just how -- is there anything to be done here? Help me understand how that can work. Stuart MacKinnon: Yes. Just a quick -- it's $2.6 billion that we have sort of out in our machines around the world. Timothy Oliver: Total USD 26... Stuart MacKinnon: USD 26. And that number has come down substantially over the last couple of years as we've implemented optimization. It's our biggest expense. So it's the area where we have the highest amount of focus in terms of optimizing efficiency. And it's one of the big drivers for ATM-as-a-Service as we take over a customer's fleet, we're able to optimize their utilization of cash and return capital back to them as well. So it's a number we're incredibly focused on, and we try to drive that number down every chance we get. So a combination of improved efficiency and lower interest rates next year will help the network as it returns to growth. Timothy Oliver: Stuart, what are the inputs of that algorithm to help us decide how much cash and how often roll trucks? Stuart MacKinnon: It's a combination of where the machine is. So some machines are harder to get to, so the drop cost is higher. Combination of the vault that's getting to and obviously, a combination of the utilization of the machine. So we make decisions around whether we refill the machine weekly, monthly, biweekly, depending on the drop cost and then a combination of whether we have a recycler or a cash dispenser in there. If we have a recycler in that unit as we have been increasing our deposit-taking network, that machine becomes increasingly more optimized and requires less visits, and thus lower cash rates. Operator: There are no further questions at this time. I will turn the conference back to Mr. Oliver for any additional or closing remarks. Timothy Oliver: Great. Well, thank you. This quarter looked a heck of a lot like the one that preceded it, and I suspect that the next one will be the same. We're making good, steady progress everywhere. We're winning more often than not. Our employees are performing exceptionally well. Our customer service levels are high and continue to get higher. It's very hard not to feel good about where this business is headed. We hope that will translate into a closing out a good year here in our fourth quarter, and then most importantly, probably give us good momentum going into 2026. We appreciate your time today. And I guess, happy holidays. We won't talk to you again until February. So an early happy holidays from the Atleos team for those on the call. Thanks a bunch. We'll talk to you again in 90 days. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Target Hospitality Third Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, November 6, 2025. I would now like to turn the call over to Mr. Mark Schuck. Please go ahead. Mark Schuck: Thank you. Good morning, everyone, and welcome to Target Hospitality's Third Quarter 2025 Earnings Call. The press release we issued this morning, outlining our third quarter results can be found in the Investors section of our website. In addition, a replay of this call will be archived on our website for a limited time. Please note the cautionary language regarding forward-looking statements contained in the press release. This same language applies to statements made on today's conference call. This call will contain time-sensitive information as well as forward-looking statements, which are only accurate as of today, November 6, 2025. Target Hospitality expressly disclaims any obligation to update or amend the information contained in this conference call to reflect events or circumstances that may arise after today's date, except as required by applicable law. For a complete list of risks and uncertainties that may affect future performance, please refer to Target Hospitality's periodic filings with the SEC. We will discuss non-GAAP financial measures on today's call. Please refer to the tables in our earnings release posted in the Investors section of our website to find a reconciliation of non-GAAP financial measures referenced in today's call and their corresponding GAAP measures. Leading the call today will be Brad Archer, President and Chief Executive Officer; followed by Jason Vlacich, Chief Financial Officer and Chief Accounting Officer. After their prepared remarks, we will open the call for questions. I'll now turn the call over to our Chief Executive Officer, Brad Archer. James Archer: Thanks, Mark. Good morning, everyone, and thank you for joining us on the call today. We continue to build on the progress we've made in advancing our strategic growth initiatives, which focus on expanding and diversifying Target's business portfolio. This focus has led to notable operational achievements for 2025, including multiple long-term contract awards across various end markets. Since the second quarter, we have added over $55 million in committed revenue contracts, bringing the total value of new multiyear contract awards announced in 2025 to more than $455 million. These contracts accomplish multiple elements of our growth objectives by strengthening Target's business portfolio and expanding our reach in new end markets. Target's ability to deliver highly customized solutions that meet specific customer needs highlights our unique value proposition and has opened new growth opportunities in rapidly expanding markets. Strong long-term growth trends and sustained momentum reinforce these opportunities, including the multitrillion dollar investment cycle in data center and AI infrastructure, power generation and critical mineral development. The strengthening market fundamentals have laid the groundwork for a robust and expanding growth pipeline, offering distinct opportunities to continue advancing our strategic growth initiatives. Turning to our segments and specific growth opportunities. Our HFS segment continues to support our world-class customers evolving labor allocation needs by delivering premium services through our extensive network. Target's unique vertically integrated operating model, combined with the scale and efficiencies of our HFS network allow us to support our customers throughout business cycles. Additionally, these attributes continue to support customer renewal rates exceeding 90%, with the average existing customer relationship exceeding 5 years. This proven operating model is key to Target's success, and has served as a blueprint for potential new customers, illustrating the benefit and distinct value propositions of our vertically integrated accommodations platform. These distinctive capabilities and highly customizable solutions have supported multiple contract awards in our WHS segment this year. In February, we announced the Workforce Hub Contract to support the development of critical minerals in Nevada. Construction began this contract has been expanded several times to support community improvement and contract modifications, resulting in a 19% increase from the original contract value. These enhancements highlight the importance of this community to the project's success and demonstrate how Target's operating capabilities enable us to deliver tailored solutions that meet specific customer needs. These unique capabilities and customizable solutions supported the data center community contract we announced in August. We have completed the initial construction mobilization of the 250-bed community and initial occupancy is beginning to increase. As a reminder, this community has the potential to expand and accommodate up to 1,500 individuals, a sixfold increase from the initial community. Our customers' growth plans are accelerating, driven by rapidly growing demand for AI infrastructure. As a result, we are finalizing the first community expansion to keep pace with anticipated customer activity levels. We expect this expansion to add several hundred rooms to the community and plan to provide additional details soon. With increasing demand for AI infrastructure, the pace of data center development and capital investment is accelerating. To meet this demand, estimates suggest that over $7 trillion in global capital investment will be required over the next 5 years as large-scale data center infrastructure becomes increasingly remote, a significant challenge in expanding these projects is attracting and retaining the skilled labor essential to their success. Target's unique capabilities in creating highly customized, all-inclusive communities address this challenge and provide integrated solutions for our customer-specific needs. Aligned with these attributes, Target recently launched its Target Hyper/Scale brand, highlighting our ability to provide a central hospitality solutions supporting multiple facets of the data center value chain. This focused initiative showcases Target's unique ability to build communities that enable quick time-to-market solutions that can rapidly scale alongside customers' dynamic workforce housing needs. These factors have created the most significant commercial growth pipeline we have ever seen. Our reputation as the leading provider of remote hospitality solutions uniquely positions Target to support this rapidly expanding end market demand. We are excited about these growth opportunities, which we believe establish a vital long-term commercial vertical capable of accelerating Target's strategic growth objectives. Now moving to the Government segment. We completed the planned ramp-up of our Dilley, Texas assets in September, and the community is now fully operational and capable of supporting up to 2,400 individuals. The successful reopening of this facility highlights the importance of our decision to keep this community ready to reopen alongside our partner. We continue to actively remarket our West Texas asset and remain confident in this community's ability to provide a vital solution aligned with the government's policy goals to expand available bed capacity. In summary, we have made significant progress toward our strategic goals by expanding and diversified in Target's business portfolio. We are encouraged by the strongest and most active growth pipeline we have ever seen, supported by solid market fundamentals and long-term growth trends. We are well positioned as we pursue these opportunities, which offer multiple pathways to expand our business portfolio and continue advancing our strategic objectives. I will now hand the call over to Jason to discuss our financial results in more detail. Jason Vlacich: Thank you, Brad. Third quarter total revenue was approximately $99 million, with adjusted EBITDA of approximately $22 million. Our government segment generated approximately $24 million in revenue during the quarter. The declines compared to the previous year were mainly due to the termination of the PCC Contract partially offset by the reactivation of our Dilley, Texas assets. Additionally, revenue for the quarter included approximately $11.8 million in reimbursements for certain closeout costs related to the PCC Contract termination. We do not expect any further payments related to the PCC Contract in future periods. We completed the planned ramp-up of the Dilley community in September, and it is now fully operational. As a result, subsequent quarters will reflect revenue contributions aligned with the entire 2,400-bed community. As a reminder, this contract is based on fixed monthly revenue regardless of occupancy. It is projected to generate approximately $30 million in revenue in 2025 with over $246 million over its expected 5-year term. Excluding the impact of the PCC Contract closeout payment, we anticipate increased contributions from the government segment in the coming quarters following completion of the Dilley ramp-up. Regarding our West Texas assets. As a reminder, we have decided to keep these assets in a ready state while actively remarketing them. This approach, similar to our strategy with the Dilley assets, will involve carrying costs of approximately $2 million to $3 million per quarter until a new contract is potentially awarded. Turning to our HFS and all other segments. These segments generated approximately $39 million in quarterly revenue. Target's customers continue to value our premium service offerings and extensive network scale. These qualities, combined with Target's operational efficiencies enable us to provide unmatched solutions across our network in a competitive market. Additionally, we remain focused on finding opportunities to improve margin contribution while meeting customer demand. Moving on to the expanding Workforce Hospitality Solutions segment, or WHS. This segment, which includes our Workforce Hub Contract and the data center contract generated approximately $37 million in revenue in the third quarter, primarily from construction activity related to the Workforce Hub contract. As announced today, the importance of the Workforce Hub contract led to additional modifications and scope expansion during the third quarter. The increased scope of the contract raises the total contract value to approximately $166 million, reflecting a 19% increase from the original contract value. These community improvements will lead to more construction activity, which we expect to be substantially completed by the end of 2025. However, this will shift some previously forecasted services revenue into 2026 and slightly impact margins as construction revenue has a lower contribution profile. As we finish construction, we expect increased services revenue to begin in 2026 and continue through 2027. The scope expansion and contract modifications highlight our ability to deliver customized and tailored solutions for our customers, creating long-term revenue streams that support large-scale remote operations. Regarding the data center contract, we are pleased with the progress of this community and have completed the construction and mobilization of the initial 250-bed facility. As a reminder, this contract is expected to generate approximately $43 million in committed minimum revenue over its initial term through September 2027, with approximately $5 million of revenue in 2025. As we discussed, we are finalizing the first community expansion to support our customers' growing demand. This expansion will have limited impacts in 2025, but will increase revenue in future years. We plan to share additional details once the expansion terms are finalized. Recurring corporate expenses for the quarter were approximately $11 million. As a matter of practice, we continually look for opportunities to optimize our cost structure and enhance margin contributions. Total capital spending for the quarter was approximately $29 million with net capital spending of approximately $15 million. Net capital spending reflects the upfront customer payments we received for the construction and mobilization of the initial 250-bed data center community. Target's strong business fundamentals and durable operating model supported robust cash conversion, resulting in over $68 million of cash flows from operations and $61 million of discretionary cash flow for the 9 months ended September 30, 2025. These fundamentals are reflected in the strength of our balance sheet and our ability to maintain significant financial flexibility through prudent capital management. We ended the quarter with $30 million in cash and 0 net debt resulting in total available liquidity of approximately $205 million. This strong liquidity position further enhances our financial flexibility and positions Target to continue executing its strategic growth initiatives. This momentum and positive operating environment support our reaffirmed 2025 outlook, which includes total revenue of $310 million to $320 million and adjusted EBITDA of $50 million to $60 million. Target is well positioned with a flexible operating model and an optimized balance sheet as we continue to evaluate a robust growth pipeline, which we believe offers the greatest opportunity to accelerate value creation for our shareholders. Most importantly, as we pursue these opportunities, we will remain focused on maintaining the strong financial profile we've built while maximizing margin contribution through our efficient operating structure. With that, I will hand it back to Brad for closing remarks. James Archer: Thanks, Jason. We continue to make significant progress on our strategic growth initiatives to expand and diversify our business portfolio. This year, we have announced long-term contracts within our existing segment and expanded our reach into new end markets, supporting the unprecedented surge in AI infrastructure and critical mineral investment. These achievements have led to over $455 million in new multiyear contracts in 2025. Additionally, we are in advanced discussions on other opportunities to further expand our contract portfolio, supporting AI infrastructure development. We remain focused on maintaining this momentum as we evaluate the strongest and most active growth pipeline we have ever seen, driven primarily by the extraordinary increase in data center and AI infrastructure investment. As market fundamentals and demand strengthen, we are actively exploring opportunities encompassing over 15,000 beds, underscoring the depth of demand in this end market. Target's unique capabilities position us to become an essential partner providing critical solutions vital to the success of this rapidly expanding marketplace. We are excited about these opportunities and believe they offer multiple ways to further our strategic goals and accelerate value creation for our shareholders. Thank you for joining us on the call today. And once again, we appreciate your interest in Target Hospitality. We will now open the call for questions. Operator: [Operator Instructions] And your first question comes from Scott Schneeberger from Oppenheimer. Scott Schneeberger: I guess, first question would be on repurposing of the Pecos, West Texas assets. Could you give us an update, please, on what you're hearing with government customers? And if there are other customers with whom you are speaking, please share perhaps some insight to the extent you would on the potential repurposing of those -- of that asset? James Archer: Scott, this is Brad. Yes, let me just touch quickly on the government and then give you some color around the assets kind of in West Texas. But really on the government, there's no new developments from our last call. We continue to have active dialogue with the government on the West Texas assets. Look, we believe these assets provide a solution aligned with the government's objective and their sentiments have not changed around the use of this equipment. With that said, let me touch on the Permian Basin, as you suggested, and really West Texas in general. As we are in discussions on several large data center projects as well as the large-scale power projects, that would energize them. Several projects in that area have been announced already, and we expect several more to make final investment decisions very soon with others in the pipeline that we're talking to. The capital spend in this area will be large. It's very big. And it will require many thousands of skilled workers coming into these areas. I say all of this to tell you, there is no other company in our industry, that is better positioned to take advantage of this unprecedented spend we're beginning to see in West Texas. The opportunity set in West Texas maximizes our chances to put underutilized or idle assets back on lease for long-term projects. And look, I would tell you, I have very little doubt. The majority of the growth you will see in West Texas will come from data centers in the large-scale power projects that are required to energize them. This doesn't mean that we will not try to take care of the government as well. But as you are well aware, and we've talked about this many times over the years, our assets can be repurposed across many industries. And fortunately, for us today, it's a good problem to have. There are multiple paths to maximizing our assets and utilization other than just the government, right? And that pipeline continues to build. And again, fortunately, a lot of this work sets right in the Permian basin. Scott Schneeberger: Great. I appreciate that. Following up on that, a question for you and then probably one for Jason, thematically on that segue. The Target Hyper/Scale brand, could you speak to what you're doing there as far as kind of putting a brand on your initiative there, how you're going forth with that marketing approach? And Brad, that would be for you. And then, Jason, just on that theme, could you please speak to -- just the revenue and EBITDA run rate in the third quarter, what's expected for fourth quarter on the data center contract and maybe how you think about that run rate in 2026? James Archer: Yes. So Scott, let me take the Target Hyper/Scale kind of question and why we did it. Look, the unprecedented capital spend in this industry just across the U.S. and not just Texas, we feel requires a more focused and dedicated approach. We spent 2 years really researching this opportunity, the markets. We've hired several new people that are dedicated to this effort, that have a background in the data center world. And just based on the scale of the opportunity that's in front of us and that we see really long term. We thought it was right to really have its own brand and focus there on the hyperscalers, the GCs that are there. This is a different group that are now being forced to move remote, right? A lot of these over the years have built in big cities. Most of them now are being built remote. So the education there takes time because they've never had to use facilities like us that they're being forced to look at today. So again, we think that branding fits within that and who you're dealing with is different than we've ever dealt with in the past. So we think that branding -- it's been well received by our customers and potential customers, and we think that will continue to be the case. Jason Vlacich: And I think on the second question regarding the -- I think you said the data center contract run rates and revenue and adjusted EBITDA. So we anticipate on that contract to recognize about $5 million of revenue this year. I would say from a run rate standpoint, it's more forward-looking beyond this year. Approximately, I would say, the balance of that contract, which is $43 million less than $5 million will be relatively evenly split between 2026 and 2027. The margin profile on that is very similar to Dilley because it's a lease and services agreement where we own the assets and we operate them, and it's exclusively for one customer. So as a matter of fact, a lot of the opportunities that we're looking at in our pipeline are very similar to that type of a margin profile that we're experiencing at Dilley. Now Dilley, from a run rate standpoint, you'll see will come to life in Q4. But essentially, it's approximately $50 million a year on the full 2,400-bed community at a margin profile very similar to the previous contract. Operator: And your next question comes from Greg Gibas. Gregory Gibas: Congrats on the results. I wanted to ask how maybe does your existing data center community contract compared to the other opportunities you're in advanced discussions with? From, I guess, a high level, how would you say it kind of stacks up to the relative scope and size of the opportunities that you're seeing? James Archer: Yes. And just to kind of across the board, I would tell you the scope of these are on an average well above 1,000 rooms that we're looking at if you're talking size, right? They go into these areas for 5, 6, 7, 8 years, they continue to scale up, it doesn't start like 1,000. It's very similar to how we're building this first contract. 250 and then we're looking to continually increase that. This next increase will -- we think, will be several hundred beds, right, followed on by more increases until they reach capacity on the construction side. And then it kind of levels out for quite a while on that. But that's very similar to the buildup. Now look, some of these are a little smaller, and some of them are much bigger. It just depends on what they're doing. What we're seeing today is a lot of the -- not only are we dealing with the data center piece, we're dealing with the power piece as well, which just adds more of a need for rooms, right? Gregory Gibas: Got it. That's helpful. I appreciate that. And maybe for Jason, to dive into kind of the implications of guidance. Could you maybe speak to the quarter-to-quarter dynamics or expectations implied there? You already mentioned the data center contract and $5 million expected this year. But anything else as I think about Q4 versus Q3 from a modeling perspective? Jason Vlacich: Yes. I think Q4, you're going to see the full ramp-up for the Dilley contract, right, which as I said, is annualized $50 million a year in revenue, approximately 40% to 50% margin is what you could anticipate there, divide it up in a quarterly amount for Q4. The item that you're not going to see recur is the $11.8 million that we recognized for the PCC closeout payment. That's kind of the biggest delta between Q3 and Q4 is going to be that combined with now we're fully ramped up on Dilley. And I think everything else will be relatively steady state. Gregory Gibas: Great. That's helpful. And if I could, I wanted to ask, given you were named on that $10 billion, WEXMAC DOD award. Wondering if there's anything you could share related to, I guess, how you could serve their efforts and then maybe what level of capacity you're positioned to provide? Jason Vlacich: Could you repeat that again? We didn't quite get all of that. Gregory Gibas: Yes, sorry. Just given you were named on that $10 billion WEXMAC DOD award, wondering if there's anything you could share related to how you can serve their efforts and maybe what level of capacity you're positioned to provide? Jason Vlacich: Yes. Look, first, we don't know exactly what's going to come out on those bids, but we're positioned there, right? We're on the contract vehicle, which was the first step. We'll see what comes out. And if it works for us, we'll definitely go after it, right? If we have available assets or we can structure it another way, we will take a look at that if it fits us. But we first wanted to get on the contract vehicle and then take a look at any bids that come from that. Operator: And your next question comes from [ Rajiv Sharma ]. Unknown Analyst: This is Raj. I wanted to ask about the workforce EBITDA. What can we -- how much of a shift in EBITDA can we see -- can we expect from this year to the next year? And also, could you talk about the community enhancements, the detail around that? Does that entail higher bed pricing or new service modules or client-funded CapEx? Jason Vlacich: Yes. So I'll take the first one right off the bat. So the community enhancements are not going to increase the number of expected beds. We're still going to be around 2,000 beds. So it doesn't impact any of the economics around the services piece that will largely kick in beginning next year. It's strictly related to the construction, the majority of that, we anticipate to be recognized this year as we hopefully have the construction substantially complete by the end of this year. I'll stop there and see if there's any other follow-up on that. Otherwise... Unknown Analyst: Go ahead. Yes, I'm sorry, go ahead. Yes. No, I wanted to understand the community enhancements, what does it entail? Jason Vlacich: Well, it doesn't entail building out more beds, and it certainly doesn't increase the economics on the services piece. The services piece, which is the balance of the contract that's roughly $75 million or so that will start to kick in next year through 2027. I would look at that as relatively evenly split between the 2 years at a margin profile closer to 30% on the services piece going forward as opposed to the construction piece where our margin profile is closer to 20% to 25%. Unknown Analyst: Got it. And then did I hear it right? So the Dilley facility is fully ramped now to 2,400 beds. Is that -- and the ramp of steady-state utilization, that is happening in Q4. Jason Vlacich: Yes. So we completed the ramp-up at the beginning of September, and you'll see the full quarterly economics on the 2,400 beds in Q4. Unknown Analyst: Right. And then just on the Pecos the PCC, any active RFPs or renewal discussions you are engaged in that could replace or supplement that? Jason Vlacich: Yes. As I mentioned earlier on the call, lots of activity in the Permian Basin, West Texas, right? So we have multiple paths there to utilize that equipment other than just the government on that for all of our equipment. And look, to be clear, we're already utilizing some of our existing assets for the first data center. And we expect to use more of those assets in the future. We've always been very good. Look first, we're going to utilize our existing assets, right? We want to drive utilization and put those back to work. So that's our first look all the time. And we've been very good about that, and we'll continue to do that. Unknown Analyst: Okay. Great. And then just lastly, can you elaborate on the Target, the Hyper/Scale? How does that differentiate from the core workforce? And what type of clients or geographies are you targeting first? James Archer: Yes. And again, lots of focus on the data center, right, huge spend. We brought in some, if you will, specialists, folks that have worked in the data center business for many years as well. So we built a team up around this. We thought it needed more focus starting to prove that. That's a good decision for us. It's been well received in the industry. When you talk about the client, a lot of the clients that we're talking to today have never been where they've needed -- where they work remote, if you will. And now they realize, hey, we're working remote. We need this. It's a bigger education process. It is a little bit different of a customer as well than, if you will, the oil and gas or your industrial customer or your mining customer. They've just never done this. So -- it's more about -- I wouldn't say a different type of quality, kind of that works across all industries, but it's definitely a bigger education process. And it is a little bit different customer set than we've ever dealt with in the past in a good way, right? They're very receptive. They want to take care of their employees like our other customers do. And the great thing is they've got great counterparties on the other side of these contracts that we're working on. And their goal is to get this done on time, right? So they don't mind, again, spending the money, getting the rooms close to location, and it's all about safety and kind of derisking their project for them. Mark Schuck: Yes. Raj, this is Mark. Just to kind of put a fine point. I think you asked, too, if there was any differentiation around the Hyper/Scale brand. And look, to be clear, it fits squarely in Target's core competencies, as Brad described, it is just really an intentional focus on the customers and the applications that Brad described. James Archer: Yes, buildings are the same, right? Like our same fleet that is being used for HFS can be used for the data centers as well, and we're doing that today. So that doesn't change to Mark's point. Unknown Analyst: Congratulations. Operator: [Operator Instructions] And your next question comes from Stephen Gengaro. Stephen Gengaro: So a couple for me, and I'm sorry if I missed any of this. I missed the beginning of the call. But I think going into next year, there's about 6,000 idle beds. I think that's roughly the right number. Can you -- can you talk about given what's going on with the government shutdown and the potential timing for new awards. Can you talk about any color on kind of the timing on some of these contracts, both within the government and outside the government and how they may come together as we start thinking about how '26 starts to unfold? Jason Vlacich: Well, I would just say on the beds, we have about 8,000 available beds going into next year, right? We've utilized some of those to build out the initial 250-bed data center community. In terms of timing, very difficult to nail down exact timing. But in terms of the data center opportunities, we're already in advanced discussions on expanding that contract. As a reminder, we said at the forefront of the call, and also in our announcement, the land base can accommodate up to 1,500 beds. That's obviously going to be driven by customer demand. But again, we're already in advanced discussions on increasing that bed count from 250 to several hundred more in terms of the opportunities. I would say the pipeline, and Brad can certainly elaborate. It's growing in the area of data centers, the government we talked about, the opportunity set there. There's still a high degree of interest. The West Texas assets are still on the acquisition list for the government, obviously, the administrative process is something you can't exactly nail down from a timing standpoint in terms of approvals and when a contract award might come. But we are keeping those assets in a ready state. We continue to incur the cost to do that of $2 million to $3 million a quarter, because there continues to be a high degree of interest, but the timing is a little difficult to nail down. James Archer: Yes. Stephen, if you missed the first part of the call, one thing I talked about on another question, was just -- there's multiple paths here for us to maximize our assets and utilization other than the government in the Permian Basin, while we still expect to take care of the government, and they're very interested in this facility, the demand, as you know, covering the Permian is increasing a lot, right, for data centers and the large-scale power projects. Several have been announced, several more in FID that we think gets announced. Some that we have NDAs signed with that haven't been announced that we think comes along as well. So we think we sit in a really good spot in the -- especially in the Permian and West Texas in general to increase utilization throughout our units that are sitting idle or underutilized. So again, it's not a one-legged stool here just on government. And I think fortunately for us, we sit in a really great position to act up on some of these projects. Stephen Gengaro: Is there -- so when we think about like the availability of your capacity and when we think about the data center growth and what's going on in some of the critical minerals side, and obviously the government, is there any urgency from any of those customer bases as it pertains to a concern about lack of capacity in -- if they don't contract assets in the near term? James Archer: 100%. When you look at how -- we'll just say the data centers are built, you'll see one large one being built and then pretty quickly behind that, they cluster around each other, right? So they definitely get -- there's a lack of qualified skills out there, whether that's electric or that's mechanical or whatever. And they're fighting a lot of times for that same person, right? So they get signing on equipment quicker than the next guy with -- because there's limited capacity out there, right? It can help derisk their project. But the answer is absolutely, yes. And look, that fear, if you will, is well founded on their part. There's not a lot of excess capacity out there. And every day, there's new projects that are being announced, which just continue to increase that. Stephen Gengaro: Yes. That's helpful because I hear clearly on the power gen side, and I was just curious if that urgency and sort of filtered down to take your business from at least part of the customer base. James Archer: Absolutely. Stephen Gengaro: Great. And then just the final question I had was the economics of the different pieces, it sounds like the data center side from our prior conversations is kind of in a pretty similar to Dilley, like should we expect kind of those similar type economics as other opportunities surface? Jason Vlacich: Yes. I mean I would say a lot of the opportunities we're looking at in our pipeline have economics from a margin profile standpoint, very similar to Dilley. A lot of these are take-or-pay assets that we own and will operate exclusively for the customer. So those economics will tend to be very similar to the Dilley economics. Stephen Gengaro: And actually on that -- I'm sorry, just one quick one. I think I know the answer to this, but on the longer-term deals, when you look at inflationary costs that we've seen, especially on things like food and labor, you are protected against a lot of that, I believe, in the contracts. Is that true? James Archer: It varies, right? In some on a go forward, we might have some type of cost increase across the years. And then some -- we're pretty limited on that, but we try to do that with the right type of rate -- operational efficiencies. And we've been very good about that. Operator: There are no further questions at this time. Brad Archer, you may continue. James Archer: Yes. Thanks to all of you for joining our call today and for your continued support of Target Hospitality. We look forward to speaking to all of you again in the New Year. Operator, that will conclude our call for today. Operator: Ladies and gentlemen, this does conclude today's conference call. Thank you very much for your participation. You may now disconnect. Have a great day.
Operator: Welcome to the Evolent Earnings Conference Call for the Third Quarter ended September 30, 2025. As a reminder, this conference call is being recorded. Your host for the call today from Evolent are Seth Blackley, Chief Executive Officer; and John Johnson, Chief Financial Officer. This call will be archived and available later this evening and for the next week via the webcast on the company's website in the section titled Investor Relations. This conference call will contain forward-looking statements under the U.S. federal laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from historical experience or present expectations. A description of some of the risks and uncertainties can be found in the company's reports that are filed with the Securities and Exchange Commission, including cautionary statements included in our current and periodic filings. For additional information on the company's results and outlook, please refer to our third quarter press release issued earlier today. Finally, as a reminder, reconciliations of non-GAAP measures discussed during today's call to the most direct comparable GAAP measures are available in the summary presentation available in the Investor Relations section of our website or in the company's press release issued today and posted on the Investor Relations website, ir.evolent.com and the Form 8-K filed by the company with the SEC earlier today. In addition to reconciliations, we provide details on the numbers and operating metrics for the quarter in both our press release and supplemental investor presentation. And now, I will turn the call over to Evolent's CEO, Seth Blackley. Please go ahead. Seth Blackley: Good evening, and thanks for joining the call. On the call this evening, I'll take you through our results across the 3 areas of shareholder value creation. John will then provide details on the numbers, and I'll close with some additional thoughts before we take your questions. We're pleased to report financial results for Q3 that exceeded expectations on both the top and bottom line. These results, we believe, demonstrate that Evolent's products are resonating in what continues to be a very dynamic time in the industry. Let's start with updates on our 3 areas of shareholder value creation of one, organic growth; two, margins; and three, capital allocation. Starting with organic growth. Q3 revenue of $479.5 million was at the top of our guidance range. And we expect our revenue for the full year to be between $1.87 billion and $1.88 billion. We're announcing 2 new revenue arrangements today, one in the Performance suite and onein the technology and services suite. First, we have signed a contract with one of the largest Blue Cross plans in the country to launch our Performance suite for oncology across more than 650,000 MA and commercially fully insured members. At typical capitation rates, we expect this to contribute north of $500 million in revenue annually. This new partnership leverages our enhanced performance suite framework and includes retroactive adjustments for prevalence, case mix and the like as well as bidirectional risk corridors that significantly limit our downside while increasing value sharing to our partner, ensuring that our economics are closely tied to the value we're creating and mitigating Evolent's exposure to volatility that's outside of our control. We're honored to add this plan as a major new first-time partner for Evolent and look forward to doing excellent job supporting their members and accessing the very best oncology care while also balancing affordability for members in the plan. While the final implementation schedules may shift slightly in either direction, we are currently expecting a May 1, 2026 go live and therefore, expect the contract to contribute approximately $300 million in 2026 revenue. Finally, it's important to note the revenue estimates I just discussed are just for the fully insured commercial and Medicare Advantage lives. The commercial ASO and Medicaid membership at this plan would represent additional growth opportunities over time. And our second revenue arrangement we've announced is a large provider-sponsored health plan in the Southwest and they have signed a contract to deploy our oncology condition management, technology and services solution across their membership adding to their existing musculoskeletal solution. With these additional announcements, we have signed contracts for 2026 go-lives that will add more than $550 million in new 2026 revenue and annualized contract value of over $750 million. These new signings take total revenue under contract for 2026 to approximately $2.5 billion. Well of course, finalize our revenue outlook for 2026 in February once we have final membership and go-live dates. But this forecast of $2.5 billion in revenue takes into account our current expectations for revenue decreases in conjunction with membership reductions in the exchanges, Medicare Advantage and Medicaid. Additionally, we believe the expected contract launch timing in 2026 will position the company for strong bottom line growth in 2027 and even after today's announcement of more than $500 million in annual contract value, our probability weighted pipeline exceeds $650 million annually and continues to grow. On margin expansion, our Q3 adjusted EBITDA of $39 million was in the upper half of our expected range and represents 23% growth year-over-year. John will talk more about the drivers of our adjusted EBITDA performance and our outlook for this year. With today's announcement, we anticipate over 90% of our Performance Suite revenue in 2026 will be covered by our enhanced protections which update our pricing for disease prevalence, mix and other factors and include risk corridors that limit our downside, enhancing our ability to drive sustainable margin growth in the future. We continue to work towards our long-term goal to auto approve over 80% of our baseline authorization volume, delivering on faster authorizations at a lower cost. During the quarter, we began rolling out our artificial intelligence review or Copilot within auth intelligence into our musculoskeletal workflows, and we're beginning to realize the AI efficiency improvements we expected. On the capital allocation front, the sale of our primary care business, Evolent Care Partners is on track to close later this year. We plan to use the proceeds from that sale to pay down approximately $100 million of our senior term loan, lowering our cash interest burden by about $10 million annually. With the retirement of our 2025 convertible notes, we have no significant liabilities until the end of 2029 and we reiterate our commitment to use free cash generation from the business to delever. We believe our growth and the continued strength of our pipeline is driven by the unique value we deliver to all of our core stakeholders, health plans, providers and members. I want to provide an update now on our product development efforts as we continue to innovate. Our health plan partners turned to Evolent to address excessive specialty care costs, particularly in oncology, where we believe we provide a critical service in this environment, which is delivering savings while seeking to improve the patient and physician experience. As evidenced by our accelerating pipeline and new contract signings, we believe the current environment presents an opportunity to increase the penetration of our specialty care model at a time when demand for our offerings has never been higher. For example, in oncology, we believe we touch approximately 9% of all oncology cases in the United States today, about 8% in our technology and services model and only 1% in our Performance Suite model. As evidenced by today's announcements, we are seeing the differentiation relative to our competitors. We expect our enhanced Performance Suite model to grow over the coming years. We believe this market opportunity will provide our customers with significant value and importantly, provide Evolent with a strong and sustainable source of growth in the coming years. We also believe the enhanced protections in our modified contracts will provide a path to driving strong and disciplined adjusted EBITDA growth in the years to come. To give you a sense for the longer-term opportunity with the oncology Performance Suite, increasing our oncology risk penetration to 15% of the market represents an addressable growth opportunity of greater than $15 billion annually over time. On the provider front, we're excited to announce a strategic partnership with American Oncology Network, which strengthens our provider alignment model under our Oncology Care Partners brand. The model seeks to enable high-quality, more affordable and connecting cancer care, all without relying on utilization management, instead relying on EMR integration to drive decision-making at the point of care. The model should significantly lower the burden on oncologists, enabling them to focus on what matters most of caring for their patients on their cancer journey. Part of the partnership, physicians and patients will have access to Evolent's comprehensive cancer navigation program. The American Oncology Network is one of the nation's fastest-growing network of community oncologists and shares our dedication to innovation in cancer care. Finally, we're excited by the continued progress of our comprehensive cancer care navigation program. By combining Evolent's expertise in oncology services and care management with the Careology mobile application. This program has delivered exciting results this year that now extend into reducing inpatient costs, whereas our traditional Evolent oncology model focuses on outpatient costs and drug costs. For example, our navigation model is now live in multiple markets and has shown decreases of up to 40% in inpatient and emergency department utilization and match case studies. The program also has patient satisfaction scores exceeding 90%. Before I hand it over to John, let me make some quick comments on the policy environment and our outlook for 2026 and beyond. Across the last 24 months, we have seen 2 dynamics of work. One, we have been taking share, particularly in oncology, further penetrating the top health plans, winning important new logos while continuing to renew existing customers and updating our performance suite contracts demonstrating the long-term durability of our model. And two, membership in our core government-sponsored market has been going through a significant shift, shrinking in number and growing in acuity. We expect both of these trends will continue in 2026. Recall that our previous expectation for 7% to 9% membership growth in MA for 2026 was offsetting an expected contraction of approximately 20% in the exchange market for 2026. CMS' most recent forecast from the end of September now expects overall MA membership to contract by about 3%. In the exchanges, there remains a wide range of potential outcomes depending on how and when the federal government has reopened, with health plans over the last couple of weeks forecasting exchange membership declines of as little as 15% and to as much as 65%. While we expect to grow our customer footprint and revenue meaningfully next year and while we're on track to achieve our expected efficiency targets for 2025, our 2026 adjusted EBITDA outlook is more uncertain than usual for this point in the year, given the wide range of outcomes on our customers' membership in Medicaid, exchange and Medicare, based in particular, on the changes from the One Big Beautiful Bill. For example, if exchange membership declines are towards the higher end of that forecasted range and our customers' Medicare Advantage membership shrinks, it's unlikely we'll be able to deliver meaningful adjusted EBITDA growth in 2026, above our pro forma 25 baseline. If robust subsidies are reinstated as part of reopening the government, this headwind may be reduced. Likewise, the details of membership declines will matter. For example, while the MA market in aggregate may shrink by 3%, it's possible that our MA customers may gain market share. Regardless of membership dynamics, it's important to note that based on new contracts signed to date, we will exit 2026 with more than $750 million in newly launched annualized Performance Suite revenue. Consistent with our past commentary, we are expecting minimal adjusted EBITDA contribution from these new launches in 2026, but would expect them to generate adjusted EBITDA contribution of $75 million or more at target mature margins. These new contracts as well as others we expect to sign in the future quarters should provide a significant earnings tailwind in the years to come. We intend to use this moment of health plan P&L pressure to cement Evolent's position as a leading specialty solution. The pain felt by our customers, both on membership and utilization is creating a very significant growth opportunity for Evolent. We now have signed 13 new contracts in 2025, and we have contracts in place that should drive more than 30% top line growth in 2026, and we also anticipate continued strong growth into 2027 and 2028. It is our belief that capitalizing on this period of industry disruption with disciplined growth will create significant long-term value for all of our stakeholders. With that, let me turn it over to John to go through the numbers. John Johnson: Thanks, Seth. Q3 revenue of $480 million represented 8% sequential growth versus the second quarter, driven by new launches across both the Performance Suite and the technology and services suite. Sequential growth in our per member per month fees in both the Performance Suite and tech and services was driven principally by product mix with the Q3 launches at a higher-than-average fee as we continue to demonstrate pricing resilience in a dynamic end market. With these launches, we are currently tracking towards the upper end of our full year revenue guidance, and we have narrowed that range accordingly. Adjusted EBITDA of $39 million was modestly ahead of our expectations and represented growth from our technology and services business and the early success of our AI operational efficiency projects, offset by initial reserve building for our new Performance Suite launches. Our Specialty Performance Suite Care margin, which is the difference between our capitated revenue and claims expense was approximately 7%, consistent with our performance year-to-date. Normalized oncology trend continues to be just under 11% year-over-year. Note that during September and into October, we saw an increase in medical utilization in our exchange book, primarily in cardiology, consistent with industry-wide expectations of a benefit rush ahead of significant premium increases in 2026. Given this expectation, we have opted to maintain our conservative reserving posture consistent with our behavior during the first half of the year, and we have narrowed our adjusted EBITDA outlook accordingly. Note that we are not seeing this trend variability in Medicaid or Medicare, where cost trends remain stable versus our first half results. Turning to the balance sheet. We ended the quarter with $116.7 million of cash and equivalents and $47.5 million of revolver availability. Cash change versus our Q2 ending balance was driven by $15 million in cash flow from operations, offset by software development costs of $9 million and $40 million in net cash used in the August transaction, refinancing our 2025 convertible notes and buying back common stock. Cash from operations of $15 million was lower than expected, driven by timing of cash receipts, particularly from the Medicare shared savings program, which was paid in October instead of September. Our net debt of $910 million reflects the exchange of our $175 million in Series A preferred stock into second lien debt. Recall that this exchange included no changes in economic terms to Evolent, other than the interest now being tax deductible. Between cash generation and the divestiture of Evolent Care Partners, we expect to end the year with net debt of approximately $805 million to $840 million, which would represent a net leverage ratio of approximately 5.5x at the midpoint of our 2025 adjusted EBITDA guidance. With the retirement of our 2025 convertible notes, we have no maturities until the end of 2029, but delevering remains our primary capital allocation priority. As we near the end of the year, we are narrowing our guidance ranges for 2025 revenue and adjusted EBITDA to be between $1.87 billion and $1.88 billion and $144 million to $154 million, respectively. These ranges presume a 12/31 close for our ECP divestiture and would be slightly lower if the transaction closes earlier. The corresponding quarterly ranges are $462 million to $472 million in revenue and $30 million to $40 million in adjusted EBITDA. We are not assuming any new launches in our revenue outlook. The primary variable is changes in our customers enrolled membership. And as I mentioned earlier, this adjusted EBITDA range presumes a further decline in exchange margins from what we experienced in Q3. While this outlook is conservative, we believe that is the appropriate posture given the industry-wide commentary on this segment. With that, I'll turn the call back over to Seth. Seth Blackley: Thank you, John. I want to close by commenting on our CFO transition announced this afternoon. First, I want to thank John for his incredible contributions to Evolent as our CFO over the last 6 years. I look forward to continue working with him as he takes on the Chief Strategy Officer role for the company. The role will include supporting our rapid oncology growth in the time ahead and our work to drive our target oncology trend down in addition to the more traditional strategy functions. I also want to welcome Mario Ramos to Evolent. Mario was previously CFO of CVS Caremark, a division of CVS Health, in addition to holding other CFO roles at CVS. Most recently, Mario was CFO of WellBe Senior Medical, a risk-bearing value-based care provider. Based on his track record and reputation in the industry, I'm highly confident Mario will be an incredible addition to the team. Mario will join Evolent on November 17 and assume the CFO role on January 1. In addition, as our growth accelerates and AI becomes a more important factor in the operations of our business, we're making a number of other important organizational investments and adjustments that we noted in our press release. In closing, I remain incredibly confident in Evolent's future. We believe we have developed the leading specialty platform in the industry. I believe the exceptional renewal rates of our current customers, along with the validation of new customer contract signings under our enhanced Performance Suite model demonstrate the value and durability of our solution. While the industry is undergoing significant changes, Evolent is taking market share with a new disciplined contract structure, and I believe we are becoming a more critical part of a system that desperately needs higher value, higher satisfaction and lower cost solutions, particularly in high-cost areas like oncology. We have the right team in place to take advantage of the opportunity ahead and drive value for our customers, employees and our shareholders. With that, we will take your questions. Operator: [Operator Instructions] And the first question will be from Kevin Caliendo from UBS. Kevin Caliendo: I want to talk a little bit about the new contract wins. Obviously a huge number. I appreciate you giving us that it's not going to really contribute much next year. And I believe you said potentially $75 million when they hit peak margins. How should -- can you maybe break this down a little bit? Is 10% sort of the new -- the way we should be thinking about new business in terms of peak margins going forward? Is there something about the mix of these contracts that affects that? Just trying to understand sort of -- because the new contracts and the restructuring of your contracts going forward is a big question mark. And this is obviously a huge amount of new business that's won. And I'm just trying to think as we think longer term, is this how we should be thinking about new business? Or is there something unique about the mix of these contracts that get you to sort of 10%-ish peak margin? Seth Blackley: Yes. Great question, Kevin. So this is Seth. Let me make a couple of points. Number one, yes, this -- all of these contracts that are in that $750 million that we talked about are under the enhanced Performance Suite. That's the only way we're setting up new contracts going forward that has prevalence and case mix adjustments, but also has a narrower corridor model attached to it. So that's the contract structure. I think the second thing that I want to highlight, and I'll get to your question is between Aetna and this contract, and what we're seeing in the pipeline, I think we feel really good about our ability to use this contract structure as the standard going forward. It's also the standard that we have implemented backwards into all of our existing contracts or almost all of them at this point. So that's how you should think about it going forward. I think 10% is a reasonable mature margin to think about, yes. That is lower than historically we used to talk about, and that's intentional. The bell curve is narrower. So we have taken downside from our exposure, and we've also given a little bit back to our partners. And so I think you should think of the business, I think it's a reasonable mature margin target to your point. I think you should also think about lower volatility, more predictability. And that's the model that we believe in going forward. Does it leave some net present value, if you will, on the table? Perhaps it does, but I think more predictability, discipline with these contracts is the right trade-off to be making. Operator: And the next question will be from Daniel Grosslight from Citi. Daniel Grosslight: Congrats on a strong quarter. I'd like to focus on the puts and takes around 2026 EBITDA. Seth, it sounds like the big variable here is just what happens on the exchanges, but I was hoping maybe you could help quantify that impact of it maybe on the high end and low end? And then maybe on top of that, if you can layer on any additional investments you're making in 2026 other than what you've announced this year? And if you're still expecting to see that, I think it was a $20 million improvement in EBITDA from AI. I just want to make sure that you're still expecting to realize that next year. Seth Blackley: Sure. So I'll start, and then I think I'll pass it to John to add a little bit of color. So the big factors that set up '26 are number one, growth. We feel very good there. Number two is you asked about it, but our cost structure and the efficiencies baked into that. We feel good about that, and we're achieving the results that we want. And the third big one will be trend, right? And particularly in oncology, and we commented on that today, too. We feel good about where we are. It feels like our forecasts have been right and we feel like we're still set up in a good way. And the fourth one is membership. To your point, yes, that is the big one that's open. I think it's too early to tell with the width of the ranges that we're talking about. And it's also a little bit hard to give you an algorithm for, okay, plug in, this percent membership decrease, I give you that EBITDA change. I think that a lot of it depends on our cost structure. So the more membership comes down, the more we have to look at our cost structure, there's variable costs and there's fixed overhead. And we're going to have to look at fixed overhead, if membership comes down by a certain percentage, right? So it's hard to give you an algorithm is the short answer. I think the way we framed it in the script is probably the best we can do with the width of the ranges that are out there, which is -- could be tough to get meaningful growth or we have good path to EBITDA growth, depending on what happens with membership. Operator: The next question will be from John Stansel from JPMorgan. John Stansel: I wanted to dig in a little bit more on the MA growth assumptions for enrollment next year. I appreciate the commentary about CMS forecast and the idea that enrollment could decline by low single digits. But I think some of your large customers have taken different strategies, in particular, one of your largest customers is potentially positioned themselves for share gains. So I guess, can you talk about your different outcomes you think within MA enrollment and what that means for '26 and how you're thinking about your large payer customers performing into next year? John Johnson: Yes. It's a good observation, John. And I think that, well, we don't have a crystal ball on this, of course. We do think that if one or more of our current partners ends up as meaningful share gainers for MA membership next year, that would be a nice tailwind for us, in particular, in the technology and services suite. Operator: And the next question will be from Charles Rhyee from TD Cowen. Lucas Romanski: This is Lucas on for Charles. In terms of thinking about the HIC subsidies and whether they expire, can you help us understand, obviously, you're talking about a membership impact right now, but can you help us understand maybe the acuity shift that could come along with that and maybe compare it to the Medicaid redetermination acuity shift that you saw over the past 18 months and help us out with that piece. John Johnson: Yes, for sure. So just to put some numbers around it, right, revenue from the exchanges this year is around $360 million, about half in the Performance Suite, half in tech and service. So that's the top line in terms of the total capitation that we're talking about here. The second thing that I'd say there, Lucas, is recall that our contracts have these protections and automatic adjusters for changes in the population, prevalence, disease mix, et cetera, that go a long way towards protecting us against wild acuity shifts. And the last thing that I'd note is because this is such a -- such a topic, right, and a known item going into next year. We have very active discussions with our payer partners in the exchanges for next year around ensuring rate adequacy based on the population that they end up with next year. So we have a high degree of confidence in our pricing for '26 as it relates to our expected acuity shift. Operator: The next question is from Jailendra Singh with Truist Securities. Eduardo Ron: This is Eduardo Ron on for Jailendra. Just on the oncology trends, which appear to be still better than the 11% that you guys guided for the year. And can you perhaps give some color on how that's played out from Q1 and now through Q3? Has that trend improved as the year progressed? Has it gotten worse in any way? Just if you could flesh that out, that would be great. John Johnson: For sure, Eduardo, we're seeing it about flat across the year. With the -- want to tweak that over the last couple of months, we have seen a bit of that benefit rush in the exchanges. Most of that has been in cardiology, but we've seen a little bit of it in both. But in Medicaid and in Medicare Advantage, oncology trend across the year has been relatively stable. Operator: The next question is from Jeff Garro from Stephens. Jeffrey Garro: Maybe go back to the pipeline and great to hear the positive commentary there. I was hoping you could add to it in terms of the pacing of decisions and relatedly potential timing of go-lives, what's determining the pacing of remaining decisions? And as those prospects or existing clients make decisions, are we now looking at 2027 go-lives? Or are wins still possible that could translate to midyear 2026 go-lives? Seth Blackley: Sure, Jeff. Helpful. So look, I think that what I would say on the pipeline is it's generally about the same as it's always been. It's not sped up or slowed down. I think the overall demand is really significant, as I mentioned, and I think that's going to continue. Could we still have some things that go-live in 2026 that are new? Yes, we could. For sure. And so -- and we've got a lot in the pipeline that could convert over the coming months even. So I think the' '26 outlook is still open partly based on opportunities for additional revenue as well. And again, I'd just say the biggest factor, I think we're feeling right now, Jeff, is just really significant demand because of the pain that folks feel in the market trying to manage and balance great care, whether it's oncology or anything else with affordability and we're getting a lot of phone calls to get support on that issue. Operator: And our next question will be from Jessica Tassan from Piper Sandler. Jessica Tassan: I guess just maybe first, can you elaborate a little bit on the adversity that you're seeing in the exchanges? I guess, just because I don't necessarily think about oncology as being subject to induced utilization, but what are you seeing there? Is it just acuity mix into the end of the year because of like marketplace integrity efforts? And then just secondarily, I appreciate you guys addressing the '26 EBITDA guide. But can you maybe just give us a sense of what are the items we should be thinking about in terms of bridging from 2025 to '26, maybe starting with ECP and then going through the AI efficiencies, et cetera. John Johnson: Yes. So on the first one, Jess, the benefits, rush is really in cardiology, which as you point out, is a little bit more discretionary in terms of timing that is oncology. So that's really where we're seeing that uptick that we noted into the end of Q3 and into Q4 here. I'd just note on that one before I talk about '26, as I said in the script, we have assumed in our guide a provision for that trend accelerating. We haven't seen, but that seems like the right posture for us right now in the exchange line of business. So then talking about '26, let's just hit a couple of numbers. On the ECP divestiture, we expect that to be about $10 million of EBITDA associated with that divestiture. And so the -- think of the pro forma EBITDA this year as $10 million less than where we land as your launching point for next year, assuming we have it for the whole year. The second piece, you asked about the AI initiatives. I think $20 million is still our expectation for year-on-year improvement there. Of course, that's a unit cost number. So to the extent that there are significant shifts in membership, that number could move around a little bit. But we're quite pleased with the progress that we've made on the -- towards that $20 million number. The third thing that I would note is just on the Performance Suite margin maturation. Again, excited about what we've been able to drive this year. I feel confident about our pricing going into next year and ability to continue to drive value there. And the last question is really membership, as we noted earlier. Operator: The next question is from David Larsen with BTIG. David Larsen: With regards to the potential extension for the subsidies, I mean, what odds would you put that at what's happening? Since you're in Washington, I imagine you're pretty close to the hill. I mean, do you think there's a greater than 50% chance of subsidies being extended? Just any thoughts there would be helpful. Seth Blackley: David. So, I think it's a pretty reasonable chance. I want to put a number on it that subsidies are extended, whether it's for a year or 2 years, that kind of thing. I think the bigger question at [indiscernible] is really given how late in the year it is and given the specific mix of plans, how much does that really change some of the numbers on a given population. So I think it's a very complex thing to put numbers on right now, both because you got the federal government question that you asked, and then you have the downstream question of, okay, it's pretty late in the year, how does that then affect open enrollment and had plans already filed? What they are pricing around and the like. And so I think the odds of the extension are good, David, that translating that even if I had a very specific number into, okay, I know this is going to do that to membership. That second piece is quite difficult. And I think that's part of the reason for the broader ranges that you're hearing from the different payers in the market. Operator: And our next question will be from Matthew Shea with Needham. Matthew Shea: I wanted to talk much on the product development. It seems like there's a lot of excitement there. Maybe with the oncology navigation solution, it sounds like continuing to roll this out, I guess, first, have you scaled this beyond that initial 300,000 members? Or is that still the right way to think about this at this point? And then last 2 quarters, you've alluded to the Navigation Solutions potential to allow you to create risk-based offerings for Part A oncology spend. Would love to get an update on where you are in terms of a formal development of an offering there and whether we should view the partnership with American Oncology Network as sort of a stepping stone on that journey. Seth Blackley: Yes. So in terms of rollout, we were still in the two major markets. I think we are pretty close to adding a number of additional markets right now. And I think you'll have that happen live in 2026. If you think about the benefits of doing the work, to your point, most of it's on Part A. We mentioned some of the matched case studies around the significant reductions in ED and hospital utilization. So will we be beginning to take some management accountability on for Part A as we head into next year? Yes, we likely will. And that is a positive, obviously, for our partners because I think they are looking for answers everywhere they can find them and more integrated is better than not. So it is accelerating. I think is the right way to think about our navigation work. It's going to be included in more and more of our efforts. I think the American Oncology network partnership is related but a little bit different. So those oncologists across 20 states will have access to the navigation product that we just talked about, but there's a lot more to that partnership that goes beyond navigation. The bigger things, right, are completely gold carding and turning off utilization management and inserting the intellectual property of our oncology programs into the EMR at the point of care. And those fit really well with the navigation product. There are 2 parts to a coin, if you will, 2 sides to a coin, and they're both valuable and they're both part of the same dynamic, which is everything we're doing is trying to make care better for patients, which navigation does and point-of-care decision-making does and make them more affordable. And both of those things that we just talked about make care more affordable. So all of our product development efforts should have those two things in true north, better care for patients and easier to access for providers and more affordable. Operator: And the next question is from Matthew Gillmor with KeyBanc. Matthew Gillmor: I want to follow up on the American Oncology partnership. So just curious, sort of as you roll out, that doesn't sound like it's revenue-generating today, but how do you envision that sort of generating revenue for Evolent over time? Is that through the payers or through this relationship with the providers? And then has there been any early feedback on that gold card program from some of the big payers? Seth Blackley: Yes, great question. So on your first point, it really, to your point, is not about revenue primarily. The work with that partner and other oncology groups like it over time, is really about improving the quality, the experience and reducing the cost. And so if we're in a risk-bearing situation, having that in place in those markets where we have the enhanced performance suite in place, we think we can drive better outcomes. And you can make patients happier and provide better care for them. So that's going to be the primary way to choose. Might it also be something that payers love to see and therefore, pull us into a new market and it becomes sort of revenue generating as a knock-on effect. I think the answer is probably yes to that. But to your point, that's not the primary approach to it. And what we're really focused on is the ability to drive the quality and cost in the right direction. Operator: And ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the conference back to Seth Blackley for any closing remarks. Seth Blackley: Great. As I close the call, I just want to thank John again as he moves on to his new role, but really also thank the 4,500 people at Evolent who wake up every day and run at our mission to support our patients, but also our shareholders. So thanks for the time tonight. We look forward to catching up offline. