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Operator: Good afternoon, everyone, and thank you for joining today's Century Aluminum Company Third Quarter 2025 Earnings Conference Call. My name is Regan, and I'll be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Ryan Crawford with Century Aluminum. Please proceed. Ryan Crawford: Thank you, operator. Good afternoon, everyone, and welcome to the third quarter conference call. I'm joined here today by Jesse Gary, Century's President and Chief Executive Officer; and Peter Trpkovski, Executive Vice President, Chief Financial Officer and Treasurer. After our prepared comments, we will take your questions. As a reminder, today's presentation is available on our website at www.centuryaluminum.com. We use our website as a means of disclosing material information about the company and for complying with Regulation FD. Turning to Slide 1. Please take a moment to review the cautionary statements with respect to forward-looking statements and non-GAAP financial measures in today's discussion. And with that, I'll hand the call to Jesse. Jesse Gary: Thanks, Ryan, and thanks to everyone for joining. I'll start today with a note on safety before turning to our Q3 operational performance, including our time line for resuming full production at Grundartangi. I'll then update you on some of our key strategic initiatives, including progress on the Mt. Holly expansion project, our Hawesville strategic review and our new U.S. smelter project before concluding with a discussion of the outstanding global market conditions that we are operating in today. Pete will then walk you through our Q3 results and our Q4 guide and provide an update on the receipt of our fiscal year 2024 45X payment from the government, which occurred shortly after quarter end. I'll then end the call with an update on our capital allocation plans. Safety is core to everything we do here at Century. Every so often, the company is faced with extraordinary events frequently outside of our control that give us an opportunity to live up to our words and demonstrate our commitment to these core safety values. As everyone knows, on October 28, Hurricane Melissa made landfall in Jamaica as one of the strongest hurricanes to ever make landfall in the Atlantic Basin. I'm proud to say that through the dedicated planning, hard work and readiness of our Jamaican team members, Jamalco weathered this catastrophic storm, protecting the refinery from any significant damage and most importantly, without suffering a single injury. Not only did the team secure the well-being of the facility and our employees, but then immediately began to provide assistance to the surrounding communities, providing potable water to local towns, villages and hospitals following the storm. We will continue to work with the government of Jamaica and our partners at Claredon Alumina Partners to identify areas of need and provide support where we can. So we are very proud of the team at Jamalco. I'm pleased to say that production has already restarted at the refinery, and we expect to resume full production over the next couple of weeks. We do not believe that the storm or its aftermath will have any material impact on our financial results. Turning to Page 3 and operations. As we announced on October 21, the Grundartangi smelter was forced to temporarily stop production in potline 2 following the failure of 2 of its electrical transformers over a 7-week period in September and October. Fortunately, the team at Grundartangi was able to execute a safe and orderly shutdown of the potline despite these failures, tapping down the pots without injuries and leaving the line in as good a shape as possible for restart. These transformer failures were very disappointing as both were well within their expected life. We are working with the designers and manufacturers of the transformers to better understand what caused these failures. The team at Grundartangi is wasting no time and has already begun preliminary preparations to restart production in Line 2. The time line for restart is dependent on how quickly replacement transformers can be manufactured, shipped and installed. Based on current estimates, we expect that it will take 11 to 12 months for this work to be completed. Of course, we are working hard to optimize and reduce the time line for restart on several fronts, including the potential to repair and reuse the failed transformers for some time period before the replacement transformers arrive. Although we are not yet certain this approach will be possible, we are working with the designer and manufacturer of these transformers to assess this path. If successful, the repair path could reduce the time line for restart by several months. We will continue to provide you with updates on restart timing on our next earnings call. Finally, we have submitted initial claims to our insurers and continue to expect that the losses arising from these events will be covered under our property and business interruption insurance policies. Turning to Mt. Holly. We are pleased to announce last month that we signed an extension to the Mt. Holly power agreement through 2031. In addition to supporting the current operations, the new agreement provides all of the necessary power for our previously announced restart of more than 50,000 metric tons per year of incremental production at Mt. Holly, which will return the plant to full production. The Mt. Holly restart project is making great progress with hiring and capital work already underway at the site. We continue to expect that we will begin to produce incremental units at the beginning of Q2 2026 and complete the restart by the end of June. Production of the additional units will gradually increase throughout the second quarter. Unrelated to the restart, we did suffer some instability in Mt. Holly production in Q3 that resulted in production from the plant falling below expectations by approximately 4,000 tonnes in Q3. Pete will provide you with more color on the impact on our Q3 results. This instability was fully resolved by mid-October, and the plant has been operating at normal production levels ever since. We do not expect any further production impact after October. Finally, at Sebree, we had another quarter of near record performance across a suite of operational and financial KPIs. The plant, our management team and our employees there are really performing at the top of their game, and it's great to see. Turning to our other strategic initiatives, starting with Hawesville. After our last call, we received a significant amount of additional interest in the site, including from new parties, which led us to extend the strategic review process. We are now proceeding with the final stages of those discussions with new and existing parties now. Suffice to say, there's been lots of excitement around the potential of the site. At the same time, rising aluminum prices and continued global shortages continue to bolster restart economics at the Hawesville site and for our new greenfield aluminum smelter project. Once built, the new smelter project will be amongst the most modern and efficient smelters in the world. It will double the size of the existing U.S. industry, creating over 1,000 full-time direct jobs and over 5,500 construction jobs. During the quarter, we advanced negotiations with potential power providers. Good progress in this regard means we are now focused on a single site and power provider for the new smelter. We have also had lots of interest from potential joint venture partners for the smelter and have started discussions with select high-quality counterparties. While these conversations are still at the early stages, we are encouraged with the interest levels we have had to date and now see some form of partnership as the most likely path forward with the project. Altogether, President Trump's policies have enabled a future where we could see U.S. production triple by the end of the decade. We here at Century are proud to do our part to make this future a reality and bring industrial jobs back to America. I'd like to thank President Trump for the significant actions that he and his administration have taken to restore American manufacturing and stand up for American workers. The Section 232 tariffs have truly enabled a new future for the U.S. aluminum industry. Just before I turn things over to Pete, I'd like to review the very strong market conditions that we are operating in today and that we see persisting well into 2026. As you can see on Page 4, Q3 saw aluminum prices rise across the complex as continued global demand growth paired with a persistently challenged supply side drove realized LME prices of $2,508 in the quarter and continue to drive spot aluminum prices to approximately $2,850 today. As you can see on Page 5, the world has a shortage of aluminum units today, driving further contraction of global inventories to new post-financial crisis lows and leaving the market sensitive to even the slightest supply disruptions or increase in demand. This is especially true in our 2 core markets in the U.S. and Europe. Regional premiums in the U.S. and Europe both strengthened in Q3 as the fundamentally strong U.S. economy and improving European industrial activity drove demand and caused premiums in both markets to rise, while raw demand in both markets was especially notable driven by the well-publicized power infrastructure build-out. Power and data infrastructure build-out should continue to drive additional aluminum demand as we move forward into 2026. Realized Midwest and European premiums averaged $1,425 and $193 per ton, respectively, in the quarter and have risen further in Q4 with Midwest premium spot prices at $1,950 and European duty paid premium spot prices at $320 today. As we start to conclude the 2026 sales season, we are seeing increased demand across our customer base for all of our U.S. billet products. As the largest producer of primary aluminum in the United States, Century stands ready to meet this demand. We now expect that we will see an approximately $0.05 year-over-year increase across our 2026 billet sales, which should generate an additional $30 million of 2026 EBITDA. Pete will now take you through our financial performance in more detail. Peter Trpkovski: Thank you, Jesse. Let's turn to Slide 7 and review our Q3 performance. On a consolidated basis, third quarter shipments totaled approximately 162,000 tonnes, a decrease from the prior quarter due to brief operational instability at Mt. Holly and the Grundartangi transformer failure. Net sales for the quarter were $632 million, a $4 million increase primarily due to higher realized Midwest premium, partially offset by lower shipments. For the quarter, we reported net income of $15 million or $0.15 per share. Our adjusted net income was $58 million or $0.56 per share, excluding exceptional items. Adjusted EBITDA was $101 million for the quarter, mainly driven by the increased Midwest premium price, partially offset by lower volumes and product premiums at Mt. Holly in the quarter. Moving on, we continue to make progress on improving our balance sheet during the quarter. Liquidity increased to $488 million, up $125 million quarter-over-quarter, and our cash balance stood at $151 million. The significant increase in liquidity and cash metrics reflects receipt of the proceeds from refinancing our senior notes, which was finalized in July. We recently used the proceeds to pay off the remainder of the Icelandic castthouse facility as intended. Net debt was $475 million, a slight increase from prior quarter due to a normal working capital build I will discuss later. As Jesse mentioned, we were pleased to receive our fiscal year 2024 45X payment of approximately $75 million from the IRS in October, which will help to significantly lower our net debt amount in Q4. Despite some lower-than-anticipated production output this quarter, our core financial performance remains strong and demonstrates the underlying strength of our business. Now let's turn to Page 8, and I'll provide a breakdown of adjusted EBITDA results from Q2 to Q3. Adjusted EBITDA for the third quarter increased $27 million to $101 million. Realized LME of $2,508 per ton was down $32 versus prior quarter, while realized U.S. Midwest premium of $1,425 per ton was up $575. The benefit from higher Midwest premium was slightly offset by lower realized European duty paid premium down $26 per ton to $193. Taken together, LME and regional premium pricing contributed an incremental $48 million compared with the prior quarter. Energy costs were higher, driven by a warmer-than-average end of summer in the U.S. and higher LME prices impacting our Icelandic power contracts that are linked to the spot metal price. Energy prices have returned to more normalized levels in October, but the Q3 headwind reduced adjusted EBITDA by $9 million. Alumina and our other key raw materials were approximately flat in the quarter, in line with our previously provided outlook. Continued pressure on the U.S. dollar compared to the Icelandic krona resulted in a quarter-over-quarter headwind that was offset by lower operating costs. However, our operating costs were slightly elevated compared to expectations as additional maintenance costs were required following the brief potline instability at Mt. Holly that Jesse mentioned earlier. Mt. Holly is back to full and stable production, but this event resulted in lower Q3 production, translating into approximately a $10 million headwind compared to our expectations. Now let's turn to Slide 9 for a look at cash flow. We began the quarter with $41 million in cash. In July, we successfully completed the refinancing of our $250 million senior secured 7.5% notes with new $400 million senior secured notes at an improved coupon. As we explained at the last call, the proceeds from this transaction were used to pay down the outstanding debt on the new Icelandic casthouse. This debt repayment occurred early in Q4 and will be reflected in our Q4 financials next call. Our priority to lower debt and achieve the $300 million net debt target remains unchanged. We funded $16 million of CapEx in the quarter that went towards ongoing investments at Jamalco as well as sustaining CapEx at the smelters. We paid $12 million in interest during the quarter that will decrease going forward as the recent refinancing transaction was completed at an improved coupon of 6.875%. We also paid down various credit facilities to end the period with minimal borrowings on our revolvers. We continue to accrue 45X tax credits in Q3. As of September 30, we had a receivable of $220 million related to full year 2023, 2024 and 2025 year-to-date U.S. production. As I noted earlier, in October, we were pleased to receive $75 million from the IRS from our Section 45X filing for fiscal year 2024. We continue to expect to receive the fiscal year 2023 credit in the coming months. Finally, we had a working capital build this quarter as timing of alumina shipments increased inventory levels and the higher price environment for LME and Midwest premium increased accounts receivable balances. We expect to improve our working capital as we approach year-end. We ended Q3 with $151 million in cash and strong liquidity in place to support our Mt. Holly expansion. The Restart project is on schedule and progressing well. We will begin to call out the cash outlays in future quarters as capital and operating expense dollars from the Mt. Holly project become more material. Now let's turn to Page 10 and look ahead to the next 90 days. At current realized prices, we expect Q4 adjusted EBITDA in the range of $170 million to $180 million. For Q4, the lagged LME of $2,705 per ton is expected to be up about $197 versus Q3 realized prices. The Q4 lagged U.S. Midwest premium of $1,775 per ton is up $350 versus Q3. The realized European duty paid premium is expected to be $275 per ton in Q4 or up about $82. Taken together, the lagged LME and delivery premium changes are expected to have an approximately $65 million increase to Q4 adjusted EBITDA when compared with Q3 levels. We expect similar energy price levels in Q4 as U.S. energy costs are forecasted flat to previous quarter and are expected to have no impact on quarter-over-quarter adjusted EBITDA. Coke, pitch and caustic prices have modest increases, but are partially offset by carbon emission allowances, resulting in a potential headwind of $0 to $5 million quarter-over-quarter impact. We expect our Q4 operating expense costs to improve by $0 to $5 million. Volume and mix should also improve by $10 million as Mt. Holly has returned to full pot complement following the brief instability in Q3. At Grundartangi, the Line 2 outage is expected to negatively impact shipments by 37,000 tons and EBITDA by $30 million in the fourth quarter. As Jesse said, we expect the financial impact of the Line 2 outage to be covered by our insurance policies. Of course, the insurance proceeds could lag the actual loss by a couple of quarters. We will normalize the timing of the insurance payments by adjusting EBITDA in the period where the financial impact occurred and adjusting out the receipt of the insurance proceeds in future quarters. We'll continue to call out the adjustments as exceptional items in the coming quarters, and we have already included this adjustment in our Q4 adjusted EBITDA outlook. We also include the estimated hedge and tax impacts to help model our business. We expect a $10 million to $15 million headwind from realized hedge settlements and $5 million tax expense, both flowing through our Q4 P&L and impacting adjusted net income and adjusted earnings per share. As a reminder, our appendix details the full hedge book and continues to show the vast majority of LME and regional premium volumes are exposed to market prices. Now I'll hand the call back to Jesse. Jesse Gary: Thanks, Pete. As we begin to look forward to 2026, the business is well positioned to generate significant cash flows over the balance of this year and throughout 2026. For instance, if you were to take our Q4 outlook and just update for spot metal prices, our expected adjusted EBITDA generation would increase by approximately $45 million to $220 million. The incremental Mt. Holly restart tonnes should further increase profitability starting in Q2 2026. In addition to strong EBITDA generation, we had $220 million in Section 45X receivables at the end of Q3, and we received our 2024 45X refund amount of $75 million in October. At these levels of EBITDA generation and the anticipated receipt of cash against our 45X receivables over the coming months, we are well positioned to reach our net debt target of $300 million early in 2026. We are already well above our liquidity targets. Per our capital allocation framework included in the appendix, once we meet our capital allocation targets, we will continue to first allocate capital to our sustaining capital projects and identified organic growth projects. A good example here is our Mt. Holly expansion project that should be complete by the end of Q2 2026. In line with our standard practice, we will provide updated guidance on sustaining and investment capital spending for 2026 on our February call. As we have cash flows beyond our capital needs, we will continue to be opportunistic but disciplined with M&A opportunities like our acquisition of Jamalco in 2023 and otherwise look to begin to return excess cash to our shareholders. As we approach our net debt target, we thought it would be useful to provide some further guidance on the types of capital returns that we would anticipate once we have met our targets. While we are not announcing any actions today, we have started to assess our options, including listening to shareholder feedback that we receive from time to time. This feedback has been overwhelmingly in favor of the share buyback program as a means of returning capital to shareholders. We expect to come back to you all with further details and announcements as we move into 2026, including the amount and timing of any potential share repurchase programs. Thanks to everyone for joining us today, and we look forward to taking your questions. Operator: [Operator Instructions] Our first question comes from the line of Nick Giles of B. Riley Securities. Fedor Shabalin: This is Fedor Shabalin Selin on Nick Giles. And thanks for detailed report. I wanted to start with Mt. Holly. So if we were to isolate the Mt. Holly restart, which is roughly 50,000-plus tonnes, is it kind of safe to assume that this could generate in excess of $60 million in EBITDA at spot prices? And on the CapEx side, how much of CapEx has been already spent to date? And when would we expect you to achieve full run rate? You mentioned it starting Q2 and finish restart by June, if I correct, 2026, does it assume 100% utilization at this time? Jesse Gary: Sure. Thanks for joining the call. This is Jesse. Yes. So we're, as I said, well on track with the Mt. Holly restart, and we started the initial hiring and started some of the initial capital spending. But CapEx spending to date has been relatively minimal. You'll see more of that come in, in Q1 and Q2. In total, as we said before, the total project should be somewhere in the neighborhood of $50 million project spend. In terms of the additional EBITDA that we generated from the project, so you'll start to have units coming on in Q2 and then should be at full run rate starting in Q3. Once it reaches full run rate at spot prices today, the additional volume should generate about $25 million in additional EBITDA per quarter. Fedor Shabalin: This is helpful. And it would be great to get some additional perspective on how you're thinking about capital allocation. You already mentioned this. So your liquidity and net debt are roughly even amounts above your stated targets. So you're kind of indirectly at your target in some sense. And at what point will we consider high capital returns? And would you prefer buybacks or dividends? And then on the M&A side, would downstream opportunities be on the table? Jesse Gary: Sure. So yes, as I mentioned, we have been -- given the significant cash flow that we have today and that we see generating going forward, especially when you consider the lagged payments of those 45X payments that are on our books, and just to note again, we did receive the first tranche of those 45X payments from 2024 fiscal year of $75 million in October. So you'll see that come through in our Q4 results. We do think that we will be in a position to reach those net debt targets in 2026. Once we do, we've spent a lot of time thinking about this, and we spent a lot of time talking with our shareholders, and there is a clear stated preference for buybacks. And so as we think about it today, that's the most likely form of capital return once we do reach those targets. Operator: Our next question comes from the line of Katja Jancic of BMO Capital Markets. Katja Jancic: Maybe starting on Iceland. Did you say the repairs will take 11 to 12 months, but there is potential for you to accelerate the restart of the potline? Jesse Gary: That's right, Katja. So we're proceeding on 2 paths. The first path is the full replacement of those transformers. And there, we'll have to wait for the new transformers to be manufactured and then shipped to Iceland and then installed and then restart, and that's in that 11- to 12-month time line that I gave. At the same time, we're investigating whether the damaged transformers can be repaired. And we're hopeful that, that will be the case, but we have additional work to do to prove that out. If we are able to follow repair path, we would still order the new transformers, but the repair transformers would allow us to bring production back online several months in advance of that 11- to 12-month time line for replacement. Katja Jancic: Okay. And then on the insurance side, so would insurance cover for if the potline stays down for 11, 12 months, will insurance cover fully those 11 to 12 months? Or are there any restrictions? Jesse Gary: Yes. Our expectations today is that our policy limits are high enough that they will cover both the property and business interruption costs of the outage up to and including that 11- to 12-month time line that I gave. Of course, we have deductibles, the deductibles on the policy of $15 million. But above that, we will -- we expect to fully recover the losses. Katja Jancic: Okay. Maybe shifting to Hawesville. When do you think given the extension of the review process, are you think -- is there any time line when you think we could get a final decision? Jesse Gary: No time line. As I said, we've had a really good process from the beginning. But over the course of Q3, we did have a new surge of interest. And so we decided to then extend that time line to allow that new interest to come in and do some due diligence on the site. It's very positive interest, I'll say. And so we want to give them time, and we're working with them to proceed sort of as quickly as possible, but it's difficult to give an exact time line at this point. Katja Jancic: And does the review still include a potential restart? Jesse Gary: Yes. As we've always said, our goal here as part of the strategic review process is to see what the interest is in the site and what the potential value of the site is. And then we'll compare that versus the economics of a restart, and we'll make the best decision for our stakeholders. Operator: Our next question comes from the line of John Tumazos from Independent Research. John Tumazos: Of course, it's always hard to predict costs and there's uncertainties in hedging. But given how good things are right now, can you lock in the $110 larger billet premium with contracts, so it's certain next year? Are you able to hedge the Midwest premium that was $0.87 the other day. There are futures. And would you increase your LME metal hedging? Jesse Gary: Thanks, John. No change to our overall hedging policy. So as we've said all along, the main portion of our hedging program, and you can see the details on Slide 17 of the presentation, is to offset market power price risk that we have at Sebree. And so as you see from that slide, we've got about 22% of the megawatts for Sebree hedged for fiscal year 2026. And then we'll generally sell a little bit of metal, both Midwest premium and LME against those power price hedges to lock in some margin for Sebree. And the amounts that you see in the appendix are about normal for that program going forward. Aside from this, we did enter into a little bit of Midwest premium hedging when we made the decision to do the Mt. Holly expansion project and to lock in those returns that we've laid out for you where we expect the cost of that project to be fully repaid by the end of 2026. But other than that, our expectation is to remain exposed to the metal price and to offer that exposure to our shareholders. Now John, you did mention billet. In the U.S., we operate on an annual contract for our billet sales. And so most -- the vast majority of our billet sales in 2026 will be locked in at those prices that I quoted earlier for full year 2026. We do tend to leave a little bit of billet exposed to market prices throughout the year to pick up some spot exposure, but the vast majority of that will be locked in at those premiums that I gave earlier. John Tumazos: Jesse, the different news networks were suggesting yesterday that some of the Supreme Court justices might rule against Trump's tariffs. And of course, the 50% aluminum is very helpful to Century. And then 9 of the 23 presidential elections, off-year elections, the President's party has lost 40 to the House of Representative seats since 1934 is playing with political statistics noodling. So there's a chance that things don't stay this well from a regulatory standpoint. Do you think this is a good time to sell the company? Jesse Gary: John, this one is pretty clear. The Supreme Court case relates to what are called the IEEPA tariffs or sometimes known as the Reciprocal tariffs only. They do not relate to the Section 232 tariffs, which are where the steel and aluminum tariffs are under. The Section 232 tariffs have already been upheld in court and will not be impacted by the Supreme Court case pending on the IEEPA tariffs. John Tumazos: So let's just say my thesis is wrong. Do you think this is a good time to sell the company anyway? Jesse Gary: No, John, the company is not for sale. We are very excited about our prospects. We're excited about the cash flow generation that were available to show our shareholders. We're excited about our growth opportunities at Mt. Holly with the positive strategic review process, with the greenfield project as well as the increasing demand we're seeing across the United States. So our focus is really we're going to continue to try to produce aluminum as profitably as possible, supply units into the U.S. and European markets and continue to execute on our strategic plan. Operator: We have a follow-up question from Nick Giles of B. Riley Securities. Fedor Shabalin: This is Fedor again. My question is kind of a continuation of John's topic. So the [indiscernible] have been indicating very, very tight domestic inventories, which has supported stronger Midwest pricing. So -- and if prices continue to strengthen, do you think that could influence the administration's decision to keep 232 in place with no exclusions? And then on the other side, if we saw a Canadian exclusion, for instance, how do you think about Midwest premium? I know that Canada is not a marginal [indiscernible] into the U.S., but I have to imagine there would be some downside risk. Jesse Gary: Fedor, I think it's important to step back and look at the purpose of the Section 232 tariffs, which was to increase U.S. domestic aluminum production to meet national security needs. And when we look at the program and the response of industry, it's really doing just that, and Century is proud to be doing its part. So just to name a few of those projects that are coming online, the Mt. Holly restart project that we're implementing and will be up by mid next year will, by itself, increase U.S. production by 10% from levels today. So that's a significant increase. And then we've announced our own greenfield project and one of our competitors has announced their own greenfield project and together, along with the Mt. Holly restart, that would triple U.S. aluminum production by 2030. So I think that the tariffs are working as intended. They're driving industry to reinvest in adding production here in the United States and adding American aluminum jobs here in the United States. So the program seems to be working. And I think the administration has been quite clear that they'll continue to do their part and keep the tariffs in place with no exemptions and no exceptions going forward. Fedor Shabalin: And promise, if you allow me to squeeze the last one. It was great to see new power agreement with Santee Cooper for Mt. Holly, where you have cost of service-based rates. And I wanted to ask about Sebree, where you're exposed to Indy Hub. What is the appetite to book incremental hedges for '26 and '27, especially given the expectations for increased electricity demand from data centers in this region? Jesse Gary: Yes, we also were very excited about the Mt. Holly contract. That's a very long extension for us, gives us very good line of sight into next decade and was one of the keys in enabling us to restart production there. So we're really excited about what's to come at Mt. Holly, very good smelter, very profitable in today's environment. At Sebree, likewise, the plant is operating excellent. We continue to invest in that plant. And we've been operating now under this market-based power contract for over a decade. And we've become very comfortable with the way it works. And we think over time, it's been the most cost-effective power contract actually that we have in our entire system. Now as I mentioned earlier, we do some risk mitigation with that, and we've generally been hedging those power prices about 20% to 30% of our exposure on an annual basis. And we think that's a pretty good percentage of the overall power risk for us to lay off and puts the smelter in a good place to continue to be profitable and operate well through the cycles. So we're comfortable with that hedging program at that level. Of course, we'll always be looking and opportunistic, but we expect to continue our hedging programs as we have in the past as we move forward. Operator: There are currently no questions at this time. So I'll pass it back over to management for any closing or further remarks. Jesse Gary: Thanks, everyone, for joining the call. At Century, we're really excited about the end to 2025 and what's to come in 2026, and we'll continue to execute to the best of our abilities. Thanks all. Look forward to talking to everyone in February. Operator: Thank you. That will conclude today's conference call. Thank you for your participation. You may now disconnect your lines.