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. My name is Eric, and I will be your conference operator today. At this time, I would like to welcome everyone to the LFL Group Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call over to Jonathan Ross, Investor Relations for LFL Group. Please go ahead. Jonathan Ross: Thank you. Good day, everyone. And welcome to LFL Group's third quarter 2025 conference call and webcast. LFL's Q3 2025 financial results were released yesterday. The press release, financial statements and management's discussion and analysis are available on SEDAR+ and on our website at lflgroup.ca. Joining me on the call today are Mike Walsh, President and Chief Executive Officer; and Victor Diab, Chief Financial Officer. Today's discussion includes forward-looking statements. These statements are based on management's current assumptions and beliefs and are subject to risks, uncertainties and other factors that could cause actual results to differ materially. We encourage listeners to refer to the risk factors outlined in our management's discussion and analysis and annual information form, which provide additional detail on the risks and uncertainties that could affect future results. This call also includes non-IFRS financial measures. Definitions, reconciliations and related disclosures for these measures can be found in the management's discussion and analysis and press release issued yesterday. Forward-looking statements made during this call are current as of today and LFL Group disclaims any intention or obligation to update or revise them, except as required by applicable law. All financial figures discussed today are in Canadian dollars unless otherwise noted. With that, I'll now turn the call over to Mike Walsh to discuss our third quarter results. Michael Walsh: Good morning, everyone, and thank you for joining us. This is our first quarterly call, and we appreciate you being here. We're looking forward to using this format to provide more regular insight into our performance, our strategy and how we're thinking about the business going forward. So let's get right into the quarter. We delivered strong top line performance in the third quarter with system-wide and same-store sales up 3.7% and 3.9%, respectively. I am particularly pleased with our continued performance given the broader backdrop. Consumer discretionary spending remains pressured and the retail environment continues to be highly promotional. Canadians are looking for value from retailers they trust and our strategy is built to outperform when value matters most, and we're seeing that play out in the numbers. Even more importantly, we continue to translate our top line momentum into profitability growth. Adjusted diluted earnings per share grew 20.4% year-over-year, reflecting not just sales strength, but disciplined execution across sourcing, category management, promotional optimization and cost control. Underpinning our third quarter performance is the consistency of our execution and the strength of our platform. Our scale enables us to negotiate directly with suppliers and secure advantaged pricing. Our banners are trusted by Canadians coast-to-coast. And our integrated logistics network, including one of the largest final mile delivery systems in the country, gives us a level of service differentiation that's difficult for others to replicate. These are durable strengths that position us to win across cycles and help us continue to take share. Furniture was once again the standout category in Q3, supported by our focused assortment strategy. We've narrowed the range, gone deeper in our best sellers and leaned into categories where we can offer real value. This laser focus on solidifying our leadership in this most important category continues to deliver results. Furniture is our largest and highest margin category and in the current environment represented the most effective opportunity to gain share. Our performance in furniture is a result of the deliberate and disciplined execution of our strategy, prioritizing areas of our business with the greatest near-term opportunity, while continuing to advance our broader categories. While industry-wide traffic headwinds have continued, we maintained our focus on maximizing every customer interaction. Both average transaction value and conversion rate strengthened during the quarter. In our stores, we're seeing more purposeful visits translate directly into purchase activity. Our omnichannel infrastructure is instrumental here. We're strategically utilizing our digital ecosystem, not only as a revenue channel, but as a qualification funnel that delivers customers with clear purchase intent. Once in the stores, our highly trained sales associates and attractive financing offers work together to drive a stronger average transaction size and higher total ticket profitability. Our overall appliance business was also strong in the quarter led by the commercial channel, as has been the case for the past several quarters. We continue to deliver on projects booked over the past couple of years. And while we're mindful that builder pipelines are slowing across the board as we approach 2026, our team is laser-focused on continuing to gain traction in the replacement market, especially with property managers. That's a segment we believe can be a more meaningful contributor over time. And our warranty and insurance businesses remain a key part of our value proposition. These are profitable, capital-light businesses that support the core and extend our relationship with the customer. We also continue to see strong attachment rates and growth in these business lines and we believe there's more opportunity to grow these platforms, both inside and outside the LFL ecosystem. From a capital allocation standpoint, our priorities remain consistent. We're focused on maintaining a strong balance sheet and reinvesting in the business where we see attractive returns. We remain attuned to potential acquisition opportunities that could enhance the long-term value of the company and we continue to grow our regular dividend over time. Our retail store count remained consistent from last quarter at 300 stores, including 201 corporate stores and 99 franchise stores. As we continue to optimize our footprint, it's worth reiterating that our strategy is not about maximizing store count. Our stores are designed to be destinations with larger catchment areas and a focus on delivering a full-service experience that drives meaningful returns. We evaluate every investment through the lens of a 4-wall profitability and long-term value creation. That discipline is reflected in how we approach new locations, renovations and reopenings. It's also why we're comfortable growing selectively rather than chasing unit expansion for its own sake. Now looking ahead to the fourth quarter and into early 2026, we expect consumer confidence and discretionary spending to remain selective. Consumers are being careful with their dollars, but they are spending. The environment remains dynamic. Similar to last year, the Canada Post disruption is creating near-term headwinds during a very important promotional period. While this does affect all retailers that rely on flyer distribution, we remain competitively well positioned. We faced a similar situation late in the fourth quarter of 2024. And while the disruption began earlier this year, we're drawing on last year's experience to adjust quickly. That said, if the strike continues through year-end, we do expect some impact to key promotional events in the quarter. Before I hand it over to Victor, I truly want to thank our associates across banners and regions from our warehouses to our sales floors to our drivers on the road and the customer service folks manning the phone lines. Their execution in the quarter was outstanding. Victor will take you through the financial details and provide some additional context on the quarter. I'll come back with a few closing thoughts before we open it up for questions. Victor, over to you. Victor Diab: Thanks, Mike, and good morning, everyone. As Mike mentioned, we delivered strong top line growth in Q3 with system-wide sales up 3.7%, revenue up 4.1% and same-store sales up 3.9%. From a category standpoint, furniture was a key contributor. We also saw continued strength in appliances, led by our commercial channel, which added to growth this quarter. That strength was driven by the delivery of previously booked projects, particularly in multiunit residential as we continue to fulfill orders tied to developments moving through to completion, despite a softer new construction market. We expect revenue from developers, in particular, to begin moderating as we move into 2026 and we're certainly seeing that across the market. Our team is actively working to increase our share of the replacement business where we're seeing good traction with property managers. But it will take time for that portion of the business to catch up with the new build market, which is lumpier, but can be meaningful as we have seen this year as builders finish up projects. Gross profit margin expanded by 79 basis points year-over-year to 44.6%. This improvement reflects both the impact of higher-margin furniture sales and our continued focus on strengthening sourcing and vendor relationships. We've deepened relationships with our top vendors and increased purchasing penetration through our First Ocean subsidiary, driving improved cost efficiencies and supply consistency. At the same time, disciplined promotional activity and optimized pricing strategies have supported margin performance across categories. As we move into the end of the year and early 2026, gross margin will continue to be influenced by category mix, promotional intensity and our ongoing sourcing work. We're always looking for opportunities to drive improvement, but we also take a balanced and dynamic approach. We'll make the investments necessary to drive traffic and market share when it makes sense to do so. That's just part of how we manage the business. SG&A rate was 35.51% of revenue, an improvement of 14 basis points year-over-year. This improvement was driven by lower retail financing fees due to declining interest rates. This helped offset expected increases in advertising costs due to event timing shifts as well as higher occupancy expenses from the Edmonton D.C. lease commencement and other facility renewals. Adjusted diluted EPS came in at $0.65, up 20.4% compared to last year. We're also pleased with where inventory levels sit today. Freight disruptions that impacted the start of the year are now behind us and our written-to-delivered sales relationship has normalized with a focus on going deeper on certain SKUs, enabling us to improve written-to-delivered timelines. We're in a healthy in-stock position heading into the back half of the year with good availability across key categories, and no material constraints on flow. From a capital allocation standpoint, I'll build on Mike's comments. Our approach remains disciplined and consistent. We prioritize reinvestment in the business where we see attractive returns, maintain a strong balance sheet and return capital to shareholders over time, primarily through growth in our regular dividend. Annual maintenance CapEx is running in the range of approximately $35 million to $40 million annually, which supports our ability to continue generating strong free cash flow. On the balance sheet, we ended the quarter with $549.6 million in unrestricted liquidity, including cash, marketable securities and our undrawn revolver. That level of flexibility is a strategic asset in this environment. It enables us to stay agile, pursue opportunities as they arise and continue investing in the business without compromising our financial strength. Given our 100-plus year track record of navigating cycles and making the right long-term investments, we're comfortable maintaining the financial flexibility. We will continue to be opportunistic in our approach to buybacks, taking advantage of volatility where it aligns with our long-term strategy. We did not repurchase any shares under our existing NCIB during the quarter. Overall, we remain confident in our ability to deliver consistent financial performance in the context of the market and versus the industry. Our scale, disciplined sourcing and promotional strategies and solid balance sheet provide the foundation to continue driving profitable growth and shareholder value over the long-term. Before handing it back to Mike, I'd like to briefly address the previously announced initiatives to create a real estate investment trust. This remains an important strategic priority for us. The timing will be driven by market conditions and regulatory approvals, and we'll share additional updates when appropriate. That's the only update we can provide on today's call. With that, I'll turn it back to Mike for closing remarks before we open the line for questions. Michael Walsh: Thanks, Victor. To wrap up, we're really pleased with how the business performed for the first 9 months of the year. Over that period, we have delivered total system-wide sales growth of 3.5% and adjusted diluted EPS growth of 28.7% in a dynamic consumer and industry environment. What's just as important is how we're delivering that performance. We're seeing stronger conversion in our stores, more consistency in execution across banners and better alignment between what customers want and what we're delivering. That's the outcome of deliberate long-term choices, not quick wins, and it's showing in both our results and how resilient the business has become. We're not immune to the macro, but we are well positioned to navigate it and continue delivering value for our customers and our shareholders. Thanks again for joining us today. With that, I'll pass it back to the operator for questions. Operator: [Operator Instructions] Your first question comes from the line of Nevan Yochim with BMO Capital Markets. Nevan Yochim: Congratulations on a solid quarter and your first conference call. Hoping we could start on the top line here. Are you able to provide an update on quarter-to-date trends? Have you seen the Q3 momentum continue, as well as any detail on your positioning as we move into the important sales and holiday season? Michael Walsh: Thanks very much, Nevan. It's great to talk to you and you're the first person asking us a question on the live webcast. So congratulations. Just a little bit on the third quarter. So the consumer still remains very price conscious Value continues to be a key focus area for us and that's how we think we're winning. The Canadian consumer is still looking for a retailer that they know and trust and is going to be around for after sales service. The trend from the second and third quarter, we're seeing a lot of traffic going to our website and traffic being more like flattish going into the stores. So more qualified customers coming into our stores, allowing our sales associates to spend more time selling the value-added services. We're seeing the attach rates for warranty insurance products are also improving. And so we feel like we're well positioned going into the fourth quarter. There's still some macro headwinds. You've got the coastal strike affected last year starting around November 15th. This year started near the end of September. So we're feeling good about that. It kind of levels the playing field with all retailers but we learned a lot going through the fourth quarter of last year that we're applying this year. Nevan Yochim: And maybe just a little bit more on that Canada Post strike. Are you able to parse out what the impact was last year, maybe just a magnitude? And then, how does that flow through the P&L? Is that solely a revenue impact or are there margin pressures there as well? Michael Walsh: Great question. I don't think there's margin impact to it. But it's definitely very difficult to quantify what the impact is because last year we were having challenges with inventory position as well. So how much of it was a flyer impact, how much of it was the inventory impact. So really difficult to tell. And then as you pivot going to more ,of a digital way, how much of that did you get a pickup on. So really difficult to quantify the impact of the flyers. But for sure, there is an impact to all retailers, especially when you're a high-low retailer and the consumer is looking for the flyer. It definitely impacts the traffic that's coming to your stores. Nevan Yochim: Got it. Maybe just one more for me, maybe for Victor. It's nice to see the SG&A leverage again this quarter. You called out lower POS financing fees. As we've seen the Bank of Canada cut rates as recent as just 1 week ago, does that imply you expect this tailwind to continue into the second half of next year? Victor Diab: Great question. Yes, every time the Bank of Canada cuts rates, there's a bit of a delay in terms of when it translates to our numbers, but we'll get a bit more leverage off of that next year. Obviously, most of the cuts happened over the last year and we've benefited from that this year, and we'll see a little bit more of that next year if rates continue to be cut. Operator: Your next question comes from the line of Martin Landry with Stifel. Martin Landry: It's super helpful. I know it's a little bit more work on your end, but for us, it's very much appreciated. My first question, I'd like to understand a little bit how the quarter has evolved. There‘re some retailers that have talked about a strong July and August and a slower September. I was wondering if you've seen any of that dynamic? Michael Walsh: I would say we were very happy with the quarter as a whole. I think July and August were super strong. September was a little bit weaker, whether that's due to the postal strike, but definitely, we saw some weakness in September. Martin Landry: And that weakness, is it -- have you seen differences per regions? Has it been Canada-wide or more located in the Central Canada where the manufacturing base is? Michael Walsh: Yes. I'd say that the trend continues. Ontario has been softer. And again, the flyer distribution in Ontario is really soft and BC has been soft. Martin Landry: Okay. And then maybe lastly, my last question. I know you mentioned that -- in your opening remarks that the story is not about store openings. But I was just wondering, do you have any plans to increase your network across your banners in the next 12 months? Michael Walsh: I would say we don't have anything pending, Martin, but we do have a focus for Leon's in BC. The challenge has been inventory of retail sites. And to be honest with you, it's the leasing cost in BC. There's just no inventory. The Brick continues to focus on the East Coast, but we don't have anything pending. We've got the one store in Welland that we're building. We're probably going to open that in the spring of 2027. Victor Diab: And Martin, just to build on Mike's comments. We've seen a lot of good success with a couple of the new renovations with The Brick opening up in Richmond, we released the release in Kelowna, and we're seeing a lot of good success with some of those renovations. So we're keeping a close eye on that and it's something that we'll look to do more of. Michael Walsh: I think the last thing on that is we're really excited because we opened up a store within a store in Richmond, BC with Appliance Canada taking up about 10,000 to 12,000 square feet of Leon store, and we're seeing some good success there. And because Appliance Canada is generally in Ontario, they've got a lot of commercial customers in the East and West. And so we're going to do that as a bit of a test and it may be something that we can do on a broader scale. Martin Landry: Okay. That's helpful. And just to be clear, how many renovations have you done year-to-date? Victor Diab: I would say we've done about 3 major renos year-to-date. Operator: Your next question comes from the line of Jim Byrne with Acumen. Jim Byrne: Just maybe on gross margin side. I appreciate the color, Victor. Margins were up about [ 80 ] basis points this quarter and kind of averaged about [ 80 ] so far this year, up over last year. Is that a number that you would kind of expect to continue for the fourth quarter and kind of foreseeable future? Or are there moving parts there that might put some pressure on those margins in the coming quarters? Victor Diab: Jim, thanks for the question for sure. We're very happy with the margin performance year-to-date. A function of 2 things, really very strong furniture mix, that being our highest margin category. When you sell more furniture, you're also selling more furniture warranties, which tends to be accretive to margin as well. And the teams have done a really good job on the rate front from focusing assortment, getting us better leverage with our suppliers, flowing goods, slightly lower freight rates year-over-year. So there's a lot to that. We don't really comment on a quarter-to-quarter basis. We tend to be very disciplined historically around managing within a certain range. So that's a focus for us. We think we're going to end the year strong overall holistically. There may be puts and takes in terms of investing some margin back into certain categories. But over the full year, we expect to hold on to some of those gains for sure. And going into next year, again, it's about continuing to edge our margin rate forward. But there will be -- it's never going to be a linear -- just a straight line, there will be ebbs and flows in terms of when we choose to invest that back into the categories. Jim Byrne: Okay. That's great. Maybe if you could give any updates on kind of the warehouse initiatives and some of the optimization that you've been working on? Michael Walsh: We're still continuing to test and tune and learn. As we spoke about in the previous quarter, we migrated the Mississauga warehouse to surrounding stores and we're still measuring the KPIs on that from customer experience to the time between written-to-delivered. So still going down that path and analyzing that and we may end up doing another test in the first or second quarter of '26. So stay tuned. But definitely, it's not going to be a short-term project. It's going to be something that's more long-term figuring out how many warehouse stores do we still need to keep and what that looks like. So stay tuned on that. Jim Byrne: Okay. And then maybe just, Victor, you kind of mentioned the maintenance cap at $35 million. It looks like you're kind of tracking towards that for this year. It doesn't sound like next year will be much different given the lack of new stores, et cetera. Is that fair to say for 2026? Victor Diab: I think that's fair from like the core CapEx target in line around $35 million to $40 million. I think any strategic initiatives that we do end up moving forward with may be over and above, but we'll keep you posted on that. But I think that's a good target to have in mind for now. Operator: Your next question comes from the line of Ahmed Abdullha with National Bank Capital Markets. Ahmed Abdullah: Q4 seems like an easier comp given the inventory dynamic that took place last year. Are you better prepared from an inventory standpoint to drive sequentially improving growth in 4Q? Victor Diab: Ahmed, I appreciate the question. Thanks. A couple of things that we planned going into Q4, and we thought about, obviously. One , being in a much stronger inventory position, which we are and the teams have done a really good job there, and it's paying off for us. And two, we were hopeful that 1 year later, the Canada Post challenges would be behind us, right? So that unfortunately has kind of been a storyline early into the quarter. Now we will comp being -- having a Canada Post strike later in the quarter but that's certainly going to be an impact there as well. So I think there's different puts and takes. That being said, we feel really well positioned to continue competing for value in the space, but there's a couple of considerations there for you in Q4. Ahmed Abdullah: Okay. That's fair. And just -- I know you've mentioned the customer traffic and basket sizes and conversion rates have improved, but I would like just you to touch a bit more on that. Can you give us some sort of magnitude of how much of this quarter's results was driven by perhaps pricing versus volume or, any more specific color around these factors would be appreciated? Victor Diab: Yes. I think you would have seen sort of our furniture performance was really strong in the quarter. I think that's just really driven off of volume and just being really well positioned for value. I think we've got scale advantages there and we've done a really good job around focusing our assortment and being sharp on pricing and promo optimization. So I just think it's more around our go-to-market strategy. To Mike's point, in-store traffic is softer, but we're seeing really good traffic to and engagement on our websites that are ultimately leading more qualified shoppers into our stores and allowing our folks to drive higher closing ratios. And then, of course, the ancillary businesses along with that, like I mentioned, you're selling more furniture, you're selling more furniture warranty and our attachment rates are going up inside our stores. So it's a function of a bunch of different factors. It's not really on price. We're very focused on being sharp on price and being sharp on our promo strategy, Ahmed. But that's the extent of what I could provide there. Ahmed Abdullah: Okay. That's fair. And one last one for me. Your comments of growth rates like moderating in 2026. Are you still budgeting some revenue growth or more of a flat to down next year? Victor Diab: Yes. Like I think -- it's a interesting question, Ahmed. Like as you think about 2026, right, we never go into a year thinking we're not going to grow. Our mindset is always to grow. But we do think about it more along the lines of a 3 to 5-year horizon, have we sustainably grown the business from a top line and bottom line perspective over that period. And that's what we go -- that's our primary goal is to continue to win share. We still feel really well positioned to compete for value. That being said, a couple of considerations as you think about 2026. We mentioned our commercial business has been on a tremendous run. That's going to normalize a little bit just given the challenges with the development community. So that's something that we're being mindful of. And obviously, at this stage, we're probably going to comp some pretty strong furniture numbers as well. So it's another consideration. But do we believe going into the year we can drive growth? That's always our mindset. But of course, we have to be realistic around some of the considerations I just mentioned. Operator: Your next question comes from the line of Ty Collin with CIBC. Ty Collin: Great to hear from you guys in this format. So just for my first question, can you kind of speak to the different competitive dynamics within your key product categories? It seems like, obviously, mattress and electronics were more promotional, but maybe furniture a bit less so. Can you just help us understand what's going on there? And is the promotional activity being driven by any specific subset of competitors worth noting? Victor Diab: Yes. I mean it's a great question. Look, like we -- over the last couple of years, we've had a really strong focus on the furniture category and being able to position ourselves for value, right? And then -- and we've been seeing really good traction there. I think as it relates to the other categories, we have to be balanced in our approach. So in some cases, it is highly promotional, for example, in retail appliances across the board. More people are doing buy more, save more and things of that nature. That's always been done. It's just being done at a greater magnitude in terms of our observations. And then, as it relates to mattress, the mattress category, again, very promotional, more promotional than we've seen in the past, and you've got a lot more online players as well in that category. So we're being selective in terms of, in some cases, whether we want to participate in being more highly promotional. In some cases we're choosing not to, to protect margin. And just given how our overall business is performing, we're kind of -- we're satisfied not doing that. And in some other cases, we've identified opportunities where we can better position ourselves moving forward. So I think it's a combination of those things, Ty. Michael Walsh: Yes. And I think just to build on that, because there's no other comp we can really look at in Canada, we think we're winning share in the furniture space, although it's a very fragmented -- the competitors are very fragmented. But definitely, we feel like we're winning share there. Ty Collin: Okay. Got it. Yes. I appreciate that color. And then shifting to the commercial business. So yes, I appreciate that you're trying to diversify that business into the replacement channel. But as you alluded to, condo completions really are kind of expected to fall off a cliff after 2026, should probably be a headwind for you guys, which you mentioned. But I guess I'm just wondering, at what point do you think you might be able to sort of fully offset the lower new build business with replacement business? Or should we kind of expect the commercial business to ultimately take a step back after next year? Michael Walsh: Yes, there'll be softening, especially in the Toronto market as it relates to condo, but we still do a lot of housing. We do things other than just condo. And I think we started the thing about 12 months ago migrating to more of the property manager, and we're seeing success at both MidNorthern as well as Appliance Canada. And that's the other reason why we did the store within a store of Appliance Canada. They've got customers in Ontario that are also out West and in the East. And we're feeling pretty strong that they can build on the commercial business as well. So not sure if I can answer the question on timing, but definitely, we started this some time ago. And we think it will be soft in '26 and '27 and then building back up in '28. But definitely, we've been exploring options about how to compensate for any shortfall in the commercial business. Ty Collin: Okay. Got it. And maybe if I could just sneak in one more and kind of press you guys a little bit on capital allocation. So, I mean, the net cash balance does continue to climb up. I know you've talked about the need to hold on to some of that for maybe potential real estate-related investments and just to remain opportunistic. But given that the time line on some of those more opportunistic investments are ultimately unclear. I mean, at what point would you get more comfortable looking at stepping up, returning some of that capital to shareholders either through a special dividend or buyback activity? Victor Diab: No, I appreciate the question. And yes, you kind of hit it on the nail, right? So we really like our cash and liquidity position right now. It is, by design, building up this year to help us navigate any volatility in the market, but also to be opportunistic. And when we say opportunistic, like we're actively exploring what that could mean for us. So we typically go through our capital allocation funnel around, obviously, first and foremost, investing in our core business, evaluating strategic opportunities, whether that relates to the core of our business or potential M&A opportunities. And then we go down the funnel around returning capital to shareholders. In Q2, we increased our dividend by 20%. And we have these conversations with -- as a management team and with our Board all the time. And when we built that -- look, we're sitting on too much liquidity and there isn't something imminent. We're not afraid to return capital to shareholders. We've been very consistent with that strategy over many years. So it's just continuing to go through that decision process. At this stage, we feel good about where we are, but we'll keep you posted otherwise. Operator: Your next question comes from the line of Ryland Conrad with RBC. Ryland Conrad: Congrats on the first conference call. So maybe just continuing that conversation on M&A with the balance sheet in a really healthy spot. Can you maybe just provide an update on the criteria you're looking for and target? Michael Walsh: Yes. I would say that we've been reviewing any M&A opportunity for some time. I think our criteria that we look at is, we look at a company that has strong management team, runway for growth, and then lastly, being able to dovetail part of our ecosystem, meaning warranty and insurance into that business. So that's kind of the criteria we're running with. And again, we're very opportunistic. So we're not just going to do something for the sake of doing it. We're going to do it because it's in the best interest of growing our business. Ryland Conrad: Okay. Great. And then just on the Canada Post strikes, given they're on more of a rotating schedule this year, I believe, are the impacts that you're seeing on flyer distribution, I guess, less meaningful compared to last year? Victor Diab: I -- Yes -- Not -- I would say it's very tough to kind of say because it's just as impactful in terms of being able to get our flyers out. We have to -- when this strike hits, we have to think about alternative routes, right? So whether it's a full strike or a rotating strike, we have to think about, okay, what are different ways we can either get the flyer out or reallocate some of our marketing funds. So, it's a similar impact this year versus last year in terms of just our ability to get the flyer out. Last year, there was a lot of noise just given the core of the holiday season, our inventory position at that point in time. But like we commented last year, we definitely saw traffic to our stores moderate over that period of time and pockets within our network and regions be more impacted than others depending on our ability to get flyers out. Now we're obviously not just sitting on our hands and the teams are working really hard to try and reallocate those marketing funds. It's just -- it's not going to be as high of an ROI relative to the flyer channel, because each channel has its kind of own unique ROI. So if you put an extra dollar in TV, for example, it's not going to do as much for you as $1 in a flyer just given there's diminishing returns with each of the channels. So that's the dynamic that we're competing with. Ryland Conrad: Okay. Very helpful. And then I guess just last for me. Can you talk a bit to your insurance business and just how conversion rates have been trending following the expansion into new categories earlier this year? Victor Diab: Yes. I mean if you -- our insurance business has done really well this year. I think if you look at our year-to-date growth for the insurance business, it's up double-digits. We feel really good about our attachment rates in stores, and frankly, just the traction we've gained growing that business outside of our own ecosystem. The team continues to work really hard to increase penetration of products with some of our existing partners. For example, you'll start off on a typical -- putting insurance on a typical loan product, then you'll talk to some of our partners around putting an insurance product on a mortgage, et cetera, et cetera. So we're deepening some of those relationships with some of our partners and we continue to explore new partnerships. So we feel really good about the attachment in store and what we've seen this year and our ability to grow it outside our network. Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's call. Thank you all for joining, and you may now disconnect.
Jason Lettmann: Thanks, everyone, and welcome to our Q3 2025 results. I appreciate everybody spending some time with us this morning, and I'm looking forward to this update. On Slide 2 here before we start our presentation of housekeeping here are our forward-looking statements for your review. So on the next slide, Slide 3 here, here is the agenda and our plan for today. We're going to be providing an update on our key accomplishments in the third quarter of 2025. Most notably, we are very excited to share with you the data set that will be presented at SITC this weekend from a preplanned analysis of our ASPEN-06 trial that showed CD47 expression as a key predictive biomarker for increasing durable clinical response with evorpacept in HER2-positive gastric cancer patients. So our goals for today are most importantly to share these detailed results with you as we believe this data set now clearly validates the role of CD47 in HER2-positive cancers. We will then give you a sense of how this data now impacts our development strategy for evorpacept going forward. We will also be providing an update on our novel ALX2004 EGFR-targeted ADC, which is now in the clinic. Today, we are also excited to be joined by Dr. Peter Schmidt from Barts Cancer Institute in the U.K., who is a key opinion leader in breast cancer and investigator in our evorpacept Phase II breast cancer study. He will be presenting his views on evorpacept data and its potential within the current treatment paradigm for HER2-positive metastatic breast cancer. Then our CMO, Barb Klencke, will provide an update on our novel EGFR-targeted ADC, ALX-2004, which is currently dosing patients in our Phase I trial. Now on Slide 4. In the third quarter, we made significant advances in both evorpacept and ALX2004 clinical programs. We again are excited to present the full data at SITC that is demonstrating the potential of CD47 expression as a predictive biomarker and highlight a clear opportunity to now identify patients who are most likely to achieve the greatest benefit from evo. As Barb will present in detail in our clinical section in this analysis, we saw that patients with high CD47 expression derived the greatest benefit across all key efficacy markers, response rates, duration of response, median PFS and overall survival from evorpacept versus those with low expression. The data is very clear as the magnitude of benefit across many of these metrics was double or even triple those observed in the control arm and also clearly compare very favorably with the large benchmark studies in second-line gastric cancer. Most importantly, these results support the potential to pursue targeted oncology approach to additional tumor types with evo. And given the broad overexpression of CD47 in both solid tumors and heme malignancies, it gives us a real opportunity to really focus evo now as a targeted IL therapy. Our Phase II clinical trial in breast cancer, which is designed to pursue a CD47 and HER2 biomarker-driven strategy based on this strong data is on track to dose its first patient this quarter. And as we've discussed, evo has the potential to represent the first and only option for metastatic breast cancer patients who overexpress CD47, which we know can lead to worse outcomes and a poor prognosis for these patients. And with our second pipeline product, our novel EGFR-targeted antibody, ALX-2004, which is a highly differentiated ADC, we presented preclinical data and design of our Phase I trial at the Triple Conference a few weeks ago. So we're excited to announce today that we are currently enrolling patients in the second dose cohort. We're rapidly clearing the first dose cohort in this Phase I trial. Turning to our financials quickly. We reported a total cash balance of $67 million, and that cash is expected to provide us runway into the first quarter of 2027, which positions us to achieve the value-enhancing data milestones for both ALX2004 and evorpacept that we have coming next year. Now turning to Slide 5. It has been very well established that CD47 is widely overexpressed across almost every type of cancer. And it is also clear that CD47 overexpression matters as it is clearly a negative biomarker for patients. So when you look at research in CD47 over the last decade plus, it is a very strong foundation that CD47 is clearly a negative prognostic biomarker. And what you can see here is a meta-analysis of 38 cohorts across 17 publications, which includes over 7,000 patients. And there really is no question that CD47 is clearly associated with shorter survival and worse outcomes. And you can see on the right, the wide range of tumor types where this has been established. Now turning to Slide 6. And as a reminder that during our Q2 call just a few months ago in August, we presented the top line data, which support that CD47 overexpression is a clear predictive biomarker for response with evorpacept in HER2-positive gastric patients. In this analysis, patients with both confirmed HER2 positivity and CD47 high expression had a dramatic response to evorpacept as compared to those in the control group who did not have vivo. And as you can see here on the ITT population, we saw a strong response of a 41% ORR in the evo arm versus 27% ORR in the control arm. And if you look at the data now in patients that clearly have CD47 high expression, there is a magnitude of benefit for those patients where we had an ORR of 65% in the treatment arm versus 26% in control with a nominal p-value of less than 0.05. Now as you can see on Slide 7 and what we're very excited to share with you now and at SITC later today, this strong ORR benefit with evorpacept in combination with TRP and CD47 high patients was also reflected and translated well to DOR, PFS as well as survival as it's clear that patients who overexpress CD47 and retain HER2 expression is driving the effect here. This is very important as this clearly validates EVO's dual mechanism of action. And again, this is a second-line plus gastric population, which has historically been a very tough cancer to treat. So in addition to the ORR benefit, which had a delta of almost 40% versus control, the median duration of response here for those patients is over 2 years, which is more than triple the control. The median PFS was over 18 months in the evorpacept arm versus just 7 months in control with an impressive hazard ratio of 0.39. And then we were also pleased to see these gains further translate to a benefit to overall survival where we saw a median OS of 17 months with evo versus about 10 months in control and also a strong hazard ratio of 0.63. Barb will walk through this data in more detail and the full data set will be shared at SITC here soon. What is clear is that this data shows the potential for evorpacept to drive really substantial benefit for these patients with high CD47 expression. On the next slide, this just shows the focus set of milestones that we're driving to now. In summary, we're laser-focused on these 2 programs. First, driving evorpacept into ASPEN-Breast, which is our study investigating patients post in HER2 and again, focused on CD47 high and understanding the impact of that biomarker. We continue to execute well against the milestones that we've communicated in the past and are anticipating first patient in Q4 of 2025, with interim data expected Q3 2026. ALX2004 also remains on track and continues to proceed very well. We dosed our first patient in August of 2025, and we continue to expect initial safety data first half of 2026. Turning to the next slide, and in summary, before I hand the call over to Barb, we had a strong quarter, both in terms of execution, continued tight discipline around our capital and are excited about the key value catalysts for ALX in 2026. And as you can see here on Slide 9, this is a snapshot of our current clinical pipeline. As we have communicated previously, we are pursuing a focused development strategy for evo in combination with anticancer antibodies, given the consistent proof of concept that we have seen in various clinical studies with different monoclonal antibodies, and this data here today further builds on that. In addition to our HER2-positive breast cancer program with a CD47 biomarker-driven approach, ALX2004, again, our EGFR-targeted ADC continues to progress well, and we are also very excited about our partner program with Sanofi Sarclisa in multiple myeloma, which is now in dose optimization phase. So next, we'll turn this over to Barb, who will take over and provide more details on the evorpacept CD47 biomarker data presentation coming here at SITC. Barb? Barbara Klencke: Thank you, Jason. I will start by describing evorpacept's mechanism of action. CD47 has broadly overexpressed on cancer cells as a means of abating the immune detection. And it does so by sending a don't eat me signal. Evorpacept is a fusion protein, and it's designed to block that signal. Evorpacept's Fc region is engineered to be inactive and since it's particularly effective when given in combination with an anticancer antibody such as Herceptin. The active Fc domain on the anticancer antibody can then trigger very effective phagocytosis, which otherwise would have been suppressed by the CD47 signal. Slide 12 shows that the evorpacept's approach to blocking CD47 is different from the conventional approach pursued by other CD47 targeted agents. While CD47 is overexpressed in cancer cells, it is also expressed in healthy cells, such as red blood cells. The conventional approach to block CD47 with an antibody that then also binds to macrophages through an active Fc has caused significant toxicities in some patients, and thus, this approach has largely failed. In contrast, the evorpacept approach using an inactive Fc spares normal cells and our safety database in more than 750 evorpacept-treated patients confirms the safety of this approach. Slide 13 shows the design of the ASPEN-06 gastric study that Jason has introduced earlier. We enrolled 127 second-line or third-line HER2-positive gastric cancer patients, all of whom had received prior HER2-directed therapy. Patients were randomized to evorpacept, trastuzumab, ramucirumab and paclitaxel or the TRP alone. The primary endpoint was objective response. Importantly, because there can be loss of HER2 expression following prior HER2-directed therapy, we wanted to look beyond the HER2 status as diagnosed on archival tissue. Based on the known mechanism of action for evorpacept, our drug is not going to work as effectively if HER2 is not overexpressed on the cancer cell surface. To this end, ctDNA was obtained at baseline in all patients. And in addition, 48 patients underwent a biopsy, either at study entry or at some point following their prior HER2-directed therapy. In total, 95 patients or 75% of the enrolled population were confirmed as having retained HER2 positivity by either the ctDNA or on fresh biopsy. 90 of these 95 patients were evaluable for CD47 expression in tumor cells using either archival tissue or where available, a fresh biopsy sample. High CD47 expression based on a cut point of IHC3+ staining in at least 10% of the tumor cells was present in 48% of these 90 patients. The expanded results of this preplanned exploratory analysis of efficacy by CD47 expression level in patients who retained HER2 positivity is the focus of the data that I will review with you today. Slide 14 shows the objective response rate in key subsets. As we've previously reported, in the 95 patients who retained HER2 positivity, we see a robust response rate of 48.9% for the avorpacept CRP arm versus 25% in the control arm. And in the subgroup by CD47 expression level, evvorpacept produced a response rate of 65% compared to 26% in the control arm amongst patients with the high CD47 expression levels. The response rate in the control arm was consistent across CD47 expression levels and lower than that in the avorpacept arm in both the CD47 and CD47 -- in the CD47 high and CD47 low groups. Moving to Slide 15. I'm now displaying the duration of response in these same subgroups. Again, we see the potential of CD47 expression as a powerful predictive biomarker for evorpacept benefit. The duration of response in all HER2-positive patients, irrespective of CD47 expression was 15.7 months for evorpacept plus TRP compared to 9.1 months for responders in the control arm. In the CD47 high group, the duration of response was 3x longer for patients in the evorpacept trastuzumab RP arm compared to the control with a median duration of response of 25.5 months versus 8.4 months. In the CD47 low group, evorpacept TRP had a median duration of response of 11.2 months compared to 12 months for TRP. In Slide 16, we are now showing the progression-free survival in patients with confirmed HER2 positivity and high CD47 expression. The hazard ratio is 0.39 with a median PFS of 18.4 months for the evorpacept trastuzumab RP arm, which is more than double the 7 months seen in the TRP alone arm, again, suggesting the potential for CD47 expression as a powerful predictive biomarker for evorpacept benefit. Slide 17 shows a similar pattern of longer survival observed in the HER2-positive CD47 high evorpacept arm. Median overall survival was 17 months compared to 9.9 months for the control arm with a hazard ratio of 0.63. All of these data being presented at the SITC conference this week are based on mature follow-up. The median follow-up for survival, for example, was 25 months. Slide 18 shows some of the various cut points that we examined for CD47 expression based on the range and strength of IHC testing. As shown here, we look at the median -- we looked at medium or high intensity staining defined as IHC 2+ and 3+ in at least 10% and in at least 25% of tumor cells. And we also looked at high-intensity staining or IHC 3+ in tumor samples with 5% or more or 10% or more of cancer cells expressing that high-intensity staining. The prevalence of CD47 high across these ranges from 40% to nearly 60% of HER2-positive patients depending on the cut point. The key takeaway from this slide is that we see consistent improvements in response rates, PFS and OS in the evorpacept treatment arm, irrespective of the cut point for CD47 expression. On Slide 19, I'm showing a cross-trial comparison of our evorpacept efficacy data in patients with retained HER2 positivity and high CD47 expression relative to benchmark trial data in HER2-positive gastric cancer. With the usual cross-trial comparison caveats in mind, evorpacept data directionally compares very favorably to recent ENHERTU data from the DESTINY gastric04 study in the second-line setting. In that trial of nearly 500 patients published earlier this year in the New England Journal of Medicine, those patients required confirmation of HER2 status by fresh biopsy following a trastuzumab-containing regimen, and they randomized these patients to ENHERTU or to RP as a control arm. As effective as ENHERTU was in the second-line setting in that trial, our second and third line evorpacept data generated in patients with high CD47 expression, a known negative prognostic biomarker appear much better. Turning our attention now from gastric cancer to HER2-positive breast cancer. Slide 20 introduces a Phase Ib/II trial in HER2-positive breast cancer patients conducted by Jazz that evaluated the safety and efficacy of evorpacept plus zanidatamab in patients who progressed on prior HER2-directed therapy. These patients were heavily pretreated with a median of 6 prior lines of therapy. In 9 patients confirmed to retain HER2 status by central assessment, the response rate was 56%. The median duration of response for that group ranged from 5 months, 5.5 months to nearly 26 months with the median not reached and the median PFS being 7.4 months. These data compare favorably to benchmark data, including, for example, the SOPHIA trial, a predominantly second and third-line HER2-positive breast cancer trial, which produced a response rate of 22% for MARI2'etuximab. Moving to Slide 21. We've now demonstrated in these 2 studies, the potential of evorpacept to engage the innate immune response, validating the mechanism of action of evorpacept given in combination with anticancer directed antibodies in both HER2-positive breast cancer and in HER2-positive gastric cancer. This gives us strong conviction of evorpacept's potential and its path forward in the HER2-positive breast cancer setting, which we'll talk about next. Slide 22 describes briefly the opportunity that we see for evorpacept in breast cancer, which now has a high probability of success, having been derisked by the 2 positive data sets in 2 different HER2-positive settings. A CD47 HER2-positive biomarker-driven approach with evorpacept enables a highly targeted strategy, potentially addressing the high unmet medical need in the evolving breast cancer landscape, which includes patients who have now progressed on ENHERTU. It is now my distinct pleasure to introduce Dr. Peter Schmidt, a Professor of Cancer Medicine and Center lead at the Center of Experimental Cancer Medicine at Barts Cancer Institute. He's a well-known global lead investigator on multiple ongoing Phase III trials in metastatic and localized breast cancer. Just 2 examples of trials with immunotherapy agents he is a global lead investigator on the pembrolizumab KEYNOTE-522 study and the atezolizumab IMpassion130 study. With that, I turn this over to you, Peter. John Mills: Thank you, Bob. The treatment options for patients with metastatic HER2-positive breast cancer are currently undergoing. I would also say, a dramatic change. We obviously have seen a very active drug moving initially into second and third line treatment with trastuzumab deruxticam, but everyone is aware of the data that now placing T-DXd increasingly in the first-line setting. And I think that's where the drug will ultimately end up. That is fantastic from a patient perspective. We have a very powerful new first-line treatment option. But the challenge that comes out of this is there is no standard of care for patients who have been treated with trastuzumab, the sequence we had previously that patients would get a treatment called TPH, first line with trastuzumab, pertuzumab and second-line T-DXd and then third line other options has just been turned upside down. So at the moment, there's a number of options we can choose from, but none of those options have actually been specifically approved and tested in patients with prior T-DXd therapy. So the options we have to choose from is tucatinib trastuzumab in combination with capecitabine. PD-1 is still an option. Some investigators and clinicians may give chemotherapy and trastuzumab HER2 TKIs play a smaller role and increasingly are less and less being used. But of course, we're also hoping to have other HER2-targeted therapies. So there is a significant unmet need for patients with HER2-positive breast cancer who have progressed on or after T-DXd. And I can see that well percept has a possibly exciting role to play that has demonstrated activity in patients post trastuzumab deruxtecan in combination with other HER2-targeted agents. Now if you look at what we would hope to see in such a situation, our challenge is to bring in new agents that can overcome the resistance to T-DXd. The need for agents in the HER2-positive breast cancer space at this point is to find novel agents ideally bring a different mechanistic approach to target HER2. And we can see for evorpacept that it has a different mode of action by killing cells via enhanced ADCP versus the classic payload-based ADCs or other drugs we are currently using. The second thing we want to achieve is we want to have a drug that obviously has demonstrated activity post HER2-directed treatment after ADCs and after monoclonal antibodies. And at the out of the room here is always trastuzumab deruxtecan. Now we've seen from the data in the gastric study, but also in some of the HER2 pretreated breast cancer studies that evorpacept has shown activity post trastuzumab in gastric cancer and following up to 4 more lines of patients with HER2 breast cancer with prior HER2 treatment. We would like to have a treatment that can supplement and enhance the current standard of care rather than replace the backbone treatment. And again, if you look at the way how evorpacept works, it is really designed to work synergistically alongside the key therapies and the key backbone, obviously, for HER2-targeted therapy is trastuzumab or similar antibodies. We are keen to have a drug that's safe and safer than ADCs. We have to learn over the years ADCs have quite substantial possible toxicity, which is obviously driven by the payload as it is ultimately targeted chemotherapy. And the safety profile of evorpacept is very different to what we know and seems to be much more favorable compared to some of the ADCs. Finally, having immunotherapy agents that can really drive what we see sometimes in HER2-positive breast cancer, this long tail we as clinicians often go on about that is what ultimately patients need to have a long-term benefit in survival. And we feel that there's an immune component to that. We know already that there's a small percentage of patients who have very, very long survival on HER2 target therapy. But enhancing that immune effect by giving a CD47 targeted drug can possibly increase the tail for patients, that is at least my hope. If you look at CD47 as a selection strategy, and again, I think that is really important for this program is that we're not going into this blindfolded. We actually have a very powerful biomarker. And as you have seen from the gastric data, it's a very clearly better signal for this concept in patients with high CD47 expression. Now as you can see, there's a number of breast cancer studies that have looked into this, and I'm not going to go into each of those trials and the scoring methods in too much detail. The bottom line is about 1,000 patients, and they're relatively consistently showing a CD47 high expression rate of around 50%. So 54% is the average if you go through those trials. And that's a substantial proportion of patients and actually allows us to drive that program forward without having a target group that is ultimately too small to select for clinical trials. Now a couple of preclinical data, I think, are really interesting. Now preclinical data, you may say it's a little bit nerdy, but I think it's really helpful for us to understand the biology. So if you look at this slide on the left side, you see the CD47 expression in HER2-positive breast cancer cells compared to HER2-negative cells. Green means low expression, red means high expression, this black or blue color is moderate expression. And it's very obvious to see that we have a higher percentage of CD47 expression in HER2 high disease. If you move to the right side of the slide, again, probably even more important for what we're aiming for is this is -- this compares the CD47 expression in primary disease on the right side and in recurrent disease, of pretreated disease on the left side. And again, it's very obvious that we have more positivity, CD47 positivity in tumors and therefore, in patients who have prior HER2 treatment and have recurrent HER2-positive breast scans. And this is exactly the target population we are aiming for. If you then look at emerging data and again, cell line-based data for cell lines that were treated with trastuzumab deruxtecan. And as I said earlier, this is the new standard of care in the first-line setting. So our prediction for the future is all patients will have T-DXd pretreatment. And we have to focus on patients who have persistent to T-DXd. As you can see here, in orange, these are cells that have been T-DXd pretreated in purple DM1 and then in white is ultimately controlled. And it shows the percentage or the number of CD47 positive cells. And as you can see very, I think, impressively is that we have a markedly higher expression of CD47 in cell lines that were prior exposed to trastuzumab deruxtecan, and that is the target group we are aiming for. So the target population is very clearly a substantial population of patients with HER2-positive breast cancer. The population is probably even bigger in patients who have prior CD47 pretreatment. But it also may be one of the ways these tumor cells evade the ADC treatment effect and therefore, may be a really fantastic opportunity for us to target this clinically. Now the clinical trial that is ongoing, the ASPEN trial you're very much aware of is, in my opinion, serves one key focus. So as a clinician, I have asked that question before, I'm keen to see this move forward into a Phase III as quickly as possible because we know it works. We know what the target population is, and we know there's a huge need post T-DXd. But what we don't know exactly is how to do the statistics for a Phase III trial by having the exact response rate at PFS and other endpoints, which we obviously need to do to size up and design the Phase III trial properly. So this trial, therefore, is a nonrandomized Phase II trial in patients with HER2-positive metastatic breast cancer with measurable disease with prior treatment with trastuzumab deruxtecan and are then offered treatment with evorpacept in combination with trastuzumab and patients of physician's choice chemotherapy. Very pragmatic design. This is the real world out there. But what we want to learn from this trial is really how -- what the response rates are in patients who are ctDNA positive for IL-2, but also what the duration of PFS overall survival is and in patients with CD47 high, but also CD47 low tumors to get further confirmation from the biomarker data we have already obtained from gastric cancer, which ultimately allows us to fine-tune the Phase III design going forward. Thanks, everyone. I would like to pass back to Barb, please. Barbara Klencke: Thank you, Peter. Well, let me wrap up this section with a brief breakdown of the addressable patient numbers in the core markets. As you can see, there are roughly 48,000 breast cancer patients in the second plus line setting who are HER2-positive. Of that, we believe that at least 60% to 80% of these patients will retain HER2 positivity following prior therapy. Of that group, 50% to 70% will have high CD47 expression. As Peter highlighted, there are a number of publications to support that CD47 overexpression in HER2-positive breast cancer patients will be upregulated post ENHERTU treatment. We believe that this represents approximately 20,000 addressable patients who are both HER2-positive and CD47 high. If you boil this down and use conventional estimates on pricing, we get to roughly a $2 billion to $4 billion market opportunity, again, just in patients that are CD47 high and HER2-positive, representing a significant opportunity for evorpacept. On Slide 31, I now want to provide a quick update on ALX2004, our EGFR antibody drug conjugate program. As shown on Slide 32, our company's first ADC, the ALX2004 molecule was a result of rigorous internal drug design process. Our goal is to create a best and potentially first-in-class drug designed to maximize the therapeutic window and to overcome the historic toxicity challenges that others have encountered in targeting EGFR with an ADC. With ALX2004, we have optimized all 3 components to do this, including the payload, the linker antibody to create a truly novel molecule against a very well-validated target. ALX2004 uses matuzumab-derived EGFR antibody selected to minimize skin toxicity and to maximize the therapeutic window. Its binding epitope is distinct from the U.S. FDA-approved EGFR antibodies such as cetuximab and panitumumab. Additionally, ALX-2004 has a proprietary linker payload and TPO 1 inhibitor payload engineered to offer improved linker stability for on-target delivery of payload and enhanced bystander effect. At the recently concluded Triple Meeting in Boston in October, we presented preclinical data highlighting these elements in greater detail. Moving to Slide 33. Here are the preclinical data highlights. Both in vitro and in vivo animal models support impressive dose-dependent activity and a differentiated safety profile. Importantly, nonhuman primate toxicology studies did not demonstrate EGFR-related skin toxicities at clinically relevant doses, and there was no evidence of payload-related ILD in the animals. This overall profile supports our conviction that this molecule could potentially demonstrate efficacy with a manageable safety profile in patients. Slide 34 shows a snapshot of the efficacy data from our in vivo models. ALX2004 showed regression and tumor suppression across a panel of xenograft models, representing a broad spectrum of cancer types and EGFR expression levels. Notably, ALX2004 was effective in models harboring KRAS, BRAS and p53 mutations. ALX2004 shows excellent tumor suppression activity at doses as low as 1 milligram per kilogram given either once or once weekly times 3, leading to complete tumor eradication in several of the models. These results confirm the broad applicability of ALX2004 in targeting EGFR-positive cancers. Slide 35 shows the key findings from our 6-week repeat dose with 6-week recovery period in the GLP nonhuman primate tox study. All findings were minimal to moderate and fully recoverable. Thus, these data support the design of the ALX2004 study and the likely safety margin for clinical use. Slide 36 highlights our clinical development plan. We are targeting EGFR-expressing tumor types, namely lung, colon, head and neck and esophageal squamous cell carcinoma in this dose escalation and dose expansion trial. We dosed our first patient in August, and we have completed our first dose cohort at 1 milligram per kilogram without any DLT. We are currently dosing patients in our second dose cohort at 2 milligrams per kilogram. We are on track to provide initial safety data from the Phase Ia portion of the study in the first half of 2026. Our goal in this Phase Ia, Phase Ib trial is to identify the dose that optimizes safety and activity in tumor types, which we believe have the highest potential for success. These data will then set up the program well to advance into a future registration study. With that, I turn the call back over to Jason. Jason Lettmann: Thanks, Barb, and thanks again to Dr. Schmidt for sharing his perspectives on the program as a KOL in the field. Again, Q3 was a strong quarter, both in terms of execution and new data. What we're most excited about now is driving a targeted IL breakthrough in a first-in-class drug with evo as well as are very encouraged by AOX2004's fast start in the clinic and building momentum. In sum, our CD47 blocker has been successful where no other has, both in terms of its manageable toxicity profile as well as activity as we've now demonstrated efficacy in a randomized study, and we've identified an actionable and predictive biomarker for response to evo in our gastric cancer study. This further reinforces the benefit we have seen in terms of DOR, PFS and OS. And again, this biomarker is on mechanism. Going forward, we're developing a CD47 biomarker, and therefore, it is really of no surprise to see that CD47 overexpression shows such a strong impact on our data. So what this allows us to use is CD47 to select for patients in both current and future trials with the goal of replicating the results we have seen here with gastric cancer and demonstrating the same significant and transformational benefit for patients in our HER2-positive breast study. Again, there are no approved therapies for patients overexpressing CD47 and no options in late development to address this known path of evasion. So we remain focused on delivering for them. In 2004, there are also no approved EGFR-targeted ADCs. And although clearly a validated target, there remains a substantial unmet need for these patients as well. ALX2004 is off to a very strong start in the clinic, and we believe also has the potential to redefine standard of care across a range of EGFR-expressing cancers. So with that, I'll open up the floor to Q&A. Again, thank you for the time this morning.