Operator: Good afternoon, and thank you for attending the Alta Equipment Group Third Quarter 2025 Earnings Conference Call. My name is Harry, and I'll be your moderator for today's call. I will now turn the call over to Jason Dammeyer, Vice President of Accounting and Reporting with Alta Equipment Group. Please go ahead. Jason Dammeyer: Thank you, Harry. Good afternoon, everyone, and thank you for joining us today. A press release detailing Alta's third quarter 2025 financial results was issued this afternoon and is posted on our website, along with the presentation designed to assist you in understanding the company's results. On the call with me today are Ryan Greenawalt, our Chairman and CEO; and Tony Colucci, our Chief Financial Officer. For today's call, management will first provide a review of our third quarter 2025 financial results. We will begin with some prepared remarks before we open the call for your questions. Please proceed to Slide 2. Before we get started, I'd like to remind everyone that this conference call may contain certain forward-looking statements, including statements about future financial results, our business strategy and financial outlook, achievements of the company and other nonhistorical statements as described in our press release. These forward-looking statements are subject to both known and unknown risks, uncertainties and assumptions, including those related to Alta's growth, market opportunities and general economic and business conditions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Although we believe these expectations are reasonable, we undertake no obligation to revise any statement to reflect changes that occur after this call. Descriptions of these and other risks that could cause actual results to differ materially from these forward-looking statements are discussed in our reports filed with the SEC, including our press release that was issued today. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's press release and can be found on our website at investors.altaequipment.com. I will now turn the call over to Ryan. Ryan Greenawalt: Thank you, Jason, and good afternoon, everyone. I appreciate you joining us to review Alta Equipment Group's third quarter 2025 results. I'll begin with an overview of our performance, highlight trends across our business segments and share why we're optimistic headed into Q4 and 2026. Our team once again demonstrated focus and discipline through what remains a turbulent macro environment. Despite persistent headwinds related to tariffs, manufacturing softness and customer caution, Alta employees continue to perform exceptionally well, demonstrating our culture of accountability, customer focus and operational excellence. While equipment sales were challenged this quarter, the underlying tone of demand improved steadily through September and into October, which turned out to be our strongest month of the year for new equipment sales, predominantly within our Construction Equipment segment. Our Construction Equipment sales in October alone topped $75 million, which is nearly 60% of our entire equipment sales in Q3. With that, we believe the pattern witnessed in the third quarter reflected a shift rather than an indication of softness as customers seemingly elected to push purchases from Q3 into Q4 as they awaited more definite signals on interest rate direction and year-end tax benefits under the One Big Beautiful Bill Act. That timing dynamic, coupled with greater confidence in backlogs and financing sets the stage for what we believe is the beginning of a fleet replenishment cycle. As we sit here today, our backlog in Material Handling remains over the $100 million mark, helping to provide visibility for the next several quarters. Even with muted volumes during the quarter, productivity and cash flow remained resilient. SG&A is down roughly $25 million year-to-date, driven by structural cost savings, improved efficiency and a disciplined execution. Those efficiencies are now embedded in our run rate and provide for operating leverage as the market rebounds. Turning the focus now to our Construction segment. Our Construction Equipment segment performed admirably given continued tightness in private capital spending. Demand from customers tied to long-term fully funded infrastructure work remains strong. In Florida, permitting activity on large DOT and Corps of Engineers projects has accelerated, translating to greater deliveries early in Q4. In Michigan, the legislature's record $2 billion road and bridge funding package is already driving new bid activity and multiyear visibility. These are durable tailwinds that reinforce our position as a key equipment partner on essential public works projects. Taken together with rate relief and the tax incentives of the Big Beautiful Bill, we see construction entering a healthier demand phase. Industry data suggests we're bottomed -- we've bottomed in the general purpose construction markets throughout our various APRs, positioning Alta for growth as replenishment gains momentum in 2026. In this regard, we've prepared a new slide this quarter, Slide 7, which shows the industry volume disconnect we've experienced from our regional norms, specifically in the last few years. We believe a reversion to normal industry levels in our APR can quickly return some of the volume losses we've experienced. And given some of the tailwinds we see, the environment is prepared for a rebound. Turning over to our Material Handling segment. Industry volumes have also exhibited multiyear softness as illustrated on Slide 7. Material Handling revenue was essentially flat year-over-year. The Midwest and Canadian markets remain soft, primarily due to automotive and general manufacturing weakness. In contrast, our food and beverage and distribution customers continue to perform well. We're seeing early signs of recovery in automotive demand, the ongoing -- sorry, automotive demand, the ongoing reindustrialization of U.S. key regions, particularly the Great Lakes Mega region is creating powerful long-duration demand tailwinds across Alta's end markets. As manufacturers, logistics, operators and infrastructure investors expand capacity in these high-growth corridors, the need for reliable material handling, construction and power solutions continue to rise. Nowhere is this more evident than in the power and utility sector where investment in grid modernization, renewable integration and data center infrastructure is accelerating. Alta is uniquely positioned to capitalize on this trend, combining our deep regional footprint, OEM partnerships and product support capabilities to serve the expanding industrial base and the critical infrastructure that underpins it. During the quarter, we completed the divestiture of our Dock and Door division, another deliberate step in sharpening our portfolio and focusing resources on our core dealership operations. This transaction reflects our commitment to capital discipline and reinvestment in higher return areas of the business. Alta's business optimization efforts are centered on strengthening the company's flywheel, delivering the right product to the right customer executed by the right people, while deepening the resilience and profitability of our core operations. Through disciplined execution, we are streamlining workflows, sharpening accountability and improving customer cost to serve across every business line. Product Support remains the engine of Alta's value creation model, driving reoccurring revenue and lifetime customer relationships through best-in-class parts, service and rental solutions. At the same time, we are refining our product portfolio to concentrate capital and talent around the brands, segments and geographies that align most directly with Alta's long-term strategy and OEM partnerships. Together, these actions form a cohesive approach to business optimization, reinforcing operational excellence, advancing our unified strategy and accelerating the virtuous cycle of customer intimacy and sustainable growth. In closing, as we enter the fourth quarter, we're seeing tangible signs of recovery across our business. Deferred demand from the third quarter is now flowing into the pipeline, supported by a steady acceleration in infrastructure and public works funding across our key markets. At the same time, recent interest rate reductions and the incentives introduced under the One Big Beautiful Bill are beginning to restore contractor confidence, creating a more constructive environment for capital investment and sustained customer activity heading into year-end. In short, we believe this -- the industry is turning the corner, and Alta is exceptionally well positioned to capture that upswing. Before turning it over to Tony, I want to thank all 2,800 members of team Alta for their focus, execution and commitment to our purpose of delivering trust that makes a difference. Your resilience and customer dedication continue to define who we are and how we win. With that, I'll hand it over to Tony Colucci to walk through the financials in more detail. Anthony Colucci: Thanks, Ryan. Good evening, everyone, and thank you for your interest in Alta Equipment Group and our third quarter 2025 financial results. Before getting into the quarter, I want to begin by recognizing our employees, customers and partners for their support in Q3. Our business model is resilient, but it takes commitment, collaboration and trusting partnerships to execute on that resiliency day-to-day. Thank you to all. My remarks today will focus on 3 key areas. First, I'll present our third quarter financial results, which reflect a challenged equipment sales and rental environment overall, although we believe some of these challenges may be dissipating. As part of that discussion, I'll give a brief financial overview of the quarter for each of our 3 segments. Lastly, I'll touch on the balance sheet and cash flows for the quarter. Second, I'll be presenting what we believe to be the company's bridge back to $200 million of EBITDA and the factors impacting that bridge. Lastly, I'll discuss our expectations for the remainder of the year on both adjusted EBITDA and free cash flow before rent-to-sell decisioning. Throughout my remarks, I'll be referencing information presented on Slides 10 through 21 in our earnings deck. I encourage everyone to follow along with the presentation and review our 10-Q, both available on our Investor Relations website at altg.com. First, for the quarter, the company recorded revenue of $422.6 million, a 5.8% organic reduction versus last year. Revenues retreated sequentially in the quarter, mainly on equipment sales. However, Product Support remained steady and was up sequentially versus Q2 as I'll remind investors that our parts and service departments continue to act as an annuitized and stable cash flow stream in what is clearly a volatile equipment sales environment. As it relates to equipment sales, as mentioned, we believe that similar to last year, customers pushed off capital spending in Q3 for more clarity on interest rates and their own business' annual performance relative to the tax incentives available in the Big Beautiful Bill. Both of those factors, we believe, helped drive our highest equipment sales number of the year in October and provides a tailwind for Q4 equipment sales overall. Lastly, rental revenues are down $5.3 million year-over-year, but up $2.1 million sequentially, with the year-over-year decrease largely related to our strategic decision to reduce the size of our rent-to-sell fleet as we focus on better utilization and ultimately enhance returns on investment in rental fleet. Now focusing in on the segments for the quarter. First, Material Handling. As mentioned previously and as presented on Slide 11, new and used equipment in our Material Handling segment were down a modest $1.6 million year-over-year. But notably, the line was up on a sequential basis. As despite industry bookings for new forklifts continuing to run below historic norms, we have been able to keep pace with the prior year through selling allied lines and tariff-free used equipment to our customer base. Also important to note, and as Ryan mentioned, that despite demand challenges for the industry, Alta continues to carry a healthy backlog of equipment, over $100 million worth of new allied and used equipment into Q4. In terms of Product Support revenues, while we continue to run behind last year's pace in parts and service, most predominantly in our Midwest and Canadian geographies, I mentioned on our Q2 call that we believe that we have found a bottom in these departments, and that dynamic played out in Q3 as Product Support revenues in material handling outpaced the second quarter by nearly 4%. As noted on Slide 11, adjusted EBITDA was up year-over-year and sequentially versus Q2, coming in at $17.5 million in Q3 for the segment. On to our Construction segment and as highlighted on Slide 12. As a precursor to my comments, I would reset for investors that equipment sales in our CE segment can be and have historically been volatile, especially when compared to equipment sales in our Material Handling segment and certainly when compared to our other revenue streams. This volatility has certainly been evident in both 2024 and 2025 as macro factors such as interest rates, tax laws, election fears, tariff and trade policy uncertainty and customer backlog and local funding can all impact the CE customers -- CE segment customers' decisioning on when to purchase a piece of equipment. With that as a backdrop, we saw equipment sales in our CE segment drop $18.7 million versus last year Q3. That said, based on what we saw in October, we believe Q3 will be an anomaly as customers pushed ahead decisioning in Q4 given the expectations for interest rate reductions and year-end tax plan. Lastly, on equipment sales from a new and used equipment gross margin perspective, while we continue to run below historic level gross margins on new and used equipment, gross margins on new and used equipment were up slightly on a sequential basis, a hopeful sign that supply and demand dynamics in the marketplace are normalizing and that we may have found a bottom on this metric. On to Product Support, which grew roughly 3% year-over-year in the Construction segment and where we continue to outperform internal profitability metrics. Further to that point, as presented on Slide 14, while the segment stand-alone EBITDA is down $2.4 million year-to-date, the mix of the $75 million of EBITDA in 2025 is of a higher quality versus '24. Specifically, while 2024's EBITDA was more heavily weighted to opportunistic rental equipment sales and related gains, 2025's EBITDA is more -- been more heavily weighted to perpetual profitability gains in the form of increased gross margins and product support as well as a reduced SG&A load. This realignment from less consistent equipment sales to more reliable recurring product support profitability creates a more resilient and capital-efficient business going forward. Lastly, from a segment perspective, Master Distribution, which houses our Ecoverse business. The story for the quarter continues to be tariff related as nearly all of the segment's key metrics have been negatively impacted year-over-year. That said, a stabilizing trade environment between the U.S. and the EU and mitigating measures in the form of pricing actions and OEM risk sharing to best maneuver through this situation have been largely implemented, and we expect will take further hold and bear fruit in Q4. Overall, we are cautiously optimistic that the worst of the trade-related impacts on the segment in 2025 are now behind us. In summary, for the quarter, the company generated $41.7 million of adjusted EBITDA, a slight reduction versus last year on a pro forma basis and mainly driven by reduced episodic equipment sales in our CE segment. Lastly and notably, as we focus on driving ROIC, the company was able to realize nearly the same level of EBITDA year-over-year on a leaner balance sheet as the gross book value of our rental fleet is down nearly $30 million year-over-year. In terms of cash flows, and I'm referencing Slide 16, for the quarter, free cash flow before rent to sell decisioning was approximately $25 million for the quarter and stands at roughly $80 million year-to-date. To quickly check in on the balance sheet as of September 30 and as depicted on Slide 17, we ended the quarter with approximately $265 million of cash and availability on our revolving line of credit facility, plenty of capacity in term to navigate the business in this climate. Before closing my comments on the quarter, I'd like to quickly address the impact of Big Beautiful Bill had on the company's income statement in Q3. First, holistically, the company views the enactment of the Big Beautiful Bill as a net positive for both the company and for our customers. From the company's perspective, the effective removal of the interest rate -- the interest expense limitation in the Big Beautiful Bill will save the company cash taxes in the future and over time, will enhance our liquidity position. That said, given the reduction in the interest limitation, we had to take a notable onetime noncash income tax expense to establish a valuation allowance against our net operating loss assets. For clarity, this onetime expense has no impact on the company's operations, its cash liquidity position or its financing capacity. We welcome the benefits of the Big Beautiful Bill for both us and our customers going forward. Moving on to the second portion of my prepared remarks. The company's view on the potential bridge back to $200 million of EBITDA and the factors impacting that bridge. As presented on Slide 7 and as discussed earlier by Ryan, equipment values in our regions in each of our major segments have been depressed in recent years when compared to industry norms and in the case of our CE segment in the face of increased state and federal DOT spending in recent years. To illustrate the financial impact of Slide 7 and the reversion to the norm on equipment volumes and a few other elements, we present the EBITDA bridge on Slide 20. First, the starting point of the EBITDA bridge is our current midpoint of the FY 2025 adjusted EBITDA guidance. Next, the first step in the bridge is the incremental EBITDA created given Alta's current market share if equipment volumes simply revert back to historic norms. Note that this element represents $17 million in EBITDA in the bridge. Next, the second step of the bridge is related to a reversion of the norm on gross profit margins on equipment sales. As we've discussed on many calls recently, there has been an oversupply of equipment in the market -- in the equipment markets for nearly 2 year now -- 2 years now, which has led to an unprecedented competitive pricing environment that ultimately depressed equipment sales margins. The $10 million of EBITDA in this step represents a reversion to the norm on gross margins associated with the normalized level of equipment sales. Next, the third level of the bridge is related to Ecoverse, a business unit that in 2025 has experienced an outside level of impact from tariffs given its business model. The abrupt and blunt impact of the tariffs on this business can't be overstated. As a master distributor of environmental processing equipment that is sourced from Europe, Ecoverse relies on a constant flow of equipment and parts from that region and historically has not held a lot of stock inventory. Thus, the quick implementation of the tariffs was difficult to navigate and the time line on mitigation efforts had a longer tenor than keeping up with the marketplace. Thus, sales were impacted and margins quickly eroded. That said, since the outset of the tariffs, our team at Ecoverse has been effectively and actively working on mitigation efforts, which included supply chain resourcing, target pricing increases and supplier cost sharing. We believe these mitigation efforts are largely in place and the road back to Ecoverse contributing to the enterprise from an EBITDA perspective is ahead of us. Thus, the $7 million EBITDA step here. Next, we believe strongly that PeakLogix, our systems integration and warehouse automation business will revert to historic norms as interest rates come off their highs and CapEx projects get greenlighted for automation projects at customers within our material handling footprint. Thus, the $3 million reversion to the norm for PeakLogix in this column. Lastly, the $7 million negative EBITDA in the last step of the bridge is simply the incremental costs associated with the steps -- with steps 1 and 2 in the bridge. Overall, we believe the $30 million bridge on Slide 20 presents a simplistic -- presents simplistic hard evidence that a reversion to the norm in terms of industry equipment sales volumes and margins and a normal operating environment for both the Ecoverse and Peak provide for a logical path back to the company's target of $200 million of EBITDA. Moving on to the final portion of my prepared remarks, adjusted EBITDA and free cash flow before rent-to-sell decisioning for 2025. First, in terms of our adjusted EBITDA guidance for the year, we now expect to report between $168 million to $172 million of adjusted EBITDA for the fiscal year 2020 (sic) [ 2025 ] . Notably, the updated range implies a better sequential Q4 versus Q3. Lastly, despite the reduction in the guidance on adjusted EBITDA, we are effectively holding our guidance on free cash flow before rent-to-sell decisioning, which is again presented on Slide 21. As a reminder, free cash flow before rent to sell is a metric that we believe appropriately measures the true free cash flow generation capacity of the business in a steady state and removes the impact of the decisions we make with our rent-to-sell fleet. Overall, we expect free cash flow before rent-to-sell decisioning to be between $105 million and $110 million for the fiscal year 2025. In closing, I would say that we remain bullish about our partnerships, our employees and the long-term prospects at Alta and are confident in our enduring business model. Ryan and I would like to wish all of our 2,800 teammates and all of you listening tonight a healthy and happy holiday season. Thank you for your time and attention, and I will turn it back over to the operator for Q&A. Operator: [Operator Instructions] The first question today will be from the line of Liam Burke with B. Riley Securities. Liam Burke: Can we talk about Construction Equipment? It sounds like based on equipment sales for October that, that business, some of the roadblocks that have been slowing the business like funding of projects, availability of labor seems to have moved to the side and you'd anticipate at least an early upswing in that business, both from a sales and a margin perspective. Is that the right way to look at it? Anthony Colucci: I think, Liam, you said it well. From a sales perspective, I think we're -- as I mentioned, on the margin thing, we're cautiously optimistic. But from a sales perspective, certainly, we think exactly along the lines of how you described that October could be a harbinger of things to come. Liam Burke: Okay. But what would be the gating factor? I'm looking at your gross margins year-over-year were flat. I think Tony called out that they were up sequentially. What's to stop that movement to sort of move it back to their historic levels? Anthony Colucci: Liam, I think this is the first time we've been up sequentially. And so the messaging here is, hopefully, we've -- in several quarters, if not years. So hopefully, maybe we found a bottom. We continue to see some flattening in used equipment prices. But overall, we still think that the marketplace in construction equipment is still generally oversupplied. And until that oversupply or that overhang kind of fully mitigates itself, I think we'll continue to see gross margins at these levels. Now it has been dissipating in terms of the overhang. We have seen pricing kind of firm. And so it would follow that, we could see an upswing there in the coming year or so. Liam Burke: Okay. And then just quickly on Materials Handling. You highlighted some of the stronger pockets of the business, particularly food and beverage. And are you seeing any kind of movement on the manufacturing front? I know inshoring is going to be a long-term cycle, but are you seeing any lift on the traditional manufacturing side? Anthony Colucci: Go ahead, Ryan. Ryan Greenawalt: I'll take that one. This is Ryan. I think the lift we're seeing is more related to the replenishment cycle getting extended out than it is, the market demand being driven by -- the demand side of the equation is still -- has some pressure. And it's -- we think it's a near-term issue related to the tariff impact, in particular, on autos and the implications for the portfolio, the shift to EVs that was happening largely in the Michigan APR and in the northern part of our territory. There's some rationalization happening right now that's taking product out of the market in pockets. But what we're seeing is the fleet replenishments are back on track. Things that were delayed are back on track. We saw one of our biggest POs in that sector ever come through last quarter. So it's helping build the backlog and keep it what we're calling stable. But the longer-term trend, we think, is very bullish for our regions that -- we have a workforce that knows how to build things, and we have now policy that's going to encourage more to happen in our geographic footprint. Operator: [Operator Instructions] And the next question today will be from the line of Steven Ramsey with Thompson Research Group. Steven Ramsey: I wanted to continue that line of thought on Material Handling, the backlog being over $100 million. Maybe I heard you say you described it as stable. Maybe can you put that in context of the first half of the year, the backlog size where it was a year ago. But part of my thought process is sales have been increasing sequentially off of the Q1 levels. You talked about a great order in the prior quarter. Is this reducing the backlog? Or are there more orders filling it back up? Anthony Colucci: Yes. Steven, I'll take a shot at that. This is Tony. Just to clarify Ryan's comment there, the PO that he referenced is not going to be impactful for '25 here. It's more of a long-term kind of opportunity. Anyway, I believe we started in Material Handling, we started the year with $125 million of backlog. We're in the low $100s million here, as we mentioned. And so we have had some burn off of the backlog. As we mentioned last quarter, when we think of backlog, we're not just thinking of our Hyster-Yale new lift trucks, part-of-the-line lift trucks. We've got allied lines that we do very well with. And then used equipment, which given tariffs, there's an opportunity to really move used equipment from a pricing and competitive perspective. And so I think the burn off is, for us, less about maybe demand, which has been tepid and more about lead times from the factory coming down in terms of Hyster-Yale just being able to deliver more quickly given their production levels. So I would just say that the backlog is not down necessarily at Alta because of a massive decrease, although it's down, but more so just the lead times impacting it. Steven Ramsey: Okay. That's good. That's helpful context. And one more on material handling, parts and service gross margin very strong despite the flattish revenue. Can you talk about what drove that and how you think about the gross margin for the aftermarket and material handling going forward? Anthony Colucci: Yes. I think, Steven, in some of our regions, we have midyear increases from a pricing perspective. Certainly, some of the things we've talked about in terms of focusing on the right products and reducing non-billable labor can impact that as well. So those are some of the things that would impact service margins here in the third quarter. The way that we think about it over the long term in terms of modeling is taking a longer-term kind of view on margins. And if you look at it over the long term, the margins remain pretty stable. Steven Ramsey: Okay. Helpful. And then in Construction Equipment, I wanted to hear some of the nuance where parts sales were barely up while services grew mid-single digit. Can you talk about the delta between those lines and if that had -- or how that impacted the strong margin of that revenue line in the segment? Anthony Colucci: You know, Steve, that is probably just -- sometimes they don't move necessarily in conjunction with one another, depending on over-the-counter sales at the branches and how they move versus field service as an example. I don't know that I would draw any correlation or story that service was up relative to parts. Steven Ramsey: Okay. That's helpful. And then last one for me. On the divestiture of Docks and Doors unit, I guess, kind of why now at this point, given still keeping PeakLogix, maybe there wasn't synergy between the businesses necessarily. But why now? And then secondly, I may have missed it in the prepared comments, if that was an impact to the 2025 EBITDA guide? Anthony Colucci: Sure, Steve. I'll take the -- I'll go in reverse. Very minimal impact on the EBITDA guide. That business probably less than $1 million of EBITDA on an annual basis. I think on the Dock and Door strategically, and Ryan can weigh in, too. But overall -- recall, we did one acquisition several years ago of a Dock and Door business in Boston. The rest of that business or the majority of that business was inherited through an acquisition of the Hyster-Yale dealer in New York City. And so as we have kind of done a strategic review on all of the different business lines that we're in and trying to drive synergies between those, what our core business is with the Hyster-Yale products and what is the Dock and Door business, the more we looked at it, the more we thought that this would be better off in somebody else's hands, that was just focused on it. The other thing I would add is don't draw any parallels between what PeakLogix does and what Dock and Door does, very different kind of offerings, if you will, and go-to-market strategies, customers, et cetera. So anything else to add there? Ryan Greenawalt: I think that's well said. It's around -- the moat around the business, we prefer the exclusive rights, and there's more aftermarket yield on selling vehicles than selling [indiscernible] Operator: With no further questions on the line at this time, this will conclude the Alta Equipment Group Third Quarter Earnings Conference Call. Thank you to everyone who is able to join us today. You may now disconnect your lines.
Operator: Greetings. Welcome to Kingstone Companies' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Joining us on today's call will be President and Chief Executive Officer, Meryl Golden; and Chief Financial Officer, Randy Patten. On behalf of the company, I would like to note that this conference call may include forward-looking statements, which involve known and unknown risks and uncertainties and other factors that may cause actual results to differ materially from projected results. Forward-looking statements speak only as of the date on which they are made, and Kingstone undertakes no obligation to update the information discussed. For more information, please refer to section entitled Risk Factors in Part 1 Item 1A of the company's latest Form 10-K. Additionally, today's remarks may include references to non-GAAP measures. For a reconciliation of our non-GAAP measures to GAAP figures, please see the tables in the latest earnings release available on the company's website at www.kingstonecompanies.com. With that, it is my pleasure to turn the call over to Meryl Golden. Meryl? Meryl Golden: Thank you. Good morning, everyone, and thanks for joining us. We delivered one of the strongest quarters in our history with net income of $10.9 million, diluted earnings per share of $0.74, a GAAP combined ratio of 72.7% and an annualized return on equity of 43%. Direct written premium grew 14% and net investment income increased 52%. This was our second most profitable quarter in history and our eighth consecutive quarter of profitability, underscoring the consistency and enduring competitive advantages we have created. I want to emphasize what sets Kingstone apart. First, our select product does a great job matching rate to risk and with risk selection, which reduces claim frequency over time. Second, our producer relationships support high retention and consistent new business flow. Third, our efficient operations and low expense structure enhance margin durability; and last, our great team, all of whom act with an ownership mentality. The hard market conditions in our downstate New York footprint have not changed materially. While we've seen some competitors broaden their underwriting appetite, our overall volume remains strong. New business this quarter has moderated compared to last year's surge when we benefited from the market exits of Adirondack and Mountain Valley. But we've seen a month-over-month increase in new business since June, and that has continued into the fourth quarter. We've also begun writing policies under our renewal rights agreement with GUARD, which will meaningfully add to new business policy counts going forward. Growth of 14% for the quarter was driven primarily by an average premium increase of 13% and improved retention. Looking ahead, we expect retention, which represents over 80% of our premium base to continue trending higher as rate changes transition to high single digits from the high teens pace of the past 3 years. Policies in force increased 4.2% year-over-year and 1.4% sequentially, underscoring the stability and loyalty of our agent and customer base. Net earned premium growth continues to be a powerful tailwind, exceeding 40% for the third consecutive quarter. The increase is primarily due to our reduced quota share, which allows us to retain a greater share of premiums and underwriting profits. Additionally, the surge in new business written in the second half of last year continues to earn in, further fueling the growth in earned premiums. On underwriting, our underlying loss ratio was 44.1%, an increase of 4.9 percentage points versus the prior year quarter, driven by higher claim severity. Claim frequency, especially for non-weather water and fire, our largest perils, declined versus last year, a trend we have shared previously. We believe this is driven by a mix shift to more preferred risk in our Select products. The Select homeowners program now represents 54% of policies in force. And on an inception-to-date basis, Select homeowners claim frequency is 31% lower than our legacy product. During the quarter, large losses were modestly higher than the prior year's unusually favorable experience, but remained consistent with the prior 3 years otherwise. Year-to-date, our underlying loss ratio is up only 0.1 percentage point from the prior year. The variability in large losses is random and does not indicate a change in trend. Catastrophe losses contributed 0.2 percentage points to the loss ratio compared with 1.7 percentage points in the prior year quarter. While catastrophe activity was light, our strong results aren't solely driven by favorable weather. With a normalized third quarter catastrophe load, our combined ratio would have been in the low 80s. Our state expansion initiative is progressing, and we intend to present Kingstone's multiyear road map to you in the first half of next year. With 3 quarters behind us, we've updated our 2025 guidance to reflect our outstanding performance. We are raising guidance for our net combined ratio, EPS and ROE, while reaffirming direct-written premium growth for all states to range between 12% and 17%. With anticipated net earned premiums of $187 million, we expect a GAAP net combined ratio between 78% and 82%, basic earnings per share between $2.30 and $2.70, diluted earnings per share between $2.20 and $2.60 and return on equity between 35% and 39%. Relative to our prior guidance and on the same net earned premium base, we have improved our GAAP combined ratio range by 100 basis points at the midpoint, raised both basic and diluted EPS ranges by 9% and 12%, respectively, and increased our ROE target range by roughly 300 basis points at the midpoint. This increased guidance reflects strong underwriting performance, sustained investment income growth and lower expenses, while maintaining our disciplined posture on pricing and exposure management. With regard to fiscal '26 guidance, our baseline assumes normal seasonality and catastrophe activity. In both 2024 and 2025, we have very mild winters and low cat losses overall. Weather is unpredictable, and we assumed more reversion to the mean for our '26 guidance. We will refine our outlook as the year unfolds and moving forward, we'll announce subsequent years guidance in March, along with fourth quarter results. Now I'll turn the call over to Randy Patten, our Chief Financial Officer, who joined Kingstone in late August. Randy brings 3 decades of insurance experience, most recently serving as Chief Accounting Officer and Treasurer at Next Insurance. Randy? Randy Patten: Thank you, Meryl, and good morning again, everyone. Q3 was our most profitable third quarter on record and our eighth consecutive quarter of profitability. We generated net income of $10.9 million, diluted earnings per share of $0.74, a 72.7% combined ratio and an annualized return on equity of 43%. Year-to-date, net income was $26 million, more than double the prior year. Performance was driven by strong net earned premium growth as our reduced quota share in the second half of 2024 new business surge continued to earn in, combined with very low catastrophe losses, favorable frequency trends and lower expenses aided by an adjustment to the sliding scale ceding commissions. Our net investment income for the quarter jumped 52% to $2.5 million, up from $1.7 million last year. Year-to-date, we've seen a 39% increase, reaching $6.8 million. The momentum is due to robust cash generation from operations, which has enabled us to grow our portfolio and benefit from higher fixed income yields. We capitalized on attractive new money yields of 5.2% in the third quarter. While we remain conservative in our investment strategy, we are actively seeking opportunities to enhance our portfolio's yield and duration. As of September 30, 2025, our fixed income yield is 4.03% with an effective duration of 4.4 years, up from 3.39% and 3.7 years at September 30, 2024, an increase of 64 basis points and 0.7 years, respectively. During the quarter, we recognized an increase of $1.4 million in sliding scale contingent ceding commissions under our quota share treaty, reflecting low catastrophe losses, which contribute to the 4.6 percentage point decrease in the quarter's expense ratio. 2025 marks the first period in some time in which a significant portion of the quota share ceding commission is on a sliding scale basis. While sliding scale ceding commission for the attritional loss ratios look quarterly, sliding scale ceding commission for the catastrophe loss ratio cannot be reasonably estimated until after the peak of the hurricane season, so it was recognized this quarter. As a result of this adjustment, our year-to-date expense ratio is down 1.1 percentage points to 30.8% versus the same period in 2024, and we anticipate ending the year with an expense ratio for the full year 2025 lower than the prior year. I will conclude my portion of the call today discussing our capital position. Our capital position remains strong. We have no debt at our holding company, KINS, and shareholders' equity exceeded $107 million, an increase of 80% year-over-year. Year-to-date return on equity is 39.8%, an increase of 3 percentage points from the same period last year. Given this foundation and our outlook, we reinstated our quarterly dividend during the quarter and have ample capital to fund disciplined growth. With that, I'll open it up for questions. Operator? Operator: [Operator Instructions] Our first question is from Bob Farnam with Janney Montgomery Scott. Robert Farnam: So on your New York admitted basis, the Select product now is 54% of the policies in force. Will all accounts eventually move to Select, or some just renew on the legacy product indefinitely? Meryl Golden: Yes. So we are maintaining our legacy book because it's profitable. So any policy written in legacy will stay there. But clearly, when it gets to be small enough, we'll probably convert it to Select, but we don't want our customers to experience that dislocation because it's profitable. So we don't have any plan to do that in the near term. Robert Farnam: Okay. But all new business, is that put on the Select platform? Meryl Golden: Yes, all new business has been written in Select since the beginning of 2022. Robert Farnam: Right. Okay. So when you're getting into the new states on an excess and surplus lines basis, I'm assuming this is going to be a new product. So -- because it's E&S rather than admitted. So how is this product going to differ from Select? And how are you developing it? Meryl Golden: Yes. So we are certainly going to benefit from the Select product and the experience we've had. But depending on the states we enter, there may be new perils or new rating variables that we'll need to account for. And we're currently deep in the development of that product as we speak. And we've been working with an outside actuarial consulting firm, the same firm that helped us develop the Select product for New York. So again, we're deep into it and feel really good about how we'll -- what the outcome will be. Robert Farnam: And has the new E&S carrier been finally been approved yet? Meryl Golden: So we are filing -- we have filed for a new company in Connecticut. It has not yet been approved. And we will be writing on an E&S basis as in Kingstone Insurance Company as well in certain states. Robert Farnam: Okay, okay. A little change in direction. So I know it's only been 2 months, but the AmGUARD book, you started writing at the beginning of September. So how has that performed thus far relative to expectations? Not performed in terms of profitability, but in terms of having policies move over to Kingstone? Meryl Golden: Yes. So it's early on. We started writing business effective September 1st. But so far, it's right within our expectations. So I had indicated that we write between $25 million and $35 million of business over a 3-year period. And we're right on track. We're writing about a little bit less than $1 million a month so far. And what I can tell you is we're very happy with the mix that we're seeing. It's very similar to what we've achieved in Select. However, we're writing a bit more business in the boroughs, and that is giving us some geographic diversification. So we're happy with that. So far, everything is right on track. Robert Farnam: Okay. And one of the bigger questions I always get is just the competition in downstate New York. Now you said that some companies are expanding their target areas. How -- can you give us any more color as to how competitors are going into that environment? Meryl Golden: Yes. So we compete with mostly MGAs in New York. And last year at this time when there was this surge of business from Adirondack Mountain Valley, a lot of companies stopped writing business. And throughout this year, they've just been opening up and writing more classes of business than they've written in the past, but it's not stopping us. Our growth is very healthy. And as I mentioned, every month since June, we've seen a sequential increase in our new business. So again, the way they're expanding is, it's not always obvious to us, but our conversion rate remains really high. So we feel good about where we're at competitively. Operator: Our next question is from Gabriel McClure with private investor. Gabriel McClure: Congrats on a great quarter. And also, please thank whoever puts a PDF in place for us, that's very helpful. Meryl Golden: Great. Gabriel McClure: Yes. I had one question for you. I think maybe a couple of months ago at the Sidoti conference or somewhere, you mentioned that these states you're looking at expanding into, you kind of described it as there being more demand for our policies that we'd offer on a homeowners policy that we'd offer on an E&S basis than there was supply. And so just my question is a couple of months ago, is the market still that way? Has it changed? Whatever you could offer up? Meryl Golden: Sure. So the homeowners market, particularly catastrophe-exposed homeowners nationally is in a bit of a crisis and because companies are not making money. And so we do have an opportunity to expand geographically and be opportunistic so that we can have -- earn the same return that we are in New York. So nothing is really -- in a quarter, markets don't change much. So we have not seen a material change in the market and believe the opportunity still exists for us to expand successfully. Operator: There are no further questions at this time. I would like to turn the conference back over to Meryl for closing remarks. Meryl Golden: Excellent. Thank you for joining today. As we wrap up, I'd like to reemphasize what continues to set Kingstone apart, our Select product, our producer relationships, our low expense structure and our great team. This quarter's results reinforce the durability of our earnings power. We will continue to execute with discipline, advance our measured expansion road map and allocate capital prudently to support profitable growth. We appreciate your continued support and remain focused on delivering long-term shareholder value. Have a great day. Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Welcome to Franklin Resources Earnings Conference Call for the Quarter and Fiscal Year ended September 30, 2025. Hello. My name is Sachi, and I will be your call operator today. As a reminder, this conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your host, Selene Oh, Head of Investor Relations for Franklin Resources. You may begin. Selene Oh: Good morning and thank you for joining us today to discuss our quarterly and fiscal year results. Please note that the financial results to be presented in this commentary are preliminary. Statements made on this conference call regarding Franklin Resources, Inc., which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of known and unknown risks, uncertainties and other important factors that could cause actual results to differ materially from any future results expressed or implied by such forward-looking statements. These and other risks, uncertainties and other important factors are described in more detail in Franklin's recent filings with the Securities and Exchange Commission, including in the Risk Factors and the MD&A sections of Franklin's most recent Form 10-K and 10-Q filings. With that, I'll turn the call over to Jenny Johnson, Chief Executive Officer. Jennifer Johnson: Thank you, Selene. Welcome, everyone, and thank you for joining us to discuss Franklin Templeton's Fourth Quarter and Fiscal Year 2025 results. I'm here with Matt Nicholls, our Co-President and CFO. Joining us is Adam Spector. This is Adam's final quarterly call as he has transitioned to a new role as CEO of Fiduciary Trust International. Adam has played a vital role in our success with clients over the past 5 years, and his expertise and leadership will be invaluable to Fiduciary. I'd like to also welcome Daniel Gamba to our earnings call for the first time. Daniel joined Franklin Templeton in mid-October as Chief Commercial Officer and also assumes the role of Co-President alongside Matt and Terrence Murphy, Head of Public Market Investments. A respected industry leader, Daniel brings extensive experience across public and private markets globally. On today's call, as outlined in our investor presentation, I'll share the progress we made in year 1 of our 5-year plan, which was marked by strong momentum and tangible results. I'll also touch on highlights from our fourth quarter and fiscal 2025. After that, Matt will review our financial results and quarterly guidance, then we'll be happy to answer your questions. In recent years, Franklin Templeton has continued to build on our strong foundation, advancing our mission to help clients achieve the most important milestones of their lives. As one of the world's most comprehensive asset managers, we combine deep expertise across public and private markets with a client reach spanning over 150 countries. Today, clients look to Franklin Templeton as their trusted partner for what's ahead, one firm offering the reach and resilience of a global platform together with the distinct expertise of our specialist investment teams. As more asset owners seek multifaceted partnerships with fewer firms that can deliver across asset classes, styles and regions, we believe our business is poised to meet that demand. In recognition, just last week, Money Management in Barron's named Franklin Templeton as its 2025 Asset Manager of the Year in the $500 billion plus AUM category. The award recognizes firms leading through innovation and excellence in investment advisory solutions. Our position today reflects years of deliberate strategic planning and the strength of a global brand that's earned the trust of investors around the world. This year was another important step forward as we continue to deepen client partnerships, broaden our investment capabilities and strengthen our diversified model. Fiscal 2025 marked the first year of our 5-year plan, and we've made great strides across a number of key focus areas for the company. We are ahead of our plan for alternatives, ETFs and Canvas and on track in the other areas. Let's now turn to the investor presentation beginning on Slide 8 to review our progress report. Starting with Investment Management, we continue to offer a broad spectrum of investment capabilities across public and private assets, helping clients achieve a wide range of financial goals. In public markets, focus remained on strengthening investment performance while optimizing our product lineup. Performance continues to improve with over 50% of our mutual funds, ETFs and composites outperforming peers and benchmarks across all standard time periods. This underscores our disciplined investment process and commitment to delivering consistent results for clients. This year, we also simplified our investment management structure to strengthen talent development and enhance the way we manage investments across public markets. These changes are fostering greater collaboration and alignment across teams, positioning us to operate with greater agility and scale. At the same time, we refined our investment offerings to focus on scalable, high-demand strategies where we can deliver the greatest value for clients. That involved thoughtfully retiring certain brands and integrating investment capabilities where it makes sense, steps that make our platform more efficient, scalable and strategically positioned for future growth. Turning to private markets. Franklin Templeton is a leading manager of alternative assets with $270 billion in alternative AUM with the closing of Apera. We have a broad range of strategies, including alternative credit, secondary private equity, real estate, hedge funds and venture capital. On October 1, we further strengthened our private debt platform through the acquisition of Apera Asset Management, bringing our private credit AUM to $95 billion and enhancing our reach across European markets. The acquisition complements Benefit Street Partners and Alcentra and expands our direct lending capabilities across Europe's growing lower middle market. This year, we fundraised $22.9 billion in private markets, keeping us ahead of pace toward our 5-year $100 billion fundraising goal. The strong momentum reflects both the depth of our alternative's platform and the growing demand for diversified outcome-oriented solutions. In fiscal 2026, we anticipate an increase to private market fundraising to between $25 billion and $30 billion. We remain committed to the democratization of private assets, bringing institutional quality opportunities to a broader range of investors. Franklin Templeton Private Markets, our wealth management offering, continues to gain traction, contributing more than 20% of our private market fundraising this year, underscoring the strength of our global distribution partnerships and client reach. We expect this to grow to between 25% to 30% in the next few years. Our perpetual secondary private equity funds, the Franklin Lexington Private Markets Funds have raised $2.7 billion since their launch in January. In addition, our 2 other primary alternative managers, Benefit Street Partners and Clarion Partners, each have perpetual funds with scale. These are semi-liquid perpetual vehicles open to ongoing subscriptions, giving investors efficient access to long-term private market exposure. This year, we announced an infrastructure partnership with 3 leading firms, Actis, DigitalBridge and Copenhagen Infrastructure Partners, expanding our expertise in one of the most dynamic areas of private investing. Infrastructure is a significant opportunity with an estimated $94 trillion in global funding need by 2040. We're excited to develop a diversified perpetual infrastructure solution for the wealth channel, investing across all subsectors and positioning Franklin Templeton to capture opportunities in this fast-growing market. In addition, we are in the process of launching new products to bring to market. Industry tailwinds for private markets remain strong. According to Boston Consulting Group, alternatives are projected to represent roughly half of industry revenues by 2029, driven largely by the democratization of alternatives. Goldman Sachs projects the retail alternatives market alone will expand from $1 trillion to $5 trillion over that same period. Franklin Templeton is well positioned to capture our share of this growth leveraging our scale, partnerships and innovation to lead in the next era of alternative investing. Alternatives and retirement represent one of the most exciting opportunities ahead. This year, we announced a partnership with Empower, one of the largest U.S. retirement service providers with over $1.8 trillion in assets under administration. Together, we're paving the way for private market investments to be included in defined contribution plans, an important step toward broadening access for millions of retirement savers. While still early days, the long-term opportunity is significant. In U.S. defined contribution plans alone, allocations to alternatives are projected to create a $3 trillion addressable market over the next decade. With $125 billion in defined contribution assets and $440 billion in total retirement assets and a compelling range of alternative strategies, Franklin Templeton is well positioned as demand continues to accelerate. Turning now to distribution. As one of the most comprehensive global investment managers with clients in over 150 countries, we offer our clients a full range of investment strategies in vehicles of their choice. We saw growth across vehicles, driven by record positive net flows in retail SMAs, ETFs and Canvas, contributing to AUM growth from the prior year of 13%, 56% and 71%, respectively. We are a leader in retail SMAs with AUM of $165 billion across more than 200 high-quality strategies. Our SMA business has grown at a 21% compound annual rate since 2023, reflecting the growing demand for personalized investment solutions. As the market continues to evolve, retail SMAs now about $4 trillion are expected to double by 2030 according to Cerulli. Against that backdrop, we're positioned to capture this growth supported by powerful trends driving investor behavior, greater customization, direct ownership and tax efficiency. Within the retail SMA segment, custom and direct indexing continue to be the fastest-growing areas. According to Cerulli, direct indexing assets have reached $1 trillion, growing more than 35% from the prior year. We're seeing that strong momentum in our own business. AUM on our Canvas platform has more than tripled since 2023, an 82% compound annual growth rate. Our partnership network is expanding quickly, growing from 67 partner firms in 2023 to more than 150 today. And over that time, our financial adviser base has increased fivefold from just over 200 to more than 1,100 advisers now using Canvas to deliver customized portfolios at scale. We're exceeding our growth goals driven by continued adoption of personalized investing and the expanding reach of our Canvas platform. Our ETF business also continues to scale rapidly and ahead of plan, driven by strong global demand across fundamental active, systematic active and thematic country strategies. Active ETFs are now mainstream, representing about 10% of industry AUM, yet capturing 37% of flows and probably nearing 25% of revenues in the first half of 2025 according to McKinsey. At Franklin Templeton, our ETF AUM has grown at a 75% compound annual rate since 2023, with 16 consecutive quarters of net inflows and 14 ETFs now exceeding $1 billion in AUM. Importantly, active ETFs account for 42% of our ETF assets, but more than 50% of flows in fiscal 2025, underscoring the strength of our active ETF positioning, and we're just getting started. In our first year with approximately $50 billion in ETF AUM, we're already halfway to achieving our 5-year goal, a clear sign of the strength, momentum and scalability of our platform. Franklin Templeton Investment Solutions is another key driver of our growth strategy, leveraging our capabilities across public and private asset classes to deliver customized solutions for clients. Investment Solutions AUM grew 11% to $98 billion, in line with industry growth, supported by a strong pipeline. In July, we welcomed Rich Nuzum, former Executive Director of Investments at Mercer, to lead the expansion of our OCIO business, a major priority for us as asset owners increasingly seek strategic advice on objectives, governance and strategic asset allocation. With Rich's leadership and the strength of our investment platform, we are optimistic about this growing opportunity. This year, our focus on strategic partnerships delivered strong results, including $15.7 billion in multiple insurance sub-advisory fundings, a reflection of our growing position as a trusted partner to leading insurance companies. Beyond insurance, we also expanded multibillion-dollar relationships with clients in each of our regions. For example, the company was appointed trustee and manager of the $1.68 billion National Investment Fund of the Republic of Uzbekistan, further extending our strong track record in managing strategic investment mandates across emerging markets. These achievements reflect the strength of our partnerships and the trust we've built globally. In this context, we were delighted that the Central Banking named Franklin Templeton its 2025 Asset Manager of the Year, highlighting our expertise and enduring relationships with central banks around the world. Turning to Slide 9. Two additional important growth areas are private wealth management and digital and technology. Fiduciary Trust International, our Private Wealth Management business is positioned to benefit from major demographic trends, including the $84 trillion intergenerational wealth transfer expected through 2045. As a fully integrated wealth platform offering investment advisory, trust and state, tax and custody services, fiduciary continues to stand out with a client retention rate of about 98%. Global financial wealth is projected to grow at a 6% CAGR through 2029 according to the Boston Consulting Group. Non-depository trust companies like Fiduciary Trust International have historically grown at a faster rate. In fiscal year 2025, Fiduciary's AUM stood at $43 billion, supported by a strong pipeline of new business. As mentioned earlier, we also strengthened Fiduciary's leadership team with the appointment of Adam Spector as CEO of Fiduciary. Adam has been instrumental in the success of Franklin Templeton's global advisory services and his leadership will help accelerate Fiduciary's next phase of growth. Fiduciary is a leading independent wealth management business, and we will continue to invest both organically and through targeted acquisitions to position the business for sustained long-term growth. Our goal is to double Fiduciary's AUM by 2029. Turning to innovation. The pace of change in our industry continues to accelerate and Franklin Templeton is leading the way. According to Boston Consulting Group, the market for tokenized real-world assets is projected to grow from about $600 billion today to nearly $19 trillion by 2033, a transformative opportunity that we were early to recognize in the development of our digital assets group. Fiscal year 2025 was a defining year for our digital asset business. We expanded our product lineup, and our tokenized and digital AUM now stands at $1.7 billion, up 75% from the beginning of the year. As the only global asset manager offering digitally native on-chain mutual fund tokenization, we introduced first-of-the-kind features for registered money market funds using our proprietary blockchain-based tokenization and transfer agent platform, including intraday yield calculation and daily yield payouts, 365 days a year. During the year, we also completed launching new tokenized funds in UCITS, VCC and private fund wrapper to supplement our 40 Act offering, supporting a broader range of tokenized fund types across multiple jurisdictions and building a strong foundation for the next wave of innovation. And we deepened our global partnerships, embedded our tokenized money market funds into the crypto collateral process and partnering with Binance, the world's largest crypto exchange to develop new products for its global wallet platform. Today, Franklin Templeton stands as the only global asset manager delivering native on-chain mutual fund tokenization. We remain focused on investing in innovation and technology to harness blockchain's potential, redefining how investors access opportunities and shaping the future of asset management. Over the past year, we've taken a major step forward in our AI journey. What began as hundreds of isolated use cases has evolved into a large-scale end-to-end transformation across 4 core areas: investment management, operations, sales and marketing. This shift is accelerating our scale in agentic AI. Through strategic partnerships, including our collaboration with Microsoft announced last summer, we're building integrated scalable AI platforms that are already driving measurable results tied to clear business outcomes and commercial impact. As these initiatives deliver results, greater value will be unlocked across the firm. And importantly, I'm pleased to see that AI adoption continues to grow across our workforce. Today, the majority of employees are using approved AI tools to drive productivity, efficiency and better outcomes for our clients. We continue to advance our efforts in capital management, operational integration and expense discipline, strengthening the foundation for future growth. Matt will cover our progress and next steps in these areas in just a moment. Fiscal 2025 was a pivotal first year of our 5-year plan, one that set a strong foundation for growth, innovation and scale. We executed on our long-term priorities, delivering growth across both public and private markets as clients increasingly look to Franklin Templeton as a trusted partner for comprehensive investment solutions. With that strong foundation in place, we're entering fiscal 2026 with clear momentum and excitement about the opportunities ahead. Now turning to market performance. Fiscal 2025 brought strong public equity gains despite a complex geopolitical and macro backdrop. After a long period of narrow mega cap leadership, market breadth returned, a welcome shift for active managers. Equities rose across regions, supported by easing monetary policy, steady growth and improved earnings. While markets briefly wavered early in the year amid China's DeepSeek AI debut and U.S. tariff proposals, they rebounded quickly with the S&P 500 and MSCI Emerging Markets both up over 30% from April lows. AI remains a key driver of market direction, fueling innovation and differentiation across industries. In fixed income, returns were positive even amid policy uncertainty, a government shutdown and shifting rate expectations. The Fed's 50 basis point rate cuts in September and October helped support growth, while inflation has held near 3%, yields remain attractive, though volatility is likely to persist. Our overall view of private markets remains constructive. Activity has been more selective, but we continue to see opportunities. Secondaries offer compelling risk-adjusted profiles and in private credit, areas such as asset-based finance and commercial real estate debt are benefiting from reduced bank lending. Real estate capital markets remain muted overall, but industrial, multifamily and self-storage sectors are leading performance due to strong and sustainable long-term fundamentals. This is an environment that rewards selectivity, discipline and active management. Market breadth, dispersion and dislocation are creating opportunities across public and private markets where active managers can add meaningful value for clients. These market dynamics set the stage for another strong year at Franklin Templeton. Let's now move to fourth quarter and fiscal 2025 results, beginning on Slide 15. In terms of investment performance, as mentioned earlier, over half of our mutual fund ETF AUM outperformed peers and over half of composite AUM outperformed their benchmarks in all periods. Turning to flows on Page 17. Long-term flows increased 7.8% to $343.9 billion from the prior year. Excluding Western Asset Management, we had $44.5 billion in long-term net inflows, marking our eighth consecutive quarter of positive flows, excluding Western and reflecting client demand in key strategic areas. Our institutional pipeline of won but unfunded mandates remain healthy at $20.4 billion following record fundings in the quarter. The pipeline remains diversified by asset class and across our specialist investment managers. Internationally, Franklin Templeton manages nearly $500 billion in assets. And excluding Western Asset Management, we achieved $10.7 billion in positive long-term net flows in markets outside the U.S. That momentum highlights the strength of our global platform and the diversity of our growth across vehicles, regions and client segments. From an asset class perspective, turning to Slide 18. Equity net outflows improved to approximately $400 million for fiscal year 2025. We saw positive net flows into large-cap value, smart beta, infrastructure, equity income, custom solutions and mid-cap growth strategies. Fixed income net outflows were $122.7 billion. Franklin Templeton Fixed Income more than doubled net inflows from the prior year. With approximately $240 billion in AUM, Franklin Templeton Fixed Income has expertise in every sector and is active in all corners of the global bond market. Excluding Western, fixed income net inflows were $17.3 billion for the year. We experienced positive net flows into Munis and Stable Value strategies. Excluding Western, fixed income generated positive net flows for 7 consecutive quarters. Let's move to Slide 19. Finally, as I mentioned before, broad-based client demand drove sustained organic growth in alternatives and multi-asset, which together generated $25.7 billion in net flows for the year. This week, we reported preliminary October AUM and flows. Western's long-term net outflows were $4 billion for the month of October and had ending AUM of $231 billion. Excluding Western, long-term net inflows continue to be positive and were $2 billion. We continue to see positive net flows in alternatives, ETFs, Canvas and digital assets. The past year has presented significant challenges for Western Asset, and we remain committed to supporting them. As part of that commitment, we integrated select corporate functions to drive efficiency and give access to broader resources. Western's client service team joined Franklin Templeton in order to better serve the needs of our clients. These enhancements have been seamless for clients. Western's leading investment team continues its investment autonomy and performance has rebounded strongly with 92%, 98%, 88% and 99% of Western's composite AUM outperforming the benchmark for the 1-, 3-, 5- and 10-year periods. To wrap up, we take great pride in the efforts we've made over the past year to further grow and diversify our business. As we enter fiscal year 2026, Franklin Templeton stands stronger than ever, anchored by broad investment expertise, global scale and reach and commitment to innovation. We have strengthened our competitive position across public and private markets, expanded our partnerships globally and continued to innovate in technology, AI and digital assets. These achievements reflect not only our ability to navigate dynamic markets, but also our long-term focus on creating sustainable value for our clients and shareholders. Before I close, I want to thank our employees around the world for all their efforts this past year. Their dedication, expertise and unwavering focus on our clients are the foundation of everything we accomplish. Now I'd like to turn the call over to our Co-President, CFO and COO, Matt Nicholls, who will review our financial results and quarterly guidance. Matt? Matthew Nicholls: Thank you, Jenny. I will briefly cover our fiscal fourth quarter and full year 2025 results, followed by fiscal first quarter 2026 guidance. So for the fiscal fourth quarter, ending AUM reached $1.66 trillion, reflecting an increase of 3.1% from the prior quarter, and average AUM was $1.63 trillion, a 4.4% increase from the prior quarter. Adjusted operating revenues increased by 13.9% to $1.82 billion from the prior quarter due to elevated performance fees and higher average AUM. Adjusted performance fees were $177.9 million compared to $58.5 million in the prior quarter. This quarter's adjusted effective fee rate, which excludes performance fees, stayed flat at 37.5 basis points compared to the same rate in the prior quarter. Our adjusted operating expenses were $1.34 billion, an increase of 10.5% from the prior quarter, primarily due to higher incentive compensation on higher revenues, higher performance fee incentive compensation and performance fee-related third-party expenses, higher professional fees, partially offset by higher realization of cost savings. As a result, adjusted operating income increased 25% from the prior quarter to $472.4 million, and adjusted operating margin increased to 26% from 23.7%. Fourth quarter adjusted net income and adjusted diluted earnings per share increased by 35.7% and 36.7% from the prior quarter to $357.5 million and $0.67, respectively, primarily due to higher adjusted operating income and adjusted other income and a lower tax rate. As of September 30, we impaired an indefinite-lived tangible (sic) [ intangible ] asset related to certain mutual fund contracts managed by Western Asset and recognized a $200 million noncash charge in our GAAP results. Turning to fiscal year 2025, ending AUM was $1.66 trillion, reflecting a decrease of 1% from the prior year, while average AUM increased 2.6% to $1.61 trillion. Adjusted operating revenues of $6.7 billion increased by 2.1% from the prior year, primarily due to an additional quarter of Putnam, higher average AUM and elevated performance fees, partially offset by the impact of Western outflows. Adjusted performance fees of $364.6 million increased from $293.4 million in the prior year. The adjusted effective fee rate, which excludes performance fees, was 37.5 basis points compared to 38.3 basis points in the prior year. The decline is primarily driven by strong growth into lower fee categories such as ETFs, Canvas and multi-asset solutions, mitigated by lower fee Western outflows and increasing flows into higher fee alternative asset strategies. Our adjusted operating expenses were $5.06 billion, an increase of 4.3% from the prior year, primarily due to an additional quarter of Putnam, higher incentive compensation on higher revenues and sales and higher spend on strategic initiatives, partially offset by the realization of cost-saving initiatives. Importantly, as previously guided, adjusted for an additional quarter of Putnam and excluding incentive fee compensation, our fiscal year expenses were substantially similar to fiscal year 2024, less than 1% difference. This led to fiscal year adjusted operating income of $1.64 billion, a decrease of 4.3% from the prior year. Adjusted operating margin was 24.5% compared to 26.1% in the prior year, reflecting our support of Western. Compared to prior year, fiscal year adjusted net income declined by 6.3% to $1.2 billion, and adjusted diluted earnings per share was $2.22, a decline of 7.5%. The decreases were primarily due to lower adjusted operating income and lower adjusted other income. On other topics, we continue to focus on capital management and operational integration to drive efficiency and long-term value. As stated on Slide 9 in the investor presentation, from a capital management perspective, we returned $930 million to shareholders through dividends and share repurchases, funded the majority of the remaining acquisition-related payments and repaid $400 million senior notes due March 2025 in the current year. Our dividend, which has increased every year since 1981, has grown at a compound annual growth rate of approximately 4%. Our balance sheet provides flexibility to invest in the business organically and inorganically. We have co-investments and seed capital of $2.8 billion, an increase from $2.4 billion from prior year to develop and scale new investment strategies. In addition, while continuing to invest in long-term growth initiatives, we also continue to strengthen the foundation of our business through disciplined expense management and operational efficiencies, especially given the ongoing evolution of our industry. Our plan to further simplify our firm-wide operations, including the unification of our investment management technology on a single platform across our public market specialist investment managers remains on track, both from a cost and implementation perspective. We have also integrated functions of certain specialist investment managers to simplify investment operations and increase collaboration across the firm. Before presenting our fiscal first quarter 2026 guidance, I just wanted to reiterate an important point on our fiscal year 2025 expenses. As mentioned earlier, when adjusting for an additional quarter of Putnam and excluding incentive fee compensation, our fiscal year expenses were substantially similar to fiscal year 2024, less than 1% difference. This is notwithstanding markets being significantly higher in the year and the relatively modest difference is fully attributed to higher sales commissions and higher valuation of mutual fund units linked to deferred compensation. All other investments across the company, including additional resources tied to alternative assets, ETFs, Canvas, multi-asset solutions, investment management technology and operations have been directly funded through savings initiatives. Turning to fiscal year 2026 first quarter guidance. As a reminder, guidance assumes flat markets and is based on our best estimates as of today. We expect our EFR to remain at mid-37 basis points for the quarter. We anticipate the EFR to be stable as higher growth in lower fee categories are partially offset by higher fee alternative asset flows. In future periods, episodic catch-up fees may move the EFR temporarily higher. We expect compensation and benefits to be approximately $880 million. This assumes $50 million of performance fees at a 55% payout and also includes approximately $45 million to $50 million of annual accelerated deferred compensation for retirement-eligible employees, flat from the first quarter of 2025. For IS&T, we're guiding to $155 million, consistent with the prior quarter. We also expect occupancy to be flat at approximately $70 million. G&A expense is expected to return to previous guide levels in the $190 million to $195 million range and includes elevated professional fees. In terms of our tax rate, we expect fiscal 2026 to be in the range of 26% to 28% due to a high proportion of U.S. income and the effect of increased tax rates globally. We're 1 month into the 2026 fiscal year, and it's obviously early, but consistent with our plans discussed earlier in fiscal 2025, we begin the year knowing that we have approximately $200 million of gross expense efficiencies for fiscal 2026, but the net amount of those efficiencies will ultimately depend on market and our performance during the year, both of which are up to start with as we go into the new fiscal year. Similar to fiscal 2025, these savings will also fund ongoing investments across the business, absorb increased fundraising expenses and $30 million of expenses added from the Apera acquisition. However, all else remaining equal from this point, we expect to end fiscal 2026 at or below adjusted expenses versus fiscal 2025 and at a higher operating margin. And now we would like to open the call for questions. Operator? Operator: [Operator Instructions] The first question is from Alex Blostein from Goldman Sachs. Alexander Blostein: Thanks for all the detail and some of the updated targets as you think about some of the growth areas for the firm. Super helpful. I wanted to start with a question around alts. When you talk about the fundraising target for 20 -- fiscal 2026, I think you said 25 to 30. Can you just unpack how much you assume for Lexington's flagship fund? And then within that, how you're expanding their retail alts lineup as well? Jennifer Johnson: So as you said, we think the 2026 target is between $25 billion and $30 billion. And just, Alex, you remember, last year, we said $13 billion to $20 billion, and we thought the $20 billion would be contingent on the first close of Lexington. That didn't actually happen, and we still blew away that number at, I think, $22.7 billion. So this year, the $25 billion to $30 billion will be a mix of Lexington. There will be contributions from Clarion on the real estate, BSP and Alcentra as well as Venture. Lexington could be half of that, but the others are intended to contribute significantly. And we think 2026 is going to be a real well-routed year as far as all of the alts managers contributing. Alexander Blostein: Got you. And then, Matt, one for you on expenses. So I heard you kind of try to bridge exiting fiscal 2026 all-in expenses, same or better or lower, I should say, expense run rate. Can you just help us think maybe through the cadence of that over the course of the year or maybe asked another way, your just total expense guide for 2026 in totality? Matthew Nicholls: Yes. As I said in the prepared remarks, we guided earlier on in the year when markets were a lot lower that we'd be targeting $200 million of cost savings for 2026, which will be spread out through the year, and we're confident that