[ id="-1" name="Operator" /> [Operator Instructions] And our first question will come from Lee Watsek with Cantor Fitzgerald. Daniel Bronder: This is Daniel Bronder on for Lee. This is an exciting update, and we're curious to hear your thoughts on how to correlate the CD47 positivity that you showed on Slide 30 with the kind of CD47 expression cutoffs that you showed in the gastric data on Slide 18. What would you say is CD47 high in this context? And how should we think about the patient population that would be matching that in your trial? Jason Lettmann: Thanks, Daniel. Appreciate the question. So 30, just thinking about what we saw in breast or what we've observed in the literature versus gastric, is that the question? Daniel Bronder: Yes, basically, yes. Jason Lettmann: Okay. Yes. Well, yes, it's a great question. I think it's one we've looked into. I think what's really -- what we're really fortunate to have is a strong scientific basis behind CD47. And so what we see is really promising concordance across the 2 indications. So if you look at gastric, it was roughly 50-50 in terms of the CD47 high group. And I think then if you turn to the benchmarks, and again, this is where the strength of the science comes in, it's -- we see we have 5 different publications looking at the question of CD47 in specifically HER2-positive cancer. And again, what we see is strong concordance there, too. And if you add those numbers up, it's roughly half again. So 5 different studies supporting that around 50% of the patients will be CD47 high. And interestingly, those different publications use different clones, different methodologies, et cetera. And so yes, I think that's what gives us such conviction that this is translatable not only to breast, but frankly, a broad range of tumor types. Daniel Bronder: And if I may, can I ask a follow-up question? Jason Lettmann: Yes, sure. Daniel Bronder: How should we think about your companion diagnostic development? Are you doing that yourself in-house? Are you using the same kind of evorpacept construct? Or are you using an independent antibody? Can you shed any light on that? Jason Lettmann: Yes, sure. I mean I'll take it at a high level and then maybe ask Barb to weigh in on the path to a CDx. We've done the testing with a partner for the gastric study, plan to do the same in breast. And then, of course, as this data builds and I think as we continue to understand the right cutoff and how this translates, we'll pursue further work. But Barb, do you want to add to that? Barbara Klencke: I would just say that the assay is an IHC. It's a research use assay that was applied to the gastric data. our ongoing or our soon-to-be enrolling trial in breast cancer, the 80-patient single-arm trial will use the same research-based assay. And then we are working already with partners to think about the operationalization of the process prior to the initiation of a Phase III trial so that we will be ready for a companion diagnostic, but again, via a partner. [ id="-1" name="Operator" /> And our next question comes from Roger Song with Jefferies. Jiale Song: Very interesting data. Maybe related to the efficacy in the CD47 high population, do you have any data in your breast cancer trials with Jazz and any new data you can maybe give some comments on the CD47 high versus low? And then in terms of historical breast cancer, do we have any evidence for the CD47 high population, the traditional or the standard of care is performing less than the CD47 low population? Have you done any retrospective study as well? Because I know the benchmark is using the SOPHIA or any other HER2 chemo combo, but that's in the broad HER2 positive, not the CD47 cutoff. Jason Lettmann: Yes. No, that's -- those are both great questions, Roger. So number one, in terms of the high versus low comparisons in the zani study and frankly, broadly, I think those are great questions. So this data and the way in which it's rippling through our development plan is relatively new, as you know, Roger. So I think we're really excited about what we're seeing. It's incredibly strong in terms of CD47 high in gastric. There's no question it's driving the effect in that study. And so the natural question is where else is this working? And I think whether it's the study with Jazz or our work with Sanofi or the other studies we have going with anticancer antibodies, we're very keen to understand that. So I'd say what we know is we're seeing a 56% overall response rate in patients post ENHERTU that have seen a whole lot of HER2-directed therapy. And to your point around the margetuximab comparator, it's well north of what you'd expect. And actually, there was recent data at ESMO that supports, again, a relatively low response rate. There was a real-world study that was sub-20% in patients in terms of ORR post ENHERTU. So to see 56% is very strong. And I think your question on CD47 high versus low is one we're in the process of understanding. And then your second question on just benchmarking the data and what we see Barb had laid out the comparator with ENHERTU in the DESTINY-Gastric04 study. Certainly, if we were to line up the RAINBOW studies, to the best of our knowledge, the control arm is performing at par with benchmarks across a number of different studies. And to your question, which again is a good one, those benchmarks, we think are the best they're going to be, right? Because we know CD47 high is a negative prognostic and we know that those patients should do more poorly. And so to clear those benchmarks and compare well and then also be armed with the knowledge that those patients probably -- if we were to select from those studies, the CD47 high only patients, they would do even worse, certainly, I think, builds our conviction. [ id="-1" name="Operator" /> [Operator Instructions] And we'll go next to Sam Slutsky with LifeSci Capital. Samuel Slutsky: Just on the interims next year, both the EGFR ADC and the breast cancer program with evorpacept, curious on how many patients you're hoping to have in each of those data sets? And then just how you view a win as you think about safety on the EGFR side and then just delta efficacy on the evorpacept side? Jason Lettmann: Yes, both great questions. Thanks, Sam. I'll take 2004, and I'll ask Barb to weigh in on the breast front. I think 2004, as you know, targeting EGFR, one of the most well-validated Trode targets in oncology, there's just no question that EGFR is effective. So I think it's led to a natural question from investors and partners, and that's can you target this target with an ADC when you have a payload involved. And as a reminder, again, I think we're very encouraged by what we see in the primate work. That tends to translate very well. And so far, so good, right, to clear 1 mg per kg quickly, I think, is a strong start at already a relatively high dose and now on to the next cohort, which, again, I think is moving fast is what you want to see. So as we go into the next year, early next year in terms of what we'll share, I think it's it depends, right, which is the reality of a dose escalation study. I think our goal is to answer the safety question as best we can in a Phase I and then put up data that will answer that. And again, the study is marching very well here. And I think we feel real confident that if this continues, of course, we'll be able to share something going into early next year. And then on the breast front, in terms of benchmarks, Barb, do you want to weigh in on that one? Barbara Klencke: Yes. I think, Sam, thank you. I think you were asking what might our expectations be both for number of patients as well as the bar. The bar I'll start with. There's a lot of data with trastuzumab and chemotherapy, which really is the backbone upon which we add evorpacept in our trial. Chemotherapy, trastuzumab at best will have about a 20% response rate. Interestingly, there was new data coming out of ESMO looking at the post-ENHERTU setting and response rates continue to drop, not unexpectedly. And as we noted, our trial will enroll all patients post ENHERTU, where we do anticipate that CD47 overexpression becomes part of the mechanism of resistance, we attack that directly, and we anticipate having good outcome data in our evorpacept trial. So I think the benchmark is going to be in the range of 15% response rates. Again, 20% might be the upper bound, but with the combination of the 2 things, the poor prognostic effect of CD47 as well as the evolving standard of care and the fact that there really isn't anything that has shown up well post ENHERTU really bodes well for us. What do we expect in our bar? I think doubling that would be nice, 35% to 40%. We certainly in our gastric data that I showed you in the gastric setting did even better, and we anticipate that the opportunity is there to do quite well, but I think we would be very happy with a 35% to 40% response rate in our breast trial. [ id="-1" name="Operator" /> And this now concludes our question-and-answer session. I would like to turn the floor back over to Jason Lettmann for closing comments. Jason Lettmann: Great. Thanks, everybody. Really excited to share this data with you and continued good progress across both evo and 2004. So a real positive update today. And again, I appreciate the engagement and support and look forward to future updates. Thanks so much. [ id="-1" name="Operator" /> Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good afternoon, ladies and gentlemen, and welcome to Allbirds' Third Quarter 2025 Conference Call. [Operator Instructions] Now I would like to turn the call over to Christine Greany of The Blueshirt Group. Please go ahead. Christine Greany: Good afternoon, everyone, and thank you for joining us today. With me on the call are Joe Vernachio, CEO; and Annie Mitchell, CFO. During this call, we will be making comments of a forward-looking nature. Actual results may differ materially from those expressed or implied as a result of various risks and uncertainties. For more information about these risks, please review the company's SEC filings, including the section titled Risk Factors in our report on Form 10-Q for the quarter ending June 30, 2025, for a more detailed description of the risk factors that may affect our results. These forward-looking statements are based on information as of November 6, 2025. And except as required by law, we assume no obligation to publicly update or revise our forward-looking statements. Additionally, we will be discussing certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation of our non-GAAP measures to the most directly comparable GAAP measure can be found to the extent reasonably available in today's earnings release. Now I would like to turn the call over to Joe to begin the formal remarks. Joe? Joe Vernachio: Good afternoon, everyone. Thanks for joining us today. In the third quarter, we demonstrated continued progress and delivered results consistent with our expectations. We believe that great product is the foundation for revitalizing the brand and rebuilding Allbirds place in the hearts and minds of consumers. Allbirds holds a truly distinctive position in the market, one we are uniquely positioned to serve through our core principles of Comfort, Style and Sustainability. It is through this lens that we are laser-focused on returning the brand to growth and driving the business toward profitability. Since we last spoke in August, we delivered a steady stream of compelling products that consumers are clearly responding to. Enthusiasm for our new styles continues to build, and I'll share a few examples in a moment. While the majority of the new products are elevating the brand and performing well, some of our foundational franchises such as the original runner have been slower to rebuild. This underscores that rebuilding our brand perception is a process that will require sustained execution across multiple product cycles. Importantly, the positive momentum we're seeing for new products affirms that we're on the right path. It's undeniable that the products we've introduced over the past several quarters are the strongest we've delivered since the early days of the brand. The team has done an outstanding job creating a line that will serve as the foundation for years to come. One of our most successful launches this quarter has been the debut of the Wool Cruiser in September, a court-inspired silhouette introduced in a spectrum of 19 colors. To mark the moment, we teamed up with the Pantone Color Institute to launch 5 exclusive shades celebrating self-expression. What's interesting is that the most vibrant colors are selling out first. Normally, our natural tones lead in sales. But with the cruiser, it's shades like blossom and citron that are leading the pack. These distinctive colors are becoming a form of branding in their own way, instantly signaling Allbirds. Paired with a comfortable easy-to-wear silhouette and the right price point, the Wool Cruiser is clearly hitting the mark and is poised to become a key franchise for the future. Later in September, we launched our first 100% waterproof collection in 3 silhouettes. And it has quickly become another standout performer. The collection is redefining what waterproof can be, comfortable and stylish while still delivering true performance. In its first month on the market, it is exceeding expectations and proving that Allbirds can offer full waterproof functionality without sacrificing the comfort, style and sustainability people have come to expect from us. In our new Relaxed category designed for life in and around the house, we introduced a slipper collection that is a top seller today. To round out the season, we introduced the Kiwi collection this week, indoor/outdoor styles, including a mule, a clog and a low boot. They're cozy, easy to slip on and intentionally casual, exactly how people dress today. This is an additive collection that builds on our core and shows how much opportunity there is for future growth in this category for us. In the back half of the year, we aligned our marketing efforts to directly support our evolving product engine. We shifted to a steady rhythm of mid- and lower funnel marketing focused not just on driving traffic and conversion, but also on building long-term brand equity. Our program centers on 3 priorities: partnering with the right influencers and collaborators to spark awareness, highlighting product utility to drive conversion and increasing both the volume and variety of the content to accelerate growth. We are deploying a deliberate mix of traditional media, performance marketing, PR moments and brand activations, each reinforcing the other. Notable examples this quarter include our Wool Cruiser launch event with Pantone, a significant increase in influencer activation and strategic celebrity seating, all helping to create a cultural relevance and expand our organic reach. As we deliver on our product and marketing work streams, we are also focused on creating a standout experience for our customers, both online and in-store. We continue to deliver fresh new floor sets to our retail stores. And importantly, we relaunched our website in July, which transformed the look and feel of the site. Our goal is to refine the customer experience at every moment of the shopping and purchasing journey from richer storytelling on the home and landing pages to more utility and clarity on our PDPs. We're also redesigning every communication and touch point in the post-purchase experience to ensure it feels thoughtful, seamless and brand-centric. We are delivering a clearer expression of our values and a greater sense of care with every interaction. In short, we're making it easier and more enjoyable for customers to discover products and complete their purchases. With our product flywheel in motion, we are now positioned to begin executing against a renewed wholesale strategy. For spring 2026, we anticipate the brand will be available in approximately 150 specialty retail stores across the United States. And just last month, we hosted our sales meeting for the fall 2026 season, welcoming both international distributors and U.S. sales agencies to experience the new line firsthand. The collection was very well received and reinforce confidence that both domestic and international channels will contribute to growth as we move into next year. We see this expanded presence in specialty retailer as a powerful tool for increasing overall brand awareness, setting the stage for long-term growth. We see meaningful opportunity ahead. New collections like Kiwi, standout style introductions like the Cruiser are expanding our product footprint, while utility-driven offerings such as waterproof styles help us meet more of our customers' everyday needs. In the near term, we believe we are well positioned to drive improved top line trends in the fourth quarter. The updated guidance we're providing today reflects sales ranging from flat to high single-digit growth versus prior year. This outlook takes into account current business trends, an uncertain macro backdrop and our expectations for a highly competitive holiday shopping period. Throughout the season, we plan to participate in key promotional moments while delivering creative attention-grabbing messaging to engage consumers and keep Allbirds top of mind. Our teams are working with urgency and discipline to accelerate progress on the turnaround in the quarters ahead. In parallel, we are taking steps to reduce costs and recognize the need to enhance liquidity, which could include raising capital. We will consider all opportunities to maximize shareholder value. We deeply appreciate the dedication and commitment our employees have shown throughout our transformation. Thank you for the important work you're doing to reignite the Allbirds brand. We are also grateful for the continued support of shareholders. We remain focused on value creation and look forward to keeping you updated on our progress as we move forward. Now I'll ask Annie to review the financials and discuss our guidance. Annie Mitchell: Thank you, Joe, and good afternoon, everyone. We delivered strong third quarter performance with bottom line results just ahead of our expectations. Third quarter net revenue totaled $33 million, coming in at the low end of our guidance range. The results reflect strong customer response to many of our new product introductions such as the Wool Cruiser and waterproof collections as well as mixed performance from our original icons, all against the backdrop of a challenging macro environment. Gross margin in Q3 came in at 43.2% compared to 44.4% in Q3 of 2024. The year-over-year decline primarily reflects a higher mix of digital and international distributor sales as well as increased duties in our U.S. business, which partially offset higher average selling prices. For the full year, we anticipate that channel mix and tariff impacts will result in full year margin profile similar to Q3 in the low 40s. Looking at expenses, we continue to demonstrate exceptional cost management during the quarter. Q3 SG&A totaled $22 million, down $9 million or 30% on a year-over-year basis. This improvement was primarily driven by lower personnel expenses, occupancy costs, stock-based compensation expenses and depreciation and amortization. Q3 marketing expense came in at $12 million, up 19% to last year as we invested behind our new product launches. We continue to expect that full year marketing expense on both a dollar basis and as a percentage of sales will increase compared to 2024. Our strong gross margin profile and strict cost control enabled us to deliver bottom line performance slightly above the high end of our guidance range despite top line results that came in at the low end of our expectations. Q3 adjusted EBITDA loss totaled $15.7 million compared to a loss of $16.2 million a year ago. Looking at the balance sheet, we ended the quarter with $24 million of cash and cash equivalents and $12 million of outstanding borrowings under our $50 million asset-backed revolving credit facility. Inventories totaled $43 million at quarter end, down 25% year-over-year. Operating cash use totaled $15.2 million. That's up sequentially from Q2 as planned, reflecting higher marketing spend to support our new product launches as well as our seasonal working capital needs. While the financing steps we took midyear provided us with added flexibility, we are exploring options to improve our liquidity position in the quarters ahead. We are diligently managing costs and taking immediate actions to capture incremental expense savings across such areas as headcount, occupancy and technology. Moving now to guidance. We are updating our top line outlook and reiterating the midpoint of our full year guidance range on the bottom line. Full year net revenue is expected to be between $161 million and $166 million. This compares to our prior guidance range of $165 million to $180 million and includes approximately $23 million to $25 million of impact associated with our international distributor transitions and retail store closures. We're also introducing fourth quarter net revenue guidance of $56 million to $61 million, flat to up 9% versus a year ago. Looking at adjusted EBITDA, we are tightening our full year guidance range to negative $63 million to $57 million, which compares to our prior range of $65 million to $55 million. For the fourth quarter, we expect adjusted EBITDA loss to be in the range of $16 million to $10 million, a significant improvement compared to $19 million a year ago. We appreciate your time this afternoon. Now I'll ask the operator to open the call for Q&A. Operator: [Operator Instructions] The first question comes from Alex Straton with Morgan Stanley. Alexandra Straton: Perfect. Can we just focus on the third quarter sales results came in on the low end of what you were expecting. So maybe what kind of disappointed or came in lower than you thought? And then also just with the inflection in the fourth quarter that you're assuming, is that reflective of quarter-to-date trends? Or how do you get there? And then maybe even going forward, just initial thoughts on '26, -- like should we carry forward that sales growth into that year or any initial thoughts there? Joe Vernachio: Alex, thanks for your question. Yes. So it's really kind of a tale of 3 things. First, we've introduced a lot of new product this quarter, and I'm happy to say that all of that product is working and some of it is exceeding our expectations in the formal remarks, I outlined a few of those products. But we're really delighted with how the product is -- the new product is performing. Underneath that, we have some core franchises, particularly the runner, which has a significant amount of business against it that hasn't yet inflected yet. And there's more work to be done to reactivate that style and that model and/or to add -- make up some of those sales in these new products. Even though we -- it feels like these new products have been in the market for a while, it's really only been a handful of months at most. And some of these are literally just weeks. But again, they're performing as planned, if not better than planned. So we're very encouraged by the fact that we've been able to bring in a significant amount of new product that is hitting the mark with the consumer. But underneath that, the third component to it is that we can see that there are macro environment and macro events taking place that is distracting the consumer. 60% of our sales are through a telephone, on their mobile phones. And we know what the distractions are on the phones and trying to break through that with everything that's coming through to people right now is challenging. It is something that we have to continue to work towards. What we are seeing is that when we communicate to consumers either new products that are right on the mark or a promotion program that is advantageous for them, they are converting. It's in these in between times, especially when we see a macro event take place where we see the consumer get really quiet and very considered on the purchases that they're making. So those are the 3 dynamics that are going on that led us to the sales that we're at. Annie Mitchell: And looking forward, many of those trends continue over into Q4. But when we take a step back and look at how Q3 evolved, we were introducing more product each month. And so each month, results got a little bit better, and we're seeing that again as we go into Q4 and some of the early trends so far this quarter is that as we've been introducing this new product. Hopefully, you saw that Waterproof launched on September 30, and we had our Kiwi pack, that cozy at home just launched this week. So -- that is one of the main reasons behind the improvement that we are expecting in Q4 is the building as we continue to put more and more new product into the market. Another piece when we consider Q4 is the structural changes between international distributor transitions and retail door closures really impacted us in the first 3 quarters of this year. I think, Alex, we talked about this previously, the first quarter impacted us by about almost $7 million. Q2 was about $10 million. In Q3, it was about $5 million. And for the last quarter, we expect that to be about $2 million to $4 million. As we go into next year, we have 2 things in our favor. One is, again, the product momentum that we've been building this -- the back half of this year, plus all of the fantastic new product coming starting with spring/summer '26. And then those structural impacts that I just listed off for this year get smaller and smaller. And so that is why we are optimistic about 2026. Operator: And the next question comes from Tom Forte with Maxim Group. Francesco Marmo: It's actually Francesco Marmo from Maxim. I was hoping you could add some color around your inventory composition. I mean, in absolute terms, it looks like -- it looks relatively lean. I was hoping you could give us some comments around what kind of products are in inventory, especially considering all the new product launches and as we head into the Black Friday period and the holiday season, especially because I was looking at your new website, and it feels very kind of new product focus and very brand story focused. So I was wondering what is your strategy for the Black Friday period. Annie Mitchell: Great. Francesco, thanks for joining us today. I'll start out by talking a little bit about big picture inventory, and then I'll turn it over to Joe to add some color for you. When you look at our inventory, we ended the quarter at $43 million. That's down 25% year-over-year and just up slightly from last quarter. Being down year-over-year, it's really driven by 2 things. First is the international transitions. We did our last international transition at the very end of Q2, and that was for the EU region. Now our international transitions are complete. And as you might recall, we talked about this previously, the international distributors, they pick up the product right at source versus before, for instance, like in the EU, we would be holding all of that inventory until it's sold to the end consumer. So one is a structural change. And the second is really just about continued very strong inventory management. It was a priority for us in '23 and '24 to clean up inventory, which we did successfully. And really, it was in service of all of this new product coming. We want to make sure we were as healthy as possible and had great process and rigor around inventory, knowing that we were excited to invest in all of the new product coming. So with that backdrop, Joe, do you want to add some color? Joe Vernachio: Yes. I'm glad that you asked about inventory. It is a big focus of ours. When you bring in a lot of new product, you have to be really cognizant of inventory and make sure you stay focused on that. So that's something that we are very rigorous about and keep our eye on for sure. You talked about the -- what the website looks like. I'm glad that you feel that it looks very brand-centric and is telling a story. That was our objective. We launched the new site in July. And part of it -- a big portion of this was to be able to get our story out there to be able to tell great stories about the product and have a lot more opportunity to share different aspects of the product on the PDP and the landing pages. You asked about what our strategy is going into Q4. We anticipate that it's going to be a competitive marketplace in Q4. We think people are going to be looking for promotions, and we have our normal preparation for all the different aspects of Black Friday, Cyber Monday that we will need. We will have different products that we'll put up and take down in order to create some rhythm to the promotion. We're not going to be precious. We know we need to compete, and we need to be in the market. Otherwise, we will lose our share. So we've got a very rigorous Black Friday, Cyber Monday plan queued up, and we are going to be executing against it. Operator: I am showing no further questions at this time. I would now like to turn the call back over to Joe for closing remarks. Joe Vernachio: Thank you, everyone, for joining. We'll see you at the next quarterly review. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and welcome to the Karat Packaging Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Roger Pondel. Please go ahead, sir. Roger Pondel: Thank you, operator. Good afternoon, everyone, and welcome to Karat Packaging's 2025 Third Quarter Conference Call. I'm Roger Pondel with PondelWilkinson, Karat Packaging's Investor Relations firm. It will be my pleasure momentarily to introduce the company's Chief Executive Officer, Alan Yu, and its Chief Financial Officer, Jian Guo. Before I turn the call over to Alan, I want to remind our listeners that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to numerous conditions, many of which are beyond the company's control, including those set forth in the Risk Factors section of the company's most recent Form 10-K as filed with the Securities and Exchange Commission, copies of which are available on the SEC's website at www.sec.gov, along with other company filings made with the SEC from time to time. Actual results could differ materially from these forward-looking statements, and Karat Packaging undertakes no obligation to update any forward-looking statements, except as required by law. Please also note that during this call, we will be discussing adjusted EBITDA, adjusted EBITDA margin, adjusted diluted earnings per share and free cash flow, which are non-GAAP financial measures as defined by SEC Regulation G. A reconciliation of the most directly comparable GAAP measures to the non-GAAP financial measures is included in today's press release, which is now posted on the company's website. And with that, I will turn the call over to CEO, Alan Yu. Alan? Alan Yu: Thank you, Roger. Good afternoon, everyone. Despite ongoing trade volatility, Karat achieved another quarter of record net sales, up over 10% year-over-year, fueled by solid volume expansion, a favorable product mix and effective pricing initiatives. We've experienced double-digit growth across all major markets, especially in Texas and California. Even with significant higher import costs due to increased duties and tariffs, we successfully sustained a gross margin of 34.5% for the third quarter. We remain committed to our sourcing diversification strategy, and our nimble and flexible operating model continues to enable us to effectively manage ongoing supply chain challenges. During the third quarter, we increased domestic sourcing to approximately 20% from about 15% in the second quarter, and we reduced imports from Taiwan to approximately 42% from 58%. We continue to closely monitor tariff developments and are ready to quickly adjust our sourcing strategy accordingly as we have done in the past to maintain Karat's competitive advantage. Additionally, foreign currency exchange rate between the U.S. dollar and the new Taiwan dollar have shown increased stability since August, which is expected to help improve our operating performance for the current quarter. Earlier this year, we secured a major add-on of business to supply paper bag, a new product category for Karat to one of our largest national chain accounts. Initial shipments to select distribution centers started in the third quarter, and we expect the volume to accelerate in the fourth quarter. With fulfillment expected during Q1 of 2026, this new category of business with this chain account is for a 2-year term and expected to contribute approximately $20 million in additional annual revenue. Over the next 2 to 3 years, we aim to scale our paper bag business to more than $100 million in additional annual revenue. The anticipated growth from this new category is being driven by national and regional restaurant chains that are transitioning to paper bags from plastic bags. This shift is influenced by evolving state and municipal regulations as well as a growing emphasis on enhancing customer experience and brand images. We expect continued market share growth in this segment, further solidifying our position as a leader in providing sustainable, eco-friendly disposable food service products. In late May and June this year, we implemented broad pricing increases across most product lines to offset rising import costs. Heading into the fourth quarter and 2026, business trends remain strong. We continue to make disciplined pricing approach and partner with our customers while focusing on operating efficiencies. We are actively integrating several meaningful new customer accounts and focusing on increasing online marketing, which will strengthen our 2026 pipeline, building a strong foundation for what we expect to be another record-setting year in sales. Karat announced a first-ever stock repurchase program this week. In addition to the regular quarterly dividend, the announcement underscores our Board confidence in the company's future growth prospects and financial strength. And I will now turn the call over to Jian Guo, our Chief Financial Officer, to discuss the company's financial results in greater detail. Jian? Jian Guo: Thank you, Alan. I'll begin with a summary of our Q3 performance, followed by an update on our guidance. Net sales for the 2025 third quarter were $124.5 million, up 10.4% from $112.8 million in the prior year quarter. The increase was primarily driven by an increase of $9.4 million in volume and a $3.5 million favorable impact from product mix, partially offset by a $0.7 million unfavorable year-over-year pricing comparison. Sales to chain accounts and distributors were up by 13.7%. Online sales increased 3.1% over the prior year quarter and sales to the retail channel were down 12.5% over the prior year quarter, reflecting the softness of the overall retail sector. Cost of goods sold for the 2025 third quarter increased 17.8% to $81.6 million from $69.3 million in the prior year quarter. Product costs increased $5.0 million due to sales growth, partially offset by more favorable vendor pricing and product mix. Additionally, import costs increased $8.2 million due to higher import duty and tariffs, coupled with a 21.0% increase in import volume as we purchased more inventory ahead of expected business expansion, partially offset by a 13.4% decrease in average freight container rates. Gross profit for the 2025 third quarter was $42.9 million compared with $43.5 million in the prior year quarter. Gross margin for the 2025 third quarter was 34.5% compared with 38.6% in the prior year quarter. Gross margin was negatively impacted by higher import costs, which as a percentage of net sales increased to 14.4% compared with 8.6% in the prior year quarter. The decrease in margin was partially offset by a decrease in product costs as a percentage of net sales due to more favorable vendor pricing and product mix as well as a reduction in inventory write-offs and adjustments as a percentage of net sales. Operating expenses in the 2025 third quarter were $34.3 million compared with $32.2 million in the prior year quarter. The increase was mainly driven by $2.1 million of higher shipping costs due to higher sales volume, $0.7 million of higher rent expense due to a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center and $0.6 million of higher salaries and benefit expenses. These increases were partially offset by a $1.4 million reduction in online platform fees. Operating income in the 2025 third quarter was $8.6 million versus $11.3 million in the prior year quarter. Total other income net was $1.3 million for the 2025 third quarter compared with $0.6 million in the prior year quarter. The increase was primarily from foreign currency transaction gain of $0.7 million, driven by the strengthening of the United States dollar against the new Taiwan dollar during the 2025 third quarter compared with a loss of $0.3 million on foreign currency transactions during the 2024 third quarter. Net income for the 2025 third quarter was $7.6 million compared with $9.3 million for the prior year quarter. Net income margin was 6.1% in the 2025 third quarter compared with 8.2% in the prior year quarter. Net income attributable to Karat for the 2025 third quarter was $7.3 million, $0.36 per diluted share compared with $9.1 million or $0.45 per diluted share in the prior year quarter. Adjusted EBITDA for the 2025 third quarter was $13.1 million compared with $14.7 million for the prior year quarter. Adjusted EBITDA margin was 10.5% of net sales for the 2025 third quarter compared with 13.0% for the prior year quarter. Adjusted diluted earnings per common share was $0.37 for the 2025 third quarter compared with $0.47 for the prior year quarter. We generated operating cash flow of $1.0 million in the third quarter compared with $19.5 million in the prior year quarter. Duty and tariff payments as well as the inventory purchase payments increased. However, such increases were offset by strong collections and as you will see described in the Form 10-Q filed tomorrow. Despite the significant cash outlays for operations and a $3.5 million early loan repayment on one of our consolidated variable interest entities term loans, we ended the quarter with $91.1 million in working capital. As of September 30, 2025, we maintained financial liquidity of $34.7 million with another $19.9 million in short-term investments. As of September 30, 2025, we reclassified one of our consolidated variable interest entities term loans into current liabilities as the maturity is within 12 months, totaling $20.4 million. We intend to pay down the loan upon maturity with our cash on hand. On November 4, 2025, our Board of Directors approved the quarterly dividend of $0.45 per share payable November 28, 2025, to stockholders of record as of November 21, 2025. Additionally, our Board of Directors approved our first-ever share repurchase program of up to $15.0 million, under which Karat is authorized to repurchase shares of its outstanding common stock from time to time through open market purchases. Looking ahead to the 2025 fourth quarter, we expect net sales to increase by approximately 10% to 14% over the prior year quarter with gross margin projected to be within 33% to 35% and adjusted EBITDA margin to be within 8% to 10%. As Alan mentioned earlier, our new business pipeline for 2026 is robust, supported by the new paper bag category offering and the addition of several key customer accounts. We remain focused on accelerating top line growth with disciplined pricing while continuing to enhance operational efficiency and cost management. Alan and I will now be happy to answer your questions, and I'll turn the call back to the operator. Operator: [Operator Instructions] And the first question will come from Michael Francis with William Blair. Michael Francis: Alan and Jian, it's Mike on for Ryan. Nice quarter. I wanted to start on paper bags. Did I hear you right that you aim to scale that to $100 million over the next 2 years? Alan Yu: Yes, that is correct. Michael Francis: And what gives you confidence in that number? Alan Yu: It's because there's a lot of chains are moving away from plastic bag into paper bag. And this is a segment that we're seeing that it's -- as one of the large chains in the U.S. move towards this area, more and more similar chain will follow through that. And there -- basically, that -- we feel that there is an organic growth in that segment. And also at the same time, it is not just the paper bag was handled, there's different type of bag. There's SOS bag, which every fast food restaurant will need. And I mean with the growth of the fast food chain that is growing, the number of stores that is growing, we feel that we're competitive -- we can be competitive enough to gain market share in that segment as more and more people looking toward that area. And also, there's other bakery bag as well. There's just too many items in that segment, that make us feel that we can grow immediately. I mean, as we mentioned in our announcement that one chain, the annual sales of that number will be $20 million to $25 million per year just for one chain. And we do have 2 or 3 other chains already working in testing our paper bag and SOS bag. That's why it's -- we feel confident that this will grow quickly into an annual sales of additional $100 million a year. Michael Francis: That's all good to hear. And then I wanted to ask on gross margins, went lower, I think, as we were expecting and 4Q is a little lower than we were expecting. Would like to know longer term, do you think that there's an opportunity for you to get back into that high 30% range on the gross margin number? Or is that going to be difficult while tariffs are in the market? Alan Yu: Well, we're trying to be conservative right now at this point because there's still uncertainty. But the good thing is we feel there's a tailwind. One of the things that -- one of the issues that reduces our gross margin drastically in the second quarter was the sudden drop in the Taiwanese -- sudden increase in the Taiwanese dollar versus the U.S. dollar that it was a drop of 11% in just 3 days alone. And that 11% has come back to just about an increase of 4.5%, 5%. So basically, it's more of a stabilization in the U.S. dollars against Asian currencies. And this is actually enabling us to go back to our vendors to negotiate a better pricing this past 2 months basically. So we're seeing that there's more tailwind in terms of the gross margin. But we do want to be conservative in terms of how we look at in terms of the numbers in September and giving us the number that we see in October, we already see some improvement in October versus September. September was better than August. So we want to see more of the positive trend before we can issue a -- increase our gross margin numbers basically. Michael Francis: Okay. And lastly for me, it's good to see the share buybacks. Would love to get an update on your capital allocation priorities between debt paydown, buybacks and the dividend and any potential M&A. Alan Yu: Well, we -- our strategy is that if we have more than $20 million in short-term deposit that we can allocate it to the dividend, special dividend, regular dividend or use it for other investment. At this point, even with the increase in tariff, increase in -- inventory-wise in the second quarter, our deposit amount is still the same, remains the same. So we're still strong in cash. And lately, we're seeing that we're bringing -- we have been bringing down our inventory to reduce our cost in terms of the tariff as well as implication costs. So we're seeing cash flowing back into our accounts. And that's why we feel like it's good for us to do some type of a share repurchase. While our stock is kind of low right now, I think it's a value to repurchase share back. At the same time, we are still looking to merger and acquisition. We do have a few in the pipeline, investment, partnership, joint venture and also acquisition. We don't feel that this will deter us in terms of moving towards this direction. Operator: The next question will come from George Staphos with Bank of America. George Staphos: Can you hear me okay, Alan? Alan Yu: Yes, I can, George. George Staphos: So listen, maybe just piggybacking on the question on capital allocation. I want to take it from a different approach. I mean your dividend basically represents the majority of your earnings per share. Why would you consider or contemplate doing more buyback in light of that? Would you consider borrowing to buy back more stock? It would seem like deleveraging and taking care of your incoming debt paydown needs would be probably more prudent. But how do you think about that? Alan Yu: Well, here's the thing. The debt -- we don't have any debt on our book right now at this point. The debt that you're seeing VIE, that's on the real estate [ side -- part ] of the ventures. George Staphos: That $20 million, that current liability, you said you're going to pay that down in the upcoming year? Alan Yu: We can pay it down. We can pay either with our current CD that we have in our short-term deposit, to utilize some of the cash on that. And at the same time, we can have third party -- we can also continue to borrow with different banks. It depends on how -- what the cash flow situation is, if there's a need to do that because right now, like I said, we don't have any debt in our Lollicup or Karat Packaging book right now. So we're -- this is one of the things that we still have time to think what we want to do, allocate our capital. If there's other things that we can do better, then we will do that. But at this currently, the rate of CD income is dropping as the interest rate reduces. So we have to figure out which is better. If we were to pay down the debt, we actually will be making -- generating additional income. It will be an interdepartment -- intercompany loan to the VIE company in paying down that debt. So it won't be like really just paying, it will be paying down the debt for the VIE company, but at the same time, for Lollicup, it will be income -- additional income. Instead of [indiscernible] us for deposits from -- yes, deposits from the banks, there will be actually more income from the VIE company. Jian Guo: And George, this is Jian. I just wanted to add on to what Alan was talking about to answer your question. The main purpose really is to have one additional tool in our toolbox to further enhance our shareholder return while we continue to focus on growing the company either organically or inorganically. As we previously announced, as you probably saw yesterday in the announcement, the total amount of the Board approved of the share repurchase program is $15 million. So it is a fairly small program at management's total discretionary. So this will be something that management will continue to evaluate in terms of a lot of the different factors, right, the pricing, the performance, the liquidity, the strength of the balance sheet, quite a few factors, just another tool in our toolbox to further enhance our shareholder return. You're right. I mean, obviously, our dividend yield is already pretty rich. So that definitely is something that we consider as we move forward with the potential execution under this program as well. George Staphos: Okay. I appreciate the thoughts on that, and thanks for the reminder on the VIE. One question, back to the question, I think Mike teed up on the bag business. So let's assume you have perfect accuracy on the revenue side on bags, and that's $100 million in whatever time period you said. What kind of margin do you think you're going to get on that business? And you're already starting to see some of that show up in the fourth quarter, you said, correct? So 2 questions there. Alan Yu: It will be a mix -- more of a mix margin. The higher volume will be in the -- could be in the high teens on margin side, and the SOS bag could be in the high 30s. So it depends on the product line. There's also bakery bag that could be in the high 50s. So -- and also at the same time, we are selling online on these new bags that we're bringing in. The online will be even in a higher margin range. So it will be more of a balancing mixture of each, just like as we are doing right now. So -- and also, we are actually working heavily toward in terms of getting our bags to manufacture more efficiently to increase margin from there, better sourcing of raw material from our vendors and also moving -- shifting the manufacturing site locations, potentially moving some into domestic U.S. production, that might save some costs, even enhancing more margin. So this is -- these are the things that we can do once -- as the volume increase in the next 12 months. George Staphos: All right. So 2 quickies for me, and I'll turn it over to Alan. So with that being the case, and we're already in November, so almost halfway through the quarter, the range on revenue growth, the range on margin is fairly wide. And I realize you're trying to be prudent. I realize there are a lot of vagaries in the market, especially with tariffs and sourcing. But I find the range is maybe a little bit wider than I would expect at this juncture in the year. What's giving you pause in terms of maybe perhaps having a little bit narrower both growth rate range and margin range for the quarter? And then did I hear you say -- and my last question, I'll turn it over. Did you say there was an inventory write-off? I apologize, I'm on the road right now, so I don't have your materials in front of me. Alan Yu: I wasn't -- I'm not sure what the inventory write-off was, but I know that we're reducing inventory at this currently for the year-end. Actually, our sales have been very robust. As you said that we are in the middle of the fourth quarter already. So we're seeing our sales almost in the mid-teen range, but we just want to be conservative. And basically, at the mid-teen range, this is a sales increase organically that we haven't seen for actually for the past 3 years. That's where -- we're seeing that 12% to 14%, but we are seeing numbers very close to the mid-teens. But we just want to be prudent in terms of 12% to 14%, that's where we're trying to -- this is where we're being conservative, but we're seeing in the mid-teens right now in the growth of numbers -- actually, the sales numbers. And basically, in our industry, this is kind of very good numbers in terms of -- well above our industry right now. Operator: And this will conclude our question-and-answer session. I would like to turn the conference back over to Mr. Alan Yu, CEO, for any closing remarks. Please go ahead. Alan Yu: Thank you. Thank you, everyone, for joining our third quarter Karat Packaging earnings conference call. I'd like to say thank you again, and have a nice day. Goodbye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Cipher Pharmaceuticals Quarterly Conference Call for the company's Q3 2025 results. [Operator Instructions] As a reminder, this conference is being recorded today, Friday, November 7, 2025. On behalf of the speakers that follow, listeners are cautioned that today's presentation and the responses to questions may contain forward-looking statements within the meaning of the safe harbor provisions of the Canadian provincial securities laws. Forward-looking statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are implied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. For additional information about factors that could cause results to vary, please refer to the risks identified in the company's annual information form and other filings with Canadian regulatory authorities. Except as required by Canadian securities laws, the company does not undertake to update any forward-looking statements. Such statements speak only as of the date made. I would now like to turn the call over to Mr. Craig Mull, Interim Chief Executive Officer of the company. Please go ahead, Mr. Mull. Craig Mull: Good morning, everyone, and thank you for joining us today. Before I begin, I would like to remind everyone that all figures discussed on today's call are expressed in U.S. dollars, unless otherwise specified. Cipher demonstrating meaningful growth during the third quarter of 2025, which was largely attributed to the addition and performance of our U.S.-based Natroba business. Sales from Natroba and its authorized generic Spinosad were $8.1 million during the third quarter of 2025, a 4% sequential increase over the last quarter's revenues of $7.8 million, consistent with the product seasonality, whereby head lice and scabies infections are generally more prevalent in the warmer months of the year. Additionally, the Natroba business continues to have strong profitability with gross profit of $7 million and a gross margin percentage of 86% during the third quarter of 2025. Adjusted EBITDA from the Natroba business was a strong result of $5 million, which contributed to our total combined business adjusted EBITDA of $7.3 million during the third quarter of 2025. Consistent with our past track record, our earnings translate directly to free cash flow, which has allowed us to continue to deleverage the business. During the third quarter and after the quarter-end, we repaid a total of $17 million on our revolving credit facility, which has now been reduced to a balance of $8 million at the present time. This is an incredible feat given that we drew $40 million on the revolving facility to acquire the Natroba business just at the end of July 2024. Our CFO, Ryan Mailling, will provide a detailed overview of our financial results following my commentary. I would like to spend the balance of my remaining remarks to discuss our business development activities, which we are very active in and where I am focusing the majority of my time. We have 4 distinct strategies ongoing at the moment to drive shareholder value and grow our business. Firstly, it is critical we continue to invest and build upon the Natroba business and the U.S. operations to position it to further grow heading into 2023. To supplement our existing sales approach, we will be launching a direct-to-consumer sales model early in 2023, which is a strategy many pharmaceutical manufacturers are taking as a direct and modern sales approach to the U.S. market. We believe Natroba is right suited for a direct-to-consumer sales model, whereby permethrin and related OTC products are no longer an effective solution to the needs of individual consumers and families suffering from head lice and scabies. They simply need a better solution and an ability to get it fast when it is needed. Our platform will streamline the process to obtain a prescription, efficiently adjudicate a claim and provide a convenient local pickup or delivery option to consumers. The strategy also includes partnerships with retailers to ensure that Natroba and Spinosad is adequately stocked in states and city centers across the U.S., so it is available through this platform. We are excited about our new DTC strategy, and we'll provide more details on the rollout in the coming months. A second area of our business development strategy is we are actively pursuing complementary products, which can be directly commercialized through our existing U.S. sales force. We are currently active in discussions with various parties, and we'll continue to provide updates. However, as with all business development opportunities, the activities take time and the opportunities may or may not come to realization. A third strategy we are pursuing is launching Natroba in Canada, and we are on track to submit our new drug submission to Health Canada during the fourth quarter of 2025. We believe Natroba will fill an unmet need in Canada for a highly effective treatment for head lice and scabies, and we will continue to provide updates as developments occur with Health Canada's review and the submission process. The fourth strategy I would like to discuss with you is we are actively pursuing out-licensing opportunities for Natroba globally. We continue to believe there is an unmet need for a highly effective product like Natroba to address head lice and scabies indications in other territories globally. However, we believe it is important to find the right fit with our out-licensing partner for Natroba. Product pricing in territories outside of the U.S. is an important element we must consider when finding the right fit for the out-licensing. With that being said, we are in discussions with various organizations at the present time and hope to provide exciting updates as developments occur in this area. Thank you for joining us here today, and I look forward to answering any of your questions after our prepared remarks. I will now pass the call over to our CFO, Ryan Mailling. Please go ahead, Ryan. Ryan Mailling: Thanks, Craig, and good morning, everyone. As Craig mentioned at the beginning of today's call, all amounts provided are expressed in U.S. dollars, unless otherwise noted. Today, Cipher Pharmaceuticals is reporting results from the company's third quarter and 9-month period ended September 30, 2025. Total net revenue for the 3- and 9-month period ended September 30, 2025, was $12.8 million and $38.2 million, respectively. Net revenue for the third quarter of 2025 increased by $2.4 million or 24% compared to the same quarter in the prior year. Net revenue for the 9-month period ended September 30, 2025, increased by $16.7 million or 78% over the same period in 2024. Increases were attributable to the addition of the U.S.-based Natroba business on July 29, 2024, for which only 2 months of revenue were included in our prior year results for both the 3- and 9-month periods ended September 30, 2024. Product revenue from the U.S.-based Natroba business comprised of the brand Natroba and authorized generic Spinosad was $8.1 million and $22.5 million, respectively, for the 3- and 9-month periods ended September 30, 2025. Product revenue from the U.S.