we've achieved that. It's now a matter of determining the net amount that we can achieve. And there's a lot going on, as mentioned by Jenny on this call and as I referenced. We're confident that we can self-fund many of these things from the $200 million. We can absorb the increased fundraising that I mentioned when I talked about the $200 million earlier in the year, I caveated that with the increased fundraising that we expect this year and the addition of Apera. And also, we've mentioned in the past, the absorption of the Aladdin project expenses. So all those things, taking all those into account and beginning the year with the market up 15%, 20%, depending on what market you're talking about, we're still confident that we end the year at least -- I want to say, at least in line with where we were in 2025 with the full expenses, excluding performance fees from both years. And what I mean by at least is there's a very good shot that we are below that amount. It's very early on, Alex, obviously, for the year. So that's all I can give right now. The second thing I'll say, though, is that we do expect the results as we move into the year, except the first quarter where the margin would be a little bit lower because the accelerated deferred comp probably represents about 2% of margin. But if you take that out every quarter as we model our way through the year, all else remaining equal, we'd expect the margin to tick up. Second, third, fourth quarter, we expect the margin to get increasingly higher towards our target of 30%, as we've also referenced in the past. Operator: [Operator Instructions] The next question is from Ben Budish from Barclays. Benjamin Budish: Jenny, you talked about your ambitions on the infrastructure side in your prepared remarks. Curious if you can unpack that a little bit more. You mentioned some wealth products coming to market, a number of partnerships. What's sort of in the pipeline for the near term in terms of new funds? And maybe talk a little bit about what your current exposure is today? Jennifer Johnson: So -- sorry, let me just get a clarification. Are you talking infrastructure, meaning like the stuff we're doing on tokenization and blockchain or infrastructure, meaning the alternative products infrastructure? Benjamin Budish: The latter. Jennifer Johnson: Okay. So we announced like we think that the infrastructure category is just massive. There's -- as we all know, you guys have heard the statistics as far as the number of projects that are needed to be funded out there. And so the relationship that we created, the partnerships with DigitalBridge, which DigitalBridge is known for their sort of data centers, cell towers, fiber networks kind of thing. Copenhagen Infrastructure Partners are really greenfield energy manager and then Actis is sustainable kind of infrastructure. Infrastructure requires massive scale. And so none of these players play particularly -- have really any penetration in the wealth channel. And so we're able to -- what we're going to do is be able to build a fund around participating in their deals that will then distribute in the wealth channel. Now that doesn't prohibit us from being able to do some M&A if the appropriate opportunity comes. But infrastructure is an asset class that is particularly desired by people who are looking for income because these tend to be long-term PPA products and others that kick off a lot of income. So we felt that we needed that category to fill out our alternative's capability. We didn't find something that was of scale that we wanted to acquire at the time and this -- and they needed to get into the wealth channel, or they had a desire. So it's a good match. Operator: The next question is from Bill Katz from TD Cowen. William Katz: I appreciate all the guidance and commentary. Jenny, I'm very interested in what you guys are doing on the AI and the tokenization side. You do seem to be way ahead of most of your peers as our conversations are going. Can you talk a little bit about how you sort of see maybe the opportunity in particular for tokenization, how that might impact the ability to drive performance, what it might mean for operating costs and ultimately, how it might redefine distribution opportunities? Jennifer Johnson: Sure. So again, it's really important to just think about digital assets and tokenization is blockchain, it's just a programming language. It's a programming language that does certain things really efficiently and then it's going to open up new opportunities. So we are the only ones who have -- and we built a transfer agency system and a wallet-based system because they didn't exist in the market. Starting in 2018, we had approved -- I think it was in 2021, the SEC approved our tokenized money market fund. And to give you an idea of the opportunities, because it's significantly cheaper to run and there's -- we're able to offer our money market fund with an initial investment of $20. Our traditional money market fund is you have to have $500. And the second thing that technology enables us to do is we can -- with this money market fund, we actually calculate the yield every second, and we pay it in your account every day, 365 days a year. So this is important for people who are, say, a hedge fund who are wanting to leverage -- use the money market fund for collateral and they only own it for partial part of the day, they can get 4 hours, 32 minutes and 22 seconds worth of yield that is paid in their account even for a partial day ownership. So it's just going to create new capabilities, less expensive new capabilities. And then on distribution, you saw that we had an announcement with Binance. So Binance is a crypto exchange, 270 million wallets. They're interested in bringing traditional, we're actually talking to a lot of different exchanges. They're interested in bringing additional products to traditional products that are tokenized because we built this capability, and we're the only asset manager that has this capability that I'm aware of, we can take like ETF and other products and tokenize them and list them on some of these exchanges. So it opens up a new distribution capability. But I think the future, all mutual funds, all ETFs, all will be tokenized merely because the technology is tremendously efficient. And so we're excited to be leaders in this space. Operator: The next question is from Brennan Hawken from BMO Capital Markets. Brennan Hawken: Can we get an update on your expectations for the latest Lexington flagship? Maybe what caused the timing for the first close to slip? What are your updated expectations for size? And do you have any updated expectations for timing for any of the -- either the first or the final close? Jennifer Johnson: The -- so first of all, just to be clear, it was always a stretch if there was a first close. We just felt like it was important to list it as a possibility. I do think that everybody would say that the fundraising environment is more difficult than it's been historically. But again, if you're in the secondary space, there's so much opportunity in the secondary space because the real issue is the clogging of so many of the LPs with private equity that is not moving. Private equity is distributing at about half the cash flow that they've done historically. And so as these guys are needing liquidity, whether it's because they just need it in their funds or because they want to participate in a new round of private equity, they're turning to firms like Lexington. And size really matters. Scale matters in the secondary space. And so there's only a few firms like Lexington that have that kind of scale that gives them a real advantage to play in the bigger deals. I think their target is -- I'm trying to find my notes; I think it's about $25 billion for this fund. And I think the first close, they expect in the first half of 2026, calendar 2026. Operator: The next question is from Patrick Davitt from Autonomous Research. Patrick Davitt: Madam, you mentioned elevated distribution fees, and there's reporting this week that Schwab is planning to add a 15% platform fee on all of its third-party ETFs. ETFs obviously a big growth story for you this year. So curious if you can give us an idea of how much of your ETF growth has come from Schwab, if at all? And then more broadly, any thoughts on to what extent you're seeing a more pervasive push from all of your distribution partners to increase revenue shares like this? Jennifer Johnson: Well, that is not a dynamic that has changed. It's probably just changed as ETFs have taken off. They're trying to -- more of them are trying to push for that. But as you know, that is something that we always deal with in this business, who's actually responsible for the distribution? Is it the platform? Is it the individual? And so there's probably capability in the active ETFs to be able to do some amount of that. There are already players that have it. We have not been particularly big on the ETF portion with Schwab. So it probably impacts us less immediately. But obviously, as we desire to grow there, it will be something that we will have to work with. I think that it's going to be difficult on these platform fees on passive ETFs because they're obviously cheaply priced. But as the world is moving to more active ETFs, 43% of our ETFs are in the active space above the industry. We'll have to deal with those kind of revenue share type programs. Matthew Nicholls: And Patrick, just to tie your question back to that, I think you were tying it also to the G&A remark that I made on increased placement fees. That's really to do with alternative asset placement fees, not the ETFs and mutual fund type fees that you're referring to. So when I talked about G&A-related expense item around distribution, I meant placement fees related to alternative assets. Operator: Next question is from Craig Siegenthaler from Bank of America. Craig Siegenthaler: My question is on your tax efficient suite. You have a pretty big offering here, and you're seeing good flows across munis, especially the SMA wrapper and also in Canvas with direct indexing. Do you think flows here could get even better given rising adoption and allocations among high net worth investors? And I don't think you have anything in the hedge fund space where you can generate even more tax alpha and flows there just started taking off this year. Is that a gap that you can fill in at some point? Jennifer Johnson: We have a product called MOST. It's an options overlay product. So actually, we do have capabilities in that space. It's just now really starting to get traction. Look, we think that the direct indexing and the overlay space is going to just continue to grow. a lot of reason is the dynamics of fee-based advisory where they prefer that, and they can show the client that they've had tax efficiency. So we do have that capability with an acquisition we did, and we're really just growing it on the -- we continue to add more and more platforms. I think we have 175 sponsors now that we're now selling our SMAs to. Canvas continues to add more and more platforms every month. And once you get on a platform, the flows just continue to come on. And -- I don't know, Adam, you want to add anything else to that? Adam Spector: Yes. I would only say that a real power comes from being able to combine these different capabilities. So we're growing well in munis. We're growing well in ETFs, Canvas as well as 1/30/30 and option-based strategy. So to be able to do them all through a Canvas platform, which we're building towards is where the real power is. And I think we're one of the few firms that can offer all of those things in the combined suite. Operator: The next question is from Brian Bedell from Deutsche Bank. Brian Bedell: Thanks for all the great today on the outlook. Maybe my question is on the credit alternative business and the direct lending strategy, 2-part question. One is just on your views on credit quality in direct lending. If you can comment on whether you have any exposure to any of the problem, credits that have been out there and maybe just a view on whether you think that's -- do you think these are idiosyncratic? And then on the growth side of that, it sounds like you're increasing your traction in Europe with the most recent Apera acquisition, bolted on with Alcentra. So maybe your view on expanding direct lending and growth of this business in Europe over time? Is that an additional growth lever for you? Jennifer Johnson: Yes. So first on kind of the opportunity in private, we're not seeing a deterioration in credit. And we tend to -- our view on the economy is that its still very strong, consumer is strong and you're just not -- while you'll hear about the banks talking about a slight uptick in subprime, it's really coming back to kind of more normal levels. As you could see, the fixed income market is really priced for perfection. Nobody is expecting great deterioration. We had very, very teeny exposure at ESP to one of those 2. And the truth is that was really looking like fraud. So it's not something that's systemic from a credit standpoint. So we still remain very optimistic in the credit market, again, especially because of the strength of the economy, which we still think is very strong. And then, yes, we're excited about direct lending. We think you -- if you're in the private credit space, the ability to move between different types of credit is important because sometimes something gets squeezed and it's trading very tightly, and you want to be able to pivot. But the Apera acquisition brought direct lending capabilities, particularly in the lower middle market, which is -- it's not a particularly crowded space there. So we're very optimistic about it, and we think it rounds out the private credit capabilities that we have. Operator: The next question is from Dan Fannon from Jefferies. Daniel Fannon: Matt, I wanted to follow up on your comments around the fee rate and the outlook for next quarter as well as the year, given continued growth within alternatives, obviously, beta has been quite strong, and you've had declining fixed income. So trying to understand the mix a little bit better. And I believe there is a fund that's going to start kicking in from Lexington for fees starting, I believe, October 1. So curious as to why you're not seeing a bit more of a step-up in that fee rate sequentially. Matthew Nicholls: Yes. I think when you factor in a Lexington fundraise over the year, as I mentioned in my prepared remarks, we will see an increase or we are very likely to see an increase in the EFR to -- into the higher 37s, 38s, even something like this. But I'm trying to make sure we communicate that, we expect that to be a temporary increase and then for it to come back down to reflect the very strong growth we have in ETFs, Canvas, multi-asset solutions. And remembering as well, Putnam has been very, very strong in terms of flows and Putnam's effective fee rate is 34 basis points in average across the franchise. That's getting offset. Those lower fees are getting offset by a steady and becoming more predictable alternative asset set of strategies and flows at much higher EFRs. So that positions the company to have a very stable EFR with upside as and when we raise larger flagship funds, so that's the way I would sort of describe it. Stable EFR with upside during different periods based on flagship fundraisings. And the reason why we're stable is because you've got the offset of the higher fee, more predictable alternative asset raises away from the flagship funds combined with strong, larger flows on average into the lower fee categories of ETFs, campus and multi-asset solutions. Operator: The next question is from Ken Worthington from JPMorgan Chase & Company. Kenneth Worthington: A little one for me. Shareholder servicing fees really jumped sequentially, about a $20 million pop. So anything unusual here? Or is it just sort of some mix changes, maybe some seasonality? It just seems like the jump is much bigger than we typically see in the fiscal fourth quarter. Jennifer Johnson: Matt, do you want to take that? Matthew Nicholls: Yes, that's to do with our -- it's a little bit seasonal, but also to do with the arrangements we have with our outsourcing providers around the TA. So you'll see that normalize. Jennifer Johnson: Yes, higher transaction fees. There's also a little bit of trust and estate planning fees in there, but it's seasonal. Operator: The next question is from Michael Cyprys from Morgan Stanley. Michael Cyprys: I wanted to ask about agentic AI and the Wand AI partnership. I was hoping you could elaborate a bit on the partnership, your goals, ambitions there, why partner with Wand versus other vendors. It sounds like you've been running a pilot program with them for the past year. I was hoping you could speak to some of the learnings from that, how it's informed your approach? And how might you quantify the sort of savings or reduced expense growth over time? Jennifer Johnson: Yes. So we've announced a couple of different partnerships in the AI space, Microsoft, AWS, Writer AI. In each of these cases, I think we've done a good job that has excited the AI providers that we're not just going in and fixing one little thing. We're going in it from a platform approach. And so for example, Microsoft has helped us on distribution, which uses multiple agents and then integrates them. And so what Wand has been working on, for example, is an ESG agent with the Franklin Equity team and our solutions team where it goes out and gets internal data and external data, brings it back and runs it through their kind of a scoring on ESG. What's interesting with Wand is they really enable us to -- and by the way, these partnerships mean they're co-developing. They're going to provide resources because they want the learnings of what's happening in your environment so they can take the domain knowledge and be able to go, extend it to other people and build their business that way. So they provide us free resources. What's interesting with Wand is we're able to connect these multiple agents in our investment groups. And then we can actually take those agents and go across other investment teams and be able to customize them to say, just take the ESG example to specifically however that team uses their ESG screen. And just a little bit on Wand. I mean, they are backed by leading AI venture firms. So Thiel Capital, Peter Thiel's Fund, Fusion Fund, [indiscernible]. These are all big AI firms or AI venture capital firms, and they're terrific, and they've been a great partner with us. And like I said, we have multiple partnerships with different AI development companies. Operator: This concludes today's Q&A session. I would now like to hand the call back over to Jenny Johnson, Franklin's Chief Executive Officer, for final comments. Jennifer Johnson: I'd just like to thank everybody for joining us on today's call. And once again, I want to thank our employees for their continued hard work and dedication, and we look forward to speaking with you again next quarter. Thanks, everybody. Operator: Thank you. This concludes today's conference call. You may disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Westrock Coffee Company Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Robert Mounger, Vice President of Investor Relations. Please go ahead. Robert Mounger: Thank you, and welcome to Westrock Coffee Company's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. With us are Mr. Scott Ford, Co-Founder and Chief Executive Officer; and Mr. Chris Pledger, Chief Financial Officer. By now, you should have access to the company's third quarter earnings release issued earlier today. This information is available on the Investor Relations section of Westrock Coffee Company's website at investors.westrockcoffee.com. Certain comments made on this call include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on management's current expectations and beliefs concerning future events and are subject to several risks and uncertainties that could cause actual results to differ materially from those described in these forward-looking statements. Please refer to today's press release and other SEC filings for a more detailed discussion of the risk factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements made today. All discussions during the call will use some non-GAAP financial measures as we describe business performance. The SEC filings as well as the earnings press release provide reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures. And with that, it's my pleasure to turn the call over to Scott Ford, our Co-Founder and Chief Executive Officer. Scott Ford: Thank you, Robert. Good afternoon, everyone. Thanks for joining us. We're pleased to announce today that for the second quarter in a row, we produced record-breaking quarterly results, driven by continued new customer volume additions and cost management execution. We believe these results reflect the strength of our customer-centered model and the value to our customers of the strategic investments we have made in both the physical expansion of our facility and the systems that allow us to manage them more effectively. We remain on track toward our goal of becoming the premier integrated, strategic supplier to the pre-eminent coffee, tea and energy beverage brands globally. And now due to great customer interest, we're excited to be adding a new body of work focused on ultra-filtered milk-based, high-protein products as well. We ended the third quarter with the combination of our Beverage Solutions and SS&T Adjusted EBITDA of $26.2 million, up 14% over the second quarter and up 84% over the same quarter last year. These results bring the combined Segment Adjusted EBITDA of our first 3 quarters of '25 to $60.7 million, up 55% over the same period in the prior year, leaving us on target within our original full year guidance range for the year 2025. The growing volumes at both our new single-serve cup and extract to RTD plants in Conway, Arkansas, combined with cost controls across our core business units derived from process, data intelligence and risk mitigation insights via our ongoing relationship with Palantir continued once again this quarter to be the key drivers of this quarter's earnings beat. Importantly, on key packaging lines in Conway, we have already reached production levels nearing 80% of our original planned capacity, and we have added significant water and tank farm capacity to the plant to enable future lines to be quickly added. We also completed the installation of our second can line, which should start commercial production in Q1 of next year. You may recall that last quarter, we gave you some initial data on our second single-serve cup manufacturing facility located in the Conway complex, the start-up of which went seamlessly. The cup volume produced through these new lines was a key contributor to our profitability this quarter. Chris will have an important word on this topic in just a few moments. We remain convinced that by becoming the lead innovation and development partner, dependable and sustainable sourcing resource and low-cost processing and packaging outsourcer for the world's leading beverage brand, we enable them to capitalize on their brand equity position in step with the movements of their consumers. Our record quarterly results demonstrate growth brought about from our delivery as this leading integrated platform in the category, delivery that enhances the value of our services to our customers, contributes to the growth of the careers of our teammates, manifests as pricing fairness on the ground for smallholder farmers in the developing world and rewards our shareholders. These continue to be important things worthy of our greatest efforts. I believe that our customers and our competitors are keenly aware of the market share shifts that we are beginning to cause as these new plants scale operationally. We have been successful at winning our customers' trust because we have spent 3 years over $350 million in capital and the time of 1,400 highly skilled development and manufacturing professionals to provide them a set of products and services that they can count on for quality, convenience, innovation and price. That said, I also believe that historically high coffee prices and major tariffs on coffee imports, coupled with the 2 extra quarters it took us to reach scale production levels in our Conway plant has given some investors pause. Therefore, I am thrilled to share with you today the news of a new $30 million infusion of capital into our business from our traditional core shareholder group, which coupled with the realignment of our debt covenants with our growth in Conway clears the way for us to completely focus all of our resources on operational delivery and driving results for our customers and stockholders. My thanks to the entire Westrock team who steadfastly go the extra mile to ensure our customers are positioned to win in their markets daily. Our Board and core shareholders who are simply relentless in their support of our mission and to our bank syndicate members led by Wells Fargo, Bank of America, Rabobank, Truist and others who have been the consummate engaged and encouraging professionals throughout the entire build-out and start-up phases of what is now the largest and I believe, best facility of its type anywhere in the world. I'm now going to turn the call over to Chris Pledger, our CFO, who will explain all of these developments and more in greater detail. Chris? Thomas Pledger: Thank you, Scott, and good afternoon, everyone. Before I go into the details of the capital markets activity we announced today, I'll first cover the results of our third quarter. As Scott mentioned, we delivered an exceptional quarter, highlighted by year-over-year volume growth in our roast and ground, single-serve and flavors, extracts and ingredients platforms and continued supply chain optimization and disciplined expense management. Our Sustainable Sourcing & Traceability segment also posted another strong quarter. On a consolidated basis, net sales increased 61% compared to the third quarter of 2024. Our reported net loss of $19.1 million reflects our continued investment in the Conway extract and RTD facility through its scale-up phase. Our Consolidated Adjusted EBITDA was $23.2 million, representing 125% growth over the third quarter of 2024. In our Beverage Solutions segment, net sales increased 60% year-over-year and Segment Adjusted EBITDA grew 74% to $20.4 million in the third quarter. This growth was driven by a 4% increase in core roast and ground coffee volumes, an 85% volume increase in single-serve cup and continued supply chain optimization and disciplined expense management. Year-over-year increases in commodity coffee prices and tariffs, which we passed through to our customers, also contributed to top line growth. Our SS&T segment continues to outperform our expectations with net sales growth of 62% over the third quarter of 2024, driven by volume growth, margin capture and higher coffee prices. Segment Adjusted EBITDA was $5.8 million, up from $2.5 million in the prior year quarter. As I mentioned last quarter, our SS&T results reflect the scalability and resilience of this business segment. Capital expenditures totaled approximately $18 million in the quarter, primarily related to the Conway extract and RTD facility. We have $15 million of CapEx remaining on our original build-out of the Conway extract and RTD facility, and we expect to spend that over the next 2 quarters. As of quarter end, we had approximately $52 million in unrestricted cash and available liquidity under our $200 million revolving credit facility. This is before taking into account the $30 million capital raise we announced today. Our leverage metrics remain within expectations and in full compliance with the covenants under our credit agreement. We have talked a lot on our last few calls about the working capital impact of historically high coffee prices and tariffs on coffee imports and their potential impact on consumer demand. Both topics continue to be front and center for Westrock Coffee and other U.S.-based coffee roasters. To help mitigate the working capital impact of higher coffee prices and tariffs, we raised approximately $12 million in the third quarter via sales of common stock under our ATM program. In addition, today, we announced the issuance of $30 million of convertible notes and a credit agreement amendment. The capital raise strengthens our balance sheet and provides additional liquidity to support the working capital needs resulting from elevated coffee prices and tariffs, while the credit agreement amendment realigns our financial covenants with the ongoing scale-up of our Conway facility. While it's impossible to predict how macroeconomic influences might impact our business, we believe we now have the working capital and credit capacity needed to navigate the continued elevated coffee prices and tariffs, and we do not anticipate any additional capital markets activity in response to these headwinds. Turning to our outlook. For 2025, we're updating our guidance to reflect our current expectation for the fiscal year. We now estimate that Consolidated Adjusted EBITDA will be between $60 million and $65 million, which is consistent with the guidance we provided at the beginning of the year. Beverage Solutions Segment Adjusted EBITDA for fiscal 2025 is expected to be between $63 million and $68 million and SS&T Segment Adjusted EBITDA is expected to be between $14 million and $16 million. Finally, our Beverage Solutions credit agreement secured net leverage ratio is expected to be 4.5x, a 40 basis point beat to our prior guidance. Turning to 2026 guidance. Earlier this year, we shared our expectations for 2026 Consolidated Adjusted EBITDA, our expected annualized run rate for Consolidated Adjusted EBITDA as we exit 2026 and our expected year-end Beverage Solutions credit agreement secured net leverage ratio. While we believe it would be premature to update our 2026 guidance, we also believe it's important to call out that one of our key customers is involved in a large M&A transaction within the coffee category. This is creating uncertainty for us related to their single-serve cup volume commitment for 2026. In addition, continued elevated coffee prices and tariff costs are creating uncertainty regarding how consumers will respond to higher coffee prices across restaurants, convenience stores and on retail shelves. We expect to have greater clarity, particularly regarding the M&A transaction ahead of our fourth quarter call, and we'll update our 2026 outlook, if necessary, when we report fiscal 2025 results. It's important to note that for purposes of resetting our credit covenants as part of our amendment, we have conservatively assumed that all single-serve cup volume related to the impacted customer will be off our platform by the end of this year, thereby assuring we don't need to seek additional relief if this scenario plays out. And even if it does, we're confident that over time, we'll be able to replace any lost volume on our single-serve cup platform with expanded volume from existing customers and new customer wins. With that, we'd be happy to open the line for questions. Operator: [Operator Instructions] Our first question comes from Eric Des Lauriers of Craig-Hallum Capital Group. Eric Des Lauriers: First question is just kind of checking in on the progress of some of the production lines after the delays reported last quarter. So on the Q2 call, you expected main production line to be up fourfold in Q3 and that you expect to be fully caught up to the delays by the end of the year. It sounds like you're about 80% there as of Q3. So just looking for an update on both of those and seeing how those trended in Q3? Scott Ford: Eric, this is Scott. We are -- at this juncture, we've run 80% to 125% kind of the standard volumes we would have expected off the line on the main can line. We've got all of our customers caught up at this juncture and the glass line is at this juncture, making commercial product for sale starting in the month of December. Eric Des Lauriers: Congrats on that progress. I suppose I'd like to focus my next question on this newly announced -- I don't know if it's a product line or just a product type, but including this ultra-filtered high-protein milk. Can you just expand on any timing and I suppose, size or scale commentary on this product? I mean, it certainly seems like this is an area where a lot of consumers are focused, looking to get more protein. So it seems like this could be quite a successful product for you and your partners. So just looking to get a little bit more info on there, whatever you're able to share. Scott Ford: Sure. It's early days, but it has been -- there is a tremendous amount of interest from a number of people, a number of different businesses. The core issue is as ultra-filtered milk products, high protein, if you will, start to move into cans and not just aseptic plastic bottles. There's a demand for aluminum cans over those bottles. The only plants that can run those are big major retort plants. We own and operate the largest retort lines in the country. And we have just installed a second line that is coming on for commercial production in January. So the whole product development cycle is probably a 12-month process. But as you're probably aware, the demand from these ultra-filtered milk products that are moving into cans are competing with the traditional coffee, ready-to-drink bottle -- I mean, can lines that we've been serving. And so a lot of the same customers are saying we want to do product extensions out into that platform and so we love doing product development work. We have small-scale lines that they can set up and run on. And I don't know that it will turn into anything, but the demand and the forecasted numbers that people are talking about, I wouldn't be surprised that it's not as big as our ready-to-drink coffee business over the next 2 to 4 years. Operator: Our next question comes from Sarang Vora of TAG. Sarang Vora: So I'll just follow up on the protein -- ultra-processed protein line. So do you have to make incremental investment to build this line? It seems like it's a great opportunity for the future, but do you have to -- or will you be able to leverage the existing production line to cater to this segment? Scott Ford: Yes. So we could, if someone delivered the product to us, we could run it through our production facilities today. We have probably $5 million or $6 million of capital that we or our distribution milk partner would have to put up to fully enable that, but that's the kind of thing that as we moved into production contract levels, we could easily put in place. That's really all we have to do, the can lines themselves, the product development, the labs through which we do all the testing, that's all completely interchangeable with the products that we make for people today. Sarang Vora: My second question is about the coffee sourcing and stuff. Coffee prices are high. There's tariffs on top of the coffee prices. How are you managing that? Like are you changing the sourcing between like markets? I know you were able to pass, but there is a pressure on gross margin right now. So how are you managing the whole dynamics on the coffee price increase? And how -- and what is your outlook when you look out for next year on coffee? Thomas Pledger: Sarang, this is Chris. I think the short answer is that with 60% of our coffee coming from Brazil and Brazil having the highest tariff, it's hard to produce product in the coffee space without using Brazil coffee. But we look at ways in order to be able to optimize the coffee that we use and the blend that we make. We'll continue to do that. And my guess is the longer the coffee prices stay high, the more innovation people will have around that, including us. The capital raise that we completed and announced today was really in order to ensure that coffee prices can stay as high as they are, tariffs can stay exactly where they are, and we've got the balance sheet in order to be able to make it through it. And so from our perspective, we feel like we're good as we move forward in whatever the market environment entails. Operator: Our next question comes from Todd Brooks of Benchmark, StoneX. Todd Brooks: First question, Scott, just thinking through the single-serve customer who we may be losing some M&A transaction friction. Were they existing customers on the platform? Or were these prospective customers that were contemplated when you gave the original 2026 EBITDA guidance? Scott Ford: They were coming on in the '25 year, and we're going to be at full ramp by early '26. And so they were incorporated in our original '26 guidance. Todd Brooks: And then the one I wanted to explore more in depth, you talked about really having the financing in a place that from a go-forward standpoint, you could start to play a little bit more offense again. You talked about, obviously, the high protein ultra-filtered. But other areas where maybe you haven't been able to play offense that the balance sheet might let you to go attack here in '26? Scott Ford: Yes. It's a good question, Todd. I think for me, when I look at the last multiple months as we worked through with our bank syndicate and with our core shareholders the right and best path forward, I kind of take really 2 or 3 things away from it. The first one is that immediately this year, our performance and the capital raise is going to allow us to be at 4.5x debt to EBITDA by the end of this year. Well, I don't think anybody thought Westrock Coffee was ever going to get back to 4.5x debt-to-EBITDA. But the team has delivered a great set of EBITDA numbers and the core shareholder groups coming in. Frankly, we've managed our cash extremely closely as the Conway plant has neared completion and out of kind of the helter-skelter fast mode. The second thing, and this is probably more important, as Conway turns on the new lines that are being commissioned and are coming up right now, and we get into the first half of next year, both Conway will be EBITDA profitable with no add-backs or any of that, just straight up old school, old-fashioned EBITDA profit and free cash flow positive and the entire business should move into free cash flow positive after debt service. So I've talked to people that have us going free cash flow positive in 5 years. We're going to go free cash flow positive after debt service in the next, I think, 4 or 5 months. So what that allows is simply what we're going to do is very conservatively, just chip away at each incremental opportunity. But to just show you how wild it is out there, I just came out of a meeting while we're talking about losing a single-serve customer. I just came out of a meeting where we need CapEx to meet the demand that is trying to line up and come into that plant over the next 12 to 18 months. Now I would have never guessed that. And while we were in the middle of building Conway, we wouldn't have had any capacity to deal with that other than to say we have to go to the market at this juncture. If that's what happens, we could do that ourselves. So it's a level of freedom we haven't had since we decided to go build the world's largest RTD factory, but I've missed it, and I'm glad to have it back. Operator: Our next question comes from Bill Chappell of Truist Securities. Unknown Analyst: It's Davis on for Bill. Can you hear me okay? So just on the expanded single-serve capacity that you all brought on recently and the consolidating customer leaving the platform. You mentioned being pretty confident that you're going to be able to fill the capacity. So I guess I was just wondering is there currently a backlog of customer demand that's ready to go ahead and step in? Or is that just kind of based on the way things have worked for the facility up until now, that just gives you the confidence. Scott Ford: Yes. Davis, this is Scott. So we don't really know. And I think the words that pleasure you is to talk about the fact that it is an uncertain period of time for us. We haven't changed our guidance from what -- for '25 or '26 from what we said in the beginning of '25. We haven't changed the thing. The one thing that's different is one of our large single-serve customers is in the middle of an M&A acquisition transaction, and we don't know how that will play out. And the last thing we're going to do is start to guess at how that plays out. So we will know more by the end of the year, and we will update you with whatever we know at that point. And we're trying to be very careful about staying on the line of what we know and what we don't. But nothing has happened in the business other than that transaction to make us change a single number we laid out for '25, '26. That said, the specific transaction that is causing us to have to put you on notice that we have a large customer in the single-serve space that is potentially involved in an M&A transaction, the same transaction that is possibly going to pull that customer away has called a multiple of other customers with multiples of their volume to get interested in coming to our facility and moving off of whatever platform they're on and into this one. How that will play out is completely unknown to me. But if it plays out the way we think it will play out over the next 2 to 3 years, which is, I know for eternity for your average 90-day hold stockholder. But if that plays out the way I think -- it plays out over the next -- we're trading at 4x EBITDA on what we think we can turn this business into over the next couple of years. So I've had high stock prices in a bad business forecast, and I'll take the low stock price and a great forecast. And we'll just play the cards from here. And that's about all we really know. Unknown Analyst: And I guess like you've mentioned a lot of -- kind of uncertainty around how the consumer is going to be actually engaging with coffee across channel next year. So I mean, I guess, kind of to connect just some past themes, are there any -- I guess, are your contracts still holding with customers? Have there been any shakeups in that area? I mean, obviously, you've mentioned having a long line of customers just wanting to get into the facility, but has there been any sort of customers falling out, new ones coming in that you haven't been expecting or haven't mentioned in the past? Scott Ford: Sure. We are every day battling in a very competitive like the RTD market and the roast and ground market is ultra-competitive. And we battle and we win some every quarter and we lose some every quarter. And we win SKUs and lose them. And we will win a brand customer, and we will lose one every now and then. So that battle day-to-day has been going on. In the single-serve space, I don't think we've ever lost a customer until maybe the one that's currently going through the transaction and then how that plays out is, like I said, we're going to stay out of the guessing game until we see exactly how that [indiscernible]. Operator: This concludes the question-and-answer session. I would now like to turn it back over to the Chief Executive Officer, Scott Ford, for closing remarks. Scott Ford: Well, thank you all for hopping on. I appreciate it. We were, as you can probably imagine, looking at being up 85% from last year. We were thrilled with the quarter. We're very optimistic about what lies in front of us, as you can tell. We're not going to try to get ahead of ourselves in terms of how it all lands. But we have recapitalized the business from mostly the same set of shareholders that have been backing us for years now. We have much more information about where we stand in Conway. Those lines are all now up, running, producing and making sellable product. We have new lines on that are just starting out on the incline for their production volumes and profits. And I really like where we've landed with our balance sheet. We have handled the cash crunch, if you will, that was caused by 50% tariffs on Brazil. It was a painful solve, but we have been able to solve it and I think, in good order. And we're very actually optimistic about our current business, about new business that we're working on, about new cost ideas that we're working on. And the only caveat, and it's fair to call it out, the caveat is we don't know exactly where one customer is going to land that is currently being purchased or at least set to be purchased by one of our competitors. And so I think that's all we know. That's full disclosures, and we will see you in another 90 days, and we'll give you an update as we know more. Thank you very much for your support, and we will see you soon. Operator: Thank you…
Operator: Good afternoon, and welcome to loanDepot's Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the call over to Gerhard Erdelji, Senior Vice President, Investor Relations. Please go ahead. Gerhard Erdelji: Thank you. Good afternoon, everyone, and thank you for joining our third quarter 2025 earnings call. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements regarding the company's operating and financial performance in future periods. All statements other than statements of historical fact are statements that could be deemed forward-looking statements, including, but not limited to, guidance to our pull-through weighted rate lock volume, origination volume, pull-through weighted gain on sale margin, strategies, capabilities and financial performance. These statements are based on the company's current expectations and available information. Actual results for future periods may differ materially from these forward-looking statements due to risks or other factors that are described in the Risk Factors section of our filings with the SEC. Our presentation today contains certain non-GAAP financial measures that we believe provide additional insight into analyzing and benchmarking the performance and value of our business and facilitating company-to-company operating performance comparisons. For more details on these non-GAAP financial measures, including reconciliation to the most directly comparable GAAP measures, please refer to today's earnings release, which is available on our website at investors.loandepot.com. A webcast and a transcript of this call will be posted on our website after the conclusion of this call. On today's call, we have loanDepot's Founder and Chief Executive Officer, Anthony Hsieh; and Chief Financial Officer, David Hayes. They will provide an overview of our quarter as well as our financial and operational results and outlook. We are also joined by Chief Investment Officer, Jeff DerGurahian; and Dominick Marchetti, Chief Digital Officer, to help answer your questions after our prepared remarks. And with that, I'll turn things over to Anthony to get us started. Anthony? Anthony Hsieh: Thank you, Gerhard. I appreciate everyone joining us on the call today. During the 5 months since I returned to loanDepot as CEO, we made significant changes to our business that align with our objective of growing our market share profitably. Before I speak to these achievements, let me first talk about our strategy and positioning in the marketplace today. We continue to believe strongly in our diversified business model with best-in-class origination capabilities across multiple channels that provide access to purchase, refinance and home equity lending opportunities across market cycles. These origination capabilities are complemented by our in-house servicing platform and recapture capabilities, all of which are enhanced by our technology assets and our nationally recognized brand. This diversified strategy enables loanDepot to grow from a de novo start-up in 2010 to at one point become the second largest retail lender in the country. We are confident this strategy will win in today's highly fragmented market and are committed to profitably regaining share. The key is execution, and our team is laser-focused on our plan. Our actions in the third quarter reflect this focus. In the third quarter, we initiated a business transformation that included naming new leadership across all of our origination channels, consumer direct, retail and partnership lending as well as our in-house servicing platform. We also transformed our technology and innovation functions under new leadership. In our consumer direct channel, we realigned our sales leadership team to catalyze new sales strategies under our next-generation lending initiatives. We also announced the formation of a revenue operations and strategy function to be led by our returning Chief Strategy Officer, Rick Calle. On the marketing side, in October, our brand lit up on the national stage during the MLB post season, which through the League Championship Series enjoyed the highest viewership since 2017, including the ALCS and NLCS post-season viewership averaged 4.5 million views per game. Looking beyond the baseball season, loanDepot Park will soon host some of the biggest events in professional sports, including the NHL Winter Classic and the World Baseball Classic, providing our brand with continued strong national exposure. In our retail and partnership channels, we announced new channel presidents, Tom Fiddler and Dan Peña, respectively. Tom is reigniting the energy of our retail channel, emphasizing profitable organic growth and helping ensure our loan officers have access to the best-in-class products, tools and operations in the industry. Dan is doubling down on our commitment to providing value to our homebuilder partners, most recently leading a new relationship with Betenbough Homes. In September, we announced the addition of Adam Saab to lead our servicing business. Our servicing capabilities and portfolio of customers are key parts of our strategy, particularly the flywheel effect of recapturing our existing customers for refinancing or purchase at no additional acquisition cost. In terms of innovation, our Chief Digital Officer, Dom Marchetti, and Chief Innovation Officer, Sean DeJulia, who rejoined the company in August, have already made an impact by introducing AL capabilities to some of our most repeatable and scalable call center functions, both improving performance and driving down cost. Right now, we are pivoting the use of new and emerging technologies across sales, operations and software engineering with an expectation that these innovations will improve the customer experience while driving improved productivity and lower our cost of production. We are just scratching the surface of what this team can do. And last, but certainly not least, in terms of leadership talent, just yesterday, we announced Nikul Patel as our Chief Growth Officer. He will be responsible for growth opportunities, acquisition activities and customer engagement, helping the company capitalize on AL disruption and accelerate our momentum. Nikul is a significant hire that brings a proven track record of success, deep fintech expertise and a strategic mindset, completing the company's leadership transformation. To recap, the third quarter was a period of significant change for our organization, focused on establishing the leadership team that will execute our plan for profitable market share growth. We believe in our strategy and the positioning of our assets in this highly fragmented market. Our focus is on execution, which we look forward to sharing our progress along the way. With that, I will now turn the call over to Dave, who will take us through our financial results in more detail. David? David Hayes: Thanks, Anthony, and good afternoon, everyone. The third quarter reflected the benefits of higher revenue and contained expense growth from positive operating leverage. We reported an adjusted net loss of $3 million in the third quarter compared to an adjusted net loss of $16 million in the second quarter of 2025 due primarily to higher lock volume, higher pull-through weighted gain on sale margin, higher servicing revenue, offset somewhat by higher expenses. During the third quarter, pull-through weighted rate lock volume was $7 billion, which represented a 10% increase from the prior quarter volume of $6.3 billion. Pull-through weighted rate lock volume came in within the guidance we issued last quarter of $5.25 billion to $7.25 billion and contributed to adjusted total revenue of $325 million, which compared to $292 million in the second quarter of 2025. Our pull-through weighted gain on sale margin for the third quarter came in at 339 basis points, within our guidance range of 325 to 350 basis points and compared to 330 basis points in the prior quarter. Our higher gain on sale margin primarily reflected a channel mix shift with a higher contribution from our direct channel and a lower contribution from our joint venture channel compared to the prior quarter. Our loan origination volume was $6.5 billion for the quarter, a decrease of 3% from the prior quarter's volume of $6.7 billion. This was also within the guidance we issued last quarter of between $5 billion and $7 billion. Servicing fee income increased from $108 million in the second quarter of 2025 to $112 million in the third quarter of 2025, and primarily reflects the increase in our unpaid principal balance of our servicing portfolio and interest earned on the seasonal increase in custodial balances. We hedge our servicing portfolio, so we do not record the full impact of the changes in fair value and the results of our operations. We believe this strategy helps protect against volatility in our earnings and liquidity. Our strategy for hedging the servicing portfolio is dynamic, and we adjust our hedge positions in reaction to the changing interest rate environment. Our total expenses for the third quarter of 2025 increased by $19 million or 6% from the prior quarter. The primary drivers of the increase were due to onetime benefits in salary and general and administrative expenses recognized in the prior quarter. Recall that during the second quarter, salaries benefited from approximately $8 million in lower stock-based compensation from equity surrenders and G&A benefited from $5 million insurance recovery of legal fees related to the successful outcome of litigation. Excluding these nonrecurring items, our total expenses would have increased by approximately 2%, demonstrating the positive operating leverage we are striving for as volumes and revenues increase. Looking ahead to the fourth quarter, we expect pull-through weighted lock volume of between $6 billion and $8 billion and origination volume of between $6.5 billion and $8.5 billion. We expect our third quarter pull-through weighted gain on sale margin to be between 300 and 325 basis points. Our guidance reflects market volatility, seasonality in purchase volume, affordability and availability of new and resale homes and the level of mortgage interest rates. Our total expenses are expected to increase in the fourth quarter, primarily driven by higher volume-related expenses from the increase in funded volume as we close the pipeline that started growing through the third quarter. We remain laser-focused on our commitment to profitability and continue to work with a discipline to grow revenue and manage costs while maintaining ample cash and a strong balance sheet. We ended the quarter with $459 million in cash, increasing by $51 million from the second quarter. With our reshaped management team focused on leveraging loanDepot's unique collection of assets, high-quality in-house servicing, scalable origination capabilities and operating leverage, we are positioned to profitably grow volume and market share in the current environment. Assuming a sustained decrease in mortgage rates, we believe we will materially improve our bottom line as the benefits of our scaled branded direct origination platform comes to bear while our investments in technology-enabled efficiency-generating initiatives will provide the foundation for additional momentum into 2026 and beyond. With that, we're ready to turn it back over to the operator for Q&A. Operator? Operator: [Operator Instructions] Your first question comes from the line of Doug Harter with UBS. Douglas Harter: I was hoping you could talk about your outlook for the ability to fund the growth with capital given the upcoming debt maturities and kind of the upfront capital that some growth might take and just how you're thinking about that in the current environment? David Hayes: Doug, David Hayes. Yes, we feel really good about the opportunity to fund additional growth opportunities. We largely have already worked our way through sort of our renewal season for warehouse lines. We've got a great lender group there that have been very supportive of the business. And we also think there's opportunities to upsize as needed. So from the daily funding of the warehouse lines, we're in great shape from our perspective. From a capital structure perspective, we do have an -- the need to take a look at that capital structure in the coming 12 to 18 months, and that's something we're focused on, but nothing that's really going to impact how we operate day-to-day as we sit now. Anthony Hsieh: Yes. Doug, it's Anthony Hsieh. Let me just add to what Dave is saying, and that is once we return to the standard of operations that has led this organization since 2010, we're very confident that we'll be able to grow market share profitably. I just want to remind the audience that we started this company with $70 billion of capital and have grown 38% year-over-year for the first 11 years of our life. So we understand what it takes to grow market share and grow profitably. This market is still highly fragmented. There is a ton of room chasing the leader in the space. So we're very enthusiastic, and we are laser-focused to stay on plan to get back into a standard of operations that allows us to be an industry-leading mortgage bank. At which point the mortgage IQ here and the origination IQ here and then having a fully diversified origination muscle in both builder, joint venture, in-market retail and direct lending, direct-to-consumer model really gives us an edge to scale up, particularly as we all hope that there'll be some growth in volume due to a more favorable interest rate cycle next year. Douglas Harter: And I guess how do you think about the size of the MSR servicing book in that context? Is that something that you would look to grow over time -- regrow over time? Anthony Hsieh: Yes. This is one of our strategic advantages, Doug. The fact that we made an investment to bring servicing in-house. And my mind desires what that was 5 years ago. So we made that investment to bring it in-house because having a direct-to-the-consumer model, our retention recapture is at an industry-leading number. So any time we put a loan in our servicing portfolio, there's an opportunity for us to double dip or have a second bite of the apple without any marketing costs or acquisition cost. So our desire is to continue to mount and increase our MSRs. But at the same time, that is -- that puts pressure on cash. So in order for us to do so, we're going to have to be able to drive down the cost of our production while waiting for the volume of this market to return. Operator: [Operator Instructions] Your next question comes from the line of Eric Hagen with BTIG. Eric Hagen: Maybe following up on that last point because there's all these moving pieces. Have you guys sensitized the portfolio to what the minimum level of originations might be in order to return to profitability? Anthony Hsieh: So let me just make sure I have your question right. Can you rephrase your question again, please? Eric Hagen: Yes. Have you guys sensitized the portfolio or your business to what the minimum level of originations would be in order to return to profitability? Anthony Hsieh: Well, a lot of that has to do with margins, right? Margins are highly dynamic. And in our industry, as soon as that volume returns, then your margins will widen out. So if you look at our Q3 performance, it doesn't take much. So not only does when margins return, when volumes return, we're going to get both the benefit of increased volume and increased margin. So it doesn't take much at all. So we are well positioned for any sort of return. Eric Hagen: Yes. Okay. That's helpful. When the stock got up to $4.50 back in September, did you guys consider any sort of capital raising to help maybe stabilize the capital structure a little bit more? And then if the stock got back up to that level in the future, I mean, are you prepared to put an ATM in place? Or how would you think about potentially raising capital in order to, again, stabilize the capital structure a little bit more? David Hayes: Eric, it's David Hayes. So yes, of course, when the stock traded up, the valuations were at those levels, it was obviously an attractive place to look at raising capital. So we're actively looking at all sorts of ways to shore up the capital structure from potential debt refinances down the road to opportunities for an ATM or follow-on. But those discussions are in flight. So nothing we can share at this point. Anthony Hsieh: Yes. It's Anthony Hsieh. So I mean the best way to combat that is with profitable market share growth. We're just going to get back to our level of comfort and what we've done in this company since 2010. So the market is well positioned for loanDepot to continue to capture market share. And we are obviously always looking at opportunities for capital. But as we continue to reposition our organization for increased originations, I think that will solve a lot of our issues going forward. Operator: [Operator Instructions] There are no further questions at this time. I will turn the call back over to Anthony Hsieh for closing remarks. Anthony Hsieh: Thank you. On behalf of Dave, Jeff, Dom and the rest of our team, I want to thank you for joining us today. The pieces are in place. We're executing a bold strategy to compete at the highest levels by returning to our core strength. Our approach is centered on retaining top talent with exceptional attitudes, deploying leading-edge technology and drive operational efficiency and innovation, delivering superior product and service levels to our customers and leveraging these assets to drive profitable market share growth. This is how we win. The disciplined focus positions us to create sustainable value for our shareholders while accelerating growth in a competitive landscape. So thanks again, everybody, and I appreciate your support. Operator: This concludes today's conference call. You may now disconnect.
Unknown Executive: Good morning, everyone, and welcome to SLC Agricola's Earnings Video Conference for the Third Quarter 2025. My name is Andre Vasconcellos. I am the Planning and Investor Relations Manager. Joining me today are our CEO, Aurelio Pavinato; and our CFO and IRO, Ivo Brum. It's a pleasure to be with you this morning. We would like to inform you that the conference is being recorded and will be available on the company's Investor Relations website where you can also find the presentation. [Operator Instructions] We would like to remind you that the information in this presentation and any statements made during the video conference regarding our business outlook, projections and operational and financial targets are the beliefs and assumptions of the company's management and are based on information currently available. Forward-looking statements are not performance guarantees. They involve risks, uncertainties and assumptions as they refer to future events and depend on circumstances that may or may not occur. Investors should note that general economic conditions, market factors and other operational elements may affect the company's future performance and lead to results that differ materially from those expressed here. Now, I would like to turn the floor over to our CEO, Aurelio Pavinato, to begin the presentation. Pavinato, please proceed. Aurelio Pavinato: Thank you very much, Andre. Good morning. We thank everyone for joining SLC Agricola's 3Q '25 Earnings Video Conference. Please let's advance to Slide 4 to discuss the cotton market. The third quarter of 2025 was marked by stable cotton prices in both the international and Brazilian markets, hovering around $0.68 per pound, reflecting global supply and demand fundamentals. According to USDA data, global cotton consumption for the '25, '26 crop year is estimated at approximately 120 million bales compared with production of 118 million bales, resulting in a global supply-demand deficit of about 1 million bales. On the demand side, the spinning industry has been operating strategically, keeping inventories of raw materials and finished goods below historical averages. This behavior reduces future market liquidity and puts downward pressure on prices. The industry has scaled back amid growing risk aversion, driven by a tougher global backdrop of high interest rates, inflation and geopolitical tension. We believe that stabilizing inflation and the interest rate cuts now underway in the United States and Europe, both which are key textile consuming regions are fundamental steps towards improving business and consumer sentiment globally. Now let's move to Slide 5 to discuss soybeans. Soybean prices, both on the CBOT spot contract and the Paranagua basis showed significant volatility throughout the third quarter of 2025, while in Mexico, prices remained relatively stable. One of the main factors to watch right now is the progress of the U.S. soybean harvest. The country's planted area has fallen roughly 7% from 87 million acres to 81 million acres. And globally, supply is projected to exceed demand by about 2 million tons, one of the smallest surpluses in recent years. Now moving to Slide 6. We'll discuss corn. Corn prices on the CBOT spot contract and in the Brazilian domestic market fluctuated in divergent ways over 3Q '25. In Brazil, corn prices, in spite of some short-term declines, continued to find strong support from increasing domestic demand, fueled by the expansion of the corn ethanol industry. Globally, the corn market is currently balanced with production is now outstripping demand by only 5.7 million tons. Let's go now to Slide 8 to discuss our operational performance in the past crop year '24-'25. Soybean harvest was fully completed, reaching 3,960 kilograms per hectare, 21.4% above the previous year, virtually in line with budget and 9.4% above the national average. Cotton reached an average yield of 1,845 kilograms per hectare below both the plan and the national average, mainly due to drought conditions in Bahia. Second crop corn achieved a historical record yield of 8,243 kilograms per hectare, 9.3% above initial projections and above the national average as well. In Slide 9, we look at unit costs for the '24-'25 crop year, which due to higher productivity showed a significant drop compared to '23-'24. Soybean unit cost fell 27.4% in comparison to the previous crop year. Corn decreased 17.5%, while cotton averaging first and second crops rose 3% due to lower yields and higher use of crop protection inputs. In Slide 10, we will show you our current hedge position for the '24-'25 crop year. We have further advanced in our hedging positions for the '24-'25 crop year for soybeans. Including commitments, we locked in 99.7% of production and for corn, 96.4%. And for cotton -- now I'll turn it over to my colleague, Ivo Brum, to comment on our financial performance. Ivo, please continue. Ivo Brum: Good morning, everyone. Could we please turn to Slide 12, which highlights a few key points in our income statement. Net income for the quarter totaled BRL 2.1 billion, up 28% year-on-year, reflecting higher soybean and corn volumes sold. Year-to-date revenue reached BRL 6.3 billion, up 27%. Both quarterly and in the 9-month totals, we marked record highs. Our adjusted EBITDA in the quarter was BRL 531 million with a margin of 25.5%. Year-to-date adjusted EBITDA reached BRL 2 billion with a margin of 32.3%, consistent with historical performance. Net income for the quarter was a loss of BRL 14.5 million, a decrease of BRL 2.8 million versus the prior quarter. The variation reflected an increase of BRL 343 million and also higher SG&A expenses and other operating items totaling BRL 132.4 million, of which BRL 51 million were non-recurring linked to the sale of Sierentz' spin-off company, a negative financial result of BRL 126.6 million and an increase of BRL 81 million in income tax and social contribution taxes. The main factor behind the loss recognized on the sale of the Sierentz' spin-off was the inclusion in the spin-off of all historical development CapEx related to those areas. Since these amounts had been incurred in prior periods, they were not directly considered in the valuation of the transaction. Over the 9-month period, net income reached BRL 636 million, up 19.3% year-on-year. Cash generation was BRL 567 million in the quarter, while 9-month cash flow was BRL 1.5 billion, reflecting ongoing investments. Free cash flow was positive in the quarter, capturing the typical financial cycle moment between harvest cost payments and the '24-'25 crop and start of the corn and cotton billing. During the quarter, we paid the first installment for the Sierentz acquisition and received proceeds from the sale of the spin-off company to Terrus, resulting in a net outflow of BRL 268 million. For the year-to-date, key investments included BRL 180 million, final payment for the Paysandu farm, BRL 229 million, final acquisition of the minority stake at SLC LandCo, BRL 361 million Fazenda Paladino acquisition, BRL 95 million acquisition of Fazenda Unai, BRL 103 million minority stake in SLC Mit, BRL 268 million, first Sierentz Agro payment, net of Terrus proceeds and BRL 241 million relating to dividend payments for the fiscal year of 2024. On Slide 13, we look at our debt position. Adjusted net debt at the end of 3Q '25 stood at BRL 6.2 billion, up BRL 2.8 billion versus 2024. This increase is mainly due to strategic investments we made. The net debt over adjusted EBITDA ratio closed the period at 2.34x. On Slide 14, we look at the debt profile. Well, there was an evolution compared to 2Q '25 because our long debt share rose from 65% to 69% with an average maturity extending from 980 days to 1,168 days. On November 6, the Board approved a new share repurchase program of 10 million shares to be held in treasury for subsequent sale or cancellation. Now, I'll turn it over again to Pavinato to discuss the '25-'26 crop outlook. Aurelio Pavinato: Well, let's turn to Slide 16 to discuss the outlook for the '25-'26 crop year. Planted area for this season will total 836,000 hectares, up 13.6% over '24-'25. Cotton area will grow 11.1%; soybeans, 14.2% and corn, 29.3%. We can now go to Slide 17 to talk about the planting of soybeans. Early soybean planting, which allows for subsequent cotton and second crop corn cultivation began on September 18. And by November 4, we had planted 62% of the area and the fields have been showing good development. On Slide 18, we look at the productivity and estimated yields for '25-'26. Company's expectations for crop potential are based on historical trends and consider its historical trend and also the maturity of the fields. We now go to Slide 19 to comment on costs per hectare. Total budgeted total cost per hectare stands at BRL 7,082 per hectare, up 9.7% from '24-'25. Final cost adjustments reflect the procurement of inputs now nearly completed. The main factors driving the increase are higher fertilizer volumes for soil nutrient replenishment and also improvements to our crop protection programs. Now moving to Slide 20. We discussed the current hedging position for '24-'25 and '25-'26. We have also made advances in the '25-'26 hedging. We have now 60.2% of soybean output fixed, 27.2% of cotton locked and 18.6% of corn. On Slide 21, we announced our sales forecast of seeds for 2026. Estimated seed sales to third parties, combined with internal use totaled 1,800,000 bags, up 28% year-on-year. Cotton seed sales, including internal consumption are projected at 157,000 bags, an increase of 8.3% in comparison to the previous year. On Slide 27, we revisit the irrigation project disposed on July 9, in which we shared the company's expectations regarding the growth of the irrigated area. In the '24-'25 season, the company had 16,025 hectares of irrigated area. For the current season, an additional 6,303 hectares will be implemented, totaling 19,385 hectares with irrigation. The goal is to reach 53,180 hectares in coming years. Irrigation will help mitigate climate risks, maximize land use through second crop production, increase land value and boost yields and stability in a sustainable way. Now let's turn to Slide 25, in which we'll discuss the business strategy of the deal announced yesterday on a material fact, the association between SLC Agricola and the private equity investment funds managed by BTG Pactual. The objectives are to monetize farmland at market value, maximize operational efficiency through irrigation projects and establish agricultural partnership contracts. The remuneration of the partner is 19% of our agricultural output and the term of the agreement, 18 years. which later can be renewed every 3 years. Finally, we go to Slide 26, in which we'll take a look at the structure of this deal. Special purpose entities will be created with SLC Agricola holding 50.01% and the private equity investment funds FIPs managed by Banco BTG Pactual with 49.99%. SLC Agricola will contribute Fazenda, Piratini and its irrigation infrastructure at market value. The funds will invest BRL 1.33 billion, of which BRL 914 million will be paid upfront at the closing and BRL 119 million upon completion of the Piratini's irrigation project expected for the second half of 2026. Using these proceeds, the SPEs will acquire Fazenda Paladino from SLC Agricola for BRL 723 million, paying BRL 361 million upfront and BRL 361 million in March 2026. Besides that, the SPEs will also purchase irrigation infrastructure at Piratini and Paladino for BRL 86 million and BRL 27 million, respectively. Remaining funds will go towards project implementation at the SPEs. The land-owning SPEs will sign rural partnership agreements with SLC Agricola for grain and fiber cultivation, with sharing of production outcomes. SPE remuneration will be equivalent to around 19% of agricultural output from the partner areas. The initial contract term is 18 years, automatically renewable every 3 years. On the next slide, Slide 27, we look at the irrigation project and farm locations in this deal. Fazenda Piratini is located in Jaborandi and Fazenda Paladino is located in Sao Desiderio, both in the state of Bahia. The 2 farms together have a first crop area of 39,523 hectares, with plans to irrigate 27,934 hectares, adding both will reach 67,457 hectares of planted area with a growth of 71%, an expansion of 71% in our irrigated area. Projects