-based Natroba business for the 3 and 9 months ended September 30, 2024, was $5.5 million. Product revenue from the Canadian product portfolio for the third quarter and 9 months ended September 30, 2025, was $4 million and $12.7 million, respectively. Canadian product portfolio revenue of $4 million increased by $0.2 million or 5% for the third quarter of 2025 compared to the $3.8 million in the third quarter of 2024. For the 9 months ended September 30, 2025, product revenue from the Canadian product portfolio of $12.7 million represented an increase of $1.9 million or 18% compared to $10.8 million in the same period of the prior year. Additionally, as the sales for our Canadian product portfolio are denominated in Canadian dollars, when translated on a constant currency basis, Canadian product portfolio revenue for the 9 months ended September 30, 2025, was impacted by changes in the U.S. dollar relative to the Canadian dollar. The impact was nominal for the third quarter. However, when translated on a constant currency basis for the 9 months ended September 30, 2025, Canadian product portfolio revenue increased by $2.2 million, representing an increase of 21% over the 9 months ended September 30, 2024. The products comprising our Canadian product portfolio benefited from a combination of increased sales volumes and favorable changes in product mix for certain products for the 3 and 9 months ended September 30, 2025, compared to the same periods in the prior year, which contributed to the overall increase in revenue. Moving on to our U.S. licensing revenue. Total licensing revenue for the 3 and 9 months ended September 30, 2025, was $0.8 million and $3 million, respectively. Licensing revenue decreased by $0.3 million and $2.3 million, respectively, for the third quarter and 9 months ended September 30, 2025, compared to the same periods in the prior year. The overall licensing revenue of $0.8 million for the third quarter of 2025 represented a 28% decrease compared to $1.1 million in the same quarter of the prior year. The decrease is due to the Absorica portfolio in the U.S., which contributed $0.4 million of licensing revenue in the third quarter of 2024, a decrease of $0.2 million when compared to the $0.6 million of revenue for the same quarter in the prior year. The decline in the Absorica portfolio licensing revenue resulted from lower royalty revenue contributed to by reduced sales volumes and net sales realized by our distribution partner on which Cipher earns a net sales royalty. This was combined with Cipher no longer earning a royalty on Absorica LD in the U.S. market effective January 1, 2025. We also earned revenue from supplying product to our distribution partner, however, revenue from this remained consistent year-over-year in the third quarter. Overall licensing revenue for the 9 months ended September 30, 2025, was $3 million compared to $5.3 million for the same period in the prior year, representing a 44% decrease. The decrease for the 9 months ended September 30, 2025, was contributed to by the Absorica portfolio and Lipofen, including its authorized generic. Licensing revenue from Absorica was $1.7 million for the 9 months ended September 30, 2025, a decrease of $2 million or 54% when compared to the same period in 2024. Revenue from Absorica for the 9-month period was impacted by year-over-year declines in product shipments on which we earn revenue from supplying product to our distribution partner. The decline in the Absorica portfolio licensing revenue for the 9 months ended September 30, 2025, was also impacted by lower royalty revenue contributed to by lower sales volumes and net sales realized by our distribution partner on which Cipher earns a net sales royalty. This was further contributed to by lower contractual royalty rates year-over-year. Market share for Absorica in the authorized generic of Absorica was 2.9% at September 30, 2025, according to Symphony Health market data, representing a decrease of 2.7% compared to 5.6% at September 30, 2024. The products continue to face increasing generic competition and related market dynamics within the U.S. market. Licensing revenue from Lipofen and the authorized generic of Lipofen was $1.1 million for the 9 months ended September 30, 2025, representing a decrease of $0.4 million compared to the same period in the prior year, attributable to lower sales volumes and net sales realized by our distribution partner on these products, on which Cipher earns a net sales royalty. Selling, general and administrative expenses for the 3 and 9 months ended September 30, 2025, were $3.7 million and $12.8 million, respectively. Selling, general and administrative expenses for the third quarter of 2025 of $3.7 million represented a decrease of $2.5 million or 40% compared to the same quarter in the prior year. The decrease was primarily attributable to the nonrecurring acquisition-related costs of $1.6 million in connection with the acquisition of the U.S.-based Natroba business, combined with $0.7 million in legal costs with respect to an arbitration process, which were incurred during the third quarter of 2024. However, these costs were not recurring in the third quarter of 2025. Selling, general and administrative expenses for the 9 months ended September 30, 2025, of $12.8 million increased by $3.5 million compared to the same period in the prior year. This increase is attributable to a full 9 months of selling, general and administrative expenses for the acquired U.S.-based Natroba business in 2025 to date compared to only 2 months of selling, general and administrative expenses for this business post-acquisition in the same period in prior year. Additionally, legal costs associated with the arbitration process were $0.5 million higher for the 9 months ended September 30, 2025, compared to the same period in the prior year. These increases in selling, general and administrative expenses were partially offset by $1.9 million of nonrecurring acquisition-related costs in connection with the acquisition of the U.S.-based Natroba business, which were incurred during the 9 months ended September 30, 2024. However, these costs did not reoccur in the same period in the current year. Net income for the 3 months ended September 30, 2025, was $5.5 million or $0.21 per diluted common share compared to $0.3 million or $0.01 per diluted common share for the same period in prior year. Prior year net income for the 3 months ended September 30, 2024, was adversely impacted by $1.6 million of nonrecurring acquisition-related costs in connection with the Natroba acquisition and $0.7 million of legal costs with respect to the arbitration. Net income for the 9 months ended September 30, 2025, was $14 million or $0.54 per diluted common share compared to $8.2 million or $0.33 per diluted common share for the same period in prior year. Net income for the 9 months ended September 30, 2025, benefited from the inclusion of the U.S.-based Natroba business for the full 9 months of the period compared to the inclusion of this business for only 2 months post-acquisition during the same 9-month period in the prior year. However, net income for the 9-month period ended September 30, 2025, was also adversely impacted by $0.8 million of noncash fair value adjustments associated with the inventory acquired in the Natroba acquisition, which were recognized in cost of products sold during the period. $5.8 million increase in net income year-over-year was further contributed to by the $1.9 million of nonrecurring acquisition-related costs incurred in connection with the Natroba acquisition during the 9 months ended September 30, 2024, which did not recur during the same period in the current year. Adjusted EBITDA for the 3- and 9-month period ended September 30, 2025, was $7.3 million and $21.1 million, respectively, compared to $4.1 million and $10.7 million, respectively, for the same period ended September 30, 2024. This represents an increase of 79% and 97%, respectively, for the third quarter and 9 months ended September 30, 2025, when compared to the same periods in the prior year. The increase in adjusted EBITDA was mainly driven by the addition of the U.S.-based Natroba business for the full period in 2025, partially offset by declines experienced in U.S. licensing revenue. Company had $8.4 million in cash and $13 million in debt outstanding as of the end of the third quarter of 2025. Cipher continues to generate meaningful free cash flow from operations with $10.8 million in operating cash flow during the third quarter of 2025 and $21 million generated from operations for the 9 months ended September 30, 2025. During the third quarter of 2025, Cipher allocated $12 million of its accumulated cash to make repayments on its revolving credit facility and utilized an additional $1.6 million of accumulated cash for repurchases of common shares under its normal course issuer bid. Subsequent to the third quarter of 2025, on October 31, 2025, Cipher further allocated a portion of its cash that had accumulated from free cash flows to make an additional repayment of $5 million on the outstanding balance of its revolving credit facility. Accordingly, after making this payment, the company now has a reduced debt balance of $8 million outstanding on its revolving credit facility and having completed $32 million in total debt repayments during the fiscal year-to-date, we have made substantial progress towards becoming net debt free. Due to the revolving nature of Cipher's credit facility, after making these repayments, we continue to have $82 million of potential financing available to us, comprising $57 million of remaining availability on our revolving credit facility, plus an additional $25 million accordion option. Cipher's continued strong cash flows from operations continued with access to capital, put Cipher on excellent footing to execute on our business strategy, pursuing growth opportunities. which Craig highlighted during his remarks. We'll now open the call for questions. Operator: [Operator Instructions] Your first question comes from Andre Uddin of Research Capital. Andre Uddin: Besides looking at your sales force and DTC advertising, can you maybe discuss if there's an opportunity for any potential contracts with the military for state prisons for Natroba? Craig Mull: Very good question. Right now, we do have a kind of a strategy pillar where we're working through government contracting, as you just said. An example of a recent activity, which is just some initial discussions as I participated just the other week in a discussion with the VA and to expand the product through VA and get access there. So, that was kind of our first step into that, and then we wanted to then move into other government agencies. So, there's some traction there. But obviously, we don't highlight it because it's at an early stage, but we're certainly moving on it. Ryan Mailling: And Andre, just to add to that, there are other groups of similar interest to us, including nursing home and retirement associations, school nursing associations. The military, obviously, is an area that we think that there's a great demand for this type of product. So, we're starting to reshape our sales force more to go after these, what we call them pillars of business where we are focused on associations and groups where we can get our message out much more efficiently and much more cost efficiently as well. Andre Uddin: And just maybe you could also just going along the same lines, can you discuss how the preferred drug listings for Medicaid is proceeding in some of the other states? I know you have Illinois, but still moving forward for Natroba? Craig Mull: It is. So, some of this is -- some of it is kind of ongoing. So, I'm not able to call it greatly disclose the status of those. But what I can say is at the present time, there are a number of states of similar size to Illinois that are in the -- have our bid, which is submitted to do exactly what you said, which is remove permethrin 5% from the preferred listing and to favor Natroba or Spinosad as preferred. So, there are a number of states right now with bids in their hands that they're considering. And how that works on an ongoing basis is the bids come up for renewal annually. In the most part, some of them go by a different tempo. But as we do that, some of the things are, one, we're adding both Natroba and Spinosad onto state formularies, which just ensures product gets dispensed as well as provide them an option and a financially beneficial option to have our product as preferred. So, states are states like that option, and we hope to have some announcements coming forward as states decide on those bids. Andre Uddin: And I like how you're paying down your debt. I was just wondering if you could just elaborate a little bit more in terms of in-licensing for your business development pipeline, like what does that look like and where prices are? And that's sort of my last question. Craig Mull: On the in-licensing or acquisition side, there are lots of opportunities out there. We're really focused on those opportunities that fit best with our current U.S. operations. And we're in discussions with a number of different opportunities or targets at the moment. Again, as we go through due diligence and the process, obviously, some fall off the table, but we're encouraged recently by some discussions and meetings that we have with what we consider to be products that fit well with our structure in the U.S. Operator: Your next question comes from Max Czmielewski of Stifel. Unknown Analyst: I'm on here for Justin today. But it's exciting to hear you are joining the farm to table trends. And I guess on that, if you could give a little bit more detail on how you think about balancing pricing. I know it's not an expensive product at baseline. So balancing pricing with volume expectations from the DTC approach and how you're thinking about marrying that with your digital marketing plans. Bryan Jacobs: Max, it's Bryan Jacobs here. So, kind of your first question is on pricing. What we've always found is it's difficult when you have a far superior and when I say superior, efficacious product versus the alternatives to really want to compete on price. And if I take our business aside is I think that that's a losing strategy for anyone. If we have the best product, you're going to command a bit of a premium price. But compete -- on the flip side of that is our product is heavily covered on Medicaid and through other -- and on commercial plans. So, really what it is, is it's an educational item to a family because if you think about it, an alternative is you're frantic like you may have something like head lice or scabies. But for head lice, you go to a pharmacy and you try and grab something off the shelf and you may use it and you run out of it, you may need multiple boxes of that, and it doesn't work. So, you're battling with head lice for many weeks. So, the cost of that and the cost of the time of that is kind of a problem for families. Whereas our product, once you pay your co-pay on insurance and get a prescription, you wouldn't be worse off, and you would use the product once and it kills all lice and eggs and your kid goes back to school the next day completely lice-free. So, part of it is ensuring that when people search for the product that works, bringing them into our platform and saying, okay, wow, this is what I want and then being able to get the product in their hands. And that's why we're working through ensuring that the product is available at different retail outlets and giving them a delivery option, so it can show up at their door. We think that's going to be a very compelling business model. And like you said, that's the stable type approach that we're working towards. And this is a supplement to our existing plan. So, we're going to launch this, and we believe it's going to be kind of the next phase of growth for the Natroba franchise and then kind of scale around it from there. Unknown Analyst: And I guess my second question is based around one of your pillars of growth and how you're thinking about your overall strategy and out-licensing Natroba in global markets. Where do you think you see the most opportunity? Is it on -- to say this with diplomacy, more of the emerging market side or developed markets? Are there areas in which permethrin doesn't have the same issue of resistance that wouldn't make sense for a marketplace? Can you just give some color on that? Craig Mull: Sure. Craig here, Max. First of all, let me kind of see if I can address your questions in reverse order. The issue with the resistance of permethrin 5% and 1% is a global issue. And most jurisdictions, if not all, have this resistance problem for permethrin. So, our product is going to shine against other products in other jurisdictions as well. The issue that we're finding is that in a lot of these underdeveloped countries or less developed countries, the pricing isn't where it should be for our product. And so, we're working with different outfits in perhaps less populated countries or less affluent countries. to try to find the best kind of cost/pricing structure. Europe is a good market for this product, particularly the Southern European countries, Spain, for example. And they have reasonably high reimbursement of drugs in general, and this would fall into that. Some Asian markets as well, including specifically Japan, has a relatively lucrative drug payment plans. So, our focus is going to be in Europe, particularly Southern Europe and Japan and a few other Asian countries. Does that address your question, Max? Unknown Analyst: That's perfect. Operator: The next question comes from Doug Loe of Lead Financial. Douglas W. Loe: Congratulations on a solid cash flow quarter again. So maybe just a housekeeping question. So, as you previously announced, your debt levels are down to $13 million in the quarter. Your debt-based financial ratios are well into safe territory. Just wondering, are you comfortable with current debt levels? Or do you expect to deploy any supplemental operating cash to bring debt levels down to even lower levels? Ryan Mailling: Doug, I think, obviously, we need to balance our priorities and cash availability and deployment. But I think, yes, we're going to continue to look to repay our debt. There's no reason not to at this point. Craig Mull: We don't have far to go really, I mean, I'm thinking that we're going to start accumulating cash for our next acquisition. And that's really the plan there. We will be debt-free very close to the end of the year. And then from there, we're going to be accumulating cash if we find the right deal. Douglas W. Loe: Well, I infer from that answer then that no product and licensing opportunities that would require new cash would be imminent before debt repayment would be the priority. I assume that's what you're implying with your answer. Craig Mull: Yes, we're waiting for the right deal to come. And in the meantime, we'll pay off our debt, and we'll stockpile our cash in anticipation. Ryan Mailling: Just to add on, Doug, it's a revolving facility, so we have access to it if we need it. Douglas W. Loe: Of course. Understood. And then yes, just a sort of a competitive landscape question. So, one of the key drivers that was originally identified when you acquired Natroba and ParaPRO was the emergence of resistant strains to permethrin. And we certainly see that dynamic percolating through the medical literature as well. I was just wondering, is that reality broadly known within the medical communities where the head lice is conventionally treated? Or do you think it would make sense to conduct a small study showing that Natroba is more effective than permethrin in resistant strains that -- or treating resistant strains to which permethrin is no longer effective. I'm not sure whether that would be a prudent deployment of R&D capital, but just wondering if you'd considered that and if that might be something on the horizon. And I'll leave it there. Bryan Jacobs: Doug, it's Bryan. We do have a study that's been out there for a while, dates back to 2015 that just talks about the resistance profile across the U.S. It was conducted across literally north, south, east, west states. So covered, I believe, in the high 40s number of states where they collected lights and demonstrated the fact that their resistance and the resistance profile was 98%. And this was done many years ago. So, the one thing that you know about resistance over time, it only gets greater. So, we use that as part of our communications tool when we're reaching out to physicians. It's one of the tools that we have in the toolkit. There is no doubt that part of what we need to do is to get it more ingrained into the medical community. So, ensuring -- we're now getting the attention of a lot of physicians, a lot of KOLs that are attuned to this. And an example of that, as Craig said, we're working after different verticals because that's the way to really kind of go about it, tackle things at the school board level at the long-term care home consortium level. So, we have a KOL at the moment who's working through writing a new protocol associated with if there's an outbreak, this is the product to use, not only because permethrin, you have to do multiple doses over a period of time while people are infectious, but just the fact that it also may no longer work. The 2 dosing -- when permethrin 5% first came out, it was a 1 dose. And then it was broadly known as you need to do one dose and you need to be -- you need to wait 10 days and then dose again. What's not broadcasted right now is it's probably getting into third or fourth until if you pour the permethrin on anything, it will die, but that it's absorbing into your skin during that time. So, it's certainly the best product out there. So, ensuring we use the data that we have and attacking it at the right verticals as opposed to a door-to-door approach is -- as Craig was describing, that's going to be part of our strategy in 2026. Operator: [Operator Instructions] Your next question comes from Tania Armstrong of Canaccord Genuity. Tania Gonsalves: Just a couple from me. So, first on Natroba, I think, Craig, you mentioned earlier in your remarks that seasonality plays a role here and sales tend to be higher in warmer months. I would have thought that sales are also quite high in that like September time frame when kids return to school. Do you guys see that? And should we expect then a downtick in revenue into Q4? Bryan Jacobs: It's Bryan Jacobs here. Nice to meet you. I don't know if we've talked before. Your last part of your question there, do we expect Q4 to be lower than Q3 and Q2? Generally, yes. And even though Q3 is, call it, the hottest, warmest season and you have back-to-school, as you indicated, what we did see this year was that both -- as opposed to having a huge spike in Q3, we feel Q2 and Q3 were more balanced because the stocking and getting ready for it at the wholesale and retail channels happened earlier. Tania Gonsalves: That's good color. And with respect to -- this came up in an earlier question, but just getting on some of these bids that you've made to states outside of Illinois to get on their formularies and displace permethrin. Have there been any states that you have submitted a bid and not won that? Bryan Jacobs: No, there haven't. At the present time, we have a number of states that have the bids that are contemplating it. It's typically what happens there is they give you -- the process works as you approach the renewal of the bid, you submit it and the states just work where they make the decision towards the very end, you kind of hear about it. So, we're hoping in the coming months as we look at some of them renew kind of right on the calendar year that we'll hear back on those. But no, we haven't had anyone turn down that as of late. Tania Gonsalves: And then just lastly, and apologies if I missed this in your remarks, but the compensatory damages and reimbursement for legal fees as part of that Sun Pharma litigation, how should we think about that being accounted for in Q4? Will there just be a contingent consideration line item on your balance sheet? Or have they actually paid you the cash yet? Or are they withholding a portion as they appeal to the outcome? Craig Mull: Tania, it's Craig Mull here. Most of that arbitration award now is public information, and you probably are aware that Sun has decided to try to vacate the order of the arbitrator, and that's going through New York courts at the moment. We don't know how that will go. I certainly like our position a lot better than theirs. But we haven't received any payment, and I don't think that we will be recording any until we hear what the New York courts say. Ryan Mailling: Yes, I can tell you Tania, it's really dependent on timing of this outcome and what the outcome is. So, at this point, it's a contingent asset or gain, which you don't recognize until you have certainty on. Tania Gonsalves: And how long do those appeals processes? I know it varies, but for something like this, how long would you anticipate this taking? Craig Mull: I was told by our litigators that it's likely a few months. Operator: There are no further questions at this time. I will now turn the call back over to Craig Mull. Please continue. Craig Mull: I want to thank everybody for your time today, and I appreciate that you joined our call. We look forward to reporting positive news on the coming quarters as we progress with our plans. Again, thank you very much for your time, and we appreciate your support and interest. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to the NHI's Third Quarter 2025 Earnings Webcast and Conference Call. [Operator Instructions] And please note this conference is being recorded. I will now turn the conference over to your host, Dana Hambly. Dana, the floor is yours. Dana Hambly: Thank you, and welcome to the National Health Investors conference call to review results for the third quarter of 2025. On the call today are Eric Mendelsohn, President and CEO; Kevin Pascoe, Chief Investment Officer; John Spaid, Chief Financial Officer; and David Travis, Chief Accounting Officer. The results as well as notice of the accessibility of this call were released after the market closed yesterday in a press release that's been covered by the financial media. Any statements in this conference call, which are not historical facts, are forward-looking statements. NHI cautions investors that any forward-looking statements may involve risks or uncertainties and are not guarantees of future performance. All forward-looking statements represent NHI's judgment as of the date of this conference call. Investors are urged to carefully review various disclosures made by NHI and its periodic reports filed with the Securities and Exchange Commission, including the risk factors and other information disclosed in NHI's Form 10-Q for the year ended December 31, 2024, and Form 10-Q for the quarter ended September 30, 2025. Copies of these filings are available on the SEC's website at sec.gov or on NHI's website at nhireit.com. In addition, certain terms used in this call are non-GAAP financial measures, reconciliations of which are provided in NHI's earnings release and related tables and schedules, which have been furnished on Form 8-K to the SEC. Listeners are encouraged to review those reconciliations provided in the earnings release together with all other information provided in that release. I'll now turn the call over to our CEO, Eric Mendelsohn. D. Mendelsohn: Thank you. Hello, and thanks for joining us today. We had a solid quarter, highlighted by the transition of 7 properties to our SHOP portfolio which resulted in consolidated SHOP NOI growth of approximately 63% compared to the prior year's quarter. We also announced our first SHOP acquisition for $74.3 million effective October 1. We've surpassed last year's investment total with more deals expected to close this year, and we're working on a strong active pipeline that should generate similar or higher external investment activity in 2026. We're raising our guidance for the third time this year. Our updated guidance represents over 10% NFFO per share growth at the midpoint, which would be the strongest annual growth since 2014. The momentum at NHI is building. We are well positioned and laser-focused to capitalize on the generational growth in the senior housing industry over the next decade. As I noted last quarter, we have methodically invested in creating a strong foundation across all of our disciplines that will allow us to significantly expand our presence in private pay senior housing, where we see the greatest risk-adjusted returns. We've onboarded 11 properties and 2 new operators to the SHOP platform in just the last few months. Combined, the recent additions should more than double our annualized SHOP NOI from approximately 5% to 10% of total adjusted NOI. Through strong organic growth and continued acquisitions, our current view is that our SHOP NOI should more than double again in 2026 to at least 20%. We've taken corrective measures in the same-store portfolio and are confident that it returns to double-digit growth levels in 2026 as it did in 2024 and through the first half of this year. This portfolio has been an important part of our development as we are starting to ramp up the SHOP platform. As we evaluate new opportunities, we're placing a high priority on operators and assets with solid trailing performance that should lead to more consistent and exceptional multiyear NOI growth. The pipeline activity indicates that acquisitions will be a meaningful component of our growth profile for the next several years. We've announced investments of $303.2 million so far this year and currently have approximately $195 million under signed LOIs, which we expect to close in the next few months. We have a large incremental pipeline of active opportunities entirely focused on senior housing, including a significant number of SHOP deals. The balance sheet continues to be supportive of our ample capital needs. Our net debt to adjusted EBITDA at 3.6x is below the low end of our target range, and we have available liquidity of over $1 billion. We believe this low leverage and strong access to capital creates a real competitive advantage as we're able to move quickly and with limited closing risk. Touching briefly on the NHC rent negotiation, we disclosed last night that NHC has notified us of their intent to renew the master lease for one 5-year term commencing on January 1, 2027. Management and the special committee are currently reviewing the effectiveness and legality of NHC's notice. Before turning the call to Kevin, I'd like to conclude to say that NHI is in a great position with several levers to pull both internally and externally that we expect to drive exceptional long-term FFO per share growth. The third quarter benefited from some nonrecurring items, but we believe the core remains strong and well positioned to create sustained shareholder value. The industry tailwinds are gusting, our financial health is peak, and we have invested in the people and resources necessary to scale our future growth. Kevin? Kevin Pascoe: Thank you, Eric. The transition of 7 properties to the SHOP portfolio is just over 3 months old, and we are happy with the early results. The third quarter NOI from these assets is above the prior cash rent, and we now expect that the 2025 NOI contribution exceeds our original forecast of approximately $3.7 million. As with any transition, we expect some impact to near-term growth with the introduction of new management and systems but still expect this portfolio to contribute meaningfully to SHOP NOI in 2026. We also completed our first SHOP acquisition, including 4 properties for $74.3 million on October 1 with Compass Senior Living as the operator. Our relationship with Compass formally began in 2024 through a $9.5 million mortgage loan with purchase options on 2 properties in Oklahoma. In the process of looking for ways to expand the relationship, Compass brought us the opportunity to acquire 2 more properties that they operate in Oregon, which led to our first SHOP acquisition. We expect the first year NOI yield on these stabilized properties to be 8.2% or 7.5% adjusting for recurring CapEx. As noted on our earnings press release, the balance of our mortgage and other notes receivable declined by $43.8 million compared to the second quarter due primarily to large paydowns on a couple of loans with limited or no opportunity for future ownership. While this may slightly weigh on near-term interest income, we are excited to be able to recycle this capital into investments with greater long-term value, including opportunities similar to the Compass deal I just described. On that note, the pipeline is active as ever with $195 million under LOI with an average yield of approximately 8.4%. This includes a mix of shop, triple net and loan-to-own opportunities all in senior housing. We expect to close these deals in the fourth quarter and first quarter of 2026. Turning to our operating performance. Total SHOP NOI increased by 62.6% compared to the third quarter of 2024 due to the transition of 7 properties on August 1. The same-store NOI on the 15 legacy Holiday properties declined by 2.2% year-over-year, which is obviously not an acceptable result for us. Occupancy declined by 110 basis points from the third quarter of 2024 and 160 basis points sequentially. We experienced higher move-outs during the quarter, key personnel changes, 15 units taken out of service and approximately $0.2 million in nonrecurring costs, all of which negatively impacted the result. We expect the out-of-service units to come back online in approximately 6 months and we have taken measures to improve the occupancy in operations. But that will take some time, which led us to adjust our same-store NOI growth for this year, we expect NOI growth for this group to return to double-digit levels in 2026. We have and continue to make investments in our asset management platform, understanding that organic NOI is our best and cheapest source of capital. As we grow the SHOP portfolio, we expect the variability in same-store portfolio will be reduced, particularly as we believe the assets we are adding are higher quality properties with more consistent growth. Across the triple net portfolio, we are generally experiencing the continuation of solid trends with no rent concessions, continued collection of deferred rents in excess of expectations and stable occupancy and EBITDARM coverages. Cash lease revenue increased approximately 12% year-over-year to $70.1 million during the quarter. Excluding approximately $3.9 million in cash rent received in connection with the Discovery lease terminations, cash revenue increased approximately 5.5% primarily due to acquisitions. On October 31, we exercised our purchase option on a CCRC in Columbia, South Carolina for $52.5 million, with an initial yield of 8.25%. This is a high-quality entrance fee community operated by our long-time partner, Senior Living Communities, and we are excited to bring this property into our own portfolio. Bickford continues to generate strong NOI. Bickford's third quarter occupancy increased by 90 basis points from the second quarter to 86.1%. Trailing 12-month EBITDARM coverage through June 30, including deferral repayments, was 1.49x. Bickford repaid $1.3 million in deferred rent during the third quarter and has an outstanding balance of $8.7 million at October 30. Due to their solid performance, we expect that we'll be able to capture more than the quarterly run rate of deferral repayments into the future base rent at the April 2026 reset with the ability to monetize any remaining deferral balances. I'll now turn the call over to John to discuss our financial results and guidance. John? John Spaid: Thank you, Kevin, and hello, everyone. I'm pleased to report our third quarter results were above our expectations. I will highlight the significant areas that contributed to our positive quarter, but first, let me begin with our third quarter results. I'll be using average diluted common shares for all our per share results. For the quarter ended September 30, 2025, our net income per share was $0.69, up 6.2% from the prior year. Our NAREIT FFO results per share for the third quarter compared to the prior year period increased 5.8% to $1.09 per share. Our normalized FFO results per share for the third quarter increased 28% to $1.32 per share compared to the prior year third quarter. FAD for the third quarter ended September 30 compared to the prior year period, increased 26% to $62.2 million. On August 1, we completed the conversion of 7 assets from lease to shop. Together with the conversion, we recognized within our Real Estate Investments segment cash rent revenues of $4.6 million, noncash rental income related to operations transfer of $1.4 million and wrote off $12.1 million in straight-line rents placebo. Upon conversion, we then additionally recognized $2 million in additional SHOP NOI from the conversion properties for the 2 months of operations during the quarter. All of these impacts are reflected in net income and NAREIT FFO. Our normalized FFO and FAD results exclude the impact from the noncash rental income related to the operations transfer and straight-line receivable write-off. During the quarter, we also received approximately $52 million in loan receivable payoffs, not in our previous guidance, which resulted in an improvement of $2 million in credit loss reserve impacting net income, NAREIT FFO and NFFO but was adjusted out of our FAD. NOI from our 22 property SHOP segment for the quarter ended September 30, increased 62.6% to $4.9 million compared to the prior year period. We expect these results to continue to rapidly grow further as we recognize NOI from our recent SHOP acquisition and continue to make additional SHOP investments in the coming quarters. Our 15 property same-store SHOP portfolio saw NOI decline 2.2% to $3 million from the prior year period. Same-store SHOP revenues and expenses grew 2.1% and 3.3%, respectively, resulting in a 90 basis point margin decline to 21.1% year-over-year. Interest expense for the quarter was down 8% year-over-year, while weighted average common diluted shares were up 8.3% to 47.6 million shares as a result of the company's greater use of equity in lieu of debt to fund new investments over the last year. Sequentially, compared to the second quarter, cash G&A increased 5.4% to $5.3 million, while legal expenses declined $1 million. During the quarter, we did not close any new investments but did continue to fulfill our existing commitments. In October, we closed on new investments totaling $126.8 million which includes $46.7 million of previously deployed loan receivable capital. At the end of September, we issued $350 million in 5.35% coupon bonds resulting in net proceeds of $340 million after original issue discounts and bank fees. The bonds mature February 1, 2033. During the quarter, we settled approximately 155,000 common shares from our Q1 2025 forward ATM activity and an adjusted forward price of $73.96 per share after fees and forward costs, for proceeds of approximately $11.4 million. At September 30, 2025, we have remaining escrow forward equity proceeds of approximately $90.6 million available to us in exchange for the future delivery of 1.3 million common shares at an average price of $70.47 per share. We ended the quarter with $81.6 million in cash on our balance sheet and $600 million in revolving capacity after paying down the bank term loan of $75 million at the end of the quarter. Subsequent to the third quarter, we extended the maturity of our $125 million term loan for 6 months to June 16, 2026, retired a $50 million private placement loan and amended our bank credit facilities to remove a 10 basis point credit spread adjustment to our SOFR interest rate. Our balance sheet ended the third quarter in great shape with improvements in our leverage ratios and liquidity. Our net debt to adjusted EBITDA ratio was 3.6x for the quarter, and our available liquidity was approximately $1.1 billion attributable to the cash on our balance sheet, excess revolver, forward equity and additional ATM capacity. Let me now turn to our dividend and guidance. As we announced last night, our Board of Directors declared a $0.92 per share dividend for shareholders of record December 31, 2025, and payable January 30, 2026. We also adjusted our full year 2025 guidance, which includes increases to all our per share metrics. Our guidance includes the impacts from our SHOP conversion, announced subsequent events and our other expected results. Compared to 2024, NAREIT FFO guidance at the midpoint is $4.64 or an increase of 2%, and normalized FFO at the midpoint is $4.90 or an increase of 10.4%. Compared to our original February full year guidance, we increased normalized FFO guidance $0.27 per share. Our guidance for FAD at the midpoint is $232.6 million, up from our original February guidance of $221.7 million, and represents a 13.9% increase in FAD over 2024. Our guidance includes same-store SHOP NOI growth in the range of 7% to 9% over 2024. We are also providing guidance on our conversion plus new investment SHOP NOI for the full year of between $5.8 million and $6 million. Guidance also includes the continued collection of deferred rents and the fulfillment of our existing commitments. Our updated 2025 guidance includes $75 million in additional new unidentified investments and an average yield of 8%, which is an increase in our investment guidance as this is in addition to investments announced subsequent to our third quarter. Our guidance does not include any additional impacts in 2025 for selling additional forward equity although some settlement is likely to occur prior to our December [ x ] dividend date. Our actual equity settlements will be dependent upon the volume and timing of additional new investments. Once again, thank you for joining the call today, and that concludes our prepared remarks. So with that, operator, please open the lines for questions. Operator: [Operator Instructions] Our first question is coming from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Hoping to dig a little bit deeper into SHOP. You kind of made reference in the release in the opening remarks about some efforts to remediate things. So hoping you could talk a little bit about what that exactly means? And as part of that, I guess, the back story on why some units were taken offline, I guess, why now and what's the scope of work there? Kevin Pascoe: Sure. Juan, this is Kevin. One thing I guess I'd like to point out is that when we're talking about our same-store portfolio, that's the Holiday portfolio, which has been noted difficult by some of our peers. It's definitely not had the trajectory that we would have liked that's a little more linear. But here we are. As it relates to the remediation, a lot of it is going back through the portfolio, making sure we have our units priced appropriately. We have the tour pass done right, a lot of the basic blocking and tackling. We really have probably 3 or 4 buildings that we're focused on occupancy that were the laggards that dragged our performance down. So making sure that we have the right people in place, all that has taken place. I think some of the good news here is that our lead volumes are still very good. It's a matter of just converting and making sure we have the right incentives in place for the people on the ground. So as we go through our budget processing right now, we're evaluating all those to make sure that we have the right incentives and again, the right pricing, being able to put the right programming in place and having the right resident engagement. So those are all things that are in process to feel like a lot of the corrective measures have been put in place. So as we discussed on the call, we'll be looking to get additional growth out of the portfolio next year. As it relates to the units that were taken offline, we have a building in California that had some earth movement a couple of years ago. But we found out over time that we had some issues on the bottom floor with some of the plumbing. And the initial scope of the project was less than we had it in our forecast. So we knew about it, but it ended up being that we had -- we needed to take all of the first 4 units off-line, so we made the tough decision to do the right thing and do the project in full scope versus trying to just piecemeal it and -- so get it right the first time. So it was a decision we made to go ahead and make it a little bit bigger projects. So that way, it was done right for the community. Juan Sanabria: And just to confirm, there's no tangent operators or one change contemplated? I know you've had some movement with Discovery and their remaining operator would SHOP and no longer triple that? Kevin Pascoe: So -- correct. Discovery, as it relates to SHOP, Discovery and Merrill are our operators, our managers on those. We're working with them very closely to make sure we -- again, we have all the right people in place. I think as good stewards of the portfolio, we always have to keep in mind what's best for the portfolio. So -- but as it stands, we're working with them to go through the portfolio, make sure that we have all the right pieces in place to make sure that we get back on track from a performance standpoint. Juan Sanabria: Great. And then just a second question on NHC. Just curious on where we stand. I know the lease was put into default and NHC kind of came back. And then they sent you a renewal notice, but then there was a comment in the prepared remarks about analyzing the legality of that notice. Just curious on, I guess, the technicality of where we stand today and why you said examining that legality of the renewal notice? D. Mendelsohn: Juan, this is Eric. Yes, that wording was artfully crafted. There could be a question about whether or not they're in default. And if they are in default, whether or not they're able to exercise their renewal option. The lease is pretty bare bones as you know, but it does say that if they're in default, they don't have the right to renew. So all of that could be subject to arbitration or litigation or legal interpretation. So that's what was meant by that comment. Operator: Our next question is coming from Austin Wurschmidt with KeyBanc Capital Markets. Austin Wurschmidt: Just going back to the NHC question there a moment ago. I guess I was curious if the renewal option did prove to be legal, would that still be at the fair market rent? Or would it be at the current rent level? And I guess how else could that change NHI's negotiating position with respect to the adjustment to fair market rent? D. Mendelsohn: Austin, recognizing that NHC is and their counsel are listening to this call, I will just say that all of that is on the table. If the renewal is determined not to be valid, then it's a wide open negotiation that could include third parties. If the arbitration or litigation does hold that the renewal is valid than the terms of the lease say that the renewal should be at a market rate, which is also a wide open interpretation. And as you know, we've hired Blueprint Advisors to help us survey the market and get touch points on lease rates and cap rates in the markets where these buildings reside. Austin Wurschmidt: That's helpful. And then Eric or Kevin, the pipeline of investment opportunities sounds very active. But it did appear like when some assets moved into the under LOI bucket and therefore, that investment pipeline was relatively stable. How far along are you in ramping that pipeline that you quote? And I'm just wondering if you guys are spending more time today on larger portfolios that maybe wouldn't go into the pipeline? Or are you more focused on deals that should over time tuck into the quoted investment pipeline as they move forward? Kevin Pascoe: Austin, this is Kevin. I guess the way I would say is you definitely touched on an element of what we're looking at in the pipeline. In terms of the full scope of the pipeline, it's well over $1 billion. But we're not going to report to you a number that is we don't think is achievable. So there are some larger portfolios. Anything over $100 million, we're not reporting in our numbers because I think the percentage hit rate on those is going to be a little lower. So we want to make sure it's signed up before we would report that in terms of what we have under LOI or in our pipeline. So I think that's just a function of what we're looking at in a mix of the pipeline at the moment. So I would say it's as robust as it has been, if not more. It's been an extremely busy year here, and it continues to be. So I don't really have any hesitation on where our pipeline sits right now. Operator: Our next question is coming from Farrell Granath with Bank of America. Farrell Granath: I had a quick question about the guidance increase. I was wondering if you could bridge between the old and the new guidance. What in there is including term fee as well as any additional -- was there incremental positivity and outlook or just having better confidence? Just wondering if you could go through a few of the items. John Spaid: Yes. Okay. Let me -- this is John Spaid. Let me see if I can start from the top. In August, we had to make a lot of assumptions regarding the conversion activity that we recognized in the third quarter. That activity was -- came in much better than expected. There's a couple of things that were -- onetime items that came in better than expected. There was also better than expected NOI that we recognized from the conversion SHOP portfolio. So that all influenced the raise. We also additionally saw a fair amount of loan receivable payoffs that occurred during the quarter. And oftentimes, what happens there is twofold, depending on what we're -- what's being paid off, we would then recognize credit loss reserve reversals, which flows through all of our metrics, except for FAD. So that was a significant change in our forecast. Interest income will also change, both for the third quarter as recognized as well as the fourth quarter because our mortgage investments now have declined. But when we saw those mortgage payoffs, we collected some accrued interest that was accruing but not recognized, and we also had some exit fees as well. And then I guess, finally, the same-store SHOP portfolio, we had to change that. We used to have a range of 13% to 16%. That's now 7% to 9% for the year. So I think those are the biggest factors. Farrell Granath: Okay. And also going back to the SHOP portfolio in -- or in the acquisition pipeline. I was curious if you could add a few comments on how you're viewing with the competition in the market, you made the comment about the hit rates on the larger portfolios and across a lot of broader peer sets, we've been seeing an increase in SHOP activity as well as looking to buy full portfolios of SHOP. Just curious if you could just comment on competition. Is that impacting pricing? Is it leading others to pay above what you're underwriting for the pricing? Kevin Pascoe: Sure. This is Kevin. The competition in the marketplace has definitely ramped up. That said, I feel like we have very strong ties with our operating partners that we were getting looks on properties that would be more off market. What you've seen close is indicative of that where we get a direct from our manager or operating partner and then also a function of our -- what we describe as our loan-to-own program. That's worked out really well for us. So it is a much more competitive environment. I think those are the deals that we try to exclude from our pipeline just because there are more groups that are looking at it. A lot of it is our REIT peers. When we look across the landscape, there's a little more private equity entering the space as well. The uniqueness that we have and our peer share is that we don't have financing contingencies. So we're actually able to get a little bit better pricing versus what I would consider the top bid because they know we can close. So -- we'll continue to pursue those marketed deals as well, but we're really focusing on making sure we have the right relationships and being able to pull in stuff at a better value. Operator: Our next question is coming from Rich Anderson with Cantor Fitzgerald. Richard Anderson: If we could just kind of close the circle on NHC for now. Can you remind the basics behind the whether or not they're in default. I know it's been said, but I just want to make sure we got that clear about your point of view on that topic. D. Mendelsohn: Rich, this is Eric. So when we made the announcement that we sent them a notice of default, we said that there were nonmonetary provisions that they were not adhering to. That was certain audit requirements, that was certain reporting requirements, that was certain insurance requirements and CapEx requirements. We had done an inspection of all the buildings and found maintenance and level of CapEx to be lacking. So we put that in a letter and sent it to them. And then, of course, as I said earlier, under the terms of the lease, if they're in default, then they're not able to renew the lease. So that's kind of where we are. There's provisions that allow for arbitration. There's a question as to whether or not the lease renewal rate is subject to arbitration, so that's something that is a question mark that I can't really address. And... Richard Anderson: But there -- this renewal offer from them is for the entirety of the portfolio. There's no cherry pick... D. Mendelsohn: Correct. Correct. It's all or nothing. Richard Anderson: Okay. I understand the hiccups during the quarter on the SHOP. I know it's small with -- relative to the rest of the portfolio. But -- Kevin, you want to put the right people in place and you kind of went through that whole response to Juan's question. But -- what -- I guess my question is this is not like you had this stuff in place yesterday. You had -- you've been in this portfolio for some time now. Like what is it do you think that suddenly hiccup on you with this portfolio, you mentioned higher move-outs. It just seems a little sudden given the fact that this is not a new portfolio to you. Kevin Pascoe: Sure, this is Kevin. I understand your question. I would say we also telegraphed this last quarter that we saw. This was -- we knew that the third quarter was going to be softer than the second because of the things that we were seeing in the portfolio. So I don't think it crept up on us. I think it was a matter of -- we saw it coming. We telegraphed it. I would say the result was more -- was lower than what we would have liked to see. So we're trying to make the corrective measures that I described. I also think that this is a function of operations. We're looking at, as you've already said, a small portfolio, and we're drilling into a handful of buildings that are driving the result. As we continue to grow and we diversify our investment, that's going to be the key for us here in SHOP. Richard Anderson: Right. Okay. Fair enough. Like a couple can really move the needle at this point. And then, John, if you could just -- you mentioned the new guidance, and you mentioned some better-than-expected onetime items. Can you just quantify the onetime items in the third quarter that contributed to the guidance raised just in dollars, so we can have that in our model? John Spaid: Sure. Yes. This is John again. In my prepared remarks, I mentioned $4.6 million of cash revenues that came in under the converted properties. So that number included everything we collected, including 1 month's rent. We then recognized a $1.4 million, what we call it, a noncash rent revenues on operations transfer. And then we also recognized the $12.1 million straight-line receivable write-off. So when we recognize the cash rents, which flows all the way down through FAD, at the same time, we converted the SHOP and we recognized $2 million of NOI. So there's a little bit of doubling up there as a result. The other big onetime item I just want to point out is that when we have significant, particularly mezz type loan payoffs, we'll have a reversal of the credit loss reserves, which flows through all of our metrics, including FFO and not FAD. And as a result of all of these sort of changes, including the Fed results, we've also seen some nice reductions in our interest expense. And that also was another topic I didn't really mention in my prepared remarks too forcefully, but we're seeing some benefit there because we have some variable rate interest expense. And we are also to get -- we're able to get out that bond at a 5.35% coupon. I wasn't sure we could do it quite that nicely as we did in the third quarter. So the forecast is always kind of reflected a little higher expectation for interest rates for the year. Does that help? Richard Anderson: Yes. That's good. Operator: [Operator Instructions] Our next question is coming from Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: Quick question on -- you put an 8-K out yesterday, you were going to be losing 2 Board members by sometime in 2026. I know there's been a lot of board change in general at the company. But for these 2 particular roles, just talk a little bit about how the Board may potentially be thinking about replacement? Whether -- what particular type of skill sets of background you're looking for, whether it's someone who has Senior Housing operating experience? Just kind of curious what we may see that could help further bolster the Board going forward with these 2 opportunities? D. Mendelsohn: Sure, Tayo. This is Eric. Yes, we made that announcement yesterday that 2 Board members will be rolling off. And as you will recall, we had an activist campaign earlier in the year, and we addressed Board refreshment as part of our strategy to address the activists. So here we are. We're conducting a search using Ferguson Search firm. Ferguson has helped us in the past with some Board members, and we're currently interviewing Board members and you're absolutely right. They will have some senior housing and operations exposure and stay tuned for announcements in that regard. Omotayo Okusanya: That's helpful. And then just going back to SHOP, and I think maybe this one maybe a little bit more for Kevin. But again, just given your experience with kind of with the Holiday portfolio and again, some of the changes you've made on the Discovery side. Just kind of talk about this idea of a SHOP moves from 5% to 10% to 20% of your portfolio, kind of like this next evolution kind of -- what are the kind of key things you're looking for from the operators to kind of prevent some of this kind of one step forward, one step back that you've kind of dealt with through, through your current experience with the same-store portfolio. Just -- what are you really looking for going forward that kind of says, this is the operator we want to deal with, and there's an operator we don't want to deal with? D. Mendelsohn: Tayo, this is Eric again. I'm going to take this one. You're absolutely right. You'll recall that we kind of backed into the Holiday conversion of SHOP. The history of that portfolio, was a lease with Fortress and Holiday was the operator. The Holiday got bought by Atria and Fortress sold its portfolio to Welltower. And the entity that was our tenant to Welltower, and you'll recall that we had litigation with Welltower as a result of that. And it was a good opportunity for us to turn lemons into lemonade. Our Board had been on the fence about whether or not to engage and shop and operations, and this kind of forced the issue. So it was a science experiment. And generally, we're happy with the way it turned out. Last year's growth on the portfolio was 30%. Last quarter, we had good growth in holiday of 15%. We'll be chasing those numbers and working to get those back again. We've added new talent to our bench. You look on our web page, you'll see we have a new SVP of Asset Management. We have new VPs of Asset Management. We're very highly skewed towards operations now. And we're very savvy about what it takes to run an operating platform. Recall that both John and I -- came from Emeritus, a large operator. So I'm comfortable with this new footing that our company is engaged in and I'm excited about the opportunity to grow the new store. We converted 7 buildings this quarter, and we bought 6 buildings, and we bought 2 more from Compass and we converted a loan for a total of 4. So we are growing SHOP quickly. And I can tell you the majority of our pipeline is SHOP. So we're committed. Operator: Our next question is coming from Juan Sanabria with BMO Capital Markets. Juan Sanabria: Just piggybacking on Tayo's question. Curious if you could provide any high-level thoughts about G&A with the additions of personnel and doubly down on asset management capabilities. D. Mendelsohn: Sure. If you look in our supplemental, we address our G&A as a percentage of assets under management. And I would still pause it to you that we're cost-effective and very low compared to our peers. Looking at year-to-date, exclusive of stock comp at 0.56%. So that's a good metric. John, do you have anything? John Spaid: Yes. Juan Sanabria: Just looking more for growth parameters, just given the investments in people and systems for next year. Is there any early thoughts? John Spaid: Well, one way to think about it is -- and the way I think about it is revenues per employee. So I'm kind of working off of right now a metric of about $11 million of revenues per employee. I think that's probably something that might be a little bit heavy in terms of G&A for us as we move forward, but I'm thinking that way. And as I issued guidance, my guidance is including our expectations to grow internally as we take on more and more SHOP. So you can -- I'll give you a forward number here. If you think about our SHOP this year, we've grown it in terms of revenues, almost 60%. If you just look at what we've announced to date, excluding any new unidentified investments, our SHOP revenues year-over-year will probably be up in that 60% plus range, again before we talk about new investments again. So there you go. There's a couple of numbers you can work off of. Juan Sanabria: Okay. And then just for Bickford. Just curious if you can make any comments on their financial health and how we should think about the range of potential outcomes for that revenue set next spring? Kevin Pascoe: Sure. Juan, this is Kevin. From a financial health standpoint, we disclosed our coverage ratios. The lease is doing very well. Again, somewhat similar to my comments about SHOP and our managers, we need to evaluate our entire portfolio, including Bickford on a continuous basis in terms of -- is there -- are there properties that need to go to a different home or to be sold, what have you. We'll be doing that exercise as we approach the reset to make sure that the properties we have are the most effective for the portfolio. But I feel good about our relationship with them, the coverage we have on our lease in terms of their overall health, they have some more capital planning. They need to do. We've talked about that in the past in terms of just getting some long-term debt in place. So we're not dealing with some of these or they are not dealing with some of these issues that they have, that has been a work in progress. They've made some decent progress on moving some of their owned assets to HUD. So that is long-term fixed capital for them. They need to do some more work there. So I feel like they're making progress. We still have some more -- or they have some more work to do. We'll be monitoring that very closely to make sure that work gets done. But overall, they've done what we've asked them to do. It's improving, but it's probably a little slower than we would have liked. Operator: As we have no further questions in the queue at this time, I would like to hand the call back over to Mr. Mendelsohn for any closing remarks. D. Mendelsohn: Thank you all for your time and attention today, and we look forward to seeing you at NAREIT. Operator: Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good afternoon, and welcome to Diodes Incorporated Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, November 6, 2025. I'd now like to turn the call over to Leanne Sievers of the Shelton Group Investor Relations. Leanne, please go ahead. Leanne Sievers: Good afternoon, and welcome to Diodes Third Quarter 2025 Financial Results Conference Call. I'm Leanne Sievers, President of Shelton Group, Diodes Investor Relations firm. Joining us today are Diodes' President and CEO, Gary Yu; CFO, Brett Whitmire; Senior Vice President of Worldwide Sales and Marketing, Emily Yang; and Vice President of Marketing and Investor Relations, Gurmeet Dhaliwal. I'd like to remind our listeners that the results announced today are preliminary as they are subject to the company finalizing its closing procedures and customary quarterly review by the company's independent registered public accounting firm. As such, these results are unaudited and subject to revision until the company files its Form 10-Q for its quarter ended September 30, 2025. In addition, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the safe harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today, and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the company's filings with the Securities and Exchange Commission, including Forms 10-K and 10-Q. In addition, any projections as to the company's future performance represent management's estimates as of today, November 6, 2025. Diodes assumes no obligation to update these projections in the future as market conditions may or may not change, except to the extent required by applicable law. Additionally, the company's press release and management statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms. Included in the company's press release are definitions and reconciliations of GAAP to non-GAAP items, which provide additional details. Also throughout the company's press release and management statements during this conference call, we refer to net income attributable to common stockholders as GAAP net income. For those of you unable to listen to the entire call at this time, a recording will be available via webcast for 90 days in the Investor Relations section of Diodes' website at www.diodes.com. And now I'll turn the call over to Diodes' President and CEO, Gary Yu. Gary, please go ahead. Gary Yu: Welcome, everyone, and thank you for joining us on today's conference call. As announced in our press release earlier today, revenue in the quarter increased 7% sequentially and 12% year-over-year, driven by strong demand across the general computing market, including for AI-related server applications as well as data center and agent computing. Our global point of sales increased the strongest in Asia, followed by North America. Additionally, our channel inventory is at a healthy level, decreasing again this quarter in terms of dollars and weeks with overall inventory dollar decreasing over 25% from peak levels. Even though the rate of recovery in the automotive and industrial market continues to be slower than expected, revenue increased both sequentially and year-over-year in both of these end markets. When coupled with the computing market growing