include monitoring of the Urucuia Aquifer, the use of artesian wells and efficient pumping systems to reduce losses and increase efficiency. Thank you very much. And now we'll open our Q&A. Unknown Executive: [Operator Instructions] So, here's our first question from Mr. Lucas Ferreira. He is from JPMorgan. Lucas Ferreira: I have questions about this transaction announced yesterday with the FIPs, with the private equity investment funds. I would like to understand if this transaction is just something for use for leveraging your balance sheet or if it -- if there is room for a larger partnership in the future? It's clear that you want to accelerate your irrigation project. And the second question is really -- well, since this is quite a complex deal, part of the production will be with the FIPs later, with the funds later. Did you consider Piratini based on your annual valuation? And what can you share in relation to the implicit cost of this deal with the sharing of volumes later down the road? Aurelio Pavinato: Thank you very much, Lucas, for this question. Yes, Lucas, let me try to give you more details on the deal. So, we have contributed the Piratini farm at the appraisal value. So this is what we contributed in addition to the irrigation systems we had implemented as late as last year. So now the SPEs will own the land. They will own the infrastructure and also the irrigation system. And SLC Agricola will run the 2 farms. With the funding we have obtained, we are going to acquire the Paladino farm. So when we consolidate both of them, we'll have 50% and the funds will have 50%. So as if we had sold half of each farm, so we'll continue to own 50% of Piratini and 50% of the Paladino farm. This is the rationale, right? Our contribution is the Piratini farm. And the investors' contribution is the money, the money we'll use to buy Paladino that we had acquired from Mitsui just a couple of months ago. So, we are incorporating it in the deal. And the SPEs will be doing additional investments in irrigation. So with this, we can accelerate our irrigation project and also accelerate value creation in the farms. They are now, of course, going to start producing irrigated crops. We're going to have 2 crops a year instead of 1 like today with much more stability. So in our understanding, we will add value without contributing any funding. So, this is the mathematical equation behind this deal. We are unlocking value from our real estate assets. We are using our real estate to unlock value and accelerate irrigation investment, adding value to our agricultural output. And the 19%, this is the rationale in which we have adequate return for both investors and ourselves. Unknown Executive: Now let's continue with Isabella Simonato, Bank of America. Isabella Simonato: Well, I would like to know about the cotton cost performance in the '24-'25 crop year. There was a revision of realized costs. So, could you please shed some light on the drivers behind this performance? And if you could also give us some flavor on the '24-'25 crop that is still to be sold in the '26 fiscal year? I think that this will give us a clear understanding of the picture. Unknown Executive: Can I answer? Isabella, in fact, the cost of the '24-'25 crop year was under the impact of the climate issues in Bahia, and we applied more crop protection inputs. Of course, this raised costs. When we analyze costs, it's important to compare the costs with the budgeted dollar exchange rate at the time. So, part of the inputs were more expensive, but at the same time, we had an offset with revenue. This actually was balance of our hedging. There was no loss of margin. So, we have to factor the exchange rate variation as well. This is what explains the difference in costs. And by the way, Isabella, that's why our realized cost '24-'25 was above budget. And when we look at the budget, we see an increase of 9.7% in comparison to the budget. But in comparison to the realized, it's a much lower increase. So, we are delivering the results in '24 and '25. So the increase in cost is 9.7% for us. But in comparison with the actual this year, it's a much lower difference, 4%, not 9% of increased costs in the comparison between those 2 years. And also, in terms of volume, we want to deliver at least 45% of the volume produced '24-'25 until the end of the year. The harvest was completed in August. We started processing. So the volume carried over in this quarter is not significant. Most of the volume will be recorded in the fourth quarter, in fact. Unknown Executive: Now, our next question from Mr. Henrique, Bradesco BBI. Henrique Brustolin: There are 2 areas I would like to explore. Firstly, on the deal, the first point is how easy it is to replicate this model in the future, creating partnerships to finance expansion and also the installation of irrigation systems? And also with the BRL 836 million for SLC, what changes in the way we consider your capital allocation strategy from now on? The reason I'm asking is because you were incorporating the transactions to deleverage, but this gives you some room in the balance sheet to expand acreage and also to implement irrigation systems. So, should we consider this? Also in relation to cotton this quarter, when we look at the cotton margin, unit margin where there was a 3% increase and the unit cost also changed. How recurring -- is there a recurrent effect on the margin for cotton like this quarter? I know that it was a mix of farms that could be the reason, but how representative it is as a recurring factor from now on? Aurelio Pavinato: Thank you very much, Henrique. Let me talk about the deal and expansion. Well, we were really -- we had a long negotiation. And well, the future is yet to come. Nobody knows what could happen. But the model we created is a first for us. So if it's successful, it will open doors for rolling out the replication of this deal, this deal that we created with the funds. Okay. Ivo, would you like to discuss capital allocation? Ivo Brum: Yes. It's just like you said, Henrique, this created an important opportunity to continue growing if opportunities arise. We won't buy as many assets. We'll focus on leases. There is a working capital and CapEx and also machinery. There are some constraints, but this positions us on a good platform for growth. Now speaking of cotton, we had loss of margin in cotton this quarter resulting from -- well, of course, the mix of farms. In this quarter, specifically, we harvested in Bahia and Bahia, of course, we had an early harvest in August and the margin specifically for Bahia was smaller because we didn't have as big as an output. And so there is an expectation that margins will improve because we'll have now Mato Grosso harvesting. So, we should not consider this margin as the average for the entire harvest this quarter. Unknown Executive: Our next question is from Matheus Enfeldt, UBS. Matheus Enfeldt: Well, my first question is about the soybean productivity and the '25-'26 harvest. We are tracking rainfall on your farms, and it seems that in October, rainfall was a little below expectations and also quite below the historical record, which was last year. So, did your yield consider this? Did you consider the effect of climate for this year? Or is there any reason to be concerned in relation to rainfall? And also the second question on cotton, Pavinato. Could you give us some insight on the potential for Brazil to continue adding cotton acreage? Well, some analysts are saying that cotton acreage will reduce next year. Do you see an opportunity for expanding cotton acreage in Brazil? And also, there was an expectation of conversion of additional areas to cotton in future years. Are you thinking of following up on this plan, increasing cotton, especially considering the price levels we are witnessing today? Aurelio Pavinato: Thank you very much, Matheus. Matheus, in Mato Grosso this year, well, in September, it rained above the historical average. So it was very good rainfall at just the right time. In October, we didn't get much rain in Mato Grosso. So, there are some farms that were some -- under some rain deficit and others not. So when we look at the overall picture in Mato Grosso, it's fine. We have some farms with great potential and some fields not more than 5% to 10% that suffered with the rainfall deficit in October. So in November, the rain cycle resumed as normal. So it will depend on November and December. If it rains as expected, we are looking at very good yields in Mato Grosso. So, this is the summary, right? So the Mato Grosso farms are going well. And in the other farms, Maranhao and Bahia, it's now raining. So, we are expecting that our project will be met. This is a La Nina year, very similar to last year. So, we expect normal rains in coming months in the Northeast with a very good crop. About cotton now. In recent years, Brazil has really secured a strong foothold in this market. Brazil today is responsible for 14% of the world's output. We represent 30% of the exports. Something that 30 years ago -- well, we used to import cotton, and we were completely irrelevant in this market, in cotton market. And in the interval, consumption really didn't change much. So in fact, we were occupying the position of other players. And why? Because Brazil is very competitive. Our yields in Brazil in cotton is the best in the world. So when we think of Brazil, we are really a strong player. So the price levels today are low. They are not really encouraging the expansion of planted areas. So, we are seeing some downward revisions in planted areas, especially among the new entrants. They are now suffering more. Now, those who have stable operations will maintain their planted area. But in the average, we'll see a reduction in the planted area in Brazil, which is convenient, especially considering the slowdown in demand. Well, demand is growing very slowly. It's really inching little by little. We are now going to reach BRL 169 million bales of consumption. So when prices are lower like they are now, this encourages some pickup in demand. So at SLC, we analyze the data really farm by farm to see what crop is more profitable in each farm. But at this price level, we probably won't be stepping up on the gas in terms of new projects. We are going to wait for the price moves to really make our decisions. We want to maximize the use of the assets we have today. Cotton is a long cycle crop with a long financial cycle as well. So with high interest rates, you shouldn't really allocate much capital in CapEx and working capital, which is something cotton is very demanding about. So, you have to think of how much we're going to grow in 1.5 years. So, this is our vision on the expansion of the cotton area. Now the irrigation project in Bahia is aimed at planting first crops, soybeans and cotton in 3/4 of the area for the second crop. So, we're going to expand in Bahia cotton as second crop, which is the cheaper and the more efficient cotton. And that's why we see now the second crop in Mato Grosso for cotton expanding now and also in Bahia, but supported by irrigation. Matheus Enfeldt: Justa quick follow-up, Pavinato, if I may. This idea of waiting a little bit for the cotton expansion, does it also apply to the Sierentz areas that you had been planning to start planting cotton on in 2 or 3 years? Aurelio Pavinato: In fact, we now have 3 farms. We have one farm where we are building a cotton farm in -- [ right besides it ]. So we're going to have -- and the other farm has a great potential for soybean and second crop corn. So we'll calculate -- make the -- crunch the data. And probably in this case, we're going to delay the investment in cotton in the second Maranhao farm. As for the Parana farm, we never thought of planting cotton there, just soybean and corn. This combination of high interest rates and low prices is discouraging. Now if interest rates go down, then maybe it will make sense to plant cotton because to invest paying 15% a year in interest rate is a weighty consideration in any investment. Unknown Executive: Our next question is from Gabriel Barra, Citi. Gabriel Coelho Barra: In fact, I have a question and a follow-up. When we think that the buyback program, the share buyback program you have just approved, I would like to give it more of a framework when we consider the liability of the company. We see that the amortization cycle from now on -- well, we still have a very comfortable position in terms of income. And the net, however, is a little higher than expected. And so I would like to combine this question with the following. So how do you view the buyback program in view of the deleveraging process of the company, especially now that this program has been approved? And the second point on capital allocation in the rolling of debt. Ivo has just talked about interest rates in Brazil and your debt still is correlated with the BRL and CDIs. So are you thinking of having issuance of a paper overseas? We see that the credit markets are a little more stressed out. So, what's your view on your liability management program? And at the risk of sounding repetitive, in relation to the deal, a very interesting point for me is the remuneration of SPE, which is different from the sale leaseback in bags of soybean. So if I understood it correctly, there is also an upside in terms of productivity and yield. So it's a win-win. So my question is, what do you expect in yield by implementing irrigation in both farms? Do you have an estimate? What could we expect in terms of increase of yield after irrigation? Ivo Brum: Well, about the share buyback program, Gabriel, I think that -- I think that what's important in this deal is that we're going to bring the company to a leverage level we feel more comfortable with. Our Board discourage us from going over 2x, and we are now at 2.3x. So it's really our objective in deleveraging. And of course, we could go back to go to using other leases. But in terms of share buyback, since the shares are being traded at a very low price, it doesn't make sense to buy more land. So if we had, for example, an opportunity emerging of buying more land, we know that SLC is the best investment for our shareholders. So, we want to grow leases instead of owned land. So, this is what the share buyback program indicates. About issuance of a paper, well, we've been thinking of taking debt in USD. You'll see at the balance sheet that we have now some debt coming in dollars now related to the Sierentz acquisition. And we, of course, have to adjust this with our hedge accounting policy. And we think of taking short-term loans in dollars because long-term dollar debt is more difficult to manage. But this is what we're considering in terms of exposure to dollar. Okay. What about yield? Pavinato, you go. Aurelio Pavinato: So, what is the rationale when we create a business plan thinking in the long term like this? If you look at our history, we have an EBITDA margin, a net margin, and this is the result of commodity price, production cost, exchange rate and yield. Those are the 4 variables that define this. And a long time, the productivity gains, the yield gains generated value, added value to whom? They add value to the entire chain. Well, Brazil has increased yields more than competitors. So, we are capturing some of this value and applying this to our operations. In 15 years' time, yields will be even more higher than the yields we have today, of course. But as a consequence, production costs will be higher in 15 years' time. Will our EBITDA margins be higher than now? No, we don't believe so. We'll be more competitive in the international markets, but our EBITDA margin will be similar to the one we have today, depending on how efficiently the operations are managed. So the partner will participate in the revenue, but not in the costs. So, maybe this is the bottom line of your question. We're going to transfer a percentage of the EBITDA margin to this part of the SPEs. And in the SPEs, we hold 50%, a 50% stake. So it actually goes back to us. This is the rationale. In fact, agricultural partnerships for us as agriculture operators is the sharing of the proceeds, but in a much more resilient way because we know that there are some years in which we experienced crop failures with low yields. And who suffers? The operator. The landowner will get just as much. But now when we have a real partnership, like in this case, if there is a climate event leading to crop failure, the partner shares the losses too. So considering the long-term plan to grow our lease areas, this agricultural partnership mitigates risks, in fact, because I will never pay in a lease a higher percentage than that even in years when the output is not so good. So in fact, the partner is now going to be exposed to both variables, not only to price. Today, lease -- when we lease based on bags per hectare, the partner is only exposed to price, not on anything else. So, this is what we believe will add value in a very fair way to both partners. Gabriel Coelho Barra: I'm sorry. I think maybe I wasn't clear. It was about upside and downside. With high yields, your partners will also get more. So, I would like to know how much you can generate in terms of additional yield, thanks to irrigation? This was the focus of my question. Aurelio Pavinato: Okay. Let me complement then. Well, today, we have one culture that sometimes has good yield and sometimes 70% to 80% of the potential. And the productivity of this farm is just at 90% of the potential. Now with irrigation, my yield will rise to 110%. So, I'm not going to lose any yield. So in terms of revenue, if today I get 100 in revenue, this will go to 220 with irrigation, 220, 230, this is the potential value generation with irrigation. Unknown Executive: Our next question is from Thiago Duarte, BTG. Thiago Duarte: I have a question about the gains to be obtained with irrigation, but from a different angle. Pavinato, what's the cost associated with the building of infrastructure for irrigating 1 hectare, right, especially considering what this -- the comparison between the irrigated land and the dry farmed area? I would like to know what would be the return considering the market conditions of today? Aurelio Pavinato: Let me answer this question, please, Thiago. Well, including all of the infrastructure that you need, electrical bidding, et cetera, BRL 25,000 per hectare, this is the cost, okay, for you to generate this additional revenue. Actually, I would even think that it's -- I think that the gains will be even higher because it's cotton second crop, right, so with even higher unit revenue. Yes, yes, you're right, in fact, Thiago. If you consider only yield, it's 230. But if you consider cotton, yes, because I have 1 year -- soybean 1 year cotton. In 2 years, 8,000 and 20,000 with cotton. So, 30,000 in a 2-year period. But now the 30,000 will be generated in addition to the higher yield per year. So in the same year, both crops with much higher yields. And in the case of cotton in Bahia cotton with irrigation, well, it's been very good and really surprisingly good. And with lower risk because there won't be any crop failure. You become the rainmaker. Thiago Duarte: Yes. Perfect. This is very clear. Now, my second question. This has been already discussed, right, the project and the budgeted costs for next year, growth of 9.7% or 4% if we consider the effective cost for '24-'25. Could you please explain more about the increased costs? Really trying to break down what is volume and what is cost because I'm under the impression that part of the cost hike is associated with the need for greater soil correction. So is this part of the picture, this one-off effect with the land that you're adding, especially when we consider the costing base for next year? Unknown Executive: Perfect. Thiago, in fact, our budget for '24-'25 was defined, but we had to use more crop protection, especially in cotton in some of the varieties and we ended up spending more than expected. Now in '25-'26, crop protection, again, we have prepared the budget, adding additional products, and we have now a package of crop protection for '25, '26. As for fertilizers, we are applying fertilizer in a more efficient way, and this not only in the newly added land in this scenario where fertilizer prices, for example, phosphorus and potash, we bought more cheaply than last year, and our fertilizer package didn't really see any increase in costs. A very small variation of 2% to 3% in dollar. In BRL, the prices didn't go up. We made good purchases for '25-'26. So we were -- we planned our fertilization program in a more efficient way. So, we really were trying to find out why the costs. It's really our planning that is leading to this increase, especially in the dollar-based accounts, which are the inputs. In BRL line items, we have inflation in services. This is what also drives costs up. So, this is the summary. This is what justifies the increase of costs in the '25-'26 crop year versus '24-'25. We are compensating this with higher yields, actually outstripping the target for this year. And there's an offset also because the prices in BRL, we have some hedging in that are favorable to us. So, we will be able to deliver higher profitability rates. This will also depend on yield. Yield will be the determining factor in the '25-'26 crop year. Thiago Duarte: Okay. But this -- you said that it's actually more volume per hectare than price that is causing the effect, right? And is this volume a one-off thing? Or is it something different? I would like to understand how recurrent this effect is. Unknown Executive: I'll answer. If prices continue low, volume will go down in the following crop year. If prices rebound, maybe it won't go down. So it's correlated with commodity prices and how much we invest. Unknown Executive: Our next question is from Mr. Leonardo Alencar from XP. Leonardo Alencar: Congratulations on the results. And by the way, I would like to go back to the deal, if I may. Pavinato, you said that this is something that was an elaborated deal. It took a long time to prepare. But well, considering that part of the attractiveness of this deal lies on the fact that you had recently acquired some land that required irrigation. But if we think of other occasions that could lead to this unlocking of the land value at the appraisal level, would it make sense for you to think of different sharing schemes because you mentioned that this model -- you could have another lease model where the leasing partner would also share the risks. So, do you think that -- does it make sense to you? And in addition to this, a quick follow-up on SG&A, where there was an increase. You talked about the freight for corn because of Sierentz. Is this a one-off thing? Or will there be more impacts coming in the future? Unknown Executive: Thank you, Leonardo, for your question. I'll start with the answer with the second one. Well, in fact, we've -- well, we've created this deal. It's a structure that work, but rolling out more deals like this will depend on opportunities that emerge. We were able to create this, and we think that expectations were met both on our side and the investor size, and this is not going to be automatically replicated. We need this good fit in terms of the value of the land, the value potential of the operation so that we can really create more similar deals. There's always potential to do more, but something that we have to think about in the long term. Leonardo Alencar: Well, let me just explore that for a moment. If there is another partner on the table, do they share any other strategic value? Or is there demand from other partners that seek this type of deal or this is something that's very new and people prefer the traditional lease deals? Unknown Executive: Well, think of an 8-year agreement. Nobody who is thinking of the short-term and short-term results would engage in something like this. So, this is the profile of the investor looking at deals like this. And that's why there's always a rationale and a strategy behind each deal, and it takes proper analysis and the commitment of long-term investors really to work out. Leonardo Alencar: What about SG&A? Unknown Executive: Well, there is an important difference in the way Sierentz would sell, would trade their commodities. They deliver at corn as well. So, there is a freight cost that could be better, but we need to factor in. There was also a super production of corn. This increased our storage costs and had an impact in our SG&A. And in administration, we had significant expenses related to the Sierentz deal that was also reported under this line. And yesterday, the deal also, we had to use auditors, consultants, attorneys. All of this adds to the expenses, but they are one-off expenses. They are not recurring in any way. Unknown Executive: Now let's continue with Gustavo Troyano, Itau BBA. Gustavo Troyano: Two points I would like to discuss with you. Firstly, we've talked about the SPEs and potential return. But what about the timing of these irrigation investments, specifically? You said that Paladino would be from '28 to 2030. But what is the step-by-step process to get there? Once approved in terms of water intake and electrical feeding, is this CapEx going to be disbursed all at once to understand what the curve looks like? And the second question about capital allocation. Can you tell us a little bit about future opportunities? We have talked about expansion in leases, expansion in irrigation. And I would love to hear from you, especially considering the growth of corn-based ethanol in Brazil, can you ride this wave either through a partnership with an industrial operator? We saw some of these deals taking place in Brazil. And in the relation between lease irrigation and potential of corn-based ethanol, what would you give priority to? Because, of course, there are lots of projects and limited capital. But I would like to know what's in your mind. Unknown Executive: Thank you very much, Gustavo, for this question. The investment in irrigation in this project that we announced yesterday at Piratini, well, we have the water intake facilities and the power is already established. So, we are starting with the investment in 2026. So, cash generation and the creation of the SPEs. In Paladino, we have said '28 to -- from '28 to 2030. We have most of the water needed and all the licenses will probably get obtained very soon, but not -- we don't have yet the electrical feedings. So, that's why we consider that the investment will run as of 2028. And in the SPE cash generation, we will have the funding for those investments in 3 years or in 2 years. It depends on the decisions taken at the specific time. So, we are feeling comfortable with the design for this project and the meeting of the deadlines. About capital allocation, when you have several options to allocate your capital, it's always a good thing. You're not forced to choose just one way, right? And it really depends on the cost of capital. Right now, cost of capital is very expensive. So, we really have to think it over. And as we said before, irrigation, well, we're going to allocate capital because it makes sense. It is strategic because it will increase output, will increase yield. It will add stability and helps mitigate risks for the company. So, there is no doubt in our mind. And as for the other possibilities you've mentioned, well, there are possibilities. So, we're going to decide how to allocate our capital. So, maybe considering the share buyback program, maybe this is the best way to go especially because as the company grows and we start deleveraging below a level of 2x, then we'll be able to invest or make other investments, but buyback is always a good option, especially now that SLC is being traded at 50% of our NAV. But thinking of the long term, am I going to grow? Am I going to add value? Or am I going to buy my shares back? All of this has to be factored in. Unknown Executive: Okay. So, this video earnings conference call on the third quarter 2025 is now closed. Our Investor Relations department will be happy to take any questions. We thank all participants and wish you a great day. Thank you.
Operator: Good day, and welcome to the Kingsway Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. With me on the call are JT Fitzgerald, Chief Executive Officer; and Kent Hansen, Chief Financial Officer. Before we begin, I want to remind everyone that today's conference call may contain forward-looking statements. Forward-looking statements include statements regarding the future, including expected revenue, operating margins, expenses and future business outlook. Actual results of trends could materially differ from those contemplated by those forward-looking statements. For a discussion of such risks and uncertainties, which could cause actual results to differ from those expressed or implied in the forward-looking statements, please see the risk factors detailed in the company's annual report on Form 10-Ks and subsequent Forms 10-Q and Form 8-Ks filed with the Securities and Exchange Commission. Please note also that today's call may include the use of non-GAAP metrics that management utilizes to analyze the company's performance. A reconciliation of such non-GAAP metrics to the most comparable GAAP measures is available in the most recent press release as well as in the company's periodic filings with the SEC. Now I would like to hand the call over to JT Fitzgerald, CEO of Kingsway. JT, please proceed. John Fitzgerald: Thank you, Morgan. Good afternoon, everyone, and welcome to the Kingsway Earnings Call for Q3 2025. Let me start by saying that to our knowledge, Kingsway is the only publicly traded U.S. company employing the Search Fund model to acquire and build great businesses. We own and operate a diversified collection of high-quality services companies that are asset-light, profitable, growing and that generate recurring revenue. Our goal is to compound long-term shareholder value on a per share basis. And we believe our business can scale due to our decentralized management model and our talented team of operator CEOs. We also continue to benefit from significant tax assets that enhance our returns. In short, Kingsway is uniquely positioned to capitalize on the Search Fund model at scale within a tax-efficient public company framework. I'm pleased to report an excellent third quarter for Kingsway. Revenues were up 37% year-over-year, and the company reached an important milestone as our high-growth KSX segment represented the majority of our revenue for the first time. Our KSX segment achieved stellar results with revenue growth of 104% and adjusted EBITDA growth of 90%. Our stable cash-generating Extended Warranty segment also performed well in the quarter, producing top line growth of 2% with robust cash flow and resilient modified cash EBITDA. While these headline numbers are impressive, there is reason to believe our underlying operating performance may have been even better than the reported figures show. First, in the quarter, there were 2 onetime expenses in our KSX segment that were mostly noncash and should not repeat. Late last year, a hospital system filed for bankruptcy that was a client of our SNS nurse staffing business. Based on new information received in the quarter, we fully reserved the remaining $325,000 receivable from that client, which ran through our P&L as a noncash item. In addition, we had roughly $180,000 of mostly noncash expenses recorded in our Kingsway Skilled Trades segment as we converted recent acquisitions from cash accounting to accrual accounting. Had we excluded these expenses from our adjusted EBITDA calculation, KSX adjusted EBITDA would have been roughly $500,000 higher in the quarter or $3.2 million instead of $2.7 million. Second, we made 4 acquisitions during the quarter with 3 completed mid-quarter. We look forward to having a full quarter of benefit from all of these businesses beginning in Q4. Third, we are seeing tangible business and financial momentum in a number of our operating subsidiaries. Roundhouse and Kingsway Skilled Trades have performed well since day 1 and are ahead of our underwriting case. Just in the month of September, Roundhouse achieved EBITDA of roughly $500,000, and the Roundhouse team is actively recruiting for open roles to meet strong customer demand. Image Solutions saw EBITDA grow sequentially by $100,000 from Q1 to Q2 and another $150,000 from Q2 to Q3. DDI also saw a notable improvement in EBITDA from Q2 to Q3. The impressive performance at Roundhouse and Kingsway Skilled Trades and the clear evidence that Image Solutions and DDI may be exiting their J-curves provide confidence that organic growth is likely to play an increasingly key role in driving Kingsway's success going forward. In short, we are seeing real business momentum across our portfolio that sets us up well as we go into Q4 and 2026. Turning now to some of the strategic developments in the quarter. On our last earnings call, we discussed our acquisitions of Roundhouse, Advanced Plumbing and Drain and the HR team. And we're excited to welcome all 3 to the KSX segment and to the Kingsway family. On August 14, we completed our 12th KSX acquisition with the purchase of Southside Plumbing for a purchase price of $5.625 million, plus a potential earn-out of up to $1.125 million for a total maximum purchase price of $6.75 million. At the time of acquisition, Southside Plumbing's unaudited pro forma annual revenue was $4 million and its unaudited pro forma annual adjusted EBITDA was $900,000. Based in Omaha, Nebraska, Southside Plumbing is a leading provider of commercial and residential plumbing services. This transaction, which was sourced and led by Rob Casper, President of Kingsway Skilled Trades, marks the third addition under our Kingsway Skilled Trades platform in 2025. We believe that Southside Plumbing has significant potential to accelerate growth through expanded marketing efforts and new service lines and to increase the proportion of sales that are recurring or reoccurring given the strong momentum in its service and repair operations. The Southside team has earned an exceptional reputation in its market for quality and service, driving consistently robust growth in its core business. We are thrilled to partner with Josh Gruhn, who is remaining with the company as President and maintaining an economic interest, ensuring an alignment of incentives and continuity of leadership. We look forward to supporting Josh and his team and upholding Southside Plumbing's long-standing legacy of excellence and reliability. Subsequent to quarter end, on October 20, we welcomed Colter Hanson as our newest Operator-in-Residence, or OIR. His combination of military leadership, strategic consulting experience and a passion for entrepreneurship make him an exceptional fit for our platform. Colter will conduct his search out of Minneapolis, where he intends to pursue an acquisition in the testing, inspection and certification sector with a focus on the Midwest. Year-to-date, we have now acquired 6 high-quality asset-light services businesses, exceeding our target of 3 to 5 per year. While that range remains an important benchmark, it is worth noting that it serves as a target, not a cap. Our primary objective is to remain disciplined investors, focused on quality opportunities that meet our strict acquisition criteria, and we continue to see a robust pipeline of attractive opportunities. With the addition of Colter, we currently have 3 OIRs actively searching for our next platform acquisitions in addition to our other KSX businesses, which are, in many cases, evaluating potential tuck-ins and inorganic growth opportunities themselves. We are energized by the pace and quality of acquisition activity. Finally, as of quarter end, our trailing 12-month adjusted run rate EBITDA for the businesses we own stands at approximately $20.5 million to $22.5 million. This metric provides a view of how the company would have performed over the last 12 months if Kingsway had owned all of our current businesses for that entire time. GAAP results in contrast only capture the performance of acquired businesses from their respective close dates onward. We believe this metric is particularly relevant during periods of high M&A activity like the past few years and better reflects the run rate earnings power of our current portfolio of businesses. It's important to call out that in calculating this metric, we are not using modified cash EBITDA for our Extended Warranty businesses. As we have discussed in previous earnings calls, many in the Extended Warranty industry, including our management team here at Kingsway, prefer to use a metric called modified cash EBITDA when assessing and valuing Extended Warranty businesses. This is because under GAAP accounting, growing Extended Warranty businesses often see their EBITDA penalized, while shrinking Extended Warranty businesses often see their EBITDA boosted due to timing differences in how revenue and expenses are recognized. Kingsway's Extended Warranty businesses are in growth mode. Cash sales in our Extended Warranty businesses accelerated from up 9.2% year-over-year in Q2 to up 14.2% year-over-year in Q3. However, due to these timing differences, a gap has opened up between adjusted EBITDA and modified cash EBITDA, which widened further in the third quarter. This can be seen in the company's financial statements where deferred service fees from Extended Warranty are up $2.8 million year-over-year. In addition, hundreds of thousands of dollars of commission expenses associated with issuing new warranty contracts have been booked upfront. Over time, these timing differences even out and adjusted EBITDA and modified cash EBITDA converged. We expect the same to occur for Kingsway. Our management team at Kingsway assesses the company's earnings power by looking at adjusted EBITDA for our KSX segment and modified cash EBITDA for our Extended Warranty segment. Using this framework, Kingsway today has the highest earnings power from its operations during my tenure as CEO. It's a remarkable place to be, though in many ways, it feels like we're just getting started in our journey. To conclude, this was an excellent quarter for Kingsway. We grew overall revenue by 37%. Our KSX segment roughly doubled its revenue and adjusted EBITDA relative to last year, and our Extended Warranty segment once again performed well with resilient cash flow and accelerating cash sales. We remain focused on disciplined execution, scaling our KSX portfolio and supporting our operator CEOs to deliver sustainable long-term growth. With that, I'll turn the call over to Kent for a closer look at our third quarter financial performance. Kent, over to you. Kent Hansen: Thank you, JT, and good afternoon, everyone. For the third quarter, consolidated revenue was $37.2 million, an increase of 37% compared to $27.1 million in the prior year. Adjusted consolidated EBITDA was $2.1 million for the 3 months ended September 30, 2025, compared to $3 million in the prior quarter. In our KSX segment, revenue increased by 104% to $19 million in Q3, up from $9.3 million in the same quarter a year ago. Adjusted EBITDA for KSX increased 90% to $2.7 million compared to $1.4 million in the year ago quarter. Moving to our Extended Warranty segment. Revenue increased by 2% to $18.2 million in the quarter, up from $17.8 million in the prior year period. Adjusted EBITDA for Extended Warranty was $800,000 in the current quarter compared to $2.1 million a year ago. As JT discussed earlier, however, the Extended Warranty segment's modified cash EBITDA, a key industry metric that more closely reflects the cash flow dynamics of warranty businesses, was resilient as our Extended Warranty businesses continue to perform well. The improvement in cash sales in our Extended Warranty segment reinforces our confidence that GAAP earnings will recover over time as deferred revenue from our recent cash sales was recognized. Overall, the Extended Warranty segment remains cash generative and well positioned for continued success. Turning now to the balance sheet and the capital structure. As of September 30, 2025, the company had $9.3 million in cash and cash equivalents, up from $5.5 million at year-end 2024. Total debt was $70.7 million at quarter end compared to $57.5 million as of December 30, 2024. Our September 30 debt is comprised of $55.8 million in bank loans, $1 million in notes payable and $13.1 million in subordinated debt. Net debt or debt minus cash at quarter end was $61.4 million, up from $52 million at year-end 2024. The increase in net debt is primarily related to additional borrowings related to the recent acquisitions of Roundhouse and Southside Plumbing. I'll now turn the call over to JT for a few final thoughts before we open the line for questions. JT? John Fitzgerald: Thanks, Kent. To close, I'd like to express my thanks and appreciation to Kingsway's employees, partners and shareholders. We have an amazing team, a wonderful set of operating businesses and both KSX and Extended Warranty are performing well. This really was an exceptional quarter. The business and financial momentum is tangible, and we are positioned to finish the year strong. I'll now turn the call back over to the operator to open the line for questions. Morgan? Operator: [Operator Instructions] Your first question comes from Mitch Weiman with Sumner Financial. Mitchell Weiman: JT, congrats on a great quarter. So a question for you. With the current environment with all the uncertainty regarding Medicare and reimbursements and everything, how is that going to affect secure nursing and digital diagnostics? Because you hear a lot of anecdotal evidence that hospitals are going to be having some issues going forward here. John Fitzgerald: Yes, I think we've seen that. Certainly at SNS, we mentioned that customer bankruptcy at the end of last year. I think some of that has to do with the pressure that they're feeling from kind of reimbursement pressure. And so I think it's kind of looking at each one of those businesses independently, if you start with SNS. I think a real focus on the types of hospitals where we're placing nurses, right? So I think that the most sensitive would obviously be where the predominant number of your patients are Medicare, Medicaid. And I think that, that's even more acute in some of the more rural hospital settings. I think we feel pretty good about our hospital mix at SNS in terms of both the payer mix and sort of geography and the type of profile of the people that are coming in and their balance sheets and budgets. And a lot of that stuff is publicly available. I think that these hospitals have to file their financials. And so Charles, when he's thinking about new hospital relationships or existing relationships is sort of acutely aware of that and checking the financial positions of his hospital customers. So certainly something to monitor. But I think, yes, I think hospitals are under quite a bit of pressure. With DDI, I think these are outpatient rehab and long-term acute care hospitals. I think a little bit less exposure to Medicare and Medicaid and certainly something after the experience at SNS, something that Peter is very focused on as well in terms of customer selection and credit extension, right? So it's something we'll continue to keep an eye on. Operator: [Operator Instructions] Your next question comes from Scott Miller with Greenhaven Road Capital. Scott Miller: JT, congratulations on all the progress. Basically, it seems like the key to this business is buying at reasonable multiples, doing it repeatedly and then driving organic growth. And the first 2 pieces, you've been buying at reasonable multiples. You've I think done 7 deals this year. So the repetition seems plausible. The organic growth, you called it out, I think, in the press release. Can you talk a little bit about kind of the type of organic growth you're seeing, what you think is possible, how it might differ across businesses? John Fitzgerald: Yes, great question. Certainly, organic growth is a key component of the flywheel, right, that you grow -- the cash flows of the businesses you own organically and then redeploy that capital to do more acquisitions, either at that business or in some of our activities. And I think that you touched on. I would add that your ability to attract talent is a key part of the equation as well. But... Scott Miller: And by the way your latest guy is -- I mean, whatever, yes. John Fitzgerald: Yes. And so organic growth is a key part of the thesis, and it goes into our underwriting as we go into these things, trying to buy businesses in industries where there is long-term secular trends and wind at your back. And we also recognize that you're buying small businesses that need to be professionalized. They need to come into a public company context and filing and all of those things. And so for the first many quarters, there is a significant investment in operating expense and those kinds of things to bring the talent, the systems, the technology into those companies to build a platform to support organic growth, right? A lot of times, these things -- these businesses are operating on the margin and aren't scalable effectively because they don't have the robust systems and processes and people in place to allow that to happen without making mistakes, right? And so we go in, and this is that whole J-curve concept, right, that we bring in an inexperienced operator, they have to get up their own experience curve, and we invest in these businesses, bring in new people, invest in the companies and their accounting and their HR and their technology systems, in sales and marketing, et cetera, depending on the business to prepare them to grow. And so as we mentioned with DDI and Image Solutions, like they've been on that journey and now are starting to emerge and accelerate growth. And I think that we would expect to see that pattern play out in every instance. I think in terms of individual company sort of potential, I think it depends on the industry and kind of underlying industry dynamics. But I would say that we would -- we ought to be targeting high single-digit organic growth potential at all of the businesses we acquire. Scott Miller: Got it. That's very helpful. And can you talk a little bit about Image Solutions and what's driving the progress there? And yes. John Fitzgerald: Yes, sure. I mean, obviously, Image Solutions had a very steep early J-curve because in addition to all of the things that I talked about, they had to weather a pretty significant hurricane and the disruption to the business across all of Western North Carolina and things. But Davide has done an awesome job. He got in there, got his hands around that, built real trust and support with the team, has added to the team, brought in some exceptional people to really professionalize their IT MSP platform, new technology, et cetera, and is now investing in sales leadership to drive new account, recurring revenue accounts in the IT MSP and get that business growing. And so we kind of got through business disruption, onboarded some great people, built an operating plan, assigned accountability to the various people to execute that plan and you're starting to see the benefits of that coming through the business now. And so he's sort of exiting his J-curve and in growth mode. Scott Miller: And how big could a business like that be? Are there any like -- what's the ceiling on something like that? John Fitzgerald: Sorry, you broke up kind of halfway through. I got that... Scott Miller: How big could a business like that be? Like what's the ceiling on a business like Image Solutions? John Fitzgerald: Well, look, I mean, I think that one of the things in each one of these businesses, each also has the potential to be their own grower inorganically as well, right? And so IT MSP, very large industry in North America, growing at high single-digit secular growth rate, but also very fragmented. And so as Davide has gotten through his J-curve, he's been delevering and building cash. And so I think in addition to just organic growth that there will be a potential there to do additional capital allocation things like inorganic growth and buying tuck-ins and really scaling that business. And so I think there's a big opportunity, but we want to do it in a very equity capital-efficient way. Scott Miller: Got it. I think my last question is actually in vertical market software. Can you talk a little bit about the acquisition you guys made there? It seemed like it was an interesting setup in terms of -- there aren't a lot of players in the industry. I think you just took one out. I think you bought well. Can you talk a little bit about like kind of how that deal came to be and what you think it looks like going forward? John Fitzgerald: Yes. So the original acquisition, so it's run by a young guy named Drew, and Drew acquired the business from the widow of the founder, built a relationship with her and we were able to buy a great business with a long history and super loyal customers, mission-critical software kind of operating system of record for their customers and was able to structure a deal that was attractive for us and attractive for the sellers as well, continuity and continued legacy, et cetera. And then more recently, he did a small tuck-in acquisition of a small competitor in Australia, which gave him access to that region and some customers. And so Drew is pulling on all of the levers, right? He's improving the application layer and the technology. He has rolled out a couple of significant upgrades to the core software product and is investing in sales and marketing for new customer acquisition to continue to grow ARR. So he's done a really nice job growing that business and ARR and did one small tuck-in acquisition, and he's really focused on sort of the organic execution, but also becoming a solid operator in vertical market software with like a longer-term view that, that could be a platform to do other interesting niche VMS acquisitions. Operator: Your next question is a follow-up from Mitch Weiman with Sumner Financial. Mitchell Weiman: Two more quick questions. On the OIRs, with the current infrastructure, what is the ideal number in your mind to have on board searching? John Fitzgerald: Yes. I mean, I think we're trying to balance being super selective with respect to the attributes and background of the people, right? And I think we can be. Our ability to support them to run an effective search and our capital constraints to deploy capital, right, and pacing. And so I would suspect that with this kind of talent flywheel that we're building here, as we continue to demonstrate success, we will have access to even more and higher quality OIRs over time. And concurrently, we're building those systems to support more and the cash flow generation of the businesses hopefully will grow and we can deploy even more capital. So right now, we'd like to say 3 to 5 at any given time, but I would expect that we could scale that over time as well. Mitchell Weiman: Okay. And then one last question. On the skilled trades platform, we've come out of the gates pretty quick here and made 3 acquisitions. How do we look at that going forward? Is it going to be -- it's safe to assume a couple a year? Am I low in assuming that? John Fitzgerald: I don't want to give any guidance on like -- how many acquisitions we're going to do. But I would say, Mitch, I'm not trying to be cute or dodge the question, but I would say in Rob, we have like high attribute OIR qualities, coupled with like deep industry experience. And so we're comfortable really leaning in and doing acquisitions at maybe a faster pace than we would with an Operator-turned President who's getting up the experience curve. And so I think the pacing is just a little faster there. I think kind of all of those things coupled with what we see as like a really interesting and exciting opportunity set. Yes, I think we'll go a little faster than we otherwise would. Operator: This concludes the audio question-and-answer portion. I'd like to turn the call over to James for further questions. James Carbonara: Thank you, operator, for the e-mailed questions that came in. We'll try to move past ones that may have already been asked. Seeing one that says, can you please discuss how Roundhouse and the plumbing businesses are doing in the first quarter or 2 since acquiring them? John Fitzgerald: Yes. I mean, I think I spoke to that a little bit in the prepared remarks, but it's early days, but both of them are doing great, right? I think they're both operating at or above our underwriting plan. We've got really talented young guys in there running the business, Roundhouse Miles plus the management team that was there. So we're really excited about the combination of Miles plus Lee, who stayed and rolled equity in the business and that -- their ability to continue to truck right along without a J-curve because Miles has the support of Lee, who's been an owner and an operator in that business for a long time. And then obviously, with Kingsway Skilled Trades, I just was talking about that with Mitch. We've got a very experienced operator. We think we bought great businesses. He's got his playbook and benchmarks, and he gets right to work. There's no kind of learning curve there. So yes, so early days, but certainly at or above our original underwriting plan, which makes us happy. James Carbonara: Great. And the next one is cash sales are up a lot in Extended Warranty. Can you speak to what is leading to this growth? John Fitzgerald: Yes. I mean sort of 3 different businesses and maybe just kind of take them in order. I'll start with Trinity. I would say that Trinity is up modestly, but has higher growth within its ESA segment, which is the warranty segment. So that's encouraging. Peter has invested in a new sales team on the national account side, the vendor managed service side. And he had some large customers that are going through -- one of their largest customers is Leslie's Pools. I think many of you probably know what's going on there. So he's been working hard to replace that. And so to still have modest growth in light of some of that sort of customer turnover is great. And he's got a great team, and they're out executing and adding new customers and new accounts and the underlying warranty business is starting to really truck along as well. So doing great there. The next is IWS. That's our credit union-focused business. IWS is doing great. It's a really good business. Six consecutive quarters of growth in cash sales. I think that's a combination of both units and pricing. And the unit -- the kind of the unit driver is they've been adding new credit union partners ticking over every month. They're adding new credit union partners and then they onboard them and get more opportunities to sell extended warranty at those credit unions when their credit unions are doing direct loans. So just really nicely chugging along. Great team, been at that business for a long time, have a lot of deep industry expertise and knowledge. And like I said, 6 consecutive quarters of growth in cash sales after coming off of the pandemic high in 2022, bottomed out probably kind of mid-'23 and then been chugging along ever since. And then finally, PWI and Geminus, which has seen some significant growth in the third quarter. As many may recall, we transitioned management in -- at the end of the first quarter and brought in Robbie Humble, who is -- he is a search accelerator-type President, but also has extensive auto warranty experience. So kind of a 2 for sort of a Rob Casper, but for auto warranty. And that business had been declining even in Q1 and almost immediately with Robbie's energy, enthusiasm, he brought some great new people to the team that he had relationships prior to coming over to Kingsway. And that business inflected quickly in Q1 and that cash sales growth actually accelerated pretty significantly in Q2 and Q3. So yes, I think 3 different stories there to get all the way back to the original question, but you add all of those up, and we're seeing really nice sales growth. James Carbonara: Excellent. And the next one is Kingsway has an interesting structure. Why do you think search works in a public vehicle? And what are the advantages versus traditional search? John Fitzgerald: Okay. Kind of a 2-parter here. Why does search work in a public vehicle? I think that there are a lot of -- maybe not a lot, but there are certainly several public companies that you would describe as serial or programmatic acquirers. I think that our model shares a lot of the DNA of other programmatic acquirers, a focus on buying small businesses at reasonable valuations and those businesses have sort of enduring profitability. I think that marrying that model with search is super compelling. One, it sort of gives you access to a very long runway to redeploy capital using this model. I think some of that's demographic. I think -- but a lot of it is this exceptional talent that can go and source opportunities, right, really taking advantage of our OIRs as sourcing engines themselves. And then like I was talking about with Scott, many of these searcher-led acquisitions themselves become platforms to do their own organic growth. So flywheel within a flywheel type concept. So I think it's very compelling. I think it has -- programmatic acquisitions have worked. It shares a lot of that sort of common DNA with the added benefit of this talent flywheel concept that I was mentioning when I'm talking to Scott. So I absolutely think it works. Second part -- with the advantages of -- versus traditional search, I think advantage -- differentiations, I think, than traditional search where searcher raises capital from LPs. I think one is -- and sort of breaking it into the different phases of search. So you've got the sourcing, the diligence and closing and then the operating. I think the first would be just sort of trust and track record and that builds like significant credibility for an OIR when they're talking to business owners who might be sellers. I think it builds tremendous credibility with lender partners during the deal phase to get attractive debt terms and capital. And I think that track record and trust builds a lot of credibility in our ability to attract new OIRs to the platform as well. So talent selection. And then we combine that with like really great sourcing tools. That's not unique to being in a public company. It's more like incubated. But in traditional search, you kind of have to start from scratch and build all of this stuff from the ground up. And we have great sourcing engine and a tech stack to support that. We've got due diligence and lending relationships and lawyers and all of those things that help in the closing and so speed the time to search and close. And then obviously, we're very proud of how we support our operators once they become the President of the business, the operating scaffolding, if you will, of the Kingsway Business System plus our advisory board. And then this expanding peer network of presidents who are all going through these -- the same thing together and sharing best practices across the group. And then finally, I think the permanence of the capital is super unique vis-a-vis traditional search. There's no kind of forced exit for fund life or liquidity motivations. We can own these businesses and compound capital for a very long time. And that's like a unique distinction, I think. James Carbonara: Excellent. Next one is you mentioned Roundhouse and Kingsway Skilled Trades have performed well since day 1 and are ahead of budget. What do you attribute that to? And is there a key learning that can be applied to the M&A process going forward? John Fitzgerald: Yes, sure. There's learnings and everything. I usually take most of -- maybe my learnings from failure. But it's good to learn from the good ones, too. First of all, I'd say it's early days, right? But I think that kind of the unique differentiator of these businesses relative to the other businesses that we've acquired is the operator doesn't have to get up the experience curve. These are -- Rob, we've talked about that, like he's done this before. And so he can get in and start moving day 1. There's not this 100-day learning campaign and a little bit of trial and error and a few mistakes, like he can get in and start making an impact immediately. And I think that same concept holds at Roundhouse, where Lee stayed on. He was the VP of Ops and President, and he's staying on to help and support Miles. So Miles is just truly additive there. And so I think that, that kind of not having to go through the experienced J-curve is a big part of it. I think those are somewhat unique. I don't think that, that's a requirement for ETA or search to work. In fact, it's kind of rare, but it certainly helps. And to the extent that we can partner with OIRs who have deep industry experience and a thesis around buying a business in that industry, we'll definitely do that. And I think that it will -- as we think about industries that we're interested in, we're also looking at that as we're talking to potential OIRs to try to match experience with industries we're interested in. James Carbonara: Excellent. Next one is if Image Solutions and DDI are exiting their J-curves, how do you manage that positive scenario, let them continue to perform, look for tuck-in M&A, increase the investment for organic expansion? John Fitzgerald: Yes. I mean they're 2 totally different businesses, right? I talked about Image Solutions with Scott. I think that as Image Solutions has gone through its J-curve and is exiting, Davide, the company has been delevering and building cash. They're in a fragmented market. I would expect that a big part of that story in the coming quarters will be the opportunity for tuck-in M&A, just a function of the dynamics of the industry. DDI is different. I think that J-curve was around like this high-growth business that needed to be stabilized and professionalized in order to then go invest in sales and marketing to grow organically. It's kind of a one of one in their industry and a large addressable market that has really barely been penetrated. So no other -- it's not fragmented. It's kind of a one-on-one and there's a huge organic growth opportunity and that J-curve was just around stabilize, professionalize and prepare for scale. James Carbonara: Great. And I see just 2 more. The first one is, can you speak to the testing, inspection and certification sector that Colter will be pursuing? Any market sizing and dynamics that you can share? And in success, do you envision that being a platform or non-platform-based strategy? John Fitzgerald: Yes. So TIC, large and fragmented with a long tail, probably growing mid- to high single digits as an industry, lots of little niches in subsectors. And that growth supported by really nice secular trends, aging infrastructure, regulation. And then there's an element of criticality. These are mission-critical, nondiscretionary testing inspection certification requirements that are often required by law or insurance. And it's also like a small thing into a big thing, right? Low cost of the service relative to high consequence of failure of the asset. And so that is all a very nice setup. And I think certainly, the industry has the hallmarks for this -- for anything that we do there to be a platform. But ultimately, it would depend on the target we identify and the niche that it's in. I think we go into these things being open to the idea that they become platforms, but you need the operator to find the right opportunity, build the operating muscle and then delever a bit so that we can be equity capital efficient and then explore that. But yes, I think we would be open to it. James Carbonara: Excellent. And the last one is related, and you may have just answered it, is how do you view KSX's search strategy moving ahead to pursue more aggressively platform opportunities or non-platform opportunities? Or do you even view them all as platforms? John Fitzgerald: Yes. I mean, I think with the exception of KST, which we went in with a very specific thesis around platform and pacing of acquisitions, we have always looked first at the industry dynamics and the business quality, right, to buy a great business, but also with the view that they could become platforms to do inorganic growth. And so if you look at what we've done at vertical market software, we've done a tuck-in acquisition there and potential to do more. IT MSP, as we've talked about with Image Solutions, potential to be a platform. And then Timi, obviously, with outsourced accounting and HR, has done a couple of tuck-in acquisitions and then there's an opportunity there. So coming all the way back, like first underwrite to like great industry dynamics and a great business with the optionality of it becoming a platform over time. James Carbonara: Excellent. I don't see any more questions. JT, I'll throw it back to you. John Fitzgerald: All right, James. Thank you. Well, thanks, everyone. I really appreciate it. Great third quarter, and I appreciate you being with us here this afternoon and this evening. That's it for me. Operator: This concludes today's call. Thank you for attending. You may now disconnect, and have a wonderful rest of your day.
Operator: Good morning, and welcome to the Ring Energy Third Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I will now turn the call over to Al Petrie, Investor Relations for Ring Energy. Al Petrie: Thank you, operator, and good morning, everyone. We appreciate your interest in Ring Energy. We'll begin our call with comments from Paul McKinney, our Chairman of the Board and CEO, who will provide an overview of key matters for the third quarter of 2025. We will then turn the call over to Rocky Kwon, Ring Energy's VP and Interim Chief Financial Officer, who will review our financial results. Paul will then return with some closing comments before we open up the call for questions. Also joining us on the call today and available for the Q&A session are Alex Dyes, Executive VP and Chief Operations Officer; James Parr, Executive VP and Chief Exploration Officer; and Shawn Young, Senior VP of Operations. [Operator Instructions] You are welcome to reenter the queue later with additional questions. I would also note that we have posted an updated Corporate Presentation on our website. During the course of this conference call the company will be making forward-looking statements within the meaning of federal securities laws. Investors are cautioned that forward-looking statements are not guarantees of future performance, and those actual results or developments may differ materially from those projected in the forward-looking statements. Finally, the company can give no assurance that such forward-looking statements will prove to be correct. Ring Energy disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, you should not place undue reliance on forward-looking statements. These and other risks are described in yesterday's press release and in our filings with the SEC. These documents can be found in the Investors section of our website located at www.ringenergy.com. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially. This conference call also includes references to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in yesterday's earnings release. Finally, as a reminder, this conference call is being recorded. I would now like to turn the call over to Paul McKinney, our Chairman and CEO. Paul McKinney: Thanks, Al, and thank you, everyone, for joining us today and for your continued interest in Ring Energy. We are pleased to announce another strong quarter. During the third quarter, we were able to achieve or exceed our goals despite the volatility and challenges associated with commodity prices. We were able to do this because we continue to focus on the operational and financial items within our control to maximize adjusted free cash flow. We also benefited from our historical efforts to optimize and build an asset portfolio defined by high margins, shallow declines and long reserve life, the virtues that lead to resilience and sustainability no matter where we are in commodity price cycle. So let's get into the numbers. Our oil sales were 13,332 barrels of oil per day, which was slightly below the midpoint of our guidance. And our total sales were 20,789 barrels of oil equivalent per day, which was above the midpoint of our BOE guidance. Production from our recently acquired Lime Rock assets as well as the new wells drilled so far this year continue to perform better than expected and continue to help mitigate the natural decline of our legacy assets during this period of capital discipline. We deployed $24.6 million in capital spending during the quarter, which was near the low end of our guidance range and allowed us to drill and complete the necessary wells to achieve our production targets. As we have shared in the past, our discipline in this regard is focused on striking the right balance of maintaining modest year-over-year production growth and liquidity with managing our leverage ratio and paying down debt. Another item associated with our focus on maximizing adjusted free cash flow is our cost-cutting efforts in the field, which continue to yield great results. Our lifting costs during the quarter were $10.73 per BOE, which was below the low end of our guidance range for the second consecutive quarter and only 3% shy of the lifting costs recorded last quarter. Our lifting cost reductions have been driven primarily by reducing the number of operators in the field required to operate our wells, lower chemical expense, reducing well failures and the costs associated with well repairs and production efficiencies gained through longer run times and proactive well interventions. Our third quarter results demonstrate that Ring Energy is successfully executing on our operational plans and managing the important issues within our control. Despite weak oil and natural gas prices, Ring generated $13.9 million in adjusted free cash flow during the quarter, which was primarily driven by the operational items we just discussed. Our operational performance enabled Ring to reduce debt by $20 million, which was $2 million more than we guided for the quarter. Our continued and unwavering focus on improving our leverage ratio will continue into the foreseeable future, and we intend to maintain the momentum of the successes from the first half of this year as we finish out 2025 and enter 2026. As we stated in our earnings release, if we encounter higher oil and natural gas prices in the future, we will continue with our capital discipline to prioritize reductions and improving our leverage ratio to competitive levels with our peers. Having said all this, I would like to turn this call over to and introduce you to our Vice President and Interim Chief Financial Officer, Rocky Kwon. He will share the highlights and details of our third quarter financial position. Afterwards, I will return to share more about the priorities and our outlook for the future. Rocky? Rocky Kwon: Thanks, Paul, and good morning, everyone. The takeaway for the quarter is that Ring continues to successfully execute its plan to reduce costs, maximize free cash flow generation with a focus on further debt reduction. In Q3, similar to Q2, we paired strong sales volumes with disciplined capital deployment and a focus on cost reduction. The combination of these actions resulted in adjusted free cash flow of $13.9 million, which enabled us to pay down $20 million of debt. As we have said every quarter, balance sheet improvement has been and will remain a top priority for the company. Turning now to the metrics for the quarter. It's clear that the team is executing the operational plan effectively. Starting with sales volumes. We sold 13,332 barrels of oil per day, just below the midpoint of our guidance and 20,789 BOE per day above the midpoint of guidance. Third quarter 2025 overall realized pricing decreased 4% to $41.10 per BOE from $42.63 in the second quarter. Driving the overall decrease was a 16% reduction in NGL prices to $5.22 for the quarter. This was offset by 3% higher realized oil prices of $64.32. Realized gas price remained at a negative value of $1.22. However, that was an improvement from a negative $1.31 in the second quarter. Plant processing fees continue to reduce realized pricing for both NGL and gas. Our third quarter average crude oil differential from NYMEX WTI futures pricing was a negative $0.61 per barrel versus a negative $0.99 for the second quarter. This was mostly due to the Argus CMA role that increased $0.76 per barrel, offset by the Argus WTI WTS that decreased by an average of $0.41 per barrel from the second quarter. Our average natural gas price differential from NYMEX futures pricing for the third quarter was a negative $4.22 per Mcf compared to a negative $4.67 per Mcf for the second quarter. Our realized NGL price averaged 8% of WTI compared to 10% for the second quarter. The result was revenue for the third quarter of $78.6 million despite the weakening prices. We continue to target higher oil mix opportunities as oil accounted for 100% of our total revenue, while it was only 64% of total production. Overall, our sequential revenue decreased by 5% from the second quarter, which was driven by a negative $5.8 million volume variance, offset by a positive $1.8 million price variance. Moving to expenses; LOE was $20.5 million or $10.73 per BOE compared to $20.2 million or $10.45 per BOE in the second quarter. We were pleased to see the trend of lower LOE on a BOE basis over the last two quarters, which was well below our guidance of $11 to $12 per BOE. Cash G&A, which excludes share-based compensation, was $6.5 million compared to $5.8 million for the second quarter. The slight increase was primarily driven by an increase in salaries and bonuses related to the separation of a former executive. Our third quarter results included a gain on derivative contracts of $0.4 million compared to a gain of $14.6 million for the second quarter. The third quarter gain included a $2.1 million unrealized loss and a $2.5 million realized gain. As a reminder, the unrealized gain loss is simply the difference between the mark-to-market period-to-period. For Q3, we reported a net loss of $51.6 million or $0.25 per diluted share, which includes $72.9 million of noncash ceiling test impairment charges compared to the second quarter net income of $20.6 million or $0.10 per diluted share. Excluding the estimated after-tax impact of pretax items, including share-based compensation expense, noncash ceiling test impairment and noncash unrealized gains and losses on hedges, our third quarter 2025 adjusted net income was $13.1 million or $0.06 per diluted share while second quarter 2025 adjusted net income was $11 million or $0.05 per diluted share. We