the strongest along with the consumer also increasing sequentially, product mix unfavorably weighted on the gross margin during the quarter. Future margin expansion will be driven by ongoing improvement in the product mix as the pace of recovery accelerate in our higher-margin automotive and industrial end markets, combined with increased new product introductions in our target markets as well as improved loading across our manufacturing facilities. At the midpoint of our fourth quarter guidance, we expect to achieve approximately 12% growth for the full year. Looking forward, we are gaining increasing confidence in broader demand improvement in the automotive and industrial market. Diodes is gaining increasing market share in the automotive market with new programs scheduled to launch early next year. Combined with increasing content in industrial applications like AI robotic, power management, medical and factory automation. With that, let me now turn the call over to Brett to discuss our third quarter 2025 financial results as well as our fourth quarter guidance in more detail. Brett Whitmire: Thanks, Gary, and good afternoon, everyone. Revenue for the third quarter 2025 was $392.2 million, an increase of 12% over $350.1 million in the third quarter 2024 and a 7.1% increase over $366.2 million in the second quarter 2025. Gross profit for the third quarter was $120.5 million or 30.7% of revenue compared to $118 million or 33.7% of revenue in the prior year quarter and $115.3 million or 31.5% of revenue in the prior quarter. GAAP operating expenses for the third quarter were $108.9 million or 27.8% of revenue and on a non-GAAP basis were $103.1 million or 26.3% of revenue, which excludes $5.9 million amortization of acquisition-related intangible asset costs. This compares to GAAP operating expenses in the third quarter 2024 of $96.1 million or 27.5% of revenue and $105.9 million or 28.9% of revenue in the prior quarter. Non-GAAP operating expenses in the prior quarter were $99.8 million or 27.3% of revenue. Total other income amounted to approximately $7.5 million for the quarter, consisting of $8.5 million of interest income, $2.4 million in unrealized gains from investments, $0.4 million in other income, $3.3 million in foreign currency losses and $0.5 million in interest expense. Income before taxes and noncontrolling interest in the third quarter 2025 was $19 million compared to income of $18.8 million in the prior year period and $53.2 million in the previous quarter. Turning to income taxes. Our effective income tax rate for the third quarter was approximately 18.7%. We continue to expect the tax rate for the full year to be approximately 18%, plus or minus 3%. GAAP net income for the third quarter was $14.3 million or $0.31 per diluted share compared to net income of $13.7 million or $0.30 per diluted share in the prior year quarter and net income of $46.1 million or $0.99 per diluted share last quarter. The share count used to compute GAAP income per share for the third quarter of 2025 was 46.4 million shares. Non-GAAP adjusted net income in the third quarter was $17.2 million or $0.37 per diluted share, which excluded net of tax $4.8 million of acquisition-related intangible asset costs and $1.9 million of unrealized gain on investments. This compares to non-GAAP adjusted net income of $20.1 million or $0.43 per diluted share in the third quarter of 2024 and $15 million or $0.32 per diluted share in the prior quarter. Excluding noncash share-based compensation expense of $5.4 million for the third quarter, net of tax, both GAAP net income and non-GAAP adjusted net income would have increased by $0.12 per share. EBITDA for the third quarter was $46.6 million or 11.9% of revenue compared to $46.9 million or 13.4% of revenue in the prior year period and $84.5 million or 23.1% of revenue in the prior quarter. We have included in our earnings release a reconciliation of GAAP net income to non-GAAP adjusted net income and GAAP net income to EBITDA, which provides additional details. Cash flow provided by operations was $79.1 million for the third quarter. Free cash flow was $62.8 million, which included $16.3 million of capital expenditures. Net cash flow was a positive $59.3 million. Free cash flow per share was $1.35 for the quarter and $4.02 per share for the trailing 12 months, approaching the historical high of $4.34 per share in 2021. Turning to the balance sheet. At the end of third quarter, cash, cash equivalents, restricted cash plus short-term investments totaled approximately $392 million. Working capital was approximately $890 million and total debt, including long term and short term, was approximately $58 million. In terms of inventory, at the end of the third quarter, total inventory days were approximately 162 as compared to 173 last quarter, down approximately 11 days sequentially. Finished goods inventory days were 62, a decrease of 9 days from the 71 days last quarter. Total inventory dollars decreased $11.8 million from the prior quarter to $470.9 million, consisting of a $17.3 million decrease in finished goods and a $1 million decrease in work in process and a $6.5 million increase in raw materials. Capital expenditures on a cash basis were $16.3 million for the third quarter or 4.2% of revenue, which was below our targeted annualized range of 5% to 9% of revenue. Now turning to our outlook. For the fourth quarter of 2025, we expect revenue to be approximately $380 million, plus or minus 3%. At the midpoint, this is better than typical seasonality from third quarter and represents a 12% increase over the prior year period and will be the fifth consecutive quarter of year-over-year growth. GAAP gross margin is expected to be 31%, plus or minus 1%. Non-GAAP operating expenses, which are GAAP operating expenses adjusted for amortization of acquisition-related intangible assets, are expected to be approximately 27% of revenue, plus or minus 1%. We expect net interest income to be approximately $1 million. Our income tax rate is expected to be 18.5%, plus or minus 3%, and shares used to calculate EPS for the fourth quarter are anticipated to be approximately 46.4 million shares. Not included in these non-GAAP estimates is amortization of $4.8 million after tax for previous acquisitions. With that said, I now turn the call over to Emily Yang. Emily Yang: Thank you, Brad, and good afternoon. Revenue in the third quarter was up 7.1% sequentially and at the midpoint of our guidance, mainly driven by strong demand in Asia, especially in Taiwan for the AI computing applications. Our global point of sales increased in Asia, followed by North America and our channel inventory decreased both in dollars and in weeks. During the quarter, we continued to drive our new product initiative with approximately 180 new part numbers, of which 60 were for automotive applications. Looking at the global sales in the third quarter, Asia represented 78% of the revenue; Europe, 12%; and North America, 10%. In terms of our end markets, industrial was 22% of Diodes product revenue; automotive, 19%; computing, 28%; consumer, 18%; and communications, 13% of the product revenue. Our automotive industrial revenue combined was 41%, which was 1 percentage point lower compared to the last quarter. Even though automotive industrial revenue increased quarter-over-quarter, the computing end market experienced stronger growth than the 7% of the company average for the quarter and the industrial market grew at a lower rate than the average. Now let me review the end markets in greater details. Starting with automotive. Revenue in the quarter grew 8.5% sequentially and 18.5% in the first 3 quarters over last year, even though as a percentage of the total product revenue was flat to the last quarter due to the growth in the other markets. The revenue increase during the quarter serves as a further evidence that the inventory situation continued to improve even though the overall demand remained dynamic and the pace of recovery is slower than expected. The other positive news is that we are starting to see more new programs scheduled to ramp early next year. Our controllers and MOSFET combination from the low-voltage MOSFET product line has established a strong presence in the automotive DC source applications. Our newly released 50A and 650-volt automotive-grade Silicon Carbide Schottky Barrier Diodes are specifically seeing traction in energy storage systems. And our small signal bipolar junction transistors devices packaged in DFM are proving to be valuable for general-purpose signal switching, offering flexibility and compactness for various electronic designs. Additionally, our latest NPN and PNP bipolar junction transistor products feature industrial-leading low saturated voltage, making them ideal for a range of automotive applications. These products are ideally suited for voltage regulation, DC-DC converters, motors as well as LED lighting, engine control units, power management and linear controllers. Diodes TVS products are being designed into battery management system applications, providing robust search and overvoltage protection for reliable automotive battery performance. In addition to our TVS products, our switching diodes, Zener diodes and SBR products have design wins in autonomous driving, telematics and infotainment applications. And our USB 2, signal booster devices are being adopted for in-car charging solutions and other cockpit electronics, enabling stable signal transmission in long cable environments. We have also seen strong demand for our low quiescent current LDO operating at 40 to 60 volt, driven by increased production of MCU power supply systems. Our automotive Hall effect sensors, including latch and Omnipolar switch variant have experienced double-digit growth, driven by new design wins in DC motors, window and tailgate lifters, cooling fans and glass ball sensors. This momentum is expected to continue as automotive design become increasingly more sophisticated. And lastly, our LED driver are seeing solid demand supporting a diverse range of applications such as gear shift control indicators, interior cabin lighting and mood lighting. Turning to industrial market. Similar to the automotive market, the inventory situation continues to improve gradually with revenue in this market grew almost 4% sequentially and 13% for the first 9 months. We continue to expect the overall inventory situation will begin to normalize next year. We are seeing applications such as AI robotics, medical and factory automation gaining strong demand momentum. With the increasing power consumption by new systems, the importance of power supply and backup power solutions for AI servers is becoming increasingly critical. Next-generation server power supply systems are transitioning from the current 48-volt system to 400-volt and 800-volt systems and adopting a stand-alone power rack design. Diodes SBR products, Silicon Carbide MOSFET, ideal diode controllers are gaining traction in this innovative applications are increasingly being adopted by a range of power supply customers. Additionally, our portfolio of 50M 1,200-volt Silicon Carbide Schottky Barrier Diodes products are achieving success in energy storage applications, delivering efficient and reliable performance. And our silicon carbide MOSFETs are also seeing increasing adoption, especially for applications such as EV chargers and power supply for AI surfers and data center applications. Also in the industrial, Diodes TVS products are being integrated into power adapters to provide robust ESD and search protection, enhancing device reliability and our high-voltage sensors, low dropout regulators and voltage reference solutions are demonstrating strong momentum in a variety of industrial applications, including fan motors, household appliances, power tools and e-meters. In the computing market, we saw the strongest growth this quarter, increasing almost 17% sequentially and 22% in the first 9 months compared to last year. The highlight continues to be the strong demand momentum for AI-related applications. With the chipset refresh cycle underway, we are gaining strong traction and market share across our connectivity and timing product line with particular strength in PCI Express 5.0 and 6.0 clock solutions. This growth is fueled by increasing demand within AI, data center and edge computing applications. Our level shifter products are also seeing notable expansion, especially in server applications with major customers. Additionally, our signal integrity and high-speed switch portfolio, including USB4 and PCIe 5 and 6 has gained significant traction. These products are being widely adopted in key applications such as AI cars for server and solid-state drivers. Our ESD protection devices are also increasingly being integrated into SSD applications, showing a positive ramp-up. We also continue to secure design wins for our PCI Express 4.0 and 5.0 redriver solutions and are now entering solid production phase in both notebook and SSD applications. And our power switches are in high demand for the data center SSDs, while USB-C source switch are being utilized in power ports for the desktop and docking stations. Our linear LED drivers are also seeing increased deployment in servers. In the consumer market, revenue also increased 8.5% sequentially and 7% for the first 9 months, even though flat as a percentage of the total product revenue. Diodes bridge rectifiers are being designed into multiple power adapters that are ramping up, fueled by increased demand in the gaming systems. The adoption of DP 2.0 redrivers is on the rise in high-resolution gaming monitors, supporting enhanced image quality and faster refresh rates. Additionally, adoption of our MIPI switches and redrivers is also ramping up as they are being incorporated into augmented reality glasses, signaling rapid growth opportunities in wearable display technologies. Lastly, in the communication market, overall growth was relatively flat sequentially and a slight decrease for the first 9 months. We are, however, seeing pockets of growth driven by the AI and high-speed interconnect applications. This demand is being driven diodes introduction of new crystal oscillators that offer significant lower jitter less than 60 femtoseconds and also support higher frequency, now reaching 312.5 megahertz in addition to the previous 156.25 megahertz. These advanced oscillators are gaining adoption in the optical transceiver modules, which are integral to the high-speed 800G and 1.6T optical communications within data center and the auto directional level shifter and the low dropout regulators experienced strong demand driven by the growth of AI-enabled smartphone applications. In summary, our continued year-over-year growth momentum is a result of our past design wins and content expansion initiatives across our target end markets. Additionally, our continuous investment in new product introduction in our high-margin end markets of automotive industrial position us well for a return to strong growth in those markets as the recovery accelerates. And with a return to more healthy inventory level and shipments more closely reflecting true end demand, we expect to see increased loading at our manufacturing facilities and improving margin over the coming quarters. With that, we now open the floor to questions. Operator? Operator: [Operator Instructions] We'll take our first question today from the line of David Williams at Benchmark. David Williams: Congrats on the solid results here. I guess maybe first question, Emily, you kind of touched on this at the end on the increased loadings. But as you kind of think about the gross margin for the year and what those loadings could look like, can you kind of give us a sense of what your expectations are for growth and maybe how those loadings should look as we move through next year? Emily Yang: Yes. So I think if you look at the gross margin, right, there's a couple of areas that we believe is going to improve over time, right? So number one, we do expect the product mix will continue to improve throughout the quarters, right? With a lot of pipeline, we have a lot of success in the automotive with the key focus introducing a lot of new products, we are actually confident that the combination of the product mix will continue, right? And then if we look at the Pericom product family, we continue to focus on the AI areas. We believe that will continue to help us from the product mix. On top of that, we have new product introduced throughout the quarters, especially focus in automotive area and some other areas. So again, right, that's part of the product mix. For the longer term, 2026, we do expect the revenue to be a growth year, right? So naturally, when we grow the revenue, that will increase the loading of our factories, right? -- we're also aggressively porting our product into our factories from outside to inside and balance overall the loading as well. So gradually, that will show some improvement, right? I think going down to manufacturing efficiency, I think overall, Gary and the company is driving very aggressively for cost down and continue improving on that area. So I would say if you add all these things together, that's actually the reason that we believe. And then on top of that, right, I also talked about it, if we look at the channel inventory, we believe the ship in, the ship out is going to be more balanced moving forward. We have been depleting quite a lot for the last few quarters, and that's actually going to get more stabilized. So I would say that's another angle to think about it. David Williams: Okay. Great. And then maybe on the tariff side, it seems like some of your peers have had a challenging time kind of sidestepping some of the earlier in the year pull-ins, but that doesn't seem to have impacted you, and we're not seeing it here in the fourth quarter. Maybe talk about that, how you're able to navigate that. But are you seeing that impact? Or could you potentially see that as we move into next year? Is there anything, I guess, from that perspective that we should be thinking about? Emily Yang: So David, I want to make sure you are talking about the tariff importing into U.S? David Williams: Yes. Just the general demand trends as we saw with the tariffs that were driving some earlier loadings for production to come to the U.S., just that -- just the demand dynamics around that and that channel inventory associated with it. Emily Yang: I would say, overall, we didn't really see the big spike or change overall for the demand point of view. I think tariff is not new just for last quarter. It has been in place for quite some time. I think we are working aggressively leverage our flexible manufacturing site and moving things around to minimize the tariff overall impact for U.S. revenue. I think on top of it, right, majority or there's quite a lot of revenue within North America is actually importing into Mexico or Canada. So that's actually also a different story. I would say, all in all, if you look at the overall percentage of the business for North America is still a very small percentage. So that's the reason that we are working different angles, but the overall impact is relatively small for Diodes. Gary Yu: But -- and I would like to add a comment on that. The market is very dynamic, especially like country to country, this kind of geopolitical issue. So at Diodesn we always want to keep our flexibility to support customer anywhere they want it. David Williams: Okay. All right. Very good. Certainly appreciate that. And maybe just lastly for me is on the automotive side. You've talked about things getting better there, inventory is better. How do you see maybe your position given your content growth and these programs that are ramping next year? How do you think we should look at the revenue growth trajectory for automotive specifically as we get into next year? Emily Yang: Yes. So current percentage for automotive for us based on the Q3 result is 19%, right? We definitely expect our automotive percentage will continue to improve in 2026, especially with the market share gain and the content expansion that you just mentioned. Operator: Next, we will hear from the line of Tristan Gerra at Baird. Tristan Gerra: You mentioned in-sourcing as a gross margin catalyst for '26. How should we look at the gross margin benefit for an analog product currently outsourced in Korea or in Japan versus once it moved internally? And is it fair to say that the qualification process for your South Portland, Maine fab is ongoing, and it sounds that perhaps it's more of a second half of next year dynamic given that industrial and automotive are still somewhat in recovery mode? Gary Yu: Okay. Tristan, this is Gary. Let me help to answer this question for you, right? And by moving external to external, definitely going to benefit Diodes a lot, right? For example, if I subcon to my wafer to our subcon partner, they're definitely going to earn some premium from Diodes and then we can save the premium and by loading internally with our like kind of very, very effective cost this kind of model on that. So definitely, we can enjoy the benefit of moving external to internal. As for the analog part, we continue loading or qualify the process new product into our SP fab. And we do see a very, very good progress so far, and we do have our new product or requalified product from this wafer fab being qualified in our key customer side. And we do see the PO coming in just recently from the previous couple of quarters. So to offset our OEM customer under load issue or continue to drive the demand, we do significantly improve our loading in those particular SP fab to offset this kind of under loading issue in the cost. So for year 2026, I do believe loading will be improved and the GP coming from this wafer fab will improve, too. Tristan Gerra: Great. That's very useful. And then you mentioned AI as a key driver of computing, but you also mentioned computing being a negative on mix. What percentage of your computing revenue right now is data center? And then any way to quantify how much of the growth is coming from AI-related products? Emily Yang: Yes, Tristan, this is Emily. We're sorry, right now, we actually don't have the breakdown information. But if you look at our Q3 result, right, computing is the strongest growth market segment for us -- we actually achieved 70% -- 17% sequentially and 22% just compare the first 3 quarters, right? A majority of this growth is driven by AI. So I think the other thing I want to point it out, right, AI is not just in the computer segments, right? We're also, for example, seeing AI related in the industrial power supply or some other edge AI applications that's driving some of the refresh cycle. That's actually the reason we haven't been able to break it out. I think on top of that, if you really think about our product, it's really fitted for a lot of applications, not just limited to AI, right? But I would say, all in all, it's really positive. We're actually excited to see the performance and the growth, especially in the computing market segment. Gary Yu: Yes. And just like Emily said, no matter AI in compute or industrial, we do see this kind of market segment will continue to grow next year and even the year after next year. And at the same time, we continue to introduce a new product into this segment. And this new product, usually, we can enjoy much better GP on that. So that's really we're going to put our R&D focus on that but continue to grow our GP percent in the future. Tristan Gerra: Okay. Great. And just one quick last one. Do you see yourself as a benefit from the disruptions around Nexperia? Because my understanding is that it's a lot of discrete product. And are you second sourcing some of that? Is that a tailwind for next year? Emily Yang: Yes. Tristan, we're definitely aware of the situation. Discrete, Diodes, rectifiers, MOSFETs, logic, definitely part of our broad portfolio, and it does cross over to some of our peers like Nexperia, right? Like I mentioned before, any time there's a change of supply situation, strategic decision, whether change price or supply or low-margin focus, it always creates opportunity for Diodes, and we always utilize this type of opportunities to really expand and build a stronger relationship with our strategic customers and also the focus in automotive market segment, right? We do review all this business very carefully and engage in the areas that fit into our overall long-term strategy and focus. So our goal at the end is really better serve the customers overall. Operator: [Operator Instructions] We'll hear next from William Stein at Truist. Paul Smith: This is Elliott on for Will. You mentioned 2026 being a growth year, and it looks like recent top line growth is holding in around plus 10% year-over-year. Is that a reasonable level for us to expect through 2026? And I'm wondering if you could give us some examples of end markets or products or applications that could maybe trigger a more robust recovery than, say, plus 10%? Gary Yu: All right. This is Gary. Let me try to help answer this question. Yes, the answer to you is yes, for sure. We do believe the year 2026 will be another good year for Diodes. Not only the revenue growth like a double digit, I want to drive on that way, but also I want to make sure our profitability also grows aligned with our revenue growth. That's our commitment to the shareholders. And as for which segment we are looking for the most aggressive growth, one is AI, as Emily mentioned that about in the previous answer. Another one will be automotive plus industrial because we do see the automotive and industrial in the near future, not only the segment increase, but also we do have a newer product and introduced into this segment and been designing since the past couple of quarters. So we do see the revenue is going to be significant growth in these two segments. Emily Yang: Yes. I think on top of that, right, we went through a period of inventory adjustment. We believe that by 2026, even with few customers' inventory situation will continue to improve, and that naturally is going to drive some of the demand as well. Gary Yu: Exactly. Paul Smith: Okay. And one more, if I can, on -- we've talked previously about a 20% operating margin target. I'm wondering if you could give us some color and maybe be a little more prescriptive in terms of the different variables you gave earlier about margins improving of how you can get to potentially that 20% range again from the -- call it, mid-single digits today. What's the lion's share? Anything like that you can provide? Gary Yu: Okay. Let me try to give you a very high-level direction I want to drive on that. The first, we want to drive top line means like revenue is going to be growth, right? And along with the GP and GP percent improvement on that direction on the growth mode. At the same time, and I really want to keep our SG&A flat or less percentage while the revenue growth, but I really want to put more focus on R&D expenditure along with the revenue growth. With that, I do believe we can improve more on our bottom line. So let me emphasize again, revenue growth and along with the GP percent GPM growth, we keep SG&A percentage flat or reduced. And at the same time, I want to focus on -- invest more on R&D. Brett Whitmire: Yes. A couple of things I would add to that. This is Brett. Is that when you think about that 20% margin, the building blocks to that are principally two things. Our gross margin continuing to improve and working its way back to 40-plus percent. And you basically got the OpEx that we have -- that we've shown that at the higher revenue levels will be around 20%. And as Gary mentioned, the goal is to -- and what you can see in our investment is leaning heavier into the R&D piece than we are on the SG&A. And so I think that's -- those are the two main components. And the big one we spend the time on is on the gross margin and the real drivers to that and building on the differentiated, more quality products across our portfolio while then in addition, not adding to our manufacturing footprint while we do that, but getting the entitlement of it as -- that's in place. So those things together, it will accelerate the margin improvement and will basically transition back to margin that we saw a few years ago. Operator: And now we'll take a follow-up from Mr. David Williams at Benchmark. David Williams: On the AI side, is there a way to kind of parse out the demand or new demand that you're seeing relative to maybe the content expansion? And the reason I'm just trying to understand, are you driving -- and I get that you're probably driving both, but what is the bigger one? Is it just increased demand all around? Or are you just able to sell more products into each one of these solutions? Emily Yang: I think it's really a combination of both, right? I think it's important that we continue to drive new product introductions. Like I mentioned, there's a lot of change even with the AI data center with some shifting of transitioning from 48-volt to 400-volt and 800-volt, which also means that there's a new set of requirements that need to be fitted into the application. So I think it's important for Diodes continue to focus on the technology, continue to focus on new product introduction that will be well fitted into the new application, right? At the same time, the volume will continue to grow. When you combine those two together, it's going to get the best result overall. Gary Yu: Yes. Another important information I'd like to share is like Diodes and Vantage has a very good relationship with those like Tier 1 customers, no matter any company or other company, right? And that's why we understand from their architecture, from our system point of view, we know what they want 3 years or 5 years from now. That's why we cooperate with them to develop the product they wanted. David Williams: Okay. Okay. That's great color there. And then maybe just on the inventory side, do you get a sense that some of your customers have started to replenish if you look across your inventory levels? And is that something that's helped here? Or do you think that is still in front of us, just kind of given where inventory levels are today? Emily Yang: I believe a lot of customers' inventory situation changed a lot. There are still some pockets of customers, especially, I would say, in the industrial market segment that's still going through some corrections, but we also expect situation should be improved or completed by the beginning of next year. Brett Whitmire: Yes. So David, one way to think about that, too, is that you've seen the last 2 quarters, the internal inventory as well as, as we've described, our channel inventory continue to come down. And as long as that is happening in that way, you're not getting the full entitlement of the market on our margins. And so I think going forward, we feel a more balanced basically ship in and ship out and then the ability to have the entitlement of the full demand coming through our margin. And as Emily said, we think we'll -- you'll start to see that as we transition into probably second quarter next year, especially as we start to see the strength. Operator: And we have no further questions from our audience today. I'm happy to turn the floor back to Mr. Gary Yu for any additional or closing remarks. Gary Yu: Thank you, everyone, for participating on today's call. We look forward to reporting our progress on next quarter's conference call. Operator, you may now disconnect. Operator: Ladies and gentlemen, thank you for joining today. You may now disconnect your lines.
Operator: Good morning, everyone, and welcome to the Docebo Q3 2025 Earnings Call. [Operator Instructions] I'd now like to turn the call over to Docebo's Vice President of Investor Relations, Mike McCarthy. Please go ahead, Mike. Michael McCarthy: Thank you. Earlier this morning, Docebo issued its Q3 2025 results. The press release, which included a link to management's prepared remarks and our quarterly investor slide deck, were all posted to our Investor Relations website. This morning's call will allow participants to ask questions about our results and the written commentary that management provided this morning. Before we begin this morning's Q&A, Docebo would like to remind listeners that certain information discussed may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on risks, uncertainties and assumptions relating to forward-looking statements, please refer to Docebo's public filings, which are available on SEDAR and EDGAR. During the call, we will reference certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Please note that unless otherwise stated, all references to any financial figures are in U.S. dollars. Now I'd like to turn the call over to Docebo's CEO, Alessio Artuffo; and our CFO, Brandon Farber. Operator, we're now able to take questions. Operator: Our first question comes from George Sutton from Craig-Hallum. George Sutton: Nice results. So it all comes down to ARR. So I wondered if we could start there. It was up $2.5 million, sequentially. Can you just unpack the components? Alessio Artuffo: As you are suggesting, we are quite pleased with the results this quarter. The way we think about it is our business actually grew 14% year-over-year by excluding the Dayforce business. And I understand that we haven't disclosed this in the past. But I would add to that, that this is the second sequential quarter in which we've seen this growth happening, again, excluding Dayforce. And in a minute, we'll tee up why this matters. What I'm really pleased by is the fundamentals and the execution that led to this result, a trend that I continue to see in the future. First, we've seen our mid-market business exceeding performance and expectations. This has happened due to the changes and evolution brought in by our new leadership team, and changes that we had performed at leadership level in the quarters in the past. We're starting to reap the benefits of those improvements, not only in terms of people, but also framework, processes and improved pipeline processes. Secondly, we've seen, frankly, against seasonality -- and EMEA performance also exceeding expectations, something that has pleased us very much with the key logos, very material ones signed in EMEA during the quarter. And finally, not to be forgotten, our core business retention continues to improve. We also think this is a very important component and a part of the storytell. Notwithstanding all of the above, our turn with our -- with Dayforce accelerated faster than expected, and the results are just the reflection of that. George Sutton: Perfect. Just one other thing on FedRAMP. Obviously, impressive to see the wins pretty early. I'm curious if that's earlier than you had expected, or on track. And then we are sitting here in the U.S. with the government that's not effectively open. I'm just curious how that impacts the opportunity. Alessio Artuffo: Great. So we are very pleased to be achieving already 2 new federal customers shortly after our May dated FedRAMP listing. We believe that's an impressive outcome considering that originally, our thesis was to start winning federal business in fiscal 2026, and more backdated in the second half, because that is more aligned with our federal purchases. Not only we have expanded an account with the Department of Energy, which we were very pleased about, but also, we've been working closely with our partner, Deloitte, to secure the business of the Air Force Cyber Academy. In addition to that, outside of federal, which I understand is the headline, given the complexity of doing deals in federal in such a short time frame, we have continued to execute well also on the state and local side. And that trend is expected to continue. As it pertains to government shutdown, actually, we've been building pipeline at a very impressive pace, both in federal and SLED. Fortunately, if you will, the government shutdown did not affect the seasonal buying cycle that occurred with the deals that we disclosed. And I would say quarter 4 historically, for federal deals, is a very slow quarter because budgets get spent in quarter 3, our quarter 3. And in quarter 4, organizations, the federal organizations take a pause typically from purchases reigniting in our fiscal year 2026, by which time we expect the shutdowns have been addressed. I would also add and tee up by saying our progress in SLEDs is tied to our progress in federal. Why? Because we're seeing organizations in the state and local demand more and more frequently a barrier of interest called state RAM, which we do address via FedRAMP certification. So to tee it up, our investment in FedRAMP is playing a dual role here. Not only it's allowing us to increase TAM, but it's allowing us to win more in the SLED market, creating a great competitive differentiator for us for the future. Operator: Our next question comes from Kenneth Wong from Oppenheimer. Hoi-Fung Wong: Alessio, I wanted to maybe dive into the FedRAMP SLED dynamic a little more. As you think about the guidance that you guys put out there for 4Q, I realize it's a kind of seasonally low quarter. But any heightened conservatism in terms of what's coming in from the pipeline on the public sector side, just given that there is that shutdown? Alessio Artuffo: Like I said, I wouldn't say that we have seen a direct correlation between the pipeline outcomes and government shutdown. On our side, we're very, very focused on diversifying where we execute across state, local, and education. It's a big market. We're seeing more response and more, if you will, interest coming from civilian organizations. And the other thing I can say is that our technology favoring the use of Docebo, for both internal use cases but also external use cases, opens up to a new opportunity that in the market of government has been stark in terms of offering. So I believe that our continued pipeline execution is really the reflection of good timing, good execution, and great product market fit. Brandon Farber: Brandon here, I just want to add and great to have you on the call. If you think about it, we started down the government route of building the business from the ground zero, roughly 2 years ago. And part of that was building relationships with all various federal departments. And while we were building and looking to achieve FedRAMP authorization, we're able to demo and show our platform and have interest from various different federal departments. So while we see the cutdown temporarily impacting the ability to generate new pipeline, we are very confident in the relationships we've built over the past 2 years, and that will enable us to start winning material contracts in Q3 of 2026. Hoi-Fung Wong: Perfect. Then maybe we would love to get an update on the enterprise side. It looks like both customer counts and kind of ARR coming from large -- $100,000 customers is pretty strong. Would just love to get a sense of kind of how the pipeline was shaping up this quarter. What did sales cycles look like? Any extensions there as we head into the fourth quarter? And any thoughts on whether or not you might see some sort of a budget flush from customers going into Q4? Alessio Artuffo: Yes. So a few things on enterprise. Enterprise is a very critical area for us, and we continue to increase the customers over $100,000 sequentially, which is a strong sign of execution in our enterprise segment, but also in our mid-market segment that is able to sign customers with multiple use cases and multiple modules, and very healthy ACV. Additionally, on enterprise, I would say the following. In general, we continue to see deal elongation in the market. This is continuing to happen. But you're right, historically, quarter 4 is the strongest quarter within the enterprise segment for us, and we continue to expect that going into this quarter. A couple of notes that I would make on some enterprise wins notable in this quarter. I was very impressed with the ability to sign a multinational like Veolia. This kind of tees up not only the EMEA business, but also the capability of multi-use case -- and this is an organization with more than 200,000 employees headquartered in France -- and additionally, I would say our ability to expand upon Amazon, which is a customer of ours that we've had for a while. This is our third department that we're signing in the quarter is very significant. So both on the new logo side and expansion side, we're very, very happy about the results and expect a strong quarter 4. I would say important in the enterprise story is the system integrator story. We have invested heavily in partnership programs and system integrator programs to support that enterprise motion. And the large majority of the deals that we're doing in enterprise have a system integrator attached to it. And so that's the result of years of work. Operator: Our next question comes from Ryan MacDonald from Needham & Company. Ryan MacDonald: Congrats on a great quarter. Alessio, I very much appreciate that, obviously, the enterprise is really the driving force around growth moving forward. But can we get a bit more color on sort of the OEM wind down, the Dayforce wind down? Obviously, you mentioned it sort of occurred a bit faster than you expected in the quarter. But as we think about fourth quarter and into next year, can you just help us get a bit of a better understanding on the trajectory there and what opportunities you might have to sort of compete more directly within that base of customers? Brandon Farber: Ryan, it's Brandon. I'll take that question. So just taking a step back and just looking back, as a reminder, Dayforce started OEM and white labeling Docebo back in 2019. And they were very successful selling Docebo as an LMS, and got as big as roughly 9% to 10% of our total ARR at a specific point in time. Back in early 2024, Docebo acquired eloomi, which we all know. At that specific point in time, they were an LMS provider in Europe focused mainly on the SMB market. Subsequent to the acquisition, Docebo initiated legal action and was quickly resolved with Dayforce. Really, the goal of that lawsuit was 3 outcomes: number one, protecting our IP; number two, supporting the contributor of our revenue base; and number three, preserving our day-to-day relationship with Dayforce. How we're looking at it on a go-forward basis, we continue to expect economic benefits to flow to Docebo, and the contract to wind down over extended period of time. To provide a little bit more color, we anticipate Dayforce to represent approximately, 3.5% to 4.5% of our total revenues in 2026, 1% to 2% of our total revenues in 2027, and become immaterial thereafter. Just to leave on a positive note, it is important to note in the current quarter and since 2024, we've continued to grow. We've continued to diversify our revenue base away from Dayforce, and we're pleased with the ARR growth we had this quarter, excluding Dayforce of 14%. Ryan MacDonald: Maybe my second question, I wanted to talk on AI. As we've sort of spoken with companies and a number of companies rolling out AI strategies, it feels like there's sort of three buckets in which organizations are trying to sort of monetize AI efforts today. It first seems to be in improved customer retention and sort of, renewal rates. The second tends to be in sort of, building in higher annual price increases as you deliver more value with AI. And then the third tends to be sort of, separate SKUs or modules that are AI-specific modules that you can start to charge for. I'm just curious, as you think about the three buckets where you're seeing the benefits from AI. And at least in the shareholder letter, it seems like with these AI credits rolling out, it seems like you're getting a head start on that third bucket going into next year. So would love a little bit more color on that as well. Alessio Artuffo: Great breakdown of the 3, say, areas of return of AI. We very much agree with those 3 areas. I would say that having started with AI several years ago, our focus has certainly been more on the creating value and infusing AI in the product everywhere we can more lately. Originally, when we approached AI years ago, we were creating features that were supported by AI, mostly to provide a better customer experience, i.e., getting to the outcome faster. But at that time, monetization strategies were not a priority. As we have matured and are maturing every day at a really rapid pace, our posture on AI, I can say that your category #2 and category #3 are the ones that we think of very much. You are correct in saying that we've introduced recently an AI credit-based system that aimed at managing through this credit-based system, our AI pricing. The way it would work is for modules like AI Virtual Coach and AI Video Presenter, a consumption model whereby our customers using these modules consume credits that run against the packages they would buy upfront. We don't have a long history of doing this. We've recently started this, but we -- our thesis is to continue to roll in AI capabilities against this model to make it more meaningful from a monetization standpoint in the future. But then we also believe that continuing to provide AI capabilities will give us an edge against the competition, which will allow us and help us defend a premium of our product against the competition as a result. Finally, I would say retention is -- remains an evergreen goal that we have. So we infuse AI features everywhere. Every single product manager in the company is required to think AI first as they build new products and revise existing features, so that our customers have a better experience with the product. Operator: Our next question comes from Robert Young, from Canaccord Genuity. Robert Young: You said in the prepared remarks that you've seen the second consecutive quarter of improved retention. I assume that's with the OEM piece aside. So I was wondering if you could dig deeper into that. If you could update us on where churn is, where the elements of churn are, if that's improving? And then where you think that's going to go in '26? Brandon Farber: Rob, it's Brandon. As you know, we only disclose NRR on an annual basis, so we won't go into specific numbers. But you are right. We did see 2 consecutive quarters in a row of retention improvements, whether you look at it from a gross retention or net retention. This is actually very consistent with what we have been saying for the past 2 quarters. We knew in Q1, we had a large renewal base that would bring it down and we'd only go up from there. One thing that is important to mention is that we did lap the large Thomson Reuters downgrade that happened in Q3 of last year of roughly $2 million. So obviously, lapping that did result in improvement. And to be completely transparent, we do expect that metric to go down next quarter because of the AWS downgrade. So a couple of things that I'd say is we have a renewed focus on retention. We are putting together account mapping for every at-risk customer, and making sure we're proactive and not reactive. And we feel really good about the programs we have in place to continue strong retention metrics in the future. Robert Young: You noted the AWS Skill Builder roll-off. How is that handover progressing? Is there a potential for a subcontract, a support contract in 2026? Or is that going to disengage completely, as you expect? Brandon Farber: Rob, we expect that to completely disengage, December 31. Operator: Our next question comes from Josh Baer from Morgan Stanley. Josh Baer: Congrats on reaching 20% EBITDA margin early. That's something that you guys have been talking about for a long time. I wanted to just follow up with a couple more on the OEM. Just curious what that percentage was last quarter? Do you have that? Brandon Farber: Sorry, maybe if I could just rephrase, are you asking for what ARR growth was, excluding Dayforce? Josh Baer: No. The percentage of ARR, so 6.2% this quarter. Just wondering what it was last quarter. Brandon Farber: Instead of giving you that exact metric, what I can give you is what our ARR, excluding Dayforce was last quarter, which was roughly 13.9%. Josh Baer: For Q2 also? Brandon Farber: Correct. Josh Baer: I guess I'm just wondering why it was like a greater wind down than expected? Was it Dayforce-led? Was it customer-led? Any context there? And then I did want to just follow up, like is it a lot of smaller customers noticed like there was a big jump again in average contract value. So some really nice acceleration there. Wondering if it's related. I know you also had success more broadly in enterprise. But in part, I want to get a better sense of like does this average contract value continue accelerating? Or should we expect that to slow down? And then when we do get the total customer count at the end of the year, like should we expect that to move lower due to this Dayforce? Brandon Farber: Yes. A lot of what you just said is bag on. So our ACV this quarter did grow as a result of the Dayforce wind down. If you think about the customers that typically get attracted to an HRS system plus an LMS, they tend to be a customer who use it for 1 to 2 use cases, which is onboarding and compliance. And those average tickets tend to be materially lower than a customer that would sign directly with Docebo, for multiple different use cases. So you should expect and you should model that our ACV with Dayforce is materially lower than a customer that signs directly with Docebo. Regarding customer accounts, you should expect that our customer count overall will be down, and that is a result of the wind down of Dayforce. Operator: Our next question comes from Yifu Lie from Cantor Fitzgerald. Yi Lee: Congrats on the strong 3Q print and a busy week of earnings. So to start with you, Alessio, I want to go over the AI product vision. We understand from Inspire, Alessio, your model is to build a product that delivers value to customers first, and they will eventually pay Docebo and you can monetize it, right? So looking at the new product lineup, whether it be Harmony Search, support AI offering, Virtual Coaching, Copilot, et cetera. So which of these products, Alessio, would you say is closer to monetization potential? On the second part of this question, Alessio, in the end of your prepared remarks, you talked about redefining the future of learning. And I understand you like to solicit continuous feedback from your customers. What are the key things you've learned from your customer and stakeholders that you want to apply to your product road map for the end of this year and 2026? And I also have a follow-up with Brandon after this. Alessio Artuffo: Lovely question. Let's get started. start on the AI and product. First, let me share that you are correct. Our vision around our Harmony ecosystem is very ambitious, and we have executed. So far, Harmony Search from its recent launch has already powered about 0.5 million search with 0.5 million queries, which is a very positive result against our expectations. This is not only stopping with search. Search was just the beginning of a journey where we want to get Harmony to become the assistant of our customers. Harmony, in fact, was now evolved into a Copilot logic. The goal is to improve the productivity and the self-servicing of capabilities in the platform. So you can go in Docebo and ask Harmony to perform tasks for you and help you identify how to get things done in the product, and Harmony will either point you to it or do it for you. This is just the beginning of a journey towards full platform automation, which is a longer-term vision that we have that we're going to pursue. In terms of Creator, which you mentioned, I think your question was around which capability do I think will contribute the most to monetization. Creator is the engine behind the experience creation in Docebo, which includes, as part of it, our AI Virtual Coach, the ability to create simulations, and to simulate any scenario from customer service leadership and sales enablement, something that we have evolved this past month by releasing a new version of Creator, which -- sorry, of Virtual Coach, that initially was addressing only the sales enabling use case. Now that module is well rounded up and allows an organization to map simulation scenarios against any custom role play scenario they want to implement. So we do expect Creator and Virtual Coach to be great contributors to our monetization strategy in the future. No, I was just going to wrap up by saying our road map reflects our belief that a platform from a differentiated standpoint, you asked about the customers and what we are hearing. We are hearing customers saying they want more ability to create personalized experiences. They want to do less leaking and to be able to create content at a more rapid pace in automated way. That's what we're executing with Harmony and with Creator. Yi Lee: Alessio, I want to follow up on the -- obviously, you guys made on the customer wins, especially I want to focus on the industrial one, the 200,000 seat, right? Obviously, you're leaning more towards the system integrator channels similar to other Tier 1 SaaS software companies. I just wanted to get your sense on like what types of partnerships are you engaging? I know Deloitte is a big one, right? What's working and what needs to work on? Then I'll just ask a financial question as well, Brandon. On the financial side, I'm just looking at the KPIs for new logo ACV, 71k is flat year-over-year, but up 8% quarter-over-quarter. But in terms of the story, it seems like you guys are going upper enterprise, right? So why is that metric flat year-over-year? That's it for me. Brandon Farber: I'll kick it off on the last part of that question. So how we look at ACV is given the fact that we're seeing extremely strong success in mid-market, and this is 2 quarters in a row where we've seen that strength, and we're seeing leading indicators that that strength will continue into Q4. That is impacting obviously, the ACV, as we have larger concentration of customer accounts coming in at the mid-market. When you think about the enterprise space, you tend to have a lower number of customer wins, but at a larger ACV. So during the quarter, we actually did have really strong performance of units that had very healthy ACVs, upwards of, let's call it, $500,000 ACV. And seasonally, we do expect Q4 to be strong enterprise quarter, and we do expect that ACV to go up in Q4 as well. Alessio Artuffo: On the first part of the question, you asked about how we view the market of system integrators, and you mentioned the big logo that we mentioned earlier. I would say a few things. In the past calls, we've outlined how we made such great strides in partnering with the Accenture and Deloitte type of system integrators. That work continues, and we continue to advance our relationships with them and really formally progress our status as partner type within those organizations, which in turn, will only give us more penetration in their go-to-market efforts. But also remember, it's not only a matter of pipeline creation, it's also the ability for them to support us in complex implementations, which has an incredible amount of value with large enterprises. I would add a different type of color in this call by saying that not only we've been working with these very large system integrators, but also regionally, internationally, we've identified a number of system integrators that are leaders in their respective markets. And so when you think about wins like that, the State Administration School of Latvia, we would have not been able to do that with a critical regional partner that helped us become the de facto platform for the entire public sector of the country of Latvia. And so as we continue to expand with these regional and more focused system integrators, we expect deals like these to become more and more frequent. Operator: Our next question is from Erin Kyle from CIBC. Erin Kyle: I just had a question on how we should be thinking about the margin profile here into 2026, as you continue to expand the federal pipeline and opportunity here. Do you expect to see an increased spend in sales and marketing, or the 20% margin in Q4? I guess my question is, how sustainable is that you think going forward? Brandon Farber: The way we're thinking about EBITDA margin, and it is important to note, we do have a bit of seasonality in EBITDA where we do expect Q3 and Q4 to always be stronger than Q1 and Q2, given Q2, we have our big Inspire event in Q1, we tend to have seasonally higher payroll costs. How we're thinking about EBITDA going forward, we do think we're fairly staffed from a sales and marketing perspective. We've invested and spent money in government over the past 2 years, and we've staffed that team up for success. We do have pipeline targets, coverage ratios that once it exceeds those ratios, we will certainly accelerate hiring. But for now, the government team is fully staffed. How we're thinking about EBITDA margins going forward, we do post in our investor deck every quarter goals from a spend level. And one number to call out is we're at 20% EBITDA today. Our G&A as a percentage of revenue is roughly 15%, and our long-term or midterm goal is 9% to 11%. So if you think about incremental 5% leverage in G&A alone, that gets you to 25% margin over a mid-to long-term basis. And that's without sacrificing any investments we have to make in R&D and sales and marketing. Erin Kyle: Maybe I can just ask one more just on the professional services revenue in the quarter was a bit higher than we had expected. Is that related to the strength in the mid-market? And if that's the case, should we expect that to trend higher in Q4 and going forward as well as you see that mid-market strength continue? Brandon Farber: Yes, it's a great question. So what we're seeing is that the type of customers in mid-market that tend to be attracted to Docebo, are customers that have complex onboarding needs and complex use cases. And with complex use cases tend to lead to more hands-on onboarding experience. What I would say is that while we're pleased with the professional revenue growth, it's not a line item we're focused on. We're really focused on growing high-margin accretive subscription revenue, and we're very comfortable with handing off professional services revenues for our partners, such as Deloitte and Accenture. Operator: Our next question comes from Suthan Sukumar from Stifel. Suthan Sukumar: For my first question, I wanted to touch on the Amazon expansion. I thought that was a positive read on sort of, the state of that relationship. Can you speak a little bit about -- aside from the AWS contract, what use cases you are involved with Amazon, and how you expect that relationship to evolve going forward? Alessio Artuffo: Sure. So first, let me underscore the fact I'm very pleased with the fact that notwithstanding Amazon divesting from us on the Skills Builders initiative, we continue to attract the business of other Amazon companies who continue to entrust us with our products and services. I think that's a testament also to the great work that we've done over the years with Amazon Skills Builder. Because if we had done so, you would presume that the reference calls that would happen in order to sign with Docebo, would bring these Amazon companies to make different decisions. So I think that's a little bit of also in the retrospective to clear up any doubt remaining. I would say on the current win, we did sign Amazon Health, which is the health care division of Amazon. It's a very important win for us because not only it adds another Amazon logo to our customer base, but also it's a perfect fit for our products and services. They are going to be using Docebo for both customer experience, doing customer and partner education, effectively supporting health care professionals and technology partners and service teams. And then on the employee side, they're going to be using Docebo for sales enablement, onboarding, leadership development, professional development, and compliance. What we know is that organizations that use Docebo for more than 4, 5 use cases have the best metrics in terms of unit economics and retention. And so we love what we can bring in companies that effectively become so. And on the competition side, you guys usually ask that I want to know, unsurprisingly, we did overcome the other competitors, both on the mid-market and I would say, legacy enterprise side. Brandon Farber: One thing I'd add is that this new use case with Amazon, they were not interested in a short-term relationship with us. They did sign for 5-year contract, which just shows the strength of Docebo's relationship with Amazon. Suthan Sukumar: Great. My second question, I just wanted to kind of touch on the growth profile. You guys are -- ARR is now down 10% year-over-year. But when you exclude Dayforce, 14%, I think that does speak to the strong underlying growth momentum in the business. Can you remind us the impact with the AWS contract roll-off would be to ARR? And more broadly, what would need to happen for growth to continue reaccelerating from here? I'm just going to keep in mind that you guys have a new CRO in the seat. Just curious what sort of changes and priorities are playing out here to support that growth reacceleration. Brandon Farber: I'll start off and pass it off to Alessio. So the AWS impact consistent with last quarter is approximately $4 million hit to ARR, which will come out December 31. Alessio Artuffo: So on the question of reacceleration -- look, I think you were bang on in your observation. And I would underscore that our CRO and CMO, have been in seat for a relatively short time frame. In the past 90 days alone, though, I have seen them making a significant impact that Kyle and Mark, who hopefully are listening to us today. I'm going to say good things about their work. I've been very impressed with the level of sophistication that we've been able to already inject in our revenue architecture. There are a lot of practical details that are being improved from forecasting methodology to customer success methodology. We are investing significantly in optimizing our spend on the marketing side, becoming leaders in this AI referral traffic generation, which is a big aspect, and marketing -- digital marketing is changing a lot in the kind of post every single SEO era. So their execution has been start, and I'm seeing already the beginning of a trajectory that will continue in the years to come. In terms of reacceleration is achieved through a few things that we're pursuing. I would highlight four areas that we are particularly focused on. The first one is an evergreen, as I say, always improving our retention metrics. And that is not just improving our retention, but also improving our net dollar retention by strengthening our expansion engine. We're very focused on this, and we're seeing positive momentum in the pipeline in the business. The second one that I would mention is performance in the mid-market. As we mentioned, we are executing really well as a result of a mix of things, our people, and processes. And we expect this performance to continue in the quarters to come. The third one that I would mention is, again, government. We've only seen the beginning of a journey that started in May with federal, and will continue strong into 2026, alongside our continued execution in flat. And finally, we have been working on strengthening our enterprise momentum and pipeline. We're starting to see the results of that. We expect good signals in quarter 4, but we believe 2026 will be the year of enterprise at Docebo. Operator: Our next question comes from Richard Tse from National Bank Capital Markets. Richard Tse: I just want to go back to this AI product portfolio. Can you help us understand your assumptions around how your attach rates are going to scale with those products? And with that, how the revenue profile will lift alongside that? Brandon Farber: Richard, I'm going to wait to answer that question for Inspire, where we'll have an investor update and talk a little bit more about how we're envisioning AI credits to impact our overall business. The one thing that I would say is that we will have ARR that will lag a little bit in linearity with our typical nice ratable revenue as we'll recognize ARR credits as it's consumed. So the biggest impact is if we sign a new customer with -- that has an AI credit bundle, they won't start consuming until after onboarding. But we definitely see AI credits as a very strong way to lift our NRR, and have expansion within our existing customer base. Richard Tse: I guess the other question is around partnerships. You've been spending a lot of time talking today about SI partnerships. I think a few years ago at your conference, you showcased Microsoft from a technology partnership standpoint. So when you sort of look at those 2 types of partnerships, what's your sort of perspective on each in terms of driving lifetime value? I was under the impression that sort of the integration with Microsoft tends to make it stickier and potential to expand those offerings. And if that's the case, are you pursuing those type of partnerships as well in addition to these SIs? Alessio Artuffo: Our technology partnerships are an important part of our partnership thesis. On the Microsoft side, I believe you may be referring to our module called Microsoft Teams, which is a module that allows customers that use Teams, to connect Docebo to it. It's a module that we're seeing having success in organizations that are Microsoft add. In terms of our overall technology partnerships, what we're favoring and what we're leading with are capabilities that our customers can use to extend the value of the Docebo platform. To give you an example, we have integrated with Docebo tightly technologies like S'ABLE for Virtual Labs, or Honorlock for Proctoring. I would say our partnership focus remains more on the go-to-market side. And as far as the technology side, we will continue to invest to some extent with the integrations with the core platforms like Teams, Slack and others. Operator: We have no further questions. I would like to turn the call back over to Alessio Artuffo, for closing remarks. Alessio Artuffo: Thank you very much for attending and for helping us tell a story of another exciting quarter at Docebo. We look forward to seeing you at the end of February, for our Q4 results. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Rebecca Morley: Good morning, and welcome to the Enbridge Inc. Third Quarter 2025 Financial Results Conference Call. My name is Rebecca Morley, and I'm the Vice President of Investor Relations and Insurance. Joining me this morning are Greg Ebel, President and CEO; Pat Murray, Executive Vice President and Chief Financial Officer; and the heads of each of our business units: Colin Gruending, Liquids Pipelines; Cynthia Hansen, Gas Transmission; Michele Harradence, Gas Distribution and Storage; and Matthew Akman, Renewable Power. [Operator Instructions] Please note, this conference call is being recorded. As per usual, this call is being webcast, and I encourage those listening on the phone to follow along with the supporting slides. We will try to keep the call to roughly 1 hour. And in order to answer as many questions as possible, we will be limiting questions to one plus a single follow-up if necessary. We'll be prioritizing questions from the investment community. So if you are a member of the media, please direct your inquiries to our communications team, who will be happy to respond. As always, our Investor Relations team will be available following the call for any follow-up questions. On to Slide 2, where I will remind you that we'll be referring to forward-looking information in today's presentation and in the Q&A. By its nature, this information contains forecast assumptions and expectations about future outcomes, which are subject to risks and uncertainties outlined here and discussed more fully in our public disclosure filings. We'll also be referring to non-GAAP measures summarized below. And with that, I'll turn it over to Greg Ebel. Gregory Ebel: Well, thanks very much, Rebecca, and good morning, everyone. Thanks for joining us on the call today. Before we start, I'd like to take a moment to congratulate Cynthia, who announced plans to retire at the end of 2026. Her outstanding leadership and dedication to Enbridge over the past 25 years is inspiring, and I'm grateful that she'll be continuing to provide guidance to our executive team through the end of next year. I'd also like to congratulate Matthew, who will transition to President of our GTM business at the end of this year as well as Allen Capps, who has been appointed to succeed Matthew as the Head of our Corporate Strategy Group and President of our Power business. As we've said before, and it remains true today, our investment in people creates a deep bench of executive talent to ensure a smooth transition and strong leadership as we move forward. Now moving on to our agenda for this morning. I'm excited to share another strong quarter and highlight the significant progress we've made throughout all segments of our business. It has been a busy quarter for us with new projects serving a wide range of customers across our core franchises. We're going to start today with an update on our financial performance, execution of our increasing number of secured growth projects and prospects. And I'll also highlight the strong returns and stability our business continues to demonstrate and provide an update on each of our four franchises. Pat will then walk through our financial results and capital allocation priorities. And lastly, I'll close the presentation with a few comments on our First Choice value proposition before we open the line for questions from the investment community. We had another strong quarter of results, including record third quarter adjusted EBITDA. That growth was driven by incremental contributions from a full quarter of U.S. gas utilities and organic growth within our gas transmission business. This keeps us on track to finish the year in the upper half of our EBITDA guidance, and we expect to land around the midpoint of our DCF per share metric. Our debt-to-EBITDA is 4.8x for the quarter and remains within our leverage range of 4.5 to 5x. Our assets remained highly utilized during the quarter with the mainline transporting approximately 3.1 million barrels per day, a third quarter record, thanks to strong demand. We reached positive settlements at both Enbridge Gas North Carolina and Enbridge Gas, Utah, which we expect to drive growth as rates begin to take effect. We're still on track to sanction Mainline optimization Phase 1 this quarter and Phase 2 next year, and we'll get into more details on those projects during the business update. Over the quarter, we added $3 billion of new growth capital to our secured capital program, showcasing continued execution on the commitments we laid out last Enbridge Day. In liquids, we sanctioned the Southern Illinois Connector, adding incremental egress out of Western Canada and providing a new long-term contracted service to Nederland, Texas. In Gas Transmission, we sanctioned expansions of our Egan and Moss Bluff storage facilities to support the LNG build-out along the U.S. Gulf Coast. And in the deepwater Gulf, we're expanding our previously approved Canyon system to provide transportation services for bp's recently sanctioned Tiber Offshore development. And earlier in the quarter, we sanctioned the Algonquin Gas Transmission enhancement project in the U.S. Northeast as well as the Eiger Express gas pipeline out of the Permian. And finally, we have advanced a joint venture with Oxy to develop the Pelican CO2 hub in Louisiana. These projects demonstrate the competitive edge from our all-of-the-above approach and our ability to meet growing energy demand across all parts of our business. Now let's look at our value proposition and recap our year-to-date execution before diving into the business updates. Enbridge's low-risk model continues to deliver superior risk-adjusted returns in all economic cycles. Our cash flows are diversified from over 200 high-quality asset streams and businesses that are underpinned by regulated or take-or-pay frameworks. Over 95% of our customers have investment-grade credit ratings. We have negligible commodity price exposure and the majority of our EBITDA has inflation protection. All of this results in Enbridge's industry-leading total shareholder return while maintaining lower volatility compared to peers and broad index constituents. Looking ahead, Enbridge's utility-like business model remains well-positioned and policy support for new investment in critical projects is improving, creating a business environment that incents coordination, dialogue, and growth. And I'm very pleased with how the team continues to grow the business and excited by the opportunities ahead for Enbridge. With that said, let's jump into the business unit updates, starting with Liquids segment. Mainline volumes had another strong quarter, delivering a record 3.1 million barrels per day on average for Q3. The system was a portion for the entire quarter, reflecting continued strong demand for Canadian crude and the need for reliable egress out of the Western Canadian Sedimentary Basin. Given the continued strong demand for the Mainline this year, we expect to reach the top of the performance color ahead of when we initially anticipated. This is a great sign for us and our shippers. We're achieving the maximum allowable returns under the mainline tolling settlement, delivering competitive value to our shareholders and our alignment with customers incentivizes us to move the increased volumes and provide them with access to the best markets. This leads in well to mainline optimization projects that I'll discuss shortly here, in addition to the previously announced projects like Mainline capital investment. In the U.S., we sanctioned the Southern Illinois Connector project, which is backed by long-term contracts for full path service from Western Canada to Nederland, Texas. Once complete, the new pathway will add 100,000 barrels per day of contracted full path capacity to the U.S. Gulf Coast via a 30,000 barrel increase per day on Express-Platte system, 56 miles of new pipeline between Wood River and Patoka, and utilization of 70,000 barrels per day of existing capacity on the Spearhead Pipeline. Looking ahead at additional egress projects, we are continuing to advance approximately 400,000 barrels per day of incremental capacity to the best refining markets in North America via mainline optimization Phase 1 and 2. MLO1, which will add 150,000 barrels per day of incremental egress is entering the final stages of customer approvals. and we are still on track to make FID this quarter and place the project into service in 2027. MLO2 has made significant progress as well, and that project could now add another 250,000 barrels per day of additional capacity in 2028. This second phase of mainline optimization will utilize capacity on the Dakota Access Pipeline, and we're happy to announce that we're teaming up with Energy Transfer to make that happen. So stay tuned for more on MLO2, including an open season announcement early in the new year. Relative to potential greenfield projects that would require significant energy policy change, these brownfield opportunities offer the quickest and most cost-effective way to adding close to 500,000 barrels a day of capacity to satisfy the near-term production increases forecasted out of the basin. Finally, for liquids, we added the Pelican sequestration hub to our backlog, a project in Louisiana, which will provide transportation and sequestration for 2.3 million tons per year of CO2 and is underpinned by 25-year take-or-pay offtake agreements. We will partner with Occidental Petroleum to advance the hub with Enbridge managing the pipeline infrastructure, while Oxy develops the sequestration facility. Now let's turn to our gas transmission business. This quarter, we've sanctioned an additional capital-efficient connection to our Canyon pipeline system to support bp's Tiber development in the deepwater Gulf. Originally announced last October, the Canyon system will transport both crude oil and natural gas under long-term contracts with the Tiber system expected to cost USD 300 million, taking the total Canyon pipeline development to about USD 1 billion and entering service in 2029. In the U.S. Northeast, the AGT Enhancement will increase capacity of the Algonquin pipeline, providing additional natural gas to the critically undersupplied U.S. Northeast, serving local utility demand and reducing winter price volatility. That project is expected to cost USD 300 million and enter into service in 2029. Switching over to the Permian. The Eiger Express Pipeline is a 2.5 Bcf a day Permian egress development running adjacent to the operating Matterhorn Express system and is now sanctioned and expected to enter into service in 2028. Since our initial 2024 investment in the Whistler joint venture, which holds these pipelines, we have invested $2 billion in operating assets and sanctioned another $1 billion of capital expected to enter service through 2028. Also in the Gulf region, we've sanctioned two natural gas storage expansions to support the market, which continues to tighten due to increased LNG, Mexican exports, and regional power demand. Egan and Moss Bluff storage systems, both salt caverns with exceptional connectivity and withdrawal rates are being expanded to offer a combined 23 Bcf of incremental capacity. We expect to invest approximately $500 million in these facilities at 5 to 6x EBITDA builds and come into service in phases through 2033. It's worth taking a moment to dive a little deeper into the growing North American storage market and how we are positioned to serve our customers. Between Moss Bluff and Egan as well as the expansion of Aitken Creek announced last quarter, Enbridge is now set to add over 60 Bcf of new natural gas storage directly adjacent to the major LNG centers in North America. These expansions will come in a timely manner as there is over 17 Bcf per day of additional LNG-related natural gas demand expected to enter service by 2030. This demand dramatically shifts supply economics and increases the importance of strategically located storage capacity. We are connected to all operating U.S. Gulf Coast LNG terminals and continue to invest heavily in infrastructure to enable the future growth of North American LNG. To date, we have sanctioned over $10 billion in projects with direct adjacency to operating or planned export facilities. There is a growing storage deficit across the U.S. Gulf and British Columbia coasts and having existing assets with the opportunity to execute brownfield expansions is incredibly valuable to our customers and investors. Through acquisitions and expansions, we have positioned ourselves as an industry leader in the storage space. With more than 600 Bcf of storage across our North American businesses, we can strongly support our customers as they continue to build out North America's LNG capacity and navigate the overall power demand growth we are expecting in the future. Now let's spend a few minutes recapping all the work we've done in Gas Transmission segment since Enbridge Day earlier this year. At our Investor Day in March, we shared Enbridge's $23 billion gas transmission opportunity set, noting the potential to FIT up to $5 billion in projects within 18 months. This opportunity set has grown since then. And today, a little over 6 months later, we've already announced over $3 billion of new projects across our footprint, serving all pillars of natural gas demand growth, including reshoring, LNG, coal-to-gas switching and data centers. With over 23 Bcf a day of new gas demand coming online by 2030, critical investment will be needed to ensure reliable service for customers. And with this list here, you can see we are doing our part, deploying capital to meet the significant increase in natural gas demand across North America regardless of the end-use market. Now let's turn to our gas distribution business. The GDS segment is yet another way for us to capitalize on power demand theme. We've seen data center and power gen opportunities continue to be a tailwind for the segment with over 50 opportunities that could serve up to 5 Bcf a day of demand, including almost 1 Bcf per day of demand for already secured projects. During the quarter, we also reached positive rate settlements with two of our U.S. utility regulators, which are currently being reviewed for final approval. In North Carolina, allowed return on equity increased to 9.65% on an equity thickness of 54%, resulting in a revenue requirement increase of some USD 34 million. The settlement also introduces additional rate riders that allows for quick cycle return of capital for our major projects in North Carolina. These rates came into effect on an interim basis on November 1. In Utah, we filed a settlement for a revenue requirement of USD 62 million, which supports continued investment at attractive returns. We are expecting a rate order before the end of the year with rates to come in effect on January 1, 2026. Both these rate cases showcase the importance of natural gas as a safe, reliable source of affordable energy. Now I'll continue with the power demand theme with our Renewables segment. As you can see from this slide, renewable projects have been a great place to invest in the last few years, driven by strong PPA prices, decreasing supply costs, and the associated tax benefits. The four projects on this slide showcase over 2 gigawatts of power backed by agreements with some of the largest technology and data center players in the world, including Amazon and Meta. Fox Squirrel and Orange Grove are currently operational. Sequoia Solar will fully enter service in 2026 and Clear Fork will follow entering service in 2027. Looking ahead, we still have a number of projects in the queue that we're advancing. But as always, we'll remain opportunistic and continue to stand by our strict investment criteria. With that, I'll now pass it to Pat to go over our financial performance. Patrick Murray: Thanks, Greg, and good morning, everyone. It's been another strong quarter across all four business units, thanks to continued high utilization of our assets as well as recent acquisitions. Compared to the third quarter of 2024, adjusted EBITDA is up $66 million, DCF per share is relatively flat and EPS is down from $0.55 to $0.46 per share. The decrease in EPS is primarily due to the profile change associated with our gas utilities, where Q3 tends to be a softer quarter for EPS as EBITDA is seasonally lower, but items such as interest and depreciation remained flat quarter-over-quarter. In Liquids, despite the strong mainline volumes, contributions from the Mid-Con and U.S. Gulf Coast segment are tracking lower due to tighter differentials and strong PADD II refining demand. In Gas Transmission, we experienced a strong third quarter with favorable contracting and rate case outcomes on our U.S. gas transmission assets and contributions from the Venice extension and the Permian joint ventures we added since last year. The Gas Distribution segment is up relative to last year, thanks to a full quarter contribution from Enbridge Gas North Carolina as well as benefit of the quick turn capital we experienced within our Ohio utility. In Renewables, results were up from last year with higher contributions from our wind assets and from the Orange Grove solar facility recently placed into service. Higher financing and maintenance costs from the acquisition of the Enbridge Gas North Carolina assets kept DCF per share relatively flat year-over-year. I'm pleased to once again reaffirm our 2025 guidance and growth outlook across all metrics. Our resilient business model positions us to deliver strong and predictable results through all cycles. We remain confident we will achieve full year EBITDA in the upper half of our guidance range of $19.4 billion to $20 billion, but don't expect to exceed the top of the band. As we mentioned on previous quarterly calls, due to higher interest rates, particularly in the U.S., we continue to expect DCF per share at the midpoint of our $5.50 to $5.90 per share guidance range. Mainline volumes, FX rates, and the acquisition of an interest in the Matterhorn Express Pipeline earlier in the year continue to be the tailwinds to the full year guide. This is partially offset by higher interest rates, along with tight differentials and strong PADD II refining levels, which are expected to continue into the fourth quarter and thus have been reflected as an additional headwind relative to our assumptions heading into the year. Now let's quickly discuss our capital allocation priorities. We remain firmly committed to a thoughtful capital discipline process, remaining within our $9 billion to $10 billion per year annual growth investment capacity as we pursue the wide suite of opportunities ahead. Our highly contracted cash flows support a growing and ratable dividend within our 60% to 70% DCF payout target range, ensuring long-term shareholder returns. We've grown our dividend for 30 consecutive years, a real testament to the stability of our business and the fundamentals that underpin it. On the leverage front, our consolidated net debt to adjusted EBITDA remains comfortably within our target range of 4.5 to 5x. This quarter, we saw $3 billion of newly sanctioned capital advanced. As I've mentioned in the past, I like the fact that we're generating opportunities in all of our businesses, supplementing the next few years with accretive projects while also adding visibility into the back part of the decade with opportunities like our gas storage expansions and our offshore gas transmission projects, which we've announced this quarter. Our capital allocation focus will remain with brownfield, highly strategic and economic projects supported by underlying energy fundamentals, and I'm excited to see this opportunity set materialize into the future. With that, I'll pass it back to Greg to close the presentation. Gregory Ebel: Thanks very much, Pat. It was indeed a busy quarter on the growth capital side, and I'm extremely pleased with the progress we've made since Enbridge Day in March. The North American energy landscape continues to evolve with energy demand driven by LNG development, power generation, data centers and baseload growth. Enbridge will continue to play a pivotal role in that growth within a disciplined framework that delivers consistent long-term shareholder value. Our low-risk utility-like business with predictable cash flows is underpinned by long-term agreements and regulatory mechanisms that has allowed us to increase our dividend for 30 consecutive years across a wide range of economic cycles and conditions. Going forward, we expect to achieve 5% growth through the end of the decade, supported by our $35 billion in secured capital. Our scale offers optionality that few in our industry possess, and we'll continue to evaluate accretive investments across our footprint. Lastly, I'll just point out one housekeeping item. As has been typical, we intend to issue our '26 guidance for investors in early December. So please watch for that announcement on December 3. With that, I'll open the call to questions. Operator: [Operator Instructions] Your first question today comes from the line of Spiro Dounis from Citi. Spiro Dounis: I wanted to start with gas distribution and storage. The release mentioned seeing an acceleration there in commercial activity and it sounds like demand from data centers and power being those initial expectations. So just a multipart question here, but curious what's suddenly driving that acceleration, if there's a particular region where you're seeing it? And how are you thinking about the time frame for when these could start to materialize? Michele Harradence: Sure. So it's Michele Harradence here, Spiro, and happy to discuss that. And I would say we're seeing it across the board. I mean that's the real value of the diversity of the utilities we have. So -- when we look at about the projects that make up that 7 Bcf or so of data center opportunities that we're talking about, we divide that aspect into what I'd call our baseload demand, our data centers itself and the coal to gas. So it's a lot about power generation. It's the electrification tailwind that we've talked about. So you could bucket that, I would say, the baseload demand is there in Ontario, it's there in Ohio, it's there in Utah, data center growth, lots of early-stage developments in Ohio and Utah in particular. I would say we're seeing up to 8 gigawatts between the two of them. And that's some of the early-stage developments we're seeing. And then the mid-stage stuff, we're estimated to be serving over 6 gigawatts in those two jurisdictions alone. And Ontario has a lot of growth as well. And then finally, coal-to-gas conversion, again, to support power generation would be in North Carolina. But really, when we look across all the capital opportunities we have for GDS, that's maybe 20% of what we're looking at is the data center and power generation opportunity. I mean just the good standard core utility growth, leveraging our modernization program, still lots of opportunity there. We're seeing a lot of what I'd call major projects. We just put our Panhandle regional project into service. That's close to $360 million in Southwest Ontario. We have our Moriah Energy Center, the LNG plant in North Carolina. We have 215 Phase 1 and 2 in North Carolina. That's -- those two combined are USD 1.2 billion alone. We're doing a reinforcement project in Ontario up in Ottawa. That's another $200 million. I mean, there's a lot of growth and opportunity going on in the utilities. And then our residential growth, although it softened in Ontario, continues to be strong in places like North Carolina and Utah, where there's a lot of folks coming. And finally, we're looking at our storage opportunities, and there's a good chunk of our capital that continues to go to storage for us. So a good suite of capital there, but hopefully, that answers your question. Gregory Ebel: Yes. Good upside, Spiro, from what we thought when we bought the assets 2 years ago. We didn't -- a lot of the folks hadn't seen the data center, particularly in places like Ohio, we knew Utah and North Carolina would grow nicely. But Ohio, the opportunity there that's happening on the industrial side and the power side and data center related is really great. I think people are kind of forgetting the fact it's not just about power right across the board, not only the secondary benefits, i.e., industrial growth, caterpillars, GEs, et cetera, having to build things and equipment, there's tertiary growth associated with DC and AI, which is really going to drive all these commodities, including oil, as you see, higher GDP, higher industrial growth. Who's building all this stuff? They're using gasoline, they're using diesel, they're using oil. And that -- so I see it right across the entire system. Spiro Dounis: Great. That's helpful color. Second question, maybe just going to Line 5. You all recently received a favorable decision from the Army Corps there. And it sounds like you expect state permits to be confirmed soon. So just curious how you're thinking about starting construction on that segment? And how do the outstanding item in Michigan play into next steps here? Colin Gruending: Sure, Spiro. It's Colin here. So I'll try to abbreviate this answer, sometimes Line 5 questions get a little longer. But I would say that the permitting on both the Wisconsin reroute and the Michigan tunnel are regaining momentum, obviously, with the White House and energy security and just getting things done. So I would say that we are -- in Wisconsin here, we're awaiting the administrative law judges findings on the hearing that we've recently completed should have that soon. And we'd look to complete the Wisconsin reroute in 2027 and the tunnel is a few years behind that. Operator: Your next question comes from the line of Aaron MacNeil from TD Cowen. Aaron MacNeil: It's great to see the new disclosure around Mainline optimization Phase 2. Am I right to view this as an acceleration in terms of the cadence that you're planning to offer expanded egress to Canadian producers? And if so, what's driving that expedited timing? Is it customer demand? Is it sort of a race to be first to market? How should we think about it? Gregory Ebel: Well, maybe I'll start with a little context because I think you're right. This is maybe not one some people expected, although I'd say people have always underestimated what we can do with that super system. So remember, first of all, you got customers out there that are in particular Canadian customers looking at from an oil sands perspective, you don't have the type of depletion issues that are going on in some of the shale plays. You've got a strong U.S. dollar, which is critical, driving netbacks. So you got quite a different environment going on, obviously, in Canada and some other jurisdictions that analysts may focus from that perspective. But really the attitude of customers and what we can offer. But Colin, do you want to talk about that super system element of it? Colin Gruending: Yes. I think -- I don't know that it's an acceleration here per se. I think it's being game on here for a while here. And I think the Canadian basin, as Greg was saying, is it turns out relatively advantaged compared to other basins. So maybe we have lost focus on it, but our customers haven't. And we've been all over the fundamentals, we see that 500,000, 600,000 a day of supply growth by the end of the decade. And I think our announcements here line up with what we talked about at Enbridge Day generally. I mean, the team is working hard on this, and I'm very proud of them, the engineering and commercialization of it is very creative and trying to seize the moment. Yes, if there's bigger policy unlocks, there could be much more upside to monetize the trillions of dollars of value up in Northern Alberta. But even under the base case, the 600,000 a day is significant. We have, I think, consistently talked about our southbound playbook. And again, if there is an unlock much bigger, then the West solution can come into focus, kind of a companion to that unlock. But in the base case, South is where it's at. Our customers prefer that direction, integrated business models, lots of big efficient, long-lived refineries that are very competitive and of course, less competition now from Venezuela and Mexico, inbound heavy. So Canadian Oil will gain market share in that basin. I think our solution set is unchanged. We're proud to sanction Southern Illinois Connector. Maybe in baseball terms, that's our leadoff hitter, and it's now on base. We've sanctioned this. This is a dual flow path, 30,000 new egress on Platte and the other 700 coming down our spearhead pipeline existing capacity, and we're going to move that on ETCOP with our -- which we partially own with our partner Energy Transfer. MLO1 is at the plate right now, and we expect to make commercializing announcement here in the next couple of months before year-end. Again, that's 150 a day. I think that's well chronicled. It's capital efficient. permit light using existing pipe in a right of way. And recall, we've already successfully run an open season on the Flanagan South path through Seaway with our partner enterprise products. So that's well advanced. So MLO2, continue the analogy here, I'd say is in the batter's box. And as Pat and Greg mentioned, it's got a bigger bat than we thought we had before. We've upsized that from 150 to 250 a day. And again, similar to MLO1, existing pipe and right of way. And so again, using joint venture partners, this is all coming together nicely, not an acceleration, but I think continuing through here and hopefully get the basis loaded. Gregory Ebel: Yes. I hope -- and obviously, not lost on you, Aaron, but as Colin goes through that, you just tick off all those pipeline systems. And it's not just about the mainline. You got Express-Platte, you got ETCOP, you got DAPL, which we own all of our parts of right through the whole system. So there's multiple ways for us to serve our customers and multiple ways for our investors to win. And that's the pretty exciting part that I don't always feel gets fully valued in the market for sure. Aaron MacNeil: That's a ton of great context. As a related follow-up, a significant portion of the $35 billion of secured capital comes into service in 2027. As we think about all these liquids projects that you just outlined, continued success in GTM, steady growth across the utilities. Do you see sort of a, I guess, what I'll call a high plateau in terms of capital entering into service towards the end of the decade? And do you see any timing or capital sequencing issues to maintain the spend between $9 billion and $10 billion? Gregory Ebel: Maybe Pat will want to add to this, but I don't think so. I mean, we're constantly adding to the back end. Look, I think that's not unusual for companies like ourselves. Just go through the stuff that Colin went through, right? You're talking '27, '28 and then '29, '30, you'll see additional pieces as well. The gas trend deep Gulf stuff is all '29. Storage piece comes in some late '29, '30. So I think it will stay up at that amount. That's what gives us the confidence on 5% growth. It's a bit of a flywheel that's going on right now, which is quite positive. But from a balance sheet perspective, we feel very good about that 9 to 10. Pat? Patrick Murray: Yes, I think so at the end of the day, we've got a pretty fulsome '26 now. We've reserved some capacity for these MLO 1s and 2s. I mean, 1, we'll have some spend in '26; 2, probably not as large as it's a little later, but we'll reserve some capacity given how confident we now are in those moving forward. And then as Greg said, we're really happy to continue to build out the back part of the decade. And hopefully, that's adding a lot of clarity into the growth that the enterprise can have. And I think it's pretty common in our infrastructure business where you got -- you have secured some capital for the next couple of years. It's kind of close to or just below your kind of capacity in any out years you're filling up. And I think the team has done a great job in the last 6 months of doing that. So we're very comfortable. Operator: Your next question comes from the line of Jeremy Tonet from JPMorgan. Jeremy Tonet: Just want to kind of maybe follow up a little bit on the last line of questions there with regards to growth over time and having talked about this 5% EBITDA growth potential over the medium term post '26. And I know you're not going to give us the December update today, but just wondering any foreshadowing you might be able to provide us here or thoughts into how we should be thinking about how that update could unfold? Gregory Ebel: Yes. I'm not sure we are going to give you much of that right now because as you say it's December. But look, I think -- look, you've heard what we've been able to do on the gas side today with announcements. The liquid side, Michele gave you a good tour to tab on that side as well. And despite what some people have looked at, we've even done a number of things on the renewable power side in the last year. So I think it's the benefit of the portfolio. And again, those secondary and tertiary benefits of everything from power demand, from policy changes, from GDP growth that actually give us that confidence, and we see growth right across the system. So if your question is, do we see pullbacks in areas? No. In fact, we see acceleration even the renewable stuff that we have, a lot of that stuff is a long ways down the trail and anything we do sanction would have already been in a good spot from a policy perspective. So -- and as Pat just mentioned, we've got the balance sheet capacity, internally generated cash flow to be able to meet those demands. And obviously, every dollar of EBITDA we add adds another $4 or $5 of capacity. So we're very focused on that. So it's probably where I'd leave it today. I don't know, Pat, would you add anything further? Patrick Murray: Yes. I mean I think our message, if you remember back 6 months ago at Enbridge Days was that the whole goal here was to add clarity into that back end of the decade growth rate. And I think it's fair to say that we're doing a substantial amount of projects that should help to clarify that. So we're confident in the growth rates that we've put forward, and we'll continue to add to this backlog. We know there's more to come in really every business, which is what I like the most about it. We've got a very diverse set of opportunities over what really turns out to be a 5- to 7-year time line now. So yes, we're feeling good about the growth rates. Jeremy Tonet: Fair enough. I figure it's worth a try. Just wanted to dive in a little bit more into Western Canada and gas storage there. With LNG Canada ramping up. Just wondering if you could provide maybe a little bit more color on the tone of customer conversations there. It seems like the market is going to need a lot more logistics. You're expanding gas storage capacity there. Just wondering if you could elaborate any more on how you see this unfolding. It seems like these would be fundamental tailwinds to rates and economics overall, but just wondering what you guys are seeing. Cynthia Hansen: Yes. Thanks, Jeremy. It's Cynthia Hansen. I would agree with you that we are having these tailwinds, particularly when it comes to storage. Of course, in the last quarter, we'd announced our expansion, a significant expansion of our Aitken Creek storage. We are the only storage in that BC area. So we currently have about 77 Bcf of storage there, and we announced another 40 Bcf. So that will -- we'll start construction of that in the first part of next year, and that will be in service in a couple of years following that. When we have the conversations, it was -- when we announced that opportunity, we had 50% of that storage signed up right away in a long-term contract. So -- our customers understand that there is that opportunity and they're willing to back that kind of expansion. As we continue to look at other opportunities, the current discussions about LNG Canada Phase 2, all of that creates an opportunity, not just for our storage, but for the opportunities to expand our West Coast system. We've announced earlier this year the Birch Grove, which is an expansion of T-North that ties into that, too. So strong opportunities, but I would say that we'd like to continue to see that growth of those opportunities for LNG export. That will need the support of the BC and Canadian government as we go forward to make sure that we are positioning those projects to attract the capital they need in the long term to support that opportunity. Operator: Your next question comes from the line of Robert Catellier from CIBC Capital Markets. Robert Catellier: I'd like to go back to the Data Center and Power Generation opportunities. Obviously, that's a hot part of the market right now. And I think your own gas distribution business is advancing more than $4 billion of related projects. Can you provide some detail on how you're managing cost risk, in particular, in areas like that, that are hot and where there's a lot of competition, supply chain constraints and customer focus on time to market? Gregory Ebel: Yes. Obviously, several areas there. And as they relate to the gas distribution side, obviously, prudency kicks in. But recall, those are rate base type driven setups, right? So you're getting on a capital structure, call it, 10% return in the U.S. on about 50% equity. So as long as we're being prudent, I'm not feeling too concerned about that. Now that being said, given the size of the company, we are actively and we're out there doing that, making sure that we've got good alliance agreements with various contractors, giving us the best rates, actually going forward and even stockpiling, if you will, compressors and things like that. And remember, on the inflationary side, I'd say about 30% most of these large projects would be CapEx related to equipment and things like that. So those relationships are really critical. And a lot of them, obviously, we're avoiding tariff structures through contract mechanisms as well. So far, so good. The biggest concern I have is on the people side of things and just getting the time and equipment in place. So we're pretty good at that. I think we feel in terms of those long-term relationships with contractors and stuff like that. But Rob, it's something definitely we're watching closely. It's also why I love some of the projects that we announced today that are all relatively small, as Colin said, singles and doubles and quick cycle, relatively speaking, so that you don't have long drawn-out processes. And then the last piece is, as you know, a better attitude with policy around permitting and acceptance of these critical projects. And that takes a risk off the table from a CapEx perspective as well. Robert Catellier: Okay. That's very helpful. And then a bit of a regulatory question here for Colin, and maybe we'll have to take this offline. But I'm curious about the Mainline optimization too and the interplay with the Dakota Access Pipeline, given there's still some lingering permitting issues there. So maybe, Colin, you could walk us through whatever relevant regulatory updates on DAPL that relate to the Mainline optimization too. Colin Gruending: Yes. Sure, Robert. And it's a good question and one we've thought through. So we don't need a new presidential permit across the border. And we're confident that the DAPL EIS will come through in the spirit of energy security and energy dominance. So we're confident in that line of thinking. Operator: Your next question comes from the line of Rob Hope from Scotiabank. Robert Hope: You've mentioned a couple of times that the policy environment is getting better for energy infrastructure. In Canada, how are you interfacing with the Canadian major projects office? Enbridge has over, we'll call it, $8 billion of projects in development in BC. You could do more on the liquid side there as well. Is there a way to get incremental support to further derisk these projects? Gregory Ebel: Yes. At this point in time, we haven't put projects through the office. It's great that it's set up. Hopefully, that will be helpful for those national interest projects. But most of the things or all the things we're talking about are short cycle, relatively permit light. And so we haven't seen the need to go down that route. But that being said, we've had several conversations with them. Obviously, Don is well known in the industry and respected and has been very good to don't hesitate if you need some help around permits, et cetera, and working through the lab of the Canadian government. So we won't hesitate. But to date, and I don't see that actually on any of the projects that we have. As you know, we have several billion dollars of projects being done in BC, things Colin's talked about today. But a lot of them are relatively permit light and even not giant CapEx as individual chunks. So I just don't see us using the major project office at this point in time. Robert Hope: Appreciate that color. And then maybe just going back to the Mainline. I appreciate all the details on further expansions, Colin. But maybe to dive in a little deeper, and I know it's early days, but what would an MLO3 look like? And how much more incremental capacity do you think you can get out of the basin without, we'll call it, a good amount of large diameter pipe? Colin Gruending: Robert, you're reading my mind. So we've got some hitters warming up in the dug out. MLO3 and 4 are stretching. Our engineers are looking at that as well because there is a scenario here, right, where Canada and the U.S. do a bigger trade deal and energy is part of it. And the imperative may accelerate further. So we do have some, again, in-corridor in fence line solutions for that. But it's premature for us to probably talk about those. Operator: Your next question comes from the line of Manav Gupta from UBS. Manav Gupta: We are actually seeing a lot of resurgence in solar stocks in the U.S., and you actually have a very strong solar portfolio. But because you have everything else, which is also so good, sometimes it's underlooked. So can you talk a little bit about your renewables portfolio and solar in particular and more deals like Clear Fork with Meta, if you could talk on those points, please? Matthew Akman: Sure. Manav, it's Matthew here. Yes, you're quite right. I mean I think investment discipline is the order of the day in renewables, given some of the cross currents in the policy landscape, but we have to keep our eye also on the opportunity here because the customer demand for this remains very, very strong. We are still in the window where we've got interconnection-ready projects that are in fantastic locations with strong local support and great resource while the production tax credit window remains open. And so there's definitely a lot of interest from customers on the data center side around that, in particular, on our solar portfolio. We've talked about Project Cowboy out in Wyoming. We are building a lot of stuff, as you know, you mentioned Clear Fork with Meta and ERCOT. But that Wyoming project has a tremendous amount of interest. and is potentially a very big one and is well advanced. And so again, we're going to be navigating carefully, but there should be win-wins here because customers know that there's this window. And there aren't that many projects that can actually get in into their windows and they need the electrons, and they want it, if possible, lower zero emissions. So I think we're really well positioned. But again, we'll be navigating this and with a very close eye on our risk profile and making sure that we are consistent with our low-risk business model across everything we do. Manav Gupta: Perfect. My quick follow-up is your partner, Energy Transfer, talked about the Southern Illinois connector, exactly the kind of crude that U.S. refiners need. Can you also highlight some of the benefits of this project? And can you confirm if this is probably 2028 start-up, if you could talk a little bit about that? Colin Gruending: Yes. Thanks, Manav. Yes, I agree with your thesis. And what else can I tell you here? This is a new market off our mainline system to Nederland, Texas. And yes, you can imagine we've got a map of all the refineries, and we're trying to feed all of them. We've got about 75% of U.S. refineries connected to our Mainline system. So this isn't a new market for us. technically not super complex using existing capacity on spearhead, just longer hauling that capacity. It used to go to the Patoka area, now that 100 -- of the 200 on Spearhead will go down in Nederland, Texas, and we're expanding the Platte system, I think pretty simple scope there, pump refurbishment. So high confidence execution. And so yes, the time line should work. Operator: Your next question comes from the line of Sam Burwell from Jefferies. George Burwell: Some of this has been touched on already, but just a quick one on Southern Illinois and the whole path. So I mean the Mainline optimization seem like they're on the right track and Mainline volumes were 3Q record. But downstream of that, low volumes in 3Q, and it seems like it's going to be a headwind in 4Q as well. So just curious if you have a view on when that could improve? And then is there anything to read into the 100,000 barrels a day capacity on Southern Illinois because I think the open season figure was higher than that, like 200. So just curious on your thoughts on full pass volumes improving over time. Colin Gruending: Sure. I can take that. So I think it's a temporary anomaly here. That path on our liquid system south of Chicago down to the Gulf has been pretty robustly used for a long time. It's been recently weaker, still pretty good, but a little bit weaker as you saw in our disclosures, Pat talked about it. That is due really not the weakness the South per se, but more so that, that demand, that upper PADD II demand has been unusually strong in the last quarter or 2. So higher absorption of that high Mainline throughput, just a bit further North. And so double-click on that, why is that? A couple of reasons. One, our product levels were lower given fuel demand. And so those refiners were running pretty hard, so higher utilizations to replenish those inventories. And secondly, they had I would say, higher than average just uptime. And so the combination of those two factors kept a lot of that mainline oil at home, so to speak, in the upper PADD II market. I think Q4 should be maybe a little better than Pat suggested. We've seen some early quarter improvements here. And then moreover, I think just longer term, we've got a lot of confidence in that path. In fact, we just have successfully run two open seasons for that path, both have been oversubscribed to expand it. So I'd say it's a temporary effect. You also asked about 200 versus 100, yes, pardon me. So yes, we we're pretty happy with the 100 with our partner there. We actually had oversubscription for the 100, but we end up settling it at 100. It's just the most efficient kind of sweet spot on that project for economics overall. Operator: Your next question comes from the line of Ben Pham from BMO Capital Markets. Benjamin Pham: I wanted to touch base first on the Woodside LNG project. Could you remind us going forward how the mechanism works on the contract as you close on the in-service dates? Gregory Ebel: Yes, I think you mean Woodfibre. Cynthia can take that, right? You mean... Benjamin Pham: Woodfibre, sorry. Cynthia Hansen: Yes. Yes. Thank you. Yes. So the way our contract works is that we will be setting that final toll closer to the in-service date. So with our contract terms, we will get our return based on that toll structure that's finalized at that date. So we continue to benefit from the delay in that term as the cost increase and that will allow us to actually have limited exposure to some of these cost overruns that we're starting to see on that project. Now -- we are really excited, though, that we're 50% complete overall on the construction, and we believe that there's a really strong path to getting us to the 2027 in-service date. Gregory Ebel: Now the other thing, we'll have to see how it plays out, but the Canadian budget did have some accelerated bonus depreciation for LNG projects that have low emissions. And I think as we've talked about before, this will be amongst, if not the lowest emission LNG project globally given how it's getting its power. So we'll watch for that, which should be helpful from a return perspective as well. Benjamin Pham: Got it. And I have to chuck when I said Woodside because I do have a follow-up question on that partnership more specifically. Just think about your investments in on the BC Coast. And I'm curious just with LNG additions ahead and some of the strategic partnership you've seen with Williams in particular, is there appetite for Enbridge, may not something specifically like that, but maybe just appetite for LNG beyond what we have right now. Gregory Ebel: Yes. Ben, we're not opportunity light. We are opportunity rich. So us taking on -- I can't see us taking on an LNG facility with commodity exposure, which is what some other folks that you mentioned have done. We'll get done the Woodside opportunity here, and then we'll see. Obviously, there's a lot of water still to go under the bridge about getting things built in off the BC Coast. So let's continue with our Woodfibre project. Sorry, I said Woodside. Now you got me saying it. The Woodfibre project before we look at other ones. And Look, you saw us announce today those storage projects are serving LNG on the Gulf Coast. Aitken is going to serve LNG in BC. A lot of the projects that Cynthia mentioned, the pipeline project, that's the stuff we know and know very well and earn solid regulated rates of return on. I think in this environment, that's probably a better setup for us. So we'll always look. We get an opportunity to take a look at everything, but I don't think our investor proposition is open to taking on a bunch of commodity exposure. We don't want to. Operator: Your next question comes from the line of Maurice Choy from RBC Capital Markets. Maurice Choy: First question is about your crude oil production growth projections. I remember back in Enbridge Day, you've made a forecast that you may see more than 1 million barrels a day of growth through to 2035. Assuming that projection was made based on the landscape at that point in time, how would you view this growth now given what appears to be a supportive regulatory and political landscape in Canada? Colin Gruending: This is Colin. Yes, great question. And I think our -- I think both of those projections are, I think, internally consistent, and I think our view of that is stable. There is an upside scenario here that if Canadian federal policy comes through on this vision of a global energy superpower, which we believe in strongly. We have a unique perch on that. I think there is upside -- there's for sure upside in that scenario. But it's an if at this point. So we've calibrated our business plan to the base case and are -- to a question a few minutes ago, are generating further solutions if the upside comes to be. Gregory Ebel: You're going to get a good insight on that, I think, as well, Maurice, right? Because if the policy conditions form in Canada that ensure that as a producing nation, it's actually competitive. The first sign of that is going to be our producers and then being more optimistic about production, and then we'll be able to react as capital forms. So -- but at this point in time, we wouldn't change the million by 2035. And the MLOs and the Southern Illinois Connector and our Mainline investment capital is all consistent with how we see that rolling out between now and the end of the decade, all other things being equal. Maurice Choy: That makes sense. If I could finish off with a question on the Pelican CO2 hub. Oftentimes, these types of projects are perceived to have a lower return than the 4 to 6x build multiple that you can deliver within liquids pipeline outside the Mainline. Recognizing that you do have an internal competition for capital among your various businesses, I wonder if you could comment on the returns here or just more broadly about lower carbon opportunities, how do they compete for capital internally? Gregory Ebel: Yes. Look, I think both ourselves and Oxy are pretty darn careful on this front. If this project didn't earn at least the returns that we get from other Liquids projects, as you say, outside the Mainline, it wouldn't have got sanctioned. So obviously, I would even argue there's always some policy risk, so you want to make sure you get this right. So this is very much in that wheelhouse, if not a bit better. And obviously, the tax incentive structures, we've got a lot more clarity on that out of the OBBB bill that came out so that we know exactly what our tax incentives are on that. And it's got a long-term 20-, 25-year contract with offtake player. So I would say returns are at least, if not a little bit better than what we're seeing in this world. Policy support is there where it may not be for some of the other unconventional investments. And we love our partner on this front who has very similar return type parameters. Maurice Choy: I might just add on that. Colin Gruending: I was just going to layer on that it's a very selective investment. We're going to take a crawl, walk, run approach to developing low-carbon infrastructure. I think the pace of it generally is a lot slower than most observed a few years ago. So we're going to take a very careful and disciplined approach here, as Greg mentioned. Maurice Choy: It's great to hear. My -- I guess, all the best to Cynthia on your retirement, and congrats to Matthew in your new role. Cynthia Hansen: Thank you. Matthew Akman: Thank you. Operator: Your next question comes from the line of Theresa Chen from Barclays. Theresa Chen: I would also like to congratulate Cynthia on her retirement. Thank you for all your insights over the years, and I'd like to congratulate Matthew as well on his new role. Going back to the discussion around the Mainline expansion. So when it comes to resourceful solutions for moving incremental WCS barrels to the U.S. Gulf Coast, leveraging your JV system with Energy Transfer is certainly a capital-efficient approach. And as the downstream southbound capacity fills up over time, have you or would you also consider partnering with other pipelines such as topline, which also runs from the upper Mid-Continent to the Gulf Coast and currently has available capacity? Colin Gruending: Yes, Theresa. And I think joint ventures are a big part of Enbridge's playbook. Cynthia has got a bunch, Matthew's got a bunch. We've got a bunch in our portfolio, and we're proud to partner with basically everyone in the industry. And I think that's going to be a part of everybody's playbook going forward. We also partner with enterprise products on Seaway. We've gone from 0 barrels a day through that system to what's going to be not far from now, 1 million barrels a day. So I think we've utilized joint ventures extensively. We've got a whole bunch of others across the system as well. So we're open to that. I think teamwork makes the dream work here in an exciting environment. Theresa Chen: Got it. And looking at your medium-term outlook, not asking you to front run the guidance update to come, but just looking at what's already out there, how do you plan to align DCF per share growth with EBITDA growth over time, that 5% -- given that DCF per share has recently trailed EBITDA growth, what are the key drivers in bridging the two over time? Patrick Murray: Yes, it's Pat. Thanks for the question. Yes, I think we have been pretty clear that the reason they kind of disconnected over the last couple of years was primarily related to cash taxes, and we see that plateauing. We've seen some pretty positive tax decisions made in the U.S. There's lots of conversations about things that could happen in Canada. But generally, we just see that the cash taxes are returning to be more in line with -- not having the growth that it had over the last number of years. So that's why those two primarily converge as you move later into the decade. Operator: Your next question comes from the line of Praneeth Satish from Wells Fargo. Praneeth Satish: On the Egan and Moss Bluff gas storage expansions, can you break down how much of the 23 Bcf of capacity is already committed under long-term contracts versus any shorter-term contracts or merchant capacity? And then given that you're moving forward with the expansion, I assume pricing is favorable, much higher than historical levels. But can you provide some color on the contract durations? Is it kind of in the typical 3- to 5-year range? Or are you able to get something longer in this environment? And then I guess as a follow-up to that, like how do you think about the trade-off between locking in longer storage term contracts versus keeping them shorter so you could potentially benefit from higher recontracting rates in the future? Cynthia Hansen: Thanks, Praneeth. It's Cynthia. I would say that where we are right now, we have Egan, the first cavern that we're developing there is about 50% contracted and we'll, over a period of time, lag into that. We're managing these assets. It's an existing portfolio. So we're going to manage those contract terms consistently with how we've operated those assets. When we look at the overall contract terms, it is a speed from that 2- to 5-year kind of average overall. We always look for those longer terms as to be part of that portfolio. But as you noted, just with the opportunities right now as we continue to see the demand for storage increase, and we've seen some strong pricing associated with that, that's really supporting this ongoing development that we're doing. We want to try and manage the portfolio to really optimize that structure as we go forward. Gregory Ebel: Yes. And that 3 to 5 years, 2 to 5 years is pretty typical the way that we've done it historically. And look, I think we've got a super high level of confidence in the LNG coming in on the Gulf Coast. So that probably lets us leg into the contracts and we want to. But it depends on the location, right? Like, for example, the Aitken Creek contract, I think we took about half of that and have it under a 10-year contract. So it just depends on the situation, and it's worked extraordinarily well. I'm glad you raised the storage question because we got 600 Bs or so across North America, all with great optionality outside the regulated piece. But we're adding just the announcements in the last 12 months, 10% to that number. So it's a big uptick for us at the right time in the market, and I feel very good, as Cynthia says, the way we'll leg into this. Praneeth Satish: And then I'm sure you saw that Plains recently announced the acquisition of the remaining interest in the EPIC Crude pipeline. They've talked about potentially expanding the pipeline, may or may not do it. But if they do, it seems like it could be a positive for your Ingleside assets. So just curious if you have any thoughts on that deal or just the overall landscape now at Corpus and the puts and takes for your Ingleside and Gray Oak assets. Colin Gruending: Yes, it's Colin here. Yes, and we've observed that, obviously. And we're partners with Plains on Cactus II already. I'm sure there's more work we can do together to the spirit of the question a couple of minutes ago on teaming up. Our franchise is remains a work in progress, but it's still really a good one. Ingleside is the #1 export terminal on the continent. It's poised to grow all the advantages it has, Gray Oak. It's great. So we're pretty confident with our system there and hopefully can do even more with Plains going forward. Operator: And that concludes our question-and-answer session. I will now turn the call back over to Rebecca Morley for closing remarks. Rebecca Morley: Great. Thank you, and we appreciate your ongoing interest in Enbridge. As always, our Investor Relations team is available following the call for any additional questions that you may have. Once again, thanks so much, and have a great day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to Intercorp Financial Services Third Quarter 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Ivan Peill from InspIR Group. Sir, you may begin. Ivan Peill: Thank you, and good morning, everyone. On today's call, Intercorp Financial Services will discuss its third quarter 2025 earnings. We are very pleased to have with us Mr. Luis Felipe Castellanos, Chief Executive Officer, Intercorp Financial Services; Ms. Michela Casassa, Chief Financial Officer, Intercorp Financial Services; Mr. Carlos Tori, Chief Executive Officer, Interbank; Mr. Gonzalo Basadre, Chief Executive Officer, Interseguro; Mr. Bruno Ferreccio, Chief Executive Officer, Inteligo. They will be discussing the results that were distributed by the company yesterday. There is also a webcast video presentation to accompany the discussion during this call. If you didn't receive a copy of the presentation or the earnings report, they are now available on the company's website, ifs.com.pe. Otherwise, if you need any assistance today, please call InspIR Group in New York on (646) 940-8843. I would like to remind you that today's call is for investors and analysts only. Therefore, questions from the media will not be taken. Please be advised that forward-looking statements may be made during this conference call. These do not account for future economic circumstances, industry conditions, the company's financial performance or financial results. As such, statements made are based on several assumptions and factors that could change causing actual results to materially differ from the current expectations. For a complete note on forward-looking statements, please refer to the earnings presentation and report issued yesterday. It is now my pleasure to turn the call over to Mr. Luis Felipe Castellanos, Chief Executive Officer of Intercorp Financial Services, for his opening remarks. Mr. Castellanos, please go ahead, sir. Luis Castellanos López-Torres: Thank you. Good morning, and thank you all for joining our third quarter 2025 earnings call. Thank you all for your interest and trust in IFS. We appreciate your continued support. We have continued to observe positive performance in Peru's economy with cumulative growth of 3.3% as of August. This momentum has been driven by increased activity in consumption-related sectors and sustained private investment, which is projected to grow by 6.5% by year-end. While we are maintaining a cautious outlook, given the international context and the pre-election period, Peru continues to benefit from a low inflation environment and a solid exchange rate which has appreciated close to 10% this year. The country risk remains low. Even with the latest presidential transition, we haven't seen additional volatility. These factors reinforce Peru's position as one of the most dynamic and stable economies in the region. The political transition expected in 2026 does not suggest any major changes in financial stability. Prudent monetary management and strong institutions allow us to forecast continued growth supported by the resilience of the local market and investors' confidence. This quarter, IFS has sustained strong core results and profitability with an ROE of around 16%, even after a specific investment impact related to Rutas de Lima with a provision of PEN 78 million this quarter. As you may be aware, the Rutas de Lima concession has become an ongoing issue between the municipality of Lima and the concessioner. What is currently reflected in our books corresponds to information available as of the reporting date. We're closely monitoring the situation as new developments unfold. Local and international legal proceedings will continue in the following months with final resolution not expected in the short term. Our total remaining exposure after in payments today amounts to approximately $60 million in soles equivalent, which represents less than 1% of our investment book at IFS. These results confirm our ability to adapt quickly and keep generating value in a challenging environment, reaffirming our commitment to long-term sustainability and profitability. Interbank continues to grow in higher yielding loans, particularly in consumer and small business segments, now representing 22% of our loan portfolio. Stronger net interest margin and better-than-expected cost of risk have driven a solid improvement in risk-adjusted NIM, highlighting our discipline in effective risk and profitability management. Izipay and Interbank continue to capture joint business opportunities, while PLIN deepens user engagement, fostering more primary banking relationships and driving growth. Interseguro continues to grow its core business with solid performance in private annuities and life insurance, even after the negative impact from Rutas de Lima this quarter. In addition, Interseguro continues to leverage synergies with Inteligo to expand private annuity sales and collaborating with Interbank to advance integrated bancassurance solutions that deliver greater value for our customers. Inteligo, our Wealth Management segment also continues to grow in double digit, achieving new record high in assets under management, thanks to our client, trust and consistent engagement. IFS remains committed to our strategy of focused and profitable growth, keeping our clients at the center of every decision. Our priority is to achieve digital excellence and deepen primary client relationships through comprehensive data-driven services and a differentiated experience, powered by our innovation and advanced analytic capabilities as our competitive advantage. Looking ahead, we remain optimistic about IFS' and Peru's outlook. The company has demonstrated resilience in downturns and is well positioned to continue executing its growth strategy, maintaining profitability and reinforcing our leadership in the Peruvian market. Now let me pass it on to Michela for further explanation of this quarter's results. Thank you. Michela Ramat: Thank you, Luis Felipe. Good morning, and welcome, everyone, to Intercorp Financial Services Third Quarter Earnings Call. We would like to start with our key messages for the quarter. We had a very good third quarter as business momentum remains strong. Our accumulated net income is up by 81% compared to the same period last year, accumulating 17.4% ROE, which would have been 18.3%, excluding the one-off from Rutas de Lima. Net income from the quarter was PEN 456 million with an ROE of around 16%. Second key message, higher-yielding loans accelerated, showing a 7% growth in a year-over-year basis and 3% in the last quarter. Third, risk-adjusted NIM continues with a positive strength, increasing 40 basis points in the last quarter, now at 3.8%, still with a low cost of risk of 2.1% and with some positive signs in the NIM recovering 10 basis points in the quarter. Fourth, we continue to strengthen primary banking relationships. And as a result, our retail primary banking customers grew 6% last year. Fifth, we had double-digit growth in our core business in wealth management and insurance with written premiums growing by 58% year-over-year due to the growth in private annuities and life insurance, and wealth management assets under management are at new record highs with continued double-digit growth quarter-to-quarter. Let's start with our first key message. Let me share an overview of the macroeconomic environment. Peru's GDP growth accelerated in the third quarter with the Central Bank revising its 2025 estimate upward to 3.2%, supported by strong nonprimary sector activity such as agriculture and mining. August growth reached 3.2%, bringing the year-to-date expansion to 3.3%. Agriculture grew by 6.4%, fueled by high international demand and mining remains strong. Construction services and commerce also saw growth above 5%, demonstrating solid domestic momentum. Private spending has been a key factor behind the economic growth throughout the year. Macroeconomic fundamentals remain stable with inflation contained near 1.7% for 2025. The Peruvian sol has strengthened around 10% this year and the reference rate lowered to 4.25%, maintaining favorable financial conditions for ongoing growth. Overall, with a GDP growth projection of 2.9% for 2026 by the Central Bank, Peru is establishing itself as one of the fastest-growing economies in the region despite internal and external challenges. The Peruvian economy holds positive prospects for the coming years as it is well positioned to meet the global demand for commodities. Nevertheless, risks remain, particularly those related to political uncertainty and global market volatility. On Slide 5, high prices for copper and gold continue to be one of the key drivers of Peru's economic growth, boosting export revenues, encouraging investment in mining and related sectors and supporting job creation. As a result, Peru's stance of trade are expected to remain at historic highs. In line with the positive economic environment, business expectations remain stable with seeing optimistic ranges and consumer confidence continues to improve, supporting domestic demand. The general demand projection for 2025 has been revised upward by the Central Bank to 5.1%, driven mainly by solid growth in private investment and consumption. In the first 6 months of the year, internal demand expanded by 6.2%, with private investments up 9% led by double-digit growth in non-mining investments and private consumption rising by 3.7%. Looking ahead to 2026, internal demand is expected to moderate to 2.9%, with private consumption stabilizing at 2.9% and private investment reaching 3.5%. Additionally, there is an extensive pipeline of projects in mining and infrastructure scheduled for the coming years. In this environment, while we observed an acceleration in retail lending during the third quarter, we anticipate that this pace will likely moderate during the last quarter of the year, given the expected outflows from the private pension funds. On Slide 6, during the third quarter, we achieved a 17% year-over-year increase in earnings, reaching an ROE close to 16%. That said, this ROE marked a slight decrease from the previous quarter, mainly due to 2 factors. First, the last quarter, Inteligo delivered results related to investment portfolio that surpass expectations. And second, this quarter, Interseguro registered the impact of the Rutas de Lima provision of PEN 78 million, as previously mentioned. On the positive note, the bank saw a reversal of provisions related to Integratel, previously Telefonica for PEN 20 million. If we exclude Rutas de Lima and Integratel, IFS ROE would stand at 17.5%, which brings us closer to our medium-term target. I want to particularly highlight the bank's strong performance this quarter, which is not only attributed to a lower cost of risk, but also to an improved net interest margin in line with growth of higher-yielding loans, fee income and positive results from the investment portfolio. Excluding the effect from Integratel, the bank's ROE would have been 16%, which represents an improvement both year-over-year and compared to the previous quarter. Furthermore, the core business of Interseguro and Inteligo continued to post double-digit growth. On Slide 7, I would like to highlight the positive strength of our ROE throughout the year. For the first 9 months of 2025, our ROE stands at 17.4%. And excluding the Rutas de Lima effect, ROE would have reached 18.3%. This has been a solid quarter across all IFS business lines with our core operations as the main drivers of profitability. This performance positions us well to continue advancing towards our medium-term goals. On Slide 8, our accumulated earnings are up 81% compared to the same period last year with an accumulated ROE at 17.4%. Both Interbank and Interseguro have achieved relevant growth, each posting increases of more than 60% year-over-year. Inteligo, in particular, has seen its earning more than triple, which speaks to the strength and resilience of our diversified portfolio. Another positive highlight is the growing diversification of IFS earnings. In the first 9 months of the year, the bank contributed around 70% of total earnings, showing the increasing relevance of our other segments. Now let's turn to Slide 9, where we take a closer look at IFS revenues, which grew 9% year-over-year. At the bank level, top line is growing 4% in the quarter as we are beginning to see a recovery in our net interest margin on top of good results in fee income. This is driven primarily by accelerated growth in the higher-yielding loans, which starts to positively impact our average yield. Interseguro continued to demonstrate strong revenue trends in line with high investment valuations while insurance results improved, thanks to growth in annuities. Finally, at Inteligo, fee income continues to grow and the portfolio results have returned to more normalized levels. On Slide 10, we wanted to double click on the fee income evolution, which continues to demonstrate good dynamics with a cumulative 8% increase year-over-year. At the bank level, this growth is supported by retail on one hand, given the increased debit and credit card activity and by commercial banking on the other, reflecting results from our strategy of deepening client relationships and strengthening our ecosystem. Wealth management also posted notable growth with fee income increasing 17% year-over-year as a result of the ongoing expansion in assets under management. In line with our strategy, the transformation for acquiring business model continues, positioning Izipay as a key complementary component within our commercial banking product suite. This has enabled us to strengthen client relationships and increase float balances, although it has resulted in a compression of merchant margins impacting fee income. These developments are taking place and the growing competition in the market and the fast adoption of QR codes with no fees. On Slide 11, IFS expenses increased by 6% year-over-year as we continue to make strategic investments to support our long-term growth ambitions. This includes accelerated investments in technology to strengthen resilience, enhance user experience, improve cybersecurity, expand our capacity and develop AI capabilities alongside ongoing efforts to strengthen leadership within key teams, reflecting a recognition of the pivotal role talent plays in delivering our strategy. Consequently, the cost-to-income ratio at IFS level stands at 37.7%. Now let's move on to the second key message. On Slide 13, we see a positive trend in higher-yielding loans. Our total loan portfolio expanded by over 5% year-over-year, outperforming the market. This positive momentum was driven by the acceleration in higher-yielding loans, which grew 7% over the past year and 3% in the last quarter. The robust macroeconomic activity is reflected in increased disbursement by 34% in cash loans and by 56% in small businesses. In this last case, most of our current disbursements are now traditional loans, which include sales financing, collateralized loans and unsecured loans, which have higher rates compared to last year's [indiscernible] loans. This segment continues to expand with average rates increasing by over 150 basis points in the past year. Overall, in retail banking, the affluent segment was the one which started the recovery in growth with an 8% growth year-over-year and 2% in the last quarter. But now the mass market segment has now grown for 2 straight quarters, increasing 3% in the last quarter and beginning to regain scale. On the commercial side, the decline in the quarter is mainly attributable to the corporate segment, impacted by loan maturities and by some companies turning to the capital markets. However, midsized companies continue to perform well up 5% year-over-year, and small businesses up 33% year-over-year now representing almost 4% of our total portfolio. On Slide 14, we wanted to double click on the consumer portfolio, which accelerated in the last quarter. In personal loans, we've seen a significant uplift in digital channel performance, driven by enhanced personalization of communication journeys and continuous improvements to our website. Disbursement rose 51% supported by increased lead generation and additional loans to existing customers. We also redesigned our pricing strategy with a customer-centric approach, enhancing our value proposition and driving higher conversion rates. The current mix starts to shift towards higher-yielding segments, supported by growth in the mass market clients with good risk profile. Still, the retail cost of risk is at very low levels. In credit cards, transactional activity continues to grow as turnover rose 9% year-over-year. Looking ahead, we remain optimistic about our growth prospects, although we recognize that challenges persist. In particular, pension fund withdrawals would likely affect consumer loan disbursements in the coming quarters. Nevertheless, our continuous focus on higher-yielding segments and prudent portfolio management position us well to navigate these market conditions. As part of our strategy, we continue to strengthen our payments ecosystem with PLIN and Izipay. On Slide 15, we have continued working to generate further synergies as we drive the growth of our payment ecosystem, focusing on increasing transactional volumes, offering value-added services and leveraging Izipay as both a distribution network for Interbank products and a source to increase growth. In particular, the commercial teams from both Izipay and the bank are collaborating more efficiently, allowing us to deliver integrated solutions and maximize the value we bring to our clients. PLIN transactions grew 38% over the last year, and our digital retail customers reached 83%. We introduced PLIN Corredores, extending our digital payment services to the transport sector through Metropolitano Corredores, and we recently launched PLIN WhatsApp offering a new digital experience for our clients, which allows them to pay without using the app directly from WhatsApp, both by typing the instructions and through voice, boosted by AI. This is our first example of conversational banking, and we will continue to evolve this offering with new features in the near future. Continuing with our strategy, Izipay continues to show strong momentum in the small business segment with flows from Izipay up 60% over the past year. This growth has contributed to the 20% increase in deposits which now accounts for 10% of wholesale deposits or 26% of wholesale low-cost deposits. The flow from Izipay expanded by 31% in the same period as interim share of Izipay flow is around 39%. Following with the third message, we see improvement in risk-adjusted NIM. On Slide 17, let me share a quick update on asset quality. Our quarterly cost of risk continues on a low level at 2.1% in the quarter or 2.3%, including the one-off impact related to the Integratel provision reversal, previously Telefonica. On the retail segment, the cost of risk continues to decrease, now standing at 4% representing a decline of 130 basis points compared to the prior year, still below our risk appetite. Our consumer lending portfolio is performing well with cost of risk dropping from around 9% to 7% year-over-year, supported by healthier customers with new loans, while new loans are showing a good performance in the new vintages. On the commercial side, asset quality remains robust. The cost of risk stands at approximately 0.4% excluding Integratel and performance has been stable throughout the year. Looking ahead, as our consumer and small business portfolios keep expanding, now representing 22% of our total portfolio, we should expect the cost of risk to gradually increase. Still, our nonperforming loan ratios are holding steady, and our coverage levels are solid above 140%. All in all, these results underscore an improving operating environment and demonstrate that our prudent approach to portfolio management is enabling us to deliver sustainable growth. On Slide 18, there are some good news to highlight in terms of yields and risk-adjusted NIM. Over the past quarter, our risk-adjusted NIM improved by 60 basis points with a notable 40 basis points increase in the last quarter, in line with the lower cost of risk as previously mentioned. The good news is that yields started to recover last quarter, rising by 10 basis points. This recovery was driven by higher rates in both retail and commercial banking, especially with the higher yielding loans where we observed more than a 30 basis points improvement in the average year. Additionally, part of the improvement in yield can also be attributed to the acceleration in growth of our mass market segment, which continues to gain momentum and contribute positively to our results. As a result, NIM saw a 10 basis point increase quarter-over-quarter. On Slide 19, the cost of deposits declined by 40 basis points year-over-year and 10 additional basis points in the quarter, supported by lower market rates and a health care funding mix with a focus on low-cost funds. Deposits have also become a more relevant part of our funding structure, representing around 81%. Although there is a seasonal decrease in total deposits we are expecting a recovery towards year-end as we expect to capture a nice part of the pension funds withdrawals similar with what we achieved in the previous withdrawals. Cost of deposits continues to show a clearly positive trend as we see further potential for reduction going forward as the portion of efficient funding now at 36% continues to improve. As a result, our overall cost of funds fell by 50 basis points compared to last year and 10 basis points during the quarter with a loan to deposit ratio of 96%, in line with the industry average. Moving on to our digital strategy. We continue to drive meaningful value and strengthen primary banking relationships through our digital initiatives, particularly with PLIN. Over the past year, we have grown our retail primary banking customer base by 6%, now representing more than 34% of our total retail clients. Monthly active PLIN users reached 2.5 million, each completing an average of 27 transactions for a total of 38% more transactions versus last year. P2M payments remains a core driver of engagement now accounting for 71% of all transactions. Within this segment, QR POS payments expanded to 2.6 million monthly transactions, up 44% year-over-year. Finally, we believe we have solid key performance indicators that continue to improve. For example, our inflow payroll accounts hold around 13% market share, retail deposits are at approximately 15%, and credit cards account for about 26%. All of these metrics are supported by an NPS of 56, reflecting our commitment to customer satisfaction and loyalty. On Slide 22, we continue to see good trends in our digital indicators compared to last year as we remain focused on developing solutions that meet our customers' evolving needs. As a result, we've seen steady growth in digital adoption. Our retail digital customer base increased from 80% to 83%, while commercial digital clients now stand at 73%. We've also made progress in self-service and digital sales. Our self-service indicator reached 82% and digital sales climbed to 68%. While the latest NPS reading, we have shown an improvement to 56 and our internal data reflects a clear recovery all year. This progress was reinforced by contextual and automated communications. Also, we developed predictive models with personalized outreach. Finally, we introduced a fully digital onboarding flow through interbank.pe, empowering seamless user and password creation for the app. Finally, solid results with double-digit growth in the core businesses of Wealth Management and Insurance. On Slide 24, we highlight the strong performance in our wealth management business this quarter. Inteligo continues to show solid momentum. Assets under management have grown at a double-digit pace, reaching new highs and now totaling $8.1 billion. Fee income continues to improve, up 16% year-over-year adding to the positive trend in results, and there is a slight improvement in fees over assets under management. Additionally, we would like to highlight the progress we are making in synergies with the bank. We have now launched a dedicated mine investment sections within the Interbank app, enabling clients to conveniently manage their investments directly from the same platform. This integration marks another step forward in delivering a unified experience for our customers with offerings converging within business segments. On the digital front, we continue to enhance our Interfondos app with the goal of shifting its role from a transactional platform to a true digital adviser for our mutual bank clients. As a result, we have seen a sustained increase in both the app adoption with a 5-point year-over-year increase and digital transactions, which grew by 2 points annually and represents more than half of all client transactions. Now moving to insurance on Slide 26. We continue to see good results in the contractual service margin, which grew 19% year-over-year, mainly driven by individual life. In the third quarter, reserves for individual life and annuities increased by 36% and 15%, respectively, supported by strong new business generation that more than offset the monthly amortization of the CSM. Individual life remains a key focus for us given its low market penetration. Although traditional channels keep growing at high rates, we've been also diversifying our distribution strategy to include digital ones and simplifying the product to reach new segments and keep supporting growth. Additionally, short-term insurance premiums grew by over 110% driven by disability and survivorship premiums acquired through a 2-year bidding process from the Peruvian private pension system. On the investment side, as mentioned before, results were impacted by PEN 78 million impairment from Rutas de Lima. The return on the investment portfolio decreased to 4.1%. It would have been 6.1% without this effect. There is still uncertainty around the timing and amount of recovery as legal proceedings continue to develop. As of today, we have provisioned around 40%. Hence, our exposure net of impairment is around PEN 200 million or $60 million. In insurance, we continue to focus on enhancing the digital experience as well and expanding ourselves from digital channels. The development of internal capability has allowed us to increase digital self-service to 71% from 65% of the previous year and the direct sales to grow 19% in the last year. Now let me move to the final part of the presentation where we provide some takeaways. Before we move on to our operating trends, we'd like to summarize where we are focusing our growth efforts. In commercial banking, we have seen important growth in small business, which increased by 33% year-over-year, now with a market share of around 4%. The commercial portfolio as a whole grew 7% year-over-year, gaining 30 basis points of market share. This strong performance is supported by 3 main strategies: first, deepening relationships with key midsized company clients, where we continue to gain share of wallet and unlock additional cross-sell opportunities. Second, expanding our position in sales financing where we have become the second largest player in the system. And third, leveraging synergies with Izipay to enhance our value proposition, especially in the small business segment where our digital payment capabilities set us apart. In this quarter, the consumer portfolio began to show signs of growth. At the same time, the mortgage segment continues its positive trajectory, achieving a market share of 16%. In insurance, we are maintaining our focus on long-term products as individual life has shown encouraging growth this past quarter. Finally, in wealth management, assets under management continued to grow at a healthy pace, up 13%, reaching new record levels and reflection on both market performance and continued client engagement. On Slide 30, let me give a review of the operating trends of the accumulated numbers as of September. Capital ratios remain at sound levels, with a total capital ratio of around 15% and core equity Tier 1 ratio above 12%. Our ROE for the first 9 months of the year was 17.4%, above our guidance for 2025. As mentioned before, we expect the last quarter to go back to more normal levels and year-end ROE could be closer to 17%, although it remains dependent on the impact of Rutas de Lima and its potential impact on the fourth quarter, if any. For loan growth, we grew 5% year-over-year, a bit below our guidance but still above the system. Year-end growth will likely remain at similar levels. We expect a slight recovery in NIM over the remainder of the year. On the positive side, cost of risk is expected to remain well below guidance, helping to offset lower margins. As a result, we anticipate a slight improvement in our risk-adjusted NIM for the full year. Finally, we continue to focus on efficiency at IFS as our cost income was around 37% within guidance. On Slide 31, we highlight our strong sustainability performance for the third quarter of 2025. On the environmental front, we have made significant progress. Our sustainable loan portfolio now exceeds or is around $350 million, supporting projects with a measurable positive impact, especially in the industrial and agricultural sectors. We enhanced internal capabilities by providing climate technology training to 30 executives, boosting green finance across agriculture, fishing, energy and mining. For the first time, we measure financed emissions in Interbank's commercial portfolio following the PCAF standard focusing on agriculture, fishing and energy, which represent 18% of the portfolio. On the social side, we keep promoting inclusive growth in workplace diversity. Interbank was ranked #5 in the Great Place to Work Sustainable Management ranking with Interseguro, Inteligo Group and Izipay, also among the best workplaces. Interbank's antiharassment program Voices was recognized by the UN Global Compact as a best practice. In governance, Interseguro Inteligo Group published their 2024 sustainability reports, and we strengthened our participation in key ESG assessments. Let me finalize the presentation with some key takeaways. First, the business momentum remains strong. Second, we see higher yielding loans accelerating. Third, we have an improving risk-adjusted NIM. Fourth, we continue to strengthen primary banking relationships. Fifth, wealth management and insurance, both core businesses growing double digit. Thank you very much. Now we welcome any questions you may have. Operator: [Operator Instructions] And your first question comes from Yuri Fernandes from JPMorgan. Yuri Fernandes: Hi, Michela, Luis, everybody. I have a question regarding Rutas de Lima, I think this is a broader process, right, Brookfield's total collections, concession. It's a broad topic. I would like to understand a little bit the level of impairment you did on your exposure in the insurance company. Because I think Michela mentioned in the end that this could or could not be a problem in the fourth quarter. So I'd like to understand how much of the impairment reflects your exposure already or not? And what is your outlook for that case? And then a second question regarding the growth for retail in light of the pension withdraw. How much the pension withdraw may impact the growth? What is your growth expectations for maybe like -- especially I think in retail, but if you can comment a little bit more broadly, how much that can impact your growth outlook for the year, near term? Luis Castellanos López-Torres: Okay, Yuri. Well, thanks very much for your 2 questions. I'm going to give a part of the answers, and then I'm going to pass it on to the team to complement. As Michela mentioned, our exposure right now considers around 40% of impairment already. It's tough to give you an outlook, given that this -- as you mentioned, this is broader thing between Brookfield and municipality. There's legal procedures going around. That 40% I mentioned was booked with all the information we have at the moment of the closing of the quarter, then things have evolved since then. So I think it's early to really give you an expectation. However, we are closely monitoring that situation. And regarding the retail growth, it's -- the pension has a couple of effects. It's -- not only that improved sales growth, but it has short-term positive impacts regarding funding and people bringing money from those funds to Interbank. So it has an offset, a positive offset in the cost of funds and the activity, but for number one, I'm going to pass it on to Gonzalo to see if he wants to complement anything. And then for number two, I'm going to pass it on to Carlos so he can give you a little bit more on his view on the potential specific growth impact of the pension fund release. Gonzalo? Gonzalo Basadre: Sure. Thanks, Felipe. As Felipe mentioned, we have already reduced the value of our holdings in Rutas de Lima in 40%. We're still waiting on what happens with the [Foreign Language] that Rutas de Lima has placed. We'll have more information before the end of the fourth quarter, where we'll be able to give a more precise value of those holdings. Still, the total position of Rutas de Lima represents less than 1% of the whole IFS investment holdings. Even though we take a lot of -- we take a lot of time to sort this out, its impact will be -- will not be -- it's not important in the total IFS. Luis Castellanos López-Torres: And Carlos, can you help us in the growth question? Carlos Tori Grande: As Felipe mentioned, the AFP withdrawals have several impacts. But to answer your question, and then I'll go a little bit deeper. The last few withdrawals have flattened growth or even made their consumer loans in the market decrease 1% or 2%. That has been the effect in the past. This one might be a little bit different because there's other factors going on. The first one is, in Peru, all salary workers get a double salary in December. So December traditionally is very liquid, and that helps, obviously, consumption reduces a little bit of outstandings but helps with collections. So this year, in December, we will have that, and we will have a portion -- a large portion of the AFP. So it will be a very liquid, we expect a lot of transactions. We don't know exactly if the amount of loans will increase or stay flat. But for sure, it will have a good impact in collections and cost of risk in December. The AFP withdrawals have 4 parts, right? You get it in 4 different months. But the first month is the largest in terms of the system because the people that don't have the full amount to withdraw get it in the first one. So the first one is the largest one. And in addition to all of that, in November, salaried workers in Peru also get long-term compensation, let's call it, and that has also been released. So there will be liquidity in November and December. So there's a lot of moving parts. But again, it will be liquid. That is good for collections and for funding. There will be a lot of consumption and transactions and then the effect on the amount of loans probably is flat or negative for 1 or 2 months and then we will resume growth. Yuri Fernandes: So basically, marginally negative, with asset quality, good for deposits maybe 1%, 2% down, and then we should see a recovery in retail, right? That's basically the message. Luis Castellanos López-Torres: Yes. I don't know if it's 1% or 2% or flat. So to tell you truth, we'll see. It depends on the amount of consumption. But yes, that's one part now. It's a short-term effect, though. Operator: [Operator Instructions] And at this time, we will take the webcast questions. I would like to turn the floor over to Mr. Ivan Peill from InspIR Group. Ivan Peill: Thank you, operator. The first question comes from Daniel Mora of CrediCorp Capital. Daniel Mora: Can you provide more details about the expected loan growth for 2025 and 2026? Specifically, I want to understand whether the acceleration of credit card loans this quarter should be maintained throughout 2026. What is the expected growth of credit cards for the next year and the effects on the net interest margin? Luis Castellanos López-Torres: Okay. Great. Thank you, Daniel, for your question. Let me pass straight to Carlos. Actually, he's working budget right now. I don't know if he is going to be able to answer all the questions, but probably he has more deep sense on that front right now. Carlos Tori Grande: Exactly. We're working on our budget. So bottom line is in the third quarter, we accelerated growth in credit cards and consumer finance, and we expect to continue accelerating having -- I mean having the impact of the AFPs in the short term, but in 2026, we expect to continue to accelerate. The way we look at it or the way we look at this is usually, the system grows at 2x -- 2.5x, 2x GDP. So consumer loans grow at 2x GDP, as a multiplier, and we want to gain market share. So we will probably grow a little bit ahead of that. Our risk appetite has also increased slightly due to the good performance of our portfolio over the last few quarters, but also due to the expectations of the macro environment in Peru. So that's kind of what we expect. This will not be linear as I just explained, the AFPs will have a short-term effect, probably the end of November a little bit, definitely in December and some in January but then growth should resume. And then NIM will be -- will grow in line with our growth in credit cards and SMEs, and also will be positively affected marginally by lower cost of funds. So that's kind of the expectation. Operator: The next question comes from [ Elan Colibri ]. Unknown Analyst: What is your expectation for corporate level disbursements in Peru regarding 2026 as a presidential election year? Luis Castellanos López-Torres: Okay. So if I understand correctly, the expectation is the corporate level disbursements, I'm trying to understand that corporate banking activity. Again, it's an election year activity depending on how the situation evolves, should continue to pick up, if the continued investment perspective materialize. So I guess, loan book growth and corporate activity should continue on the milestone. We don't see any big project coming in line in the coming months. So it's going to be probably more replenishment of working capital or it's more CapEx and some refinancings. So probably growth is not going to be great in that front. But let me pass it on to Carlos so he can complement to see what he's seeing. Carlos Tori Grande: No, I agree. I agree. There's no large projects coming in line. There has been some bond offerings over the last couple of weeks of Peruvian corporate. So that obviously becomes prepayment for the banks. Interest rates are more attractive for corporate, and they have been. They've evolved downwards. So there's a lot of refinancing of short-term loans to longer. We don't foresee a high growth in that segment for the next few quarters. Ivan Peill: At this time, there are no further questions from the webcast. I would like to turn the call over to the operator. Operator: And there appear to be no further audio questions at this time. I'd like to turn the floor over to management for closing remarks. Michela Ramat: Okay. Thank you very much, and thanks again, everybody, for joining the call, and we'll see each other back again to discuss our year-end results for 2025. Thanks, again. Operator: This concludes today's conference call. You may now disconnect your lines.
Operator: Good morning, and welcome to the earnings conference call for the period ended September 30, 2025, for MidCap Financial Investment Corporation. I will now turn the call over to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation. Elizabeth Besen: Thank you, operator, and thank you, everyone, for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer; Ted McNulty, President; and Kenny Seifert, Chief Financial Officer. Howard Widra, Executive Chairman; and Greg Hunt, our former CFO, who currently serves as a senior adviser, are on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer. Tanner Powell: Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MidCap Financial Investment Corporation's Third Quarter Earnings Conference Call. To begin today's call, I'll provide an overview of MFIC's third quarter results and the significant repayment from our investment in Merx, our aircraft leasing portfolio company that we highlighted on our call last quarter. I'll also share some thoughts on the outlook for our dividend. Following that, I'll hand the call over to Ted, who will share our perspective on the current market environment, walk through our investment activity for the quarter and provide a portfolio update. Kenny will then review our financial results in detail and recent financing-related activities. Yesterday after market closed, we reported results for the third quarter. Net investment income or NII per share was $0.38 for the September quarter, which corresponds to an annualized return on equity or ROE of 10.3%. GAAP net income per share was $0.29 for the quarter, which corresponds to an annualized ROE of 8%. As discussed last quarter's call, we're pleased to report portfolio company repaid approximately $97 million to MFIC during the quarter. NAV per share was $14.66 at the end of September, down 0.6% compared to the prior quarter. The decline in NAV was primarily due to a handful of positions that were added to non-accrual status, partially offset by a gain on our investment in Merx. The increase in non-accruals reflects company-specific issues, and we believe is not representative of a broader deterioration in credit quality. During the September quarter, MFIC made $138 million of new commitments across 21 transactions. We believe MidCap Financial's strong incumbent position continues to be a significant competitive advantage as evidenced by the fact that slightly more than half of our new commitments by number were made to existing portfolio companies. In a muted M&A environment, incremental commitments are an important source of deal flow. While sourcing assets is generally considered to be among the biggest challenges for many market participants in the market environment, MFIC benefits from access to assets sourced by MidCap Financial, one of the largest and most experienced lenders in the middle market, which is consistently ranked near at the top of the league tables. Our affiliation with MidCap Financial provides a significant deal sourcing advantage for MFIC. We are fortunate to have the access to significant volume of commitments originated by MidCap Financial, which allows MFIC to select assets, which we believe to have the most attractive risk-reward characteristics. During the September quarter, MidCap Financial closed approximately $5.8 billion of commitments. MidCap Financial has what we believe one of the largest direct lending teams in the U.S. with over 200 investment professionals. MidCap Financial was founded in 2009 and has a long track record, includes closing on approximately $150 billion of lending commitments since 2013. This origination track record provides us with a vast data set of middle market company financial information across all industries, and we believe that this makes MidCap Financial one of the most informed and experienced middle market lenders in the market. Key members of MidCap Financial's management team have been working together for more than 25 years, resulting in strong collaboration and an enhanced ability to navigate challenging market conditions, leading to improved credit quality and risk management. We believe the core middle market offers attractive investment opportunities across cycles and does not compete directly with either the broadly syndicated loan market or the high-yield market. MFIC's affiliation with MidCap Financial has enabled us to successfully build a portfolio of predominantly first lien loans to sponsor-backed companies. Moving on to Merx, our aircraft leasing company. As discussed on last quarter's call, during the September quarter, Merx completed a sale transaction covering the majority of its owned aircraft. In addition, Merx received additional payments from insurers related to 3 aircraft detained in Russia. Both the sale transaction and the insurance proceeds exceeded the assumptions in Merx's June valuation, resulting in a $16.6 million gain recorded during the September quarter. Merx repaid approximately $97 million to MFIC on a net basis during the September quarter. Approximately $72 million of the paydown was applied to equity and the remaining $25 million was applied to the revolver. At the end of September, MFIC's investment in Merx totaled $105 million at fair value, representing 3.3% of the portfolio, down from 5.6% at the end of June, which reflects the $97 million paydown and a net gain recorded during the quarter. As part of the sale transaction, Merx expects to receive approximately $25 million of additional consideration by the end of 2025 or in early 2026, which will be paid to MFIC and further reduce our exposure. Let me remind you about what remains at Merx. MFIC's remaining investment in Merx consists of 4 aircraft, plus the value associated with Merx's servicing platform. Merx earns income through its servicing activities from Navigator, Apollo's dedicated aircraft leasing fund, which currently owns 39 aircraft. Having fully deployed its equity commitments, Navigator is in the harvest period, and as such, the fund is opportunistically monetizing assets to optimize fund level returns. Merx receives a remarketing fee on each aircraft sale. At the end of September, the servicing business represented approximately 25% of the total value of Merx. The servicing component of Merx will naturally decline as servicing income is received. Turning to our dividend. On November 4, 2025, our Board of Directors declared a quarterly dividend of $0.38 per share for stockholders of record as of December 9, 2025, payable on December 23, 2025. Before I turn the call over to Ted, I would like to take a moment and make a few comments about our dividend, given increasing investor focus in light of the recent Fed cuts and market expectation for additional cuts and the resulting decline in the SOFR forward curve. Due to the asset-sensitive nature of our balance sheet, all else equal, declines in base rates will put pressure on net investment income. For context, the current SOFR forward curve is projected to trough around mid- to late 2026 at around 3%, which is roughly 80 to 90 basis points below current levels. As shown on Page 16 in the earnings supplement, a 100 basis point reduction in base rates would reduce MFIC's annual net investment income by approximately $9.4 million or $0.10 per share, which includes the impact of incentive fees. We are actively working on a couple of initiatives to help offset some of the impact from declining base rates. These initiatives, including pursuing additional paydowns from Merx and resolving certain non-accrual and earning assets. Post quarter end, we made a couple of enhancements to our capital structure, which will also improve MFIC's earnings power, which Kenny will discuss. With that, I will now turn the call over to Ted. Ted McNulty: Thank you, Tanner. Good morning, everyone. Starting with the market backdrop. U.S. economy has remained resilient, which has helped ease concerns about a recession. Inflation remains elevated. Consumer spending and business spending have been strong, although consumer sentiment is worsening. In response to rising unemployment risk, the Federal Reserve cut interest rates by 25 basis points in September. The Fed cut another 25 basis points in October. Torsten Slok, Apollo's Chief Economist, says private labor data suggests that the labor market is doing okay. He also sees growing upside risk to inflation driven by tariffs, a weakening U.S. dollar, a strong economy and wage pressures in certain sectors. As the significant tariff-driven volatility has eased and there's more clarity with respect to the trajectory of rates, we're seeing an increase in sponsor M&A activity. That said, given the significant capital raise for direct lending, we continue to see pressure on both spreads and OID. We believe the core middle market where we are focused, does not compete directly with either the broadly syndicated loan market or the high-yield bond market. Regardless of recent M&A activity levels, we see that many of our borrowers continue to have add-on financing needs, which is an important source of deal flow. Next, I'm going to spend a few minutes reviewing our third quarter investment activity and then provide some detail on our investment portfolio. In the September quarter, we continued to deploy capital into assets with what we believe to be strong credit attributes. As mentioned, MFIC's new commitments in the September quarter totaled $138 million with a weighted average spread of 521 basis points across 21 different companies. Despite the competitive environment, MidCap Financial has remained disciplined in its underwriting. The weighted average net leverage on new commitments was 3.8x in the September quarter, down from 4x in the prior quarter. Our fee structure, which is one of the lowest among listed BDCs, allows us to generate what we believe to be attractive ROEs even at current spreads. Gross fundings, excluding revolvers and Merx totaled $142 million. Sales and repayments, excluding revolvers and Merx totaled $197 million. Net revolver fundings were approximately $3 million. As previously mentioned, we received a $97 million net paydown for Merx. In aggregate, net repayments for the September quarter were $148 million. Excluding the $97 million net repayment from Merx, net repayments for the quarter totaled $51 million. Shifting now to our investment portfolio. At the end of September, our portfolio had a fair value of $3.18 billion and was invested across 246 companies across 48 different industries. Direct origination and other represented 95% of the total portfolio, up from 92% at the end of June, primarily driven by the Merx paydown. Merx accounted for 3.3% of the total portfolio at the end of September, down from 5.8% at the end of June. At the end of September, the non-directly originated loans acquired from the closed-end funds represented approximately 2% of the portfolio. All of these figures are on a fair value basis. With respect to recent headlines, we have no exposure to either First Brands or Tricolor. Specific to the direct origination portfolio, at the end of September, 98% was first lien and 91% was backed by financial sponsors, both on a fair value basis. The average funded position was $12.9 million. The median EBITDA was approximately $51 million. Approximately, 95% had one or more financial covenants on a cost basis. Covenant quality is a key point of differentiation for the core middle market as substantially all of our deals have at least one covenant. The weighted average yield at cost of our direct origination portfolio was 10.3% on average for the September quarter, down from 10.5% for the June quarter. At the end of September, the weighted average spread on the directly originated corporate lending portfolio was 559 basis points, down 9 basis points compared to the end of June. Underlying portfolio company credit metrics showed a slight improvement quarter-over-quarter, although we saw an uptick in investments on non-accrual status. We observed a modest decrease in borrower net leverage or debt to EBITDA, with the weighted average leverage decreasing to 5.29x at the end of September, down from 5.32x at the end of June. This trend reflects the lower leverage on new commitments, which helped offset increases in certain existing investments. Additionally, the weighted average interest coverage ratio improved slightly to 2.2x, up from 2.1x last quarter. Looking ahead, all else equal, if base rates decline as currently expected, we anticipate a positive impact on portfolio company credit quality through even higher interest coverage ratios. These metrics are generally based on financial information as of the end of June 2025. We believe the steady revolver utilization rate we see from our borrowers is an indicator of greater financial stability and provides us with incremental and more frequent financial information. Revolving facilities provide insight into a company's liquidity position through draw behavior. At the end of September, the percentage of our leverage lending revolver commitments that were drawn was essentially flat compared to the prior quarter. During the quarter, we reinstated a portion of our investment in Nuera to accrual status following a restructuring, which converted our first lien debt position into a combination of first lien debt and preferred equity. Conversely, we placed 5 investments on non-accrual status due to company-specific challenges, noting that one of these investments was acquired in last year's mergers. A portion of our investment in LendingPoint was moved to non-accrual status in anticipation of a forthcoming restructuring. In total, investments on non-accrual status represented 3.1% of the portfolio at fair value, up from 2% at the end of the prior quarter. Subsequent to quarter end, we were repaid on our position in Global Eagle, a position acquired in the mergers, which was on non-accrual. Toward the end of October, we became aware that one of our portfolio companies, Renovo, would be filing for bankruptcy. The company filed in early November. As of September 30, MFIC had a $7.9 million exposure to the company. PIK income declined to 5.1% of total investment income for the September quarter and 5.8% over the LTM period. Our PIK income remains relatively low compared to other BDCs, which we view as a positive indicator of portfolio health and reflects our focus on cash pay investments. With that, I will now turn the call over to Kenny to discuss our financial results in detail. Kenneth Seifert: Thank you, Ted, and good morning, everyone. Total investment income for the September quarter was approximately $82.6 million, up $1.3 million or 1.6% compared to the prior quarter. The increase in fee income, partially offset by a decline in recurring interest income, which is due to a tightening of base rates, a modest uptick in non-accruals and a slightly lower average portfolio size. Prepayment income was approximately $3.2 million, up from $1.2 million last quarter. Our fee income was $458,000, up from $220,000 last quarter. Dividend income was $200,000, flat quarter-over-quarter. The weighted average yield at cost of our directly originated lending portfolio was 10.3% on average for the September quarter. This is down from 10.5% last quarter due to the aforementioned tightening in rates. Net expenses for the quarter were $47.3 million, up from $44.9 million in the prior quarter. This increase was primarily driven by higher incentive fees. MFIC stated incentive fee rate is 17.5% and is subject to a total return hurdle with a rolling 12-quarter look back. Given the total return hurdle feature and the net loss incurred during the look-back period, MFIC's incentive fee for the September quarter was $5.8 million or 14.1% of pre-incentive fee net investment income. Other G&A expenses totaled $1.6 million for the quarter and administrative service expenses totaled $1 million. Both figures are essentially unchanged from the prior quarter and in line with our previously communicated expectations of $1.6 million and $1 million, respectively. For the September quarter, net investment income per share was $0.38, and GAAP earnings per share or net income per share was $0.29. These results correspond to an annualized ROE based net investment income of 10.3% and an annualized return on equity based on net income of 8%. Results for the quarter included a net loss of approximately $7.9 million or $0.08 per share, primarily due to losses on a handful of investments, as previously mentioned. Turning to the balance sheet. At the end of September, the portfolio had a fair value of $3.18 billion. Total principal debt outstanding of $1.92 billion and total net assets stood at $1.37 billion or $0.1466 per share. Company ended the quarter at net leverage of 1.35x with average net leverage, excluding the impact of Merx equating to 1.37x. This was up slightly from the prior quarter's average of 1.35x. Gross fundings for the quarter, excluding revolvers totaled $142 million. Debt repayments for the quarter were $148 million. Excluding the $97 million repayment from Merx, net repayments for the quarter would have been $51 million. Turning to the liability side of the balance sheet. We have been focused on extending our debt maturities and reducing our financing costs. On October 1, we amended our revolving credit facility and extended the final maturity to October 2030. Part of this amendment, the funded spread on the facility was reduced by 10 basis points from 197.5 basis points to 187.5 basis points. Just a reminder, this includes the 10 basis points of credit spread adjustment. The unused fee was reduced from 37.5 basis points to 32.5 basis points. Size of the facility was reduced by $50 million to $1.61 billion. The remaining material terms of the facility were unchanged. As a result of this amendment, we expect to recognize a one-time expense of approximately $1.5 million in the December quarter due to the acceleration of unamortized debt issuance costs associated with one lender whose commitment was reduced. In addition, in October, we upsized and repriced MFIC Bethesda 1 CLO, which originally priced in September 2023. We increased the size of the CLO collateral from $400 million to $600 million. As part of this reset, we sold through the single A tranche generating approximately $456 million of relatively low-cost secured debt, which equates to a blended advance rate of 76%. The blended cost of the notes sold was 161 basis points. Spreads on middle market CLO debt tranches have tightened considerably since the CLO originally priced. Spread on the senior AAA tranche on the CLO reset was 149 basis points compared to 240 basis points when the CLO originally priced, tightening of 91 basis points. CLO has a reinvestment period of 4 years and the net proceeds from the CLO transaction were used to repay borrowings under our revolving credit facility. As discussed on prior calls, we continue to view CLOs as an attractive source of term financing. We will recognize a one-time expense of approximately $1.8 million in the December quarter related to the reset, which reflects the acceleration of unamortized debt issuance costs for the original CLO. As always, MFIC benefited from MidCap Financial and Apollo's experience and expertise in CLO management and structuring this transaction. While these financing transactions will result in approximately $3.3 million of one-time expenses in the December quarter, the expected reduction in financing costs is expected to lead to a rapid payback period. Weighted average cost of debt for the September quarter was 6.37%. Weighted average spread on our floating rate liabilities will decline from 195 basis points as of September 30 to 176 basis points, a 19 basis point reduction. This decrease is driven by both the amendment of the revolving credit facility and the CLO reset. This concludes our prepared remarks. Operator, please open the call to questions. Operator: [Operator Instructions] We will take our first question from Arren Cyganovich with Truist Securities. Arren Cyganovich: I'd just like to discuss the increases in non-accrual. It wasn't a lot, maybe 1% or so on cost, but there were several companies. Maybe you could just talk a little bit about what is driving this? Is there any kind of theme between them? Are they tariff related? Maybe just a little bit more detail around the issues that were affecting those companies? Ted McNulty: Yes. Sure, Aaron. This is Ted. Thanks for the question. If you look at the companies that went on non-accrual, there's not really a theme that ties them all together. We have one that was impacted by tariffs. We have one that does have some pressure from weakened consumer sentiment. Overall, not a real theme, very idiosyncratic across each one. Arren Cyganovich: In terms of the increase in M&A activity that you're seeing in the marketplace, is this something that you feel like will be sustainable through 2026? Maybe just a little more of your thoughts on the outlook for investing environment. Ted McNulty: Yes. I mean, Arren, I think there's a couple of factors at play. One, you have some private equity companies or held companies that have been in the portfolio for a long time. You also have dry powder, and so you need a combination of putting money to work as well as returning capital back to the LPs. From that perspective, there should be ongoing demand. You also have with kind of tariffs not going away, but at least some of that volatility being muted as we talked about, a little more certainty, which can narrow the bid-ask spread between buyer and seller. Then with rates starting to come down and kind of some consensus around where the curve is going to shake out. I think Tanner mentioned troughing mid next year around 3%, you start to see the financing costs come down and the financing -- the cost, the certainty of that financing and the cost starts to stabilize. All those factors should lead to ongoing activity. Operator: We will take our next question from Melissa Wedel with JPMorgan. Melissa Wedel: I wanted to revisit the comment you made about some of the mitigating actions that you're taking to help offset the impact of lower base rates. I realize that those things can take a while to ramp up and it can take some time to rotate assets. I'm curious how your team is evaluating the timing difference there and how that could impact dividend decisions? Essentially, how long might you wait to give those efforts time to kick in? Tanner Powell: Yes, sure. Thanks, Melissa. When we look at deployment, as we've alluded to quite a bit, we're very lucky to be roughly $3 billion of a sourcing engine for $50 billion and so have a lot of opportunities for deployment in an improving M&A market. Importantly, when we look at deployment, and I think this rhymes with our approach with respect to the proceeds we generated from the sales of the broadly syndicated and high-yield loans, we want to do it in a deliberate manner. Importantly, instead of just getting right back to target leverage from the Merx proceeds immediately, we want to continue to, one, not over-indexed in any one market and then also take the opportunity, which we're afforded by virtue of that really wide origination funnel to be very granular in what we're doing. Importantly, all things being equal, you'd love to get right back up to target leverage. In the case of Merx, we've gotten $97 million back, and we anticipate another $25 million, which was otherwise only earning 2.5% on our balance sheet, so clearly, a nice accretion opportunity. When we go to deploy, it's got to be balanced by -- and even if it does take a little bit of time. We want to err on the side of creating a really, really granular portfolio. Importantly, the other aspect of that is, of course, now as Kenny alluded to, having reset our first CLO down 90 basis points and upsized our all-in secured cost of capital, which is our financing strategy to become more secured heavy in our liability side is roughly 1.75% and putting us in a good position to be able to still generate nice NIM in what is very clearly a tightening spread environment or a tight spread environment. The conclusion is we can do it quickly. We want to be measured, and we want to do it consistent with how we've deployed across a really diverse pool of 244 obligors in our portfolio. Melissa Wedel: Appreciate that detail. You mentioned portfolio leverage as part of your answer. Can you give us an update on how you're thinking about portfolio leverage in the context of this environment given where spreads are right now? Tanner Powell: Yes. Our target for leverage is unchanged, and we would endeavor over the next period of time to get back to the 1.4 level. We do think, as we've said in the past, that the execution through very, very attractive levels of investment grade within the CLO is indicative of our confidence in being able to run at a little bit higher leverage level. We would endeavor to get back to that 1.4 level, again, drawing on the comment to your previous question, again, but doing it in a measured way. Operator: [Operator Instructions] We will take our next question from Paul Johnson with KBW. Paul Johnson: I only have just one. I mean with the recent liability amendments and I guess, addressing kind of -- it looks like you're making room to kind of address the upcoming bond maturity, but kind of getting your ducks in a row, I guess, on the liability side, does that change anything around your interest in potentially repurchasing shares? Tanner Powell: Yes. Thanks, Paul. I think when we look at share repurchases, which are obviously very topical now in light of where BDCs have traded as of recently. We have been an active repurchaser historically. It is a very compelling tool for driving shareholder value, which, of course, needs to be weighed against liquidity and where we stand in terms of leverage and outlook, importantly, of course, weighed against the opportunity to deploy into new loans. That said, we do believe, as we have in the past, that it is a compelling tool. Would note also on share repurchases, Paul. Historically, it has been our view that instead of implementing the 10b5, we would prefer to utilize share repurchases when the windows open and thus, we can have the latest and greatest information, which obviously limits the amount of time you can be repurchasing. Notwithstanding, we do believe it's compelling, and we have a nice room under our current authorization. Operator: [Operator Instructions] We will take our next question from Kenneth Leon with RBC Capital Markets. Kenneth Leon: This may have been already covered, unfortunately, I'm indulging a few calls. What's the latest and any updated thoughts around dividend coverage just given the current rate outlook there? Tanner Powell: Yes, sure. When we look at the dividend, Ken, we were able to meet $0.38, benefiting from a slightly lower incentive fee in the current quarter. Then as we mentioned in the prepared remarks, we do have considerable proceeds from Merx that were yielding on our books a significantly lower yield. That's a nice accretion opportunity for us. Then we've also undertaken an opportunity in the current market environment, which is as those spreads on our assets have come down, we've been able to remark our liabilities. As that plays through our numbers between those dynamics and then in addition to the fact that there is an opportunity to work through our non-accrual positions, those 3 drivers give us an opportunity to mitigate the effects of lower base rates. The Board has made a decision at the current moment to leave the dividend intact. Then as we see those 3 levers that we have playing through and we assess importantly, the actual trajectory of rates versus what's anticipated, we will continue to reevaluate. We also did call out a 100 basis point decline in rates would be about $0.10 of annual NII and thus, taking into account what the actual trajectory of rates is against those 3 levers will enable us to make kind of a more informed decision as we move forward over the coming quarters. Operator: At this time, there are no further questions in queue. I will now turn the meeting back to Tanner Powell for any closing remarks. Tanner Powell: Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us with any other questions, and have a good day. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Galiano Gold, Inc. Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Friday, November 7, 2025. I would now like to turn the conference over to Matt Badylak, President and CEO of Galiano Gold. Please go ahead. Matt Badylak: Thank you, operator, and good morning, everyone. We appreciate you taking time to join us on the call today to review Galiano Gold's third quarter results that we released yesterday after market close. On Slide 2, we'll be making forward-looking statements and referring to non-IFRS measures during the call. Please refer to the cautionary notes and risk disclosures in our most recent MD&A as well as this slide of the webcast presentation. Yesterday's release details our third quarter financial and operating results. They should be read in conjunction with our third quarter financial statements and MD&A available on our website and filed on SEDAR+ and EDGAR. Also, please bear in mind that all dollar amounts mentioned in the conference call are in U.S. dollars unless otherwise noted. On Slide 4, with me on the call today, I have Michael Cardinaels, our Chief Operating Officer; Matt Freeman, our Chief Financial Officer; and Chris Pettman, our Vice President, Exploration. For this presentation, I will initially provide a brief overview of the quarter, Michael will give an operations update. Matt will discuss the financials, and then Chris will review the ongoing exploration success his team is having at Abore. I'll then provide some closing remarks and open the call for Q&A. Here on Slide 5, we can see the team continued the momentum during the third quarter towards an improved overall operational outlook. Let me walk you through the highlights on this slide. Safety remains a top priority. I am proud to report that, again, no lost time injuries were reported for Q3, maintaining a strong safety record and demonstrating our unwavering commitment to our workforce. Turning to production. We produced just over 32,000 ounces of gold in Q3, up 7% from 30,000 ounces produced in Q2. This increase was driven by higher grades and increased throughput quarter-on-quarter following the commissioning of the secondary crusher in late July. From a financial perspective, Revenue came in at $114 million, up 17% quarter-over-quarter from $97 million. This was driven by higher production and improved gold prices. Our balance sheet remains solid. We ended the quarter with $116 million in cash and cash equivalents, a slight improvement on Q2 despite stripping at Nkran increasing during the period. This strong cash position provides us with the financial flexibility to continue to invest in our operations, particularly as we accelerate stripping at Nkran in 2026. Exploration remains a key focus area. At Abore, we drilled just over 11,000 meters during the third quarter focused on infill and step-out drilling around the high-grade zones identified earlier this year. Moving to Slide 6, please. Here on this slide, I'll provide a few words about the events that occurred at Esaase during the quarter. As previously disclosed, on September 9, an incident occurred when a group of illegal miners attacked military camp, housing members of the Ghana Armed Forces and damaging our contractors' mining equipment at the Esaase deposit. Regrettably, the incident also resulted in the death of a community member. Due to the scale of damage sustained to the fleet, mining operations at Esaase were paused. However, haulage from low-grade stockpiles resumed shortly after the incident. Since early September, we have worked closely with our mining contractor to remobilize the fleet to Esaase. This process continued into early November, and I'm pleased to report that mining operations at Esaase now recommenced and will continue to ramp up over the balance of the year. With that, I'll turn it over to Michael and Matt to discuss production and financial performance in more details in the coming slides. Over to you, Michael, and Slide 7, please. Michael Cardinaels: Thank you, Matt, and good morning, everyone. As Matt just highlighted, we continue to see an upward trend in performance during the third quarter of the year. We had a significant increase in personnel hours worked on site during Q3 with the ramp-up of Nkran mining staff and contractors involved in the secondary crusher project and the TSF Stage 8 construction. Our safety statistics continue to improve, with over 4.2 million man hours worked since the last lost time injury. On a 12-month rolling basis, our lost time injury and total recordable injury frequency rates up 0.39 and 0.9, respectively per million hours worked at the end of September. In terms of mining production, Esaase mining was impacted by the incident mentioned earlier by Matt. But production from Abore increased significantly, including a 57% increase in ore mined compared to the previous quarter. As Abore development has progressed with increasing depth and the pit is opened up to a steady state. We now have a better understanding of the ore body and our ability to recover the resource. We find ourselves mining more ore tonnes at lower grade, resulting in approximately the same number of ounces. And Abore currently provides the majority of the mill feed and will continue to do so for the balance of the year. Despite the Esaase mining interruption, production from both Abore and Nkran pits increased, and the total material mined increased 26% in Q3 compared with Q2. On to Slide 8, please. As you can see from the images on this slide, Cut 3 of Nkran pit is progressing well, including the development to support infrastructure in the form of an overhead power line extension and relocation and the drilling of additional deepwatering bars around the perimeter of the pit. Nkran stripping also increased 111% compared to Q2, primarily as a result of an additional excavator being mobilized to site as part of our ramp-up plan. Development capital costs for pre-stripping at Nkran totaled $12 million in Q3 and $22.1 million year-to-date. The contractor is on track to deliver additional equipment in Q4 2025 and the remainder of the planned fleet to ramp up to full capacity in 2026, putting us in good stead to continue stripping as per our schedule with steady-state ore production still due in the early 2029. On to Slide 9, please. On the processing performance, with the successful commissioning of the secondary crusher circuit at the end of July, we saw an increase in the plant performance for Q3. Milling rates since commissioning of the secondary crusher have increased approximately 13% compared to Q2. There remains some modifications in the circuit to fully optimize the performance, and as such, we expect to see further increases in production in Q4. Mill feed grade also improved compared to Q2 as we are getting deeper into the Abore pit and have access to better grade at depth, which in turn helped increase the recovery. On the back of the improved plant throughput and grade, we increased gold production to 32,533 ounces for the quarter compared to just over 30,000 ounces in Q2. The incident and subsequent interruption at Esaase have unfortunately had an impact on our plan for 2025. Despite having now restarted mining in Esaase, we will continue to see an impact as we ramp back up production over the balance of the quarter. Our forecast takes this into consideration, along with our improved understanding of the Abore deposit and the recent performance of the plant following the commissioning of the secondary crushing circuit. We estimate a revised production guidance of between 120,000 and 125,000 ounces for the year. And with that, I would like to turn over to Matt Freeman to discuss the company's financial results. Matthew Freeman: Thanks, Michael. Good morning, everyone. Here on Slide 10, we've outlined some of the key financial metrics for the quarter. We recognized revenues of $114 million, at a record average price of just over $3,500 per ounce for the impact of hedges. We earned income from mine operations of $48.2 million, while net earnings continue to be negatively affected by the fair value adjustments to our hedge book, following the continued run-up in gold prices such that we recorded a net loss before taxes of $5 million. This quarter, we also recognized a tax expense for the first time now that we have exhausted previous tax losses and a forecast to be taxable this year. Indeed, we've already paid $12 million in tax installments to the Ghanaian government. We generated $40 million of cash flows from operations in the quarter and ended the period with a strong cash balance of approximately $116 million. This included, as mentioned before, payments of additional $6 million in income taxes. In addition, as previously advised, given these strong operating cash flows, we have continued to allocate capital to accelerating the waste to the Nkran, incurring $12 million in the quarter as Michael noted, we expect the Nkran mining volumes ramp up further as more equipment is mobilized. All-in sustaining costs were consistent with the second quarter at $2,283 per ounce, we expect AISC to start to reduce in Q4 as production volumes increase compared with Q3. Despite our expectation that all-in sustaining costs will be lower in Q4 than Q3, given the overall shortfall in production ounces that Michael mentioned, we have increased our all-in sustaining cost guidance for the year to between $2,200 million and $2,300 per ounce. And this includes all the impacts of the royalties under the higher gold prices that we previously mentioned. On to Slide 11. Despite the headline increase in AISC that really is primarily production-driven. We continue to focus on the cost structure of the mine and are pleased that fixed operating costs such as processing and G&A in aggregate remain consistent with previous quarters. Of note, pricing costs per tonne have continued to reduce quarter-on-quarter, seeing a 13% decline in unit costs since Q1, and we expect further decreases on a unit basis as the full impact of the secondary crusher is realized in the fourth quarter. Mining costs at our producing deposits, namely Abore and Esaase declined on a per tonne mined basis by approximately 8% as mining volumes increased. Additionally, Nkran mining costs are also subject to a fixed unit mining contract, and we expect to see those unit costs continue to decrease as volumes increase over the next 12 months as management costs, which affects a shared over more tonnes. We also remain disciplined with capital allocation with regards to capital. The largest project ongoing currently is the Raise 8 at the tailings facility, which is expected to be completed in 2026. So overall, costs are being well managed, and we should see an improvement in unit rates as the year progresses. Now that the secondary crusher is online, and we expect to produce more tonnes and subsequently produce more ounces. This will generate higher operating margins and cash flows for the business. On to the next slide, please. Our cash margins have improved with the run-up in gold prices, which has meant that despite investments in the development capital for the secondary crusher project and stripping Nkran, we continue to maintain a very strong balance sheet with approximately $116 million of cash and no debt. We're also pleased to have progressed discussions to implement a $75 million revolving credit facility to further enhance the balance sheet to be earmarked for general working capital. And with that, I'll turn it over to Chris to discuss the exploration progress we've seen at Abore. Chris Pettman: Thanks, Matt. Q3 was another excellent quarter for us in exploration and was highlighted by exceptional results from drilling at Abore. Our press release dated August 20 detailed the first results from the Abore Phase 2 drilling program, which commenced in Q2 and led to the discovery of multiple new high-grade ore shoots across the Abore South and main zones as well as a significant new high-grade discovery at the northern end of the deposit. Some of the highlighted intercepts from this stage of drilling are shown here on Slide 13. Following these results, drilling at Abore remained the focus of exploration activities at the AGM through Q3 as we began infill drilling to prove continuity of these new high-grade zones while also continuing to test for further extensions of mineralization below the mineral resource. Drilling activity was ramped up through the quarter from a total of 5,040 meters drilled at Abore in Q2 to an additional 11,554 meters drilled in Q3. Based on the continued success of Abore drilling, the program has been further expanded with an additional 10,000 meters now planned for completion by the end of this year. This drilling is currently underway and the next round of results is expected to be released shortly. In addition to our work at Abore, we continue to advance our regional greenfield portfolio targets through the quarter. Most notably, the ground IP survey at the Nsoroma target area, which is located approximately 8 kilometers southwest of the processing plant was completed on schedule in Q3. The survey was successful in identifying chargeability and resistivity targets coincident with previously identified gold and soil anomalies along the interpreted extension of the Nkran shear zone. Drilling is now underway, and approximately 2,000 meters of RC drilling is planned for completion in Q4. The Nsoroma target area lies within a 5-kilometer long gold and soil anomaly located on the Nkran shear southwest of the Nkran deposit and is one of the several high-priority regional targets being evaluated by the AGM exploration team. Next slide. This image on Slide 14 is a long section through Abore showing the location of highlighted assay results received in Q3. Drilling has identified 2 primary ore shoots plunging to the north at low angles under the south and main pits. Additionally, high-grade mineralization has been intercepted below the saddle zone between the 2 pits along the conjugate south plunging structure as well as in the new high-grade zone under the North pit. We are particularly encouraged to see wide intercepts of mineralization at significantly higher grade than the current Abore reserve grade of 1.27 grams a tonne over long strike length as we continue to evaluate the potential for an eventual transition to underground mining. Next slide. Slide 15 shows the locations of the drilling I've been discussing in plan view to further illustrate the fact that mineralization intercepted in this round of drilling spans the entire 1.8-kilometer strike length of the Abore deposit. Next slide. This cross-section here shows one of the holes drilled below the south pit hole 368 which intercepted 45 meters at 2 grams a tonne, including 17 meters at 3.3 grams a ton. This image is reflective of how strong mineralization is being intercepted below the mineral resource across the deposits and the potential growth upside as the system remains open. Next slide. As mentioned earlier, based on the success of Q2 results and what we've been seeing through Q3, the Abore drill program has been further expanded with an additional 10,000 meters now scheduled for completion in Q4. Drilling will continue to focus on conversion of mineral resources and testing for further continuations of mineralization down plunge and beneath the current drilling. We're very pleased with the Q3 results and are very optimistic about continued exploration success at Abore and across the AGM portfolio targets. With the support of Matt and the Board, we have been giving access to additional resources to capitalize quickly on these positive results and have secured our drills through 2026 to ensure we can continue the Abore program unabated. And with that, I'll hand it back to you, Matt. Matt Badylak: Thank you, Chris. In closing, I'd like to highlight that although the quarter fell slightly below expectations and the incident at Esaase necessitated a review of full year guidance Q3 showed continued positive momentum. We saw quarter-over-quarter improvements across key operation metrics, including total ore tonnes mined, mill grades, mill throughput, gold production and cash balances, all moving in the right direction. As we continue to optimize the secondary crushing circuit, we expect further throughput enhancements in the quarters ahead. On the exploration front, I'm particularly pleased with our progress. The upside we are seeing at Abore reinforces my confidence in the organic growth potential of the AGM, and I remain excited about what lies ahead. This quarter also marked an important shift in our shareholder base. Following Goldfield's divestiture of the 19.5% stake, we have strengthened our register and improved our trading liquidity. I want to remind everyone that Galiano is well positioned as Ghana's largest single-asset gold producer with compelling fundamentals across many key areas. We maintain a robust production outlook supported by strong financial discipline, including a solid $116 million cash position, which provides flexibility to execute our mine plans. With that, I'll turn it back to the operator and open the line up for any questions. Thank you. Operator: [Operator Instructions] Your first question comes from Heiko Ihle from H.C. Wainwright. Heiko Ihle: Decent quarter overall, I guess, even given the guidance. You obviously had great recoveries in the period, and that really matters given the current pricing environment. And it seems like additional improvements are made to the circuit. Walk us through what you see as the longer-term impact of all of this? And if you were in my shoes, how would you model this out? I mean these were the best recoveries in over 4 -- I think, 4 quarters it was. Matt Badylak: Yes. Thank you, Heiko. I appreciate the question. I think best if I just pass it across to Mick for an initial adds up, and then I can add anything if needed. Michael Cardinaels: Yes. I think we've benefited from the increasing grade that was seen quarter-on-quarter over the year. And with that improved grade comes an improvement in our recoveries as well. And we expect those to be maintained into next year. And obviously, hopeful that the grades improve further with depth as well. We do have a number of things that we are finalizing in the secondary crushing circuit, as I mentioned, we're upgrading a number of conveyor drives. We're trying different configurations with our screen panels and a few other things to further optimize that circuit. We think that there's additional throughput enhancements that we can achieve. So we expect to trend upwards and obviously targeting that 5.8 million tonnes per annum. if that answers. Heiko Ihle: It does. Matthew, do you want to add anything or do you want to move on? Matt Badylak: No, no. I think mix answered your question, ultimately, there's only one other thing, I guess, that we didn't touch on is that the SAG mill discharge grades are also going to be reduced in size as well, and we feel that that's going to improve our throughput and also potentially recoveries as well. So yes. Heiko Ihle: So yes. Fair enough. On Slide 13 in the presentation, you talked about some of those high-grade ore shoots. You also discussed this in the press release with the earnings and then also back in August. These intercepts, some of which you see 3 grams per tonne are obviously very economic, especially right now. With this transition to underground mining, I mean, I know it's quite early to ask this question, but I assume at least some thinking has been done on this. What exactly would be needed to start underground mining related to costs, permitting, duration to get a decline, all that good stuff? Matt Badylak: Yes. Good question, Heiko. Well, obviously, we're really, really excited about the grades that we're seeing just below our current reserve pit, right, as highlighted in the slide that you mentioned. I think the first step that we need to tick off, and this is quite imminent for us at the moment, too, is to define what the underground resource looks like there at Abore. And as I said, I mean, that's not too far away, and there will be some work internally and also with external consultants that is currently going on. We do expect to have a view on that in the early next year, Heiko. So that's the first stage. And on the back of that resource or the maiden resource, we will be able to provide a little bit more color in terms of what we're seeing with regards to the cost time lines, permitting, et cetera, on that front as well. But again, I will highlight that the upside for underground at the Asanko Gold Mine is not within the next 12 months, right? It's probably a year or 2 away. We have to continue to mine through the bottom of Abore at the moment. And then once we do that, it will come on the back of the depletion of this under open pit resource. That doesn't mean that we can't start the work concurrently, but the ounces delivered to the mill are some time away at this stage. Operator: Your next question comes from Raj Ray from BMO Capital Markets. Raj Ray: The first one is more a clarification on, I think, Michael's prepared remarks, and my apologies if I got it wrong. Michael, you're saying that with Abore, you're getting more tonnage at the lower grade and then the overall ounces is still the same? Is that correct? Michael Cardinaels: Yes, that's correct. A function of basically being deeper into the pit has allowed us to open up and we're mining full width across the granite ore body now. And with the reduction in material that has come out of Esaase, we're basically relying heavily on Abore to feed the mill. So we -- we're seeing with our mining methodology to keep tonnes to that mill, we can basically mine such that we're limiting how much material is being stockpiled. So we're less selective in terms of high grading that material, knowing that it's all going to the process plant to keep ourselves fed at the moment. Matt Badylak: Yes. Maybe I'll just add to that. This is kind of quite specific to the last quarter, as Mick was saying, and we do know that the mineralization at Abore, you don't want to lose any of the high grade that may be lost if you tighten up your [indiscernible] too much, right? So we had the opportunity in Q3 to maybe step out a little bit and accept a little bit more dilution in Q3, and that's kind of driving the commentary as well. Raj Ray: Okay. Got it. And the second question I had was, I noticed that part of the CapEx has been -- the development CapEx has been deferred into next year and you've lowered your number. Is there any potential for any impact early in '26 as a result of Esaase being out for 2 months? And then if you can comment on what your stockpile levels were at the end of Q3 in terms of tonnage and grade? Matt Badylak: Yes, sure. Listen, in terms of guidance and outlook for 2026, obviously, that will come in due time. We're working through that at the moment internally. And once we have clarity on where the numbers lie on '26, we'll obviously provide the market with an update in early 2026 on that. But at this stage, as we were saying, we do expect that the material movement from Esaase will ramp up and be in a position where this impact of the shutdown that we had that we saw in Q3 and early into Q4 is probably going to be addressed by that stage as well. So we don't expect it to be extending into the new year. And then in terms of stockpile grades and balances, guys, do we have that at hand? Or should we get back to Raj on that one? Matthew Freeman: I think we can get back with specifics. So I don't have the actual numbers to hand. I think we obviously don't have a particularly big stockpile at this point. I think, as Mick alluded to, given the pause in mining at Esaase we won't be able to mine excess material. So we build up maybe 0.5 million tonnes or a bit less than that, but no more on keeping it fairly small. And the grades of that will be similar to what we've been seeing going through the mill. So maybe slightly lower where we could have got some slightly better grades through the mill, but pretty consistent with what you've seen from the mining... Raj Ray: And if I may, one last question. On the Ghana audit, is it possible for you to give any color in terms of what they are specifically asking from the companies? Matt Badylak: Yes. I think you're referring to the MinCOM audit. This was not that was received by all large-scale mining companies earlier in the quarter. So it's not specific to Galiano. We are of the understanding that our site audit will take place in January next year. It's been staggered monthly between all the large-scale mining companies. There's been no additional information provided to us at this point in time in terms of what's being specifically audited or any request for pre-documentation before that. So -- that's all I can provide on that at the moment, Raj. Operator: Your next question comes from Fred Schmutzer from Equinox Partners. Alfredo Schmutzer: Matt, first, I just wanted to have maybe an update on the community relations. How has that evolved since the incident? Matt Badylak: Yes. I mean, again, it's a very good question. Like we worked hard Alfredo to ensure that the community relations across all of our tenements, which are quite large, are maintained. I'm pleased to report that shortly after that incident the relationships there were brought back into check and we've been able to haul, as I mentioned earlier, we've restarted haulage operations from Esaase stockpiles very shortly after that incident occurred. So from that point until now, everything has remain calm and has returned to normal. But these kind of things do flare up. And we're keeping close relationships with all of our community members across all our tenements. So nothing to be concerned about at this point in time on that front, Alfredo. Alfredo Schmutzer: Okay. That's great. And then on unit costs. So you mentioned that they're going to keep decreasing as you increase the volumes. But how can we maybe model that reduction of unit cost in terms of dollar per tonne? Like how much can it go down? Matthew Freeman: Alfredo, it's Matt Freeman here. I think from a sort of a G&A and processing standpoint, the easiest way to model it is to see that our absolute costs are pretty fixed on a month-by-month, quarter-by-quarter basis. So therefore, as we increase those in the milling and increase the throughput, that will actually bring your unit cost down. So if you make some assumptions, as Mick said, hopefully getting back towards the 5.8 million tonne run rate through -- an annual basis throughput, fixed costs will therefore come down on a unit cost basis. Mining cost is a little bit harder. I think the reduction is modest as we increase the mining volumes because really, that the mining contracts are largely variable cost, but we do have a management -- a fixed monthly management cost component, and that's a bit where you start to benefit in those unit rates. So as we move forward, certainly through Q4, we're seeing those rates come down a little bit. But then again, as we move into future years as you get deeper in some of the pits, then you start to maybe as things start to creep back up again a little bit or get back to where they are now as you have longer haul cycles and you're in deeper parts of the pit. So it's a little bit hard for me to guide you exactly on that, but I think the mining costs are sort of where we are now is a good point and it's not going to get higher in the short term, and it should drive down a little bit in Q4, if that makes sense. Alfredo Schmutzer: Yes, yes, very helpful. And then my last question is on taxes. So you mentioned you have already paid $12 million this year. And I know this year is especially more difficult to model because you just finished, I guess, using all those losses. So do you have a kind of a range of how much you're going to pay for this year? Let's assume spot prices until the end of the year, like just to have a range of how much would you pay? And then going forward, how should we calculate that? It's just like a 35% effective tax rate? Matthew Freeman: Yes, you're right. It is a bit complicated and it's a little bit hard to guide clearly. But yes, I think we're -- this year, we're probably in the -- depending on if prices stay where they are now, we could be in that $20 million to $30 million range, hopefully, more towards the low end, but we'll see. We certainly paid more than -- we probably paid a good half of it in installments so far for the year. And there's a few nuances in the final tax returns that we're looking at where we can maximize and optimize our positions. And then from a go-forward basis, yes, I think the Ghanaian tax rate is 35%, we will start seeing a bit of noise with deferred taxes coming through. But on a base sort of current income tax expense basis, 35% would be a good number for you to use. Alfredo Schmutzer: Okay. Okay. And if I may, very quickly, sorry, maybe the revolver credit facility, any specific reason why you decided to take that this year or I mean this quarter? Matthew Freeman: No. Obviously, this is a process that takes a period of time. We're very much looking at it. It's just prudent balance sheet management. We've got an opportunity to put it in place just to reinforce things and get ourselves flexibility. But that's the reason we felt it's prudent at this point to do that for risk management. Operator: [Operator Instructions] Your next question comes from Vitaly Kononov from Freedom broker. Vitaly Kononov: First one relates to Esaase. So as it was paused temporarily in September, those bottleneck, let's say, lasted for 2 months. Can you elaborate on the measures taken to prevent any further disruptions that could take place in the operations? Matt Badylak: Yes. Sure. I mean, I think our first defense in all of this is making sure that we've got strong relationships with the host communities in which we operate. And we do that on a day-to-day basis, right? So that's our first priority. I mean, the fact is that with gold prices doing what they're doing at record levels. And if you have any knowledge of West Africa as a region, illegal mining is prevalent in those parts of the world. And with those factors considered, there is an acceleration or an increase of illegal mining in our tenement. So the first thing that we need to do is make sure that the communities and the key community leaders that we have good relationships with as those relationships are maintained. And then the other thing that I will say is that we do mention about the military presence on site. I will point out that -- Asanko is the only the second large-scale mining company in the country that has access to military full-time 24-hour military presence on site. And with that as well, we feel that we're in a strong position to ensure that something like this doesn't occur in the future. Vitaly Kononov: That covers my question. Perfect. And then second one relates to the secondary crushing unit that was recently installed. Can you elaborate on what would be the nameplate capacity going forward with this new equipment on hand, would you expect to raise full year guidance from the 5.8 million tonnes of... Matt Badylak: No. I mean, listen, we've stated before that the purpose of the installation of that secondary crusher is to get us back up to the 5.8 million tonnes per annum. We were obviously a little bit shy of that because of the hardness of the ore that we were processing during the course of this year. We'll continue to process into 2026. So that's the target. The nameplate target will be 5.8 million tonnes per annum. Vitaly Kononov: Wonderful. And the last quick one. So you've had a lot of exploration results that you're probably longing to share. Shall we expect to see a mineral resource update provided with the end year results? Matt Badylak: Yes, we're expecting to provide an update to the mineral reserves and resources early in 2026 and most likely accompanying our full year financial and operating results at that time point. Operator: There are no further questions at this time. I will now turn the call over to Mr. Matt Badylak for closing remarks. Please go ahead. Matt Badylak: Yes. Thank you, operator. And I just want to say that I appreciate everyone's time who dialed into the call and asked questions. And as a management team, we're looking forward to execute to our revised guidance for the balance of the year and continue to provide the market with some exploration results as we continue drilling at Abore. So thank you very much and have a good day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Wheaton Precious Metals 2025 Third Quarter Results Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded on Friday, November 7, 2025, at 11:00 a.m. Eastern Time. I will now turn the conference over to Emma Murray, Vice President of Investor Relations. Please go ahead. Emma Murray: Thank you, operator. Good morning, ladies and gentlemen, and thank you for participating in today's call. I'm joined today by Randy Smallwood, Wheaton's Chief Executive Officer; Haytham Hodaly, President; Curt Bernardi, EVP Strategy and General Counsel; Vincent Lau, Chief Financial Officer; Wes Carson, VP Mining Operations; and Neil Burns, VP, Corporate Development. For those not currently viewing the webcast, please note that a PDF version of the slide presentation is available on the Presentations page of our website. Some of the comments on today's call may include forward-looking statements. Please refer to Slide 2 for important cautionary information and disclosures. It should be noted that all figures referred to on today's call are in U.S. dollars, unless otherwise noted. With that, I'll turn the call over to Randy Smallwood. Randy Smallwood: Thank you, Emma, and good morning, everyone. Thank you for joining us today to discuss Wheaton's third quarter results of 2025. We are pleased to announce that our portfolio of long-life, low-cost assets has once again delivered strong results this quarter, enabling us to achieve record revenue, earnings and operating cash flow for the first 9 months of 2025. This performance underscores the streaming model's unique ability to generate predictable levered cash flows while maintaining a deferred payment schedule, an advantage not offered by the traditional royalty model, which requires full upfront payments and lacks embedded leverage. And of course, 100% of Wheaton's revenue comes from streams, providing a competitive advantage amongst others in the space. As a result of strong performances by key assets, including Salobo and Antamina, coupled with the ramp-up of production at Blackwater and Goose, we recorded production of 173,000 gold equivalent ounces this quarter and are firmly on track to achieve our 2025 production guidance of 600,000 to 670,000 gold equivalent ounces. And with over $1.2 billion in cash and undrawn $2.5 billion revolving credit facility in Accordion and strong growing projected cash flows, the company remains well positioned to meet all funding commitments and pursue new accretive opportunities continuing to grow our -- and continuing to grow our competitive dividend. Based on this strong financial foundation, Wheaton also continues to invest in innovation across the mining sector as well as community initiatives alongside our mining partners. During the quarter, Wheaton launched its second annual Future of Mining Challenge, which this year focuses on advancing sustainable water management technologies. Following the close of expressions of interest phase, 17 proposals have been selected to advance with the winner to be announced at the PDAC conference in March of 2026. And with that, it is my pleasure to now turn the call over to our President, Haytham Hodaly. Haytham Hodaly: Thanks, Randy, and good morning, everyone. Alongside strong performances from our producing assets, Wheaton's growth profile was further derisked through continued progress across 6 key development projects scheduled to come online over the next 24 months. Notably, several of these projects have announced accelerated time lines or expansions, reinforcing confidence in our previously forecasted 40% production growth by 2029. Furthermore, recent joint venture announcements marked significant progress for Copper World and Santo Domingo, further derisking both projects. We are pleased to have announced 2 new streaming transactions over the past 2 months, one with Carcetti on the Hemlo mine and another with Waterton Gold on the Spring Valley project, for which Neil Burns will share more details later in this call. These announcements reinforce our disciplined approach to capital deployment as we remain focused on identifying accretive opportunities that are thoughtfully structured to deliver meaningful and lasting value for all stakeholders. With a solid foundation of organic growth that continues to strengthen, the company is well positioned to pursue opportunities that align with our long-term strategy and uphold our commitment to quality as we have demonstrated with our most recent transactions. And with that, I would like to now turn the call over to Wes Carson, who will provide more details on our operating results. Wes? Wesley Carson: Thanks, Haytham. Good morning, everyone. Overall production in the third quarter was 173,000 ounces, a 22% increase from the prior year, primarily due to strong production at Salobo and Antamina, coupled with commencement of production at Blackwater. In Q3, Salobo produced 67,000 ounces of attributable gold, a 7% increase from the last year, driven by higher throughput grades and recovery. Vale reported that by the end of July, Salobo III had fully ramped up and the entire complex is now operating at full capacity, consistently delivering strong operational performance. Vale continues to advance a series of growth-focused initiatives to enhance efficiencies and support long- and medium-term production growth across the Salobo complex. Constancia produced 19,500 ounces of attributable GEOs in Q3, a 9% improvement from last year, primarily driven by 19% higher gold production resulting from higher grades, partially offset by an 11% decline in silver output due to lower throughput. On September 23, 2025, Hudbay Minerals commented on the ongoing social unrest in Peru, where Constancia was impacted by local protests and illegal blockades. The mill was temporarily shut down as safety precaution, while authorities addressed the situation. On October 7, 2025, Hudbay announced that operations had resumed and throughput has since returned to normal levels. Penasquito produced 2.1 million ounces of attributable silver in Q3, up 17% from last year, primarily driven by higher throughput and partially offset by lower grades as mining transitioned back into the Penasco pit, which contains lower silver grades relative to Chile Colorado. In the third quarter, Blackwater produced 6,400 ounces of attributable GEOs supported by higher-than-expected throughput and grades. Production for the year is expected to be weighted to the fourth quarter with higher mill throughput rates and feed grades expected compared to Q3 2025. Artemis has also announced a 33% increase to Phase 1 processing plant capacity, raising the nameplate from 6 million tonnes per annum to 8 million tonnes per annum with a targeted completion date by the end of 2026. In addition, Artemis is nearing completion of front-end engineering and design work for an optimized and accelerated Phase 2 expansion with an investment decision expected before year-end. In Q3, Almina restarted production of the zinc and lead concentrates at the Aljustrel mine, resulting in the resumption of attributable silver production to the company. During the quarter, Goose transitioned from commissioning to commercial production, which was announced on October 6. As reported by B2Gold, open pit and underground mining rates at the Umwelt deposit have continued to meet or exceed expectations during the 30-day commercial production period. B2Gold has also reported that gold recoveries have been in line with expectations and are expected to average higher than 90% through Q4 of 2025. Wheaton's production outlook for 2025 remains unchanged with -- and we continue to believe that we are well on track to achieve our annual production guidance of 600,000 to 670,000 GEOs. At Salobo, attributable production is expected to remain steady through the remainder of the year, supported by solid mining rates and consistent plant performance through Salobo I, II and III. At Penasquito, attributable production is forecast to be in line with budget and slightly down from Q3 due to steady mill performance and planned mine sequencing within the Penasco pit. At Antamina, attributable production is anticipated to strengthen in Q4 as the mine continues processing a higher portion of copper zinc ore. As mentioned by Randy, we remain confident that our catalyst-rich year is progressing as expected, with initial contributions from Mineral Park, Platreef and Hemlo still forecast by the end of 2025. That concludes the operations overview. And with that, I will turn the call over to Vincent. Vincent Lau: Thank you. As detailed by Wes, production in Q3 was 173,000 GEOs, a 22% increase from last year due mainly to strong production from Salobo and Antamina, coupled with the commencement of production at Blackwater. Sales volumes were 138,000 GEOs, an increase of 13% from last year, driven by strong production from the second quarter, partially offset by a buildup of produced but not yet delivered or PBND, due to timing differences between production and sales. At the end of Q3, the PBND balance was approximately 152,000 GEOs, which is about 2.9 months of payable production. We expect PBND levels to stay at the higher end of our forecasted range of 2 to 3 months for the remainder of 2025, partly due to the ramp-up of new mines forecast in Q4. Strong commodity prices, coupled with solid production led to record quarterly revenue of $476 million, an increase of 55% compared to last year. This increase was driven mainly by a 37% increase in commodity prices and a 13% increase in sales volumes. 58% of this revenue came from gold, 39% from silver and the rest from palladium and cobalt. With silver recently outpacing gold and reaching record highs, our substantial silver exposure sets us apart from our peers and positions us well to benefit from the current pricing momentum. Net earnings increased by 138% from the prior year to $367 million, while adjusted net earnings increased by 84% to $281 million. Operating cash flow increased to $383 million, a 51% increase from last year. These gains outpaced the increase in gold and silver prices during the same period, highlighting the leverage from fixed per ounce production payments, which made up 76% of our revenue. During the quarter, we made total upfront cash payments for streams of $250 million, including $156 million for Koné, $50 million for Fenix and $44 million for Kurmuk as our portfolio of development assets continued to advance toward production. During the quarter, CMOC exercised its 1/3 buyback option under the Cangrejos PMPA in exchange for a $102 million cash payment, resulting in a gain of $86 million and delivering an impressive pretax IRR of 185% to Wheaton. Overall, net cash inflows amounted to $151 million in the quarter, resulting in a cash balance of approximately $1.2 billion at September 30. For the Hemlo stream, we expect to make the entire $300 million upfront payment at deal close in Q4 2025 and begin recording production immediately thereafter. For the Spring Valley stream, the total upfront payment of $670 million will be paid in installments as various conditions are satisfied. This structure reflects our disciplined approach to providing funding throughout construction while ensuring the project remains adequately financed and on track at each stage. When these 2 streams are added to our existing stream funding commitments, we expect to disburse approximately $2.5 billion in upfront payments by the end of 2029. This reflects growth that we have seeded but not yet funded and demonstrates a highly efficient use of our capital. With $1.2 billion in cash and expected annual operating cash flows of $2.5 billion over the next 5 years, we currently expect to fund these commitments without using debt. In addition, our fully undrawn $2 billion revolving credit facility, together with a $500 million accordion provides exceptional financial flexibility and positions us with the strongest liquidity profile amongst our peers to pursue additional accretive opportunities. This concludes the financial summary. I'll now hand things over to Neil to walk through the details of Hemlo and Spring Valley streams. Neil Burns: Thanks, Vincent. It's been a very busy few months for the corporate development team, and I'm delighted to provide an overview of our 2 most recent deal announcements, which further reinforce Wheaton's already sector-leading growth profile. On September 10, Wheaton entered into a financing commitment with Carcetti Capital Corporation to support its proposed acquisition of the Hemlo mine. Upon deal close, which is anticipated in the fourth quarter, Carcetti intends to change its name to Hemlo Mining Corporation or HMC. Wheaton's initial financing commitments included a gold stream of up to $400 million. However, following the strong success of its recent equity raise, which Wheaton supported with a lead order of $30 million, HMC has indicated its intention to proceed with a $300 million amount. In this scenario, Wheaton expects to receive 10.13% of payable gold until a total of 136,000 ounces have been delivered, after which Wheaton will receive 6.75% of the payable gold until an additional 118,000 ounces have been delivered, after which Wheaton will receive 4.5% of payable gold for the remaining life of the mine. These amounts would be adjusted proportionally if HMC were to elect a different stream amount. In return, Wheaton will make ongoing payments with gold ounces delivered equal to 20% of the spot price. Each of these drop-down thresholds will be subject to an adjustment if there are delays in deliveries relative to an agreed schedule commencing in 2033. If deliveries fall behind an agreed schedule by 10,000 ounces or more, the stream percentage will be increased by 5% until deliveries catch up in a mechanism that's aimed to mitigate timing risk. Assuming that HMC elects an upfront payment amount of $300 million, attributable gold production is forecast to average over 14,000 ounces of gold per year for the first 10 years of production and over 10,000 ounces per year for the life of the mine. Hemlo presents an opportunity -- a unique opportunity to add immediate [ attributable ] gold ounces from a politically stable jurisdiction backed by a long history of production and a very capable operating team. We are proud to support HMC in its acquisition of a mine that has long been considered a cornerstone in Canada's mining industry while also continuing to contribute to the momentum across the sector. Just yesterday, you will have seen Wheaton announced gold stream on the Spring Valley project located in Nevada and owned by Waterton Gold for cash consideration of $670 million. This represents a compelling opportunity to secure a significant gold stream while supporting an existing partner in the development of a high-quality, low-cost gold mine located in a prolific mining jurisdiction. Under the agreement, Wheaton will receive 8% of the payable gold until 300,000 ounces have been delivered, after which Wheaton will receive 6% of the payable gold for the remaining life of mine. In return, Wheaton will make ongoing payments for the ounces delivered equal to 20% of the spot price until the uncredited deposit has been fully reduced and 22% of the spot thereafter. Wheaton will also provide a $150 million cost overrun facility to provide further capacity to a project with an already conservative capital estimate. Attributable gold production is forecast to average 29,000 ounces of gold per year for the first 5 years of production and over 25,000 ounces of gold per year for the first 10 years, first production expected in 2028. This production profile reflects an optimized scenario that incorporates updated mineral reserves and resource estimates beyond the feasibility, which was published earlier this year. Located in a proven mining district, Spring Valley comprises an extensive land package of over 30,000 acres, very little of which has been explored. In fact, mining activities will occur on concessions, representing less than 5% of the total land package, leaving an opportunity for mine life extension with future exploration success. With its strong exploration potential, strategic location, proven leadership team, we believe Spring Valley aligns perfectly with our commitment to investing into high-quality assets in stable jurisdictions. We're excited to deepen our relationship with Waterton as they look to unlock the full potential of this asset. With that, I'll now hand the call back over to Randy. Randy Smallwood: Thank you, Neil. In summary, Wheaton delivered another strong quarter marked by several key achievements. We delivered solid revenue, earnings and cash flow, resulting in record year-to-date performance. We made notable progress on our near-term growth strategy with Aljustrel resuming production of its zinc lead concentrates and the ramp-up of production at both Blackwater and Goose, reflecting the continued momentum of our catalyst-rich year. Our growth profile was further derisked as construction progressed across key development projects, including Mineral Park, Platreef, Fenix, El Domo, Kurmuk and Koné. In addition, joint venture agreements were announced for both Copper World and Santo Domingo, further derisking these projects. We also announced 2 accretive precious metal streaming transactions located in low-risk jurisdictions. First, on the currently operating Hemlo mine located in Ontario and just yesterday on Waterton Spring Valley project in Nevada. We believe our 100% streaming revenue model provides significantly greater leverage to rising commodity prices, while keeping us insulated from inflationary cost pressures, resulting in some of the highest margins in the precious metal space. We take pride in being the founders of the streaming model, an optimal alternative to traditional equity financing. Streaming provides upfront capital at a fair valuation without further share dilution, resulting in a dramatically improved return on invested capital and superior long-term value creation for the shareholders of our mining partners. Our balance sheet remains robust, providing ample flexibility to pursue well-structured, accretive and high-quality streaming opportunities. And finally, we take pride in our community investment leadership amongst precious metal streamers and have always and will always support both our partners and the communities where we live and operate. With that, I would like to open up the call for questions. Operator? Operator: [Operator Instructions] Your first question is from Will Dalby from Berenberg. William Dalby: Yes. I have 2 questions. Firstly, on future growth. You've got a really compelling growth profile, but I'm just sort of wondering how you think your volume growth stacks up versus peers, both on an absolute and a risk-adjusted basis, sort of thinking in particular about some peers whose growth relies on restarts or on higher-risk jurisdictions. I'd be very interested to hear how you see your position in that context. Haytham Hodaly: Thank you. It's Haytham. Will, thank you for the question. From an absolute perspective and a relative perspective, I'll tell you, we've got growth close to 250,000 ounces a year between now and 2029. And that is certain growth, that's growth that's actually been permitted and a majority of that, I would say, almost more than 90% of that's actually in construction and heading towards development towards production. In the next 2 to 3 years, there's 2 projects starting this year, a couple starting next year and another 1 or 2 starting over the next couple of years after that. So it's a very, very strong growth profile. In terms of the actual number of ounces, we're generating close to an additional 250,000 ounces, which is probably almost double what our next closest peer is actually generating in terms of growth over the same period. So we're very excited about that. And that excludes a lot of the growth that you're seeing here with these latest transactions as well, where with the Hemlo transaction, with the Waterton transaction, but not to mention a significant number of our peers have also announced expansions, optimizations, et cetera, between now and then, which are also not included in that number. So we're very optimistic and very excited about going forward. William Dalby: Very clear. And then just a second question. If we rewind a bit, say, 10 years ago, your capital was largely going into repairing balance sheets. 5 years ago, it was mostly sort of funding gold projects. Looking ahead, do you see the next 5 years is more about deploying capital into larger-scale copper projects given the current supply shortage there and the need for new mines to come online? Haytham Hodaly: Yes, definitely. I mean the large porphyry copper gold systems that we're seeing in the high sulfidation epithermal systems that we're seeing through some of the diversified base metal producers, those are definitely an area of future growth as they require billions of capital, not millions or hundreds of millions, but actually billions of capital. So streaming naturally should play and likely will play a part in the overall financing packages. There are still lots of opportunities we're seeing outside of that space as well, though, Will, I would say, with commodity prices where they're at, specifically, you look at silver as an example. Silver has had a nice run that is prompting many to consider what their silver is worth within their existing portfolio. So for the first time in a long time, we're seeing more -- not more silver, but are we see more silver opportunities, not more than gold, but we're seeing additional silver opportunities that we previously hadn't come to the market. So we're very excited about that as well. Operator: Your next question is from Josh Wolfson from RBC Capital Markets. Joshua Wolfson: I had a question first on Spring Valley. Some of the technical information out there is a bit light. I know there's a 2014 43-101 and then a feasibility study earlier this year, at least a summary of which I noticed that Wheaton provided some of its own interpretations of what the mine will look like. I guess just maybe drilling down on some of the assumptions, would Wheaton be able to provide some perspective on how it sees the asset in terms of what the underlying assumptions or changes in its perspective was versus the updated feasibility study? And also what we should think about recoveries? I noticed there's a big difference between the original 2014 report and what's -- what was issued earlier this year. Neil Burns: Sure, Josh. It's Neil Burns here. Waterton did put out a feasibility study earlier this year, which was done not surprisingly with much lower gold prices. I believe the reserve pit was [ done ] at $1,700 gold. If you look on Salobo's website, they've updated their R&R. And I believe the reserves are at $1,800 and the resources perhaps at $2,200. They do model the recoveries, and they have updated those. Those are detailed in the footnotes of those R&R tables, and they do them separately by the Redox state of oxide transition and sulfide naturally with decreasing recoveries as you get into the sulfides. And they split it between the ROM and the crush. So I think that's a spot where you can get some additional color. And that was just updated, I believe, earlier this week. Randy Smallwood: Josh, I mean, Spring Valley is so similar to hundreds of different operations down in Nevada, right? You're looking at a heap leach operation that's going to have crushed components. It's always going to be focused on the highest grade portion of whatever is coming out of the pit and then run of mine. And one of the areas of upside that I see in this -- that we see in this asset is the fact that, as Neil mentioned, the pricing for the reserves and even the resources are about half of what the spot price is right now. And the waste dump is about the same distance away from the pit as the heat pad. And so the ROM processing capacity, the decisions as to where that truck dumps that ore as it has lower grade material, but it's still economic because the spot price is of $4,000. I think there's incredible upside on this asset to even see more production than what's being forecast by Waterton. Just in terms of operational flexibility, it's a simple project. It's -- the highest grade of the day will go through the crusher and everything else. It will be a choice as to whether you put it into a waste dump or put it into a ROM heap leach pad and push it forward. So I just -- they're pretty simple Nevada. There's lots of capacity for heap. It's a big flat area just to the east of the ore body that has all sorts of expansion capacity. And so it's a classic Nevada operation that we see as it's going to be going for [indiscernible]. Just we're excited about what the real potential is here. And then the expiration over and above it, as Neil highlighted during the talk, so little of this property has actually been poked at. It's right north of the Rochester operation, which continues to shine for core. And of course, Florida Canyon is to the north. And so it's right in a corridor that's got a lot of mining history. And we do think that this asset is well set up to deliver. Joshua Wolfson: Got it. One more question. I know we've talked about some of the Nevada premiums that are out there. This might apply in that situation. When you look at the value opportunity here in the valuation paid, how would you assess this in comparison to some of the public consolidation opportunities that could be out there depending on prices, obviously? Randy Smallwood: Yes. I mean, consolidation, when I look at -- I mean the biggest comment I'd have on the consolidation side is that what we found is that a lot of the smaller companies have had to give up structural weaknesses, structural flaws in their agreements to try and get scale. And we've seen some pretty large-sized examples of that recently with deals scale of $1 billion with 0 security backing it. And so we just see issues with the value of some of those assets within the M&A side. And so as we like to say, we're -- we think there's no stream as good as a Wheaton stream. We invented the model and we continue to try and perfect it. I think Hemlo was a real step up in terms of how to actually deliver value not only to our shareholders, but to our partners in terms of support and strength all the way across and trying to find that great balance of satisfying both sides of the spectrum. And so the acquisition side, most of those companies do trade at a bit of a premium to NAV. And we -- whereas when it comes to going out and looking at new assets, we can find leasings at NAV or less, slightly less than that. It's still attractive compared to an equity financing or to other alternative forms of financing for these companies that are looking for capital. So as Haytham and now Neil, the team has done a great job of continuing to put the capital back to work, looking at opportunities like this. And I think Spring Valley is a great example of that. It's a lower-risk jurisdiction. It's our first real footprint into Nevada, which is a jurisdiction we've looked at for a long time, but we have seen some incredibly expensive transactions in our eyes -- take place in Nevada. This one we feel is attractively priced, especially when we go over the upside that we -- that I just finished describing to you. And so we're pretty excited about having this one. And we like this path. We're always looking at the M&A side. And if we do see some opportunities in that space that make sense, we would act. But to date, we're doing -- we find better value in just sourcing new opportunities. We are blessed with an industry that always needs capital. So that's our business, supplying capital. Operator: Your next question is from Tanya Jakusconek from Scotiabank. Tanya Jakusconek: Some of them have been answered already. Maybe, Haytham, for you, as I think about the environment, the opportunities out there, one of my questions was on silver. I just -- I think you touched it a little bit, you're seeing more on the silver side than previously. Are we seeing some big silver opportunities? Haytham Hodaly: That's interesting, Tanya. It's funny you asked that question. There are some larger silver opportunities that are out there, but we're being very proactive to go out and find those. With that, I'm going to turn the mic over to Neil to just tell you a little bit about the current environment for growth. Neil Burns: Thanks, Haytham. Tanya, in terms of volume, we continue to be as active as we've ever been. We have literally over a dozen active opportunities in the pipeline. From a stage perspective, it's interesting because we've seen an increase in operating opportunities, which is great to see. It's something we hadn't seen for a number of years. And it's also been driven by an increase in M&A activities with the major selling off some noncore assets. Metal mix, which you already touched on, is probably 60-40 gold, silver, I would say, at the time -- at this time. In terms of size, the majority are in the $200 million to $300 million range. But we also have a couple of exciting $1 billion-plus opportunities, but those are a bit longer lead time. Randy Smallwood: The one thing, Tanya, that I would add on the silver side, your question is specifically on silver. Keep in mind that most silver is produced as a byproduct, actually from base metal operations. And the one thing that we're hopeful is that with the strength that we've seen in silver prices of late that perhaps some of those base metal operators would like to crystallize some of that value and help strengthen their own balance sheets and fund their own growth. And so that does fall into an opportunity set with this strength that we've seen where we may be able to pick up some, as Neil said, some operating access to silver streams on operating assets. So we're out there pounding the pavement. And with these kind of silver prices, there's definitely an interest in terms of learning more. So stay tuned. Tanya Jakusconek: Yes. It's just I've been hearing more on the silver side. And so I just wondered if -- and I've heard of some of the big ones like $1 billion silver deals, and I just wondered if those were something that you were focused on. Randy Smallwood: Yes. You know me well enough, Tanya, that I've always liked silver a little bit more than gold. So if there's opportunities in the space, we're definitely trying to track that down. Neil and the team are doing a great job on that front. Tanya Jakusconek: And when you mentioned the $200 million to $300 million range, were those mainly on the gold opportunities? Neil Burns: A mixture, actually. There is -- I would say, probably an even mixture between gold and silver within those $200 million to $300 million opportunities. Tanya Jakusconek: Okay. And are you also seeing because I am hearing, and I don't know if that's the same, that's there's probably more assets for sale within the senior gold companies than the market expects. Like yes, we've seen Newmont sell out their Newcrest assets and Barrick's cleaned up their portfolio somewhat. But I'm hearing that there's also more coming out of the senior space than expected. Is that what you're seeing as well? Haytham Hodaly: Maybe I'll answer that, Tanya, just with regards to divestitures from -- of noncore assets from senior producers. I will say that we did see a lot of that over the last 12 to 18 months, for sure. Right now, it has declined quite a bit. But obviously, with changing management teams, changing focus of various companies, we do expect that to start again. We haven't seen a lot of it yet. Tanya Jakusconek: Okay. So you're expecting more of that to come? Haytham Hodaly: We hope so. We'd love to be able to support another acquirer of some of these high-quality assets. Keep in mind, a lot of these assets when they were within these senior companies, they're being valued at a reserve base of, call it, Neil mentioned one $1,700, Barrick was doing theirs at $1,400 previously. You start using numbers of $2,100, $2,500, you go from a 6-year reserve life to a 20-year reserve life. So I think a lot of that is probably something we're going to see here in the near term. Tanya Jakusconek: And just your Spring Valley acquisition, if you assume that all of the resources get converted and you can mine out 4 million ounces mineable, let's say, would it be fair to say at spot that you'd be in that sort of 4%, 5% internal rate of return, like in line with the cost of capital? Haytham Hodaly: Well, based on our analysis, I can tell you our numbers are higher than that based on exploration upside that we've seen, based on expansions in the existing pit dimensions, based on the higher/lower cutoff grades, we are getting a higher rate than what you're quoting there. I will leave it to you to figure out what your actual rate is based on how many years of additional exploration upside you want to add on top of that, but we're pretty optimistic that eventually this will get to double digit. Randy Smallwood: I will add, Tanya, that the resource is still limited. It's -- there's plenty of exploration potential, wide open mineralization. And so it's the drill data that's actually the limiting factor on the resource, not the economics. Tanya Jakusconek: Yes. No, no. I mean I just looked at it on a 4 million-ounce mineable scenario. Okay... Randy Smallwood: I've seen enough of it down there to think that there's probably even more than that. Tanya Jakusconek: Yes. As I said, it's in the good camp. So those camps go on for a while. Maybe if I could ask just a modeling question. I saw the updated DD&A in the portfolio. Can someone just remind or reguide us on your depreciation and guidance for what you expect for 2025 and maybe 2026 with the new portfolio updates? Vincent Lau: Sure. Tanya, it's Vince here. We did update our depletion on a normal course. Not a big change. Antamina, we saw a bit of a drop because they had some tailings lift there. Stillwater, a little bit higher just because of the change in mine plan. But all the detailed depletion rates, we've now put into the financials and in the MD&A. So you can see exactly what has happened there and help you out on the modeling front. Tanya Jakusconek: All right. I forget what the guidance was corporately beginning of the year. But yes, I'll go back and... Vincent Lau: I think net-net, it's not going to change materially going forward. So I would roughly say it's at the same levels going forward. Tanya Jakusconek: Okay. And then my final question is maybe a reminder. I've seen a lot of the other companies sell out investment portfolios of equity interest. Can you just remind me what's left within yours? Haytham Hodaly: Yes. There's -- we've got -- I don't have the list in front of me, Tanya. I can tell you, and it's listed on -- I think, on our -- at least some of it's broken down some of the larger positions, but we have about a USD 260 million equity book right now. I can tell you, we're not looking to divest any of those positions. Those positions are all with our existing partners that are ramping up operations. And we are going to continue to be strong supporters. Eventually, there may be some liquidity events where we can actually get off our positions. But at this point in time, we're -- if nothing else, we'd be helping our partners as they need it going forward to continue to strengthen their balance sheets. Operator: Your next question is from Martin Pradier from Veritas Investment Research. Martin Pradier: In terms of Antamina, I noticed that the depreciation dropped in half almost. What happened there... Neil Burns: On depletion drop, yes. So... Martin Pradier: Yes, the depletion... Neil Burns: Thanks, Martin. Yes. So that really is, as Vincent mentioned, it's because of the tailings expansion. So right now, Antamina marks their reserves with tailings capacity. And in Q1 this year, Antamina managed to secure the permits for further expansion of the current tailings facility, and that increased the reserves dramatically, which then drops that depletion rate down. So that's the reasoning behind that. Randy Smallwood: Essentially, what happened was the tailings capacity doubled, which meant that the -- with that much -- the depletion -- that much more -- the reserve doubled because of that excess capacity because with that tailings capacity, then you could class it as a reserve. And so it's -- the resource there is very, very high geological confidence, but Antamina's approach is that it's not a reserve until it actually has permitted tailings capacity. And so the fact that it went up just meant that we had a substantive increase in reserves, which means the depletion rate drops. Martin Pradier: Okay. Perfect. I understand. And in terms of Salobo, should we expect a strong Q4? I thought that there was like a little bit higher grade in Q4. Haytham Hodaly: Salobo is reasonably flat in Q4. So we're expecting -- we've seen very strong performance through the year this year. And we were just on site at the end of September there. And really, they are planning to continue on as they have for the rest of the year here. So reasonably flat for Q4. Randy Smallwood: I think they moved forward a little bit of preventative maintenance that was scheduled in Q4 into Q3. So that should help a little bit on the Q4 side. There was a short stint in Q3. So... Operator: Your next question is from George [ Ity ] from UBS. Unknown Analyst: Nice update here again. Can I ask about the Spring Valley stream? And sorry, I joined a little bit late, so I may have missed this, but the payment profile can you remind me of the various conditions for the payment and the profile of time line, please? Haytham Hodaly: Yes, you bet. I mean, still, I would say, of the $670 million, the majority of that will go in during development. There'll be a small amount that goes in upfront, approximately, I would say, $310 million over the next -- well, close to $310 million over the next 6 to 12 months, I would say. And then the remainder will go in alongside the company's equity investment. So we put in $120 million, they put in $120 million, and we do that a couple of times until we get to the $670 million number. Randy Smallwood: It's strip fed over the construction other than a small amount ahead of construction starting just to get some equipment orders in and stuff like that, but it's trip fed over the construction, which is expected to start shortly. Unknown Analyst: Yes. Okay. No, that's great. And then just talking before about all these asset opportunities coming up, some large ones, like that $900,000 per ounce -- sorry, the [ $870,000 ] rather GEO profile by 2029. Is it fair to assume there's potentially a bit of upside here with new streams like Spring Valley given the environment is so strong right now? Do you think that [indiscernible] is a bit of... Randy Smallwood: Yes. Not only that, a lot of our existing operations and start-ups have announced accelerated plans for start-up and for expansions. We've got Blackwater moving forward with expansions. Platreef has accelerated their ramp-up in production over that 5-year period. Salobo itself also is fine-tuning in terms of trying to improve throughputs and recoveries. And so we -- even the existing portfolio without the new acquisitions has made that forecast look very conservative and gets us even closer to that 1 million ounce number sooner than later. Thank you, George, and thank you, everyone, for your time today dialing in. Our record-breaking performance over the first 9 months of this year underscores Wheaton's position as a premier low-risk choice for investors seeking exposure to gold and silver. Recent transactions in low-risk jurisdictions underscore the quality of opportunities we're pursuing. Our corporate development team continues to see strong demand for streaming as a source of capital, and we are excited about the pipeline of opportunities that lie in front of us. With our high-quality operating portfolio, 100% streaming revenue, sector-leading growth profile and unwavering commitment to sustainability, we offer shareholders with one of the most effective vehicles for investing in precious metals. We thank all of our stakeholders for their continued support as we enter this exciting period of sustained organic growth. We look forward to speaking with you all again soon. Thank you. Operator: Thank you. Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. Please disconnect your lines.