posted third quarter 2025 adjusted EBITDA of $47.7 million compared to $51.5 million in the second quarter, with most of the difference attributed to lower oil revenue and higher cash G&A offset by higher realized hedges. During the third quarter, we invested $24.6 million in capital expenditures, which was below the midpoint of guidance of $27 million. Adjusted free cash flow was $13.9 million compared to $24.8 million for the second quarter, with a net decrease primarily associated with approximately $7.8 million in higher capital spending, combined with $3.7 million lower EBITDA compared to the second quarter. We ended the period with $428 million drawn on our credit facility after a $20 million paydown. With the current borrowing base of $585 million, we ended the quarter with $157 million in availability with a leverage ratio of 2.1x, which includes the $10 million deferred payment related to the Lime Rock acquisition due in December of 2025. Moving to the hedge positions. For the last three months of 2025, we currently have approximately 0.6 million barrels of oil hedged with an average downside protection price of $62.08. This covers approximately 53% of our oil sales guidance midpoint. We also have 0.6 Bcf of natural gas hedged with an average downside protection price of $3.27, covering approximately 33% of our estimated natural gas sales based on the midpoint of guidance. For a breakdown of our hedge positions, please refer to our earnings release and presentation, which includes the average price for each contract type. We updated our guidance for the fourth quarter and the full year 2025. Full year production guidance is now 13,100 to 13,500 barrels of oil per day and 19,800 to 20,400 BOE per day. Guidance for the fourth quarter total sales volumes is now 19,100 to 20,700 BOE per day and oil production ranges between 12,700 and 13,600 barrels of oil per day, resulting in a 66% oil mix. On the cost side, we updated guidance to $10.75 to $11.75 per BOE for the fourth quarter and $10.95 to $11.25 for the full year of 2025. Please refer to our third quarter earnings release and company presentation for full details by period. As in the past, we retain the flexibility to react to changing commodity prices and market conditions while also managing our quarterly cash flow. So with that, I will turn it back to Paul for his closing comments. Paul? Paul McKinney: Thank you, Rocky. Ring Energy's value proposition is clear. Our enviable portfolio of oil-rich assets with shallow declines, long reserve lives and higher margins allow for resilient cash generation. Our focus on building an inventory of drilling opportunities with low breakeven costs provides flexibility and optionality to maintain our production levels and liquidity. Together with our capital discipline, flexibility and focus on maximizing adjusted free cash flow generation to manage our leverage ratio and improve our balance sheet emphasizes the virtues of our value-focused proven strategy and the potential for strong revenue and earnings growth when higher commodity prices return. Ring stockholders have observed two consecutive quarters of disciplined capital allocation and improvements in capital and operational efficiencies that led to strong cash flow generation and debt reduction during these post Liberation Day commodity prices. We intend to remain on course with these priorities regardless of future commodity prices and intend to do so until we drive our leverage ratio down to competitive levels with our peers. Regarding acquisitions, it is challenging in my mind that Ring would acquire producing assets of any reasonable or significant size with our leverage ratio being what it is today and our stock, in my opinion, being as undervalued in the marketplace as it is today. Having said that, though, there are attractive opportunities out there that would make great additions to our portfolio because they meet our strict criteria. So I feel compelled to say that we are and will continue to evaluate available opportunities to acquire, but -- and until some of these individual and macro level issues change, it is unlikely that we could or would do anything in this regard of any significant size. Regarding divestitures, as many of you know, we have a small package on the street of quality non-operated working interest. We are testing the market to see if we can repeat the performance achieved in the past when we were able to sell assets at valuations accretive to our trading multiples. The proceeds from future asset sales will be allocated to debt reduction. Regarding implementing a stockholder capital return framework, we currently do not pay dividends and have not pursued a stock buyback program. With all things considered and having had conversations with many of our large stockholders, we believe prioritizing debt reduction and improving our leverage ratio is our most important focus. We also believe that achieving a more relevant size and scale in the marketplace is also important. With respect to growth, until we achieve leverage ratio competitiveness, our focus will be on reserves and inventory growth. As you may recall, we did not complete any acquisitions during 2024, yet we grew our production and reserves through organic means. Having more ways to grow today is important, and we no longer have to rely on acquisitions of producing assets to achieve our growth ambitions. By focusing on reserves and inventory growth during these times of challenging commodity prices, we can continue our focus on improving our balance sheet and prepare ourselves for the future when our leverage ratio, debt levels and commodity prices provide the opportunity and the flexibility for significant growth. With that, we will turn this call over to the operator for questions. Operator? Operator: [Operator Instructions] The first question comes from Noel Parks with Tuohy Brothers. Noel Parks: One thing I was wondering about is on the balance sheet, it's something I don't know if I've asked about recently. Any thoughts about possibly terming out the revolver since we're kind of in this transitional interest rate environment and it seems like there are some folks out there who think we might not see a lot further down move in longer-term rates. So just wondering if that was on the table these days. Paul McKinney: Yeah. Noel, that's a really good question. And to be quite frank with you, everything is on the table, right? And so yes, we are looking at not only that, but all other opportunities that we have to strengthen the balance sheet. What are the ways to reduce risk out there in the marketplace? And so there are advantages and disadvantages associated with various different financing alternatives. The credit facility that we currently have in the reserve-based loan still does stand at the lowest cost of capital for us, and that's where we are right now. But as markets change and as risks change going forward because you got all kinds of things moving. You got interest rates that are moving, you have energy prices that are moving. Everything appears to be very volatile. So yes, we do our best to try to stay abreast with all these changes. And what does that mean in terms of the best way to finance our future growth and the debt that we have on the balance sheet. Rocky, is there anything else you can say? Rocky Kwon: No, I just want to echo that comment, Paul. All options are on the table. We are exploring all opportunities to strengthen our balance sheet, especially when it comes to our debt levels. So we are exploring opportunities, and we are continually keeping abreast to all our options out there. Paul McKinney: Yeah. So the only thing I can say is that although we're evaluating, we're not in a position right now to announce any kind of a change or anything like that. But I think every company out there, just including us, especially those that are in the public space, you have to stay abreast of these types of changes. But yeah, that's a very good question. We don't have any -- we're not anticipating any kind of changes in the near-term, but we are looking at all of those things continually. Does that answer your question, Noel? Noel Parks: Sure does. And another thing I was wondering is, in this environment, we've had some relative weakness in crude compared to where we've been. So would you say it's safe to assume looking into next year, flattish service costs kind of at worst heading into next year? Paul McKinney: Yeah. So if you've got a crystal ball on what future energy prices are, that would be probably the best prognostication you could have, I guess. And I'm going to turn this over to my operational guys. But there has been changes in the cost for services that we've seen since post Liberation Day. Shawn, I don't know if there's anything more you can say in that regard. Shawn Young: Yeah. Obviously, with the activity levels and commodity prices where there are, there's continued pressure on service costs. And I'm not sure we've seen the bottom yet. So we're continuing to work with our vendors and continuing to negotiate the best cost we can. But yeah, it's -- hopefully, we do see some improvement in commodity prices and maybe that does keep service costs relatively flat. But right now, we are still continuing to take advantage of some savings that we're able to negotiate. Paul McKinney: Yeah. And we're anticipating a few more here in the near term. Yeah. That's good. Good question, Noel. Operator: The next question comes from Jeff Robertson with Water Tower Research. Jeffrey Robertson: Paul, in your opening remarks, you talked about the stock price, and you talked a little bit about it on the August conference call. Can you just share any thoughts with 90 days later, how you think Ring is relatively positioned as you look out into 2026? Paul McKinney: Yes. I mean if you look back at where we were this time last quarter, there are a couple of things that have changed. The most significant change is that Warburg has since completely exited their position in Ring Energy stock. And we also believe all of the institutional repositioning associated with the Russell 3000 is also over. So from my perspective, Ring Energy is now free from what has been described by others as an overhang or additional selling pressure against our stock. And so I'm really excited about that. Now where we are trading today, I still believe we are at a discount to our peer companies. And I believe that our performance is very competitive versus that peer group. And so I believe that we will see a gradual increase in our stock price performance versus our peers just because I believe that's the rightful place where we should be. And if we continue to deliver to our stockholders quarter-over-quarter, I don't know how long it will take for us. But if you look back in history, if you look at the history of our stock price and performance versus our peers, we've suffered three years of additional selling pressure that really put us at the lower end of that peer group when our operational and financial performance during that time period was at the higher end. And so I believe we're going to get there. What does that mean? It's kind of hard to say. But if you just look at the trading metrics, we're just not trading where many of the other peer companies are and yet our performance is superior. So I think that there's a bit of a re-rating that can occur there. Jeffrey Robertson: With the emphasis on debt reduction, I think Rocky you mentioned the $10 million deferred payment [indiscernible] Lime Rock during the fourth quarter. Paul, can you talk about what the scenarios that you think about for 2026 for further debt reduction? And should we take the slide that you all have, I think it's the bottom right panel on Slide 7 as an indication of what might be possible for debt reduction in 2026? Paul McKinney: Yeah. Yeah, another good question, and that was intentional. And Rocky will jump in here shortly as well. But before getting into any of the numbers, though, I think we need to emphasize to our investors that there are several variables between now and the end of the year with regarding that will impact our debt as we exit the year. But having said that, we believe, based on our current projections of operational performance and also the assumptions associated with commodity prices remaining at current levels, of course, we can't forget that, right? We should be able to pay down somewhere in the $10 million range in the fourth quarter. Rocky, is there anything more you want to say? Rocky Kwon: Yes, there is. I'd just like to reemphasize the uncertainties that we have the potential to pay down and that would affect the number -- the $10 million number that you just shared, Paul. Some of these issues can improve the amount and one or two of these could actually reduce the amount, but I just want to emphasize the uncertainty of that nature. But importantly, I think it's worthwhile to note again that we do have a $10 million deferred payment due in December. So if it wasn't for the $10 million deferred payment from the Lime Rock acquisition, that repayment, that reduction would actually be approximately $20 million. But again, I just want to reemphasize the uncertainty of the nature and there's -- it could improve or it could reduce the amount. Paul McKinney: Yeah. So going back to that, I mean, we just paid down $20 million worth of debt in the third quarter. If it wasn't for that deferred payment, thank you for mentioning that, Rocky. We would be paying down another $20 million next quarter. All of these changes that we've made in terms of how we're allocating capital, the priority associated with debt reduction. I think if anything, we've learned from Liberation Day that the leverage ratios that we currently have really need to be lower. We need to position ourselves so that we have more flexibility and more optionality, especially with our dealings with commodity hedges and everything else. And so we're not going to lose focus on paying down debt. And so if it wasn't for the deferred payment, we'd be paying down more next quarter. But hey, we still have a couple of things up our sleeve. We might be able to exceed that. But I think $10 million is a good number. [ Al ]? Alexander Dyes: Yes. And one more thing, hi, good morning, Jeff. And as Paul mentioned on the call just earlier, we are looking at rationalizing our portfolio. So we are also looking at noncore divestitures specifically a non-op divestiture. So that asset class is tending to trade at better multiples than us. And so if we can potentially sell it at a premium like we did last year where we sold an asset, we'll try to do that, too. Paul McKinney: So that's another potential that could increase our debt reduction. So put it this way, Jeff, we're going to -- we're very, very focused on debt reduction. And back when oil prices were $75, $80, we could continue to pay down debt and also pursue organic growth or growth. But at these prices, we're squarely focused on paying down debt. So I think $10 million is a good number to go with. And so we'll see how things turn out. Does that answer your question? Jeffrey Robertson: Yes, it does. Operator: [Operator Instructions] The next question comes from Poe Fratt with Alliance Global Partners. Charles Fratt: Just to follow up on that $10 million debt reduction number in the fourth quarter. Can you give us a range? Rocky, you talked about some good things and potentially some bad things. What's the best case scenario for debt reduction in the fourth quarter? Paul McKinney: Poe, come on now? Charles Fratt: And what's the worst case? I mean just how tight is that range? Rocky Kwon: Again, thanks for the question. That's a really tough question to quantify any ranges due to the uncertainty of the nature, commodity prices, several aspects that we are working on in-house such as the non-op divestiture piece that we have out there. And again, the $10 million deferred payment that we have. So if you strip that out, we're looking at approximately a $20 million paydown. But again, the uncertainty of the nature, I can't go into too much and put out a range. Paul McKinney: Yeah. And so Poe, the reason why I really wanted Rocky to answer that question because I know that he would give you a much more conservative number than I might. But I'll put some quantification. I mean it's going to be at least $8 million. But if you go back to what Alex mentioned, there's a potential to pay down $12 million, $13 million or $14 million. And so, is that the high end of the range? It's kind of hard to say because we are still making progress. And some of the big surprises that I've had as a CEO really is the progress that our field guys are making in terms of reducing operating costs out there and then our drillers and guys completing our wells. They're continuing to find ways the capital that we're planning to spend in the fourth quarter, we're finding ways to reduce that -- those costs, and that will go straight to debt reduction. And at the same time, any more progress we make on reducing operating costs, that's going to go towards paying down debt as well. And so it's kind of hard to put a range on it, but that's probably the best we can give you, Poe. Is that all right? Charles Fratt: No. From what I think I heard, the high end of the range potentially includes the sale of the non-op working interest. So should I be thinking about the potential proceeds from that sale of -- in the $3 million to $5 million range? Is that sort of a reasonable expectation? Paul McKinney: Well, it's kind of hard to say there because if you look at the range out there in the marketplace, it could be considerably higher than that. That's part of the reason why I said we're testing the markets with this. If we don't get what we think is the right value, we won't sell it at all. So then there won't be any benefit to that. So it truly is a test in the marketplace. We expect to get a very strong trading multiple out of the sale of those assets. Otherwise, we won't sell them. So that's a real risk that we just actually don't close on a deal in the fourth quarter, and we don't apply that to paying down debt. Charles Fratt: Yeah. What did the working -- non-op working interest contribute in the third quarter as far as production? Paul McKinney: Yeah, it's less than 200 BOEs a day, yeah. Charles Fratt: Okay. So yeah, on the margin, it's not going to move the needle significantly on your debt reduction program. Okay. And then I noticed this may be a little nitpicky, but I noticed the third quarter production, the oil cut dropped. Is there anything that drove that or is that -- it sounds like it may be temporary from the standpoint of looking at your fourth quarter guidance, oil cut rebounded to 66% from 64%. But anything going on there? Paul McKinney: Yeah. I mean, actually, you're digging into the numbers and you're identifying a lot of things that we don't spend a lot of time talking about. But prior quarters, we had -- and we had this consistently. We have -- some of the gas gatherers are systems that are a little on the older side. And so the reliability of those gas gathering systems. When these plants go down or there's a line leak and they got to replace a line, oftentimes, we find our gas not going to sales. And so that is the swing typically that you see in our ratios from one quarter to the next. And it's more a reflection of the takeaway capacity and whether or not they're actually taking. Shawn, is there more you can share there? Shawn Young: Yeah. So yeah, Paul hit it right on the head. In the second quarter, we did have a lot more downtime associated with gas takeaway. And so our gas volumes were not as strong in the second quarter versus where we were in the third quarter, and that's what's making the splits there change. Charles Fratt: Okay, great. And then if you look at the midpoint of your CapEx guidance for the fourth quarter, can you give me an idea of the mix between vertical and horizontal wells that you're going to drill? Shawn Young: Can you repeat that question? Paul McKinney: You want to know the mix between horizontal and verticals in the fourth quarter [indiscernible]. Alexander Dyes: Yes, I think we've got 3 horizontal wells and 1 vertical well planned for the fourth quarter, so. Charles Fratt: Great. And then Jeff talked about Page 7, the lower right box. Is that your current working guidance for 2026 or how should we look at that? Is that more of a hypothetical at this point in time or should we view that as the guidance for '26? Paul McKinney: It's actually hypothetical. It's basically assuming that we continue with the same capital spending levels that we have. We are looking at and actually in the final throes of assembling our budget for next year, and we intend to review that with our Board of Directors to get approval for that. And so then we'll come out with official guidance once we've got that pinned down. And so yeah, there's a lot of moving parts in that regard right now because I think it's probably safe to say at this early stage that unless something changes, $60 will probably be the price assumption, a flat $60 case going into next year associated with our projected cash flows and all this kind of stuff. And if you use that as a basis, that's going to affect the capital spending levels. And again, we're going to continue our preference for paying down debt and strengthening the balance sheet through a stronger leverage ratio. And so we'll be managing all of that. But at this point, it is the tail projections from basic assumptions that were designed for 2025. That tends to get updated and will be updated here before we exit the year, and we'll be reviewing that with the Board immediately after the New Year. And so when we come out with our fourth quarter results, we'll have clear guidance at that time. Charles Fratt: Okay. Just wanted to make sure that, that was hypothetical and that we really shouldn't be looking at those numbers unless oil prices change from where they are now, right? Paul McKinney: Yeah. And so -- but if you look at -- I will say this, the assumptions that went into that, even though it's a hypothetical, those assumptions in this current price environment are not going to be a whole lot different than what was used to put that together. So it could change. Alex, is there any more you want to say there? Alexander Dyes: Yeah. So as Paul was alluding to here, it's more of -- if you look at what the realized oil price this year, it's about $64 to $65. So this base model for '26 outlook was based on that. If we really do remain in the $60 price environment, then we will look at pulling back our capital some to try to still maintain production, but the reinvestment rate would obviously be -- we're trying to stay pretty level around that 50% to 55%. Paul McKinney: Yeah. And so the reinvestment level is important. And again, because we're not going to lose sight of debt reduction, you can't lose sight of leverage ratios either. And so it's a balance. It's a mix. But yeah, so that would imply a slightly lower capital spend, and that would affect EBITDA and same with the oil price assumption, too. Charles Fratt: Okay. Sounds good. And then, Rocky, just a nitpicky one on G&A expense. You had mentioned Travis leaving that hit the G&A expense line this quarter. Will it bleed into the fourth quarter or will G&A fall back into the sort of the second quarter range? Rocky Kwon: No. So G&A will kind of be back in line. That was a onetime recognition of the costs related to the departure of our executive. Based on the rules, we had to take the -- we had to recognize all the costs within the period that it incurred and it was in the third quarter. Operator: [Operator Instructions] We now have a follow-up from Jeff Robertson with Water Tower Research. Jeffrey Robertson: Paul, you talked about organic growth in the past. But if you're not in the acquisition market just because of dynamics, what do you do with the existing asset base to try to categorize or catalog organic growth opportunities that you can take advantage of in the future? Paul McKinney: Yeah. And so I'm going to allow James Parr to jump in on this. But again, it goes back to the price environment that we are. If we're in a higher price environment, you can focus on more than just one endeavor that leads to share price appreciation, right? And so in the past, when we're in the $75 price range, we were paying down debt and also seeking to grow. Right now, we're focused on debt repayment. And so what are the other things you can do? So if you go back to 2024, we were very successful in terms of growing the company through organic means. And so that's acquiring additional leases within our cash flow and drilling wells identified through organic means. And we not only grew our reserves, but we also grew our production. Right now, we don't intend to grow our production. And so by focusing on reserves and inventory, building your undeveloped inventory, we'll position the company so that when energy prices return and then our balance sheet is in a strong position, our leverage ratio is where we want it, then we have the optionality to actually pull -- take advantage of the built inventory and deliver significant growth. That could be in significant production, revenue and EBITDA growth. And so right now, I think we're focused in the Central Basin Platform and the Northwest Shelf in terms of identifying the opportunities. I think, James, I mean, I'm sure there's a lot you can say here. James Parr: Yeah. No, great question, Jeff. In tight times, how do you continue to maintain the company and pay down the debt. So I'm excited by the multiple organic opportunities that we've got across most of our assets that we've purchased through previous deals that we've got. And for instance, down in Crane County, [ offset ] operators have successfully drilled and derisked additional stratigraphic intervals that extend on to our acreage. So pursuing these deeper targets in the future will enable us to have more of a horizontal well program going forward, replace and grow our reserves organically and increase our capital efficiency through the shared cost of the facilities we have, drill longer laterals, et cetera. So these deeper benches that are across our acreage holdings give us a really robust future inventory to replace production, pay down debt and grow prices even in this -- grow the company or maintain it even in this depressed price environment without resorting to an acquisition. So we feel good about what we've got ahead of us, and there's a lot of potential. Paul McKinney: Yeah, [ Joe ], I mean, organic developed opportunities typically are considerably more economic than the opportunities that you buy in the marketplace when you make an acquisition. And so -- and we proved that to ourselves last year. That was also part of the reason why we hired James, and we have continued -- we call it adding more tools to the toolbox. We want more ways to win in higher prices than in the past, without the staff necessary that was necessary to identify these types of opportunities, you grew through acquisitions. But just because we're in a position right now where acquisitions are less likely, that doesn't mean we're not growing and growing reserves and growing our undeveloped inventory is the best thing we can do during these times so that when oil prices do return and our balance sheet is stronger, then we can really pour it on and we can deliver growth through organic means. And so getting back to what James said, we do have several operators, and he mentioned Crane County, there's an operator down there, a private operator that's just doing a great job, a great organization, and they've proved many of the zones that go across our acreage. And so we're going to test and we're going to try some of these. We're going to build those -- that inventory so that when prices are right, we'll be able to get after it. And so that represents a great opportunity for investors. When you look at a company like Ring, that growth could be very significant, especially when you consider our current size and how meaningful that could be. So can we see significant multiples in terms of our future production and revenue growth? I believe it's possible, and that's the best thing you can do during times like this when we're just paying down debt. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Paul McKinney, Chairman and CEO, for any closing remarks. Paul McKinney: Yeah. Thank you. On behalf of the entire team and Board of Directors, I want to once again thank everyone for listening and participating in today's call. We are pleased to have posted solid operational and financial results for the third quarter of 2025, and our outlook for the remainder of the year remains solid despite the current price environment. We will continue to keep everyone appraised of our progress and thank you again for your interest in Ring Energy. Have a great weekend, everybody. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Willdan Group Third Quarter Fiscal Year 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Al Kaschalk. Please go ahead, Al. Al Kaschalk: Thank you, Kevin. Good afternoon, everyone, and welcome to Willdan Group's Third Quarter 2025 Earnings Call. Joining our call today are: Mike Bieber, President and Chief Executive Officer; and Kim Early, Executive Vice President and Chief Financial Officer. Our conference call remarks will include both GAAP and non-GAAP financial results. Reconciliations between GAAP and non-GAAP measures can be found in today's press release and in the presentation slides, all of which are available on our website. Please note that year-over-year commentary or variances on revenue, adjusted EBITDA and adjusted EPS discussed during our prepared remarks are on an actual basis. We will make forward-looking statements about our performance. These statements are based on how we see things today. While we may elect to update these forward-looking statements at some point in the future, we do not undertake any obligation to do so. As described in our SEC filings, actual results may differ materially due to risks and uncertainties. With that, I hand the call over to Mike, who will begin on Slide 2. Michael Bieber: Thanks, Al, and good afternoon. The third quarter of 2025 marks another milestone in Willdan's growth. In the third quarter, we continued to execute very well, delivering results that exceeded the Street expectations and our own forecasts across all key metrics. Against a strong Q3 last year, net revenue grew by 26% year-over-year, driven by an outstanding 20% organic growth rate. 2025 will mark the fourth consecutive year that we've produced double-digit organic growth. Margins also continued to expand in Q3, concurrently with significant investments for our future, with electric load growth expected to increase over the next decade, driven by data centers and electrification. Willdan's unique capabilities and execution position us well to sustain long-term growth. As a result, we are again raising our full year financial targets, which Kim will present a little later. Turning to Slide 3. Willdan delivers a broad range of energy and infrastructure solutions to utilities, commercial customers and state and local governments. On the left side of the slide, the Energy segment makes up about 85% of our revenue, while our Engineering and Consulting work makes up about 15%. On the right side, demand remains healthy across all customer groups. The 15% of work for commercial customers is mostly centered around electricity usage at data centers, where AI-driven load growth is creating significant demand. Willdan is helping technology clients navigate energy constraints, optimize infrastructure and meet aggressive power requirements. Our Utility business makes up about 41% of revenue and continues to perform well. Most of our utility contracts are 3 to 5 years in duration, funded by rate payer fees and continue to provide a strong foundation of recurring revenue. The size of our long-term utility programs is generally increasing across the country as energy efficiency can be viewed as a power resource. Work for state and local governments makes up 44% of revenue and continues to grow organically at a double-digit pace. Demand from our government customers remains solid, and the outlook is positive. Most of our government work is funded through user fees and municipal bonds, which have remained healthy. On Slide 4. Our upfront policy, forecasting and data analytics work informs our strategy and helps us navigate market change. In our upfront work, we see particular demand for studies on the impacts of electricity load growth, and that work is growing at about 50% organically year-over-year. Those market changes led us to the APG acquisition that provides Power Engineering solutions to data center clients, hyperscalers and other commercial customers. I'm pleased to report that APG is collaborating very effectively with the rest of Willdan and has already won record backlog that we expect will propel more than 50% growth by APG in 2026. In other parts of Engineering, we saw strong execution and growth with both commercial and municipal customers. In Program Management, we performed above our plan on utility programs and building energy programs for cities. Demonstrating this model in an example, we are hired by technology hyperscalers to identify the optimal sites for data centers. We then provide clients, consulting, engineering and project management to supply the electricity that powers those centers. The new generation of data centers usually requires high-voltage power, often hundreds of megawatts with a dedicated utility scale substation and utility interconnect. After a data center is built, Willdan provides energy optimization inside the data center as we have done for many years. Each step with the customer informs the next step. This model extends across all of our service lines. On Slide 5. We have a strong pipeline of opportunities that we are converting into contracts, and the pipeline remains solid heading into 2026. Here are just a few examples we converted since our last conference call. For Alameda County, California, we won a 2-year $97 million project to design and implement energy and infrastructure upgrades at county infrastructure throughout San Francisco's East Bay. For a confidential client, we won 2 substations for solar storage projects worth a combined $21.7 million in Oregon and Georgia. For a confidential client in Texas, we won a $14 million substation project for a solar energy storage system and a $7.8 million greenfield substation project. In Utah, we won a $3.6 million project to expand an existing substation. And I'll note that projects 2 through 5 on the table were all led by our recent APG acquisition. They're doing very well. On Slide 6. In early October, Willdan's E3 subsidiary published new research on electricity load growth. This research forecasts between 0.7 terawatt hours and 1.2 terawatt hours of U.S. electricity load growth over the next 10 years. The drivers are broad-based and extend well beyond the data center load growth now often talked about to include new industrial demand, electric vehicles and the electrification of building systems. The colors on the bar chart depict the relative proportions of load growth drivers. This load growth is transforming electricity markets from a one static landscape into a dynamic long-term growth market. On Slide 7. Looking globally, this map demonstrates that current data center electricity load expressed in gigawatts is by far the greatest in the United States right here. The map also puts into perspective just how large Northern Virginia data center electricity load is compared to anywhere else in the world. We've previously talked about our landmark study for Virginia on the impacts of this load, which has led to several more similar studies for data center developers and utilities. Willdan is in the right market at the right time and is building the right set of capabilities to help clients navigate electricity load growth. Utilities are also investing to enhance reliability and flexibility as more distributed resources come online, requiring significant modernization of aging infrastructure. Together, these forces are driving one of the largest infrastructure investment cycles in decades, and Willdan is well positioned to help utilities and communities navigate this transformation. I'm very pleased with the way our team is performing. Now Kim, over to you. Creighton Early: Thanks, Mike, and good afternoon, everyone. Our Q3 results reflect another quarter of significant year-over-year improvement, continuing a trend that began in early 2022. Turning to Slide 8. For the third quarter of 2025, contract revenue increased 15% year-over-year to $182 million, while net revenue grew 26% to $95 million. The recent acquisitions brought 6% of that growth, yielding an organic growth rate of 20% for the quarter. Growth was broad-based across both segments, led by continued strength in utility programs and double-digit gains in planning and construction management as well as continuing municipal demand, geographic expansion and new contract wins. Gross profit for the quarter grew 30% to $67.1 million, up from $51.6 million last year, driven by the revenue growth and solid project execution. Altogether, higher revenues, favorable gross margin and effective cost control drove a 91% increase in pretax income to a record $14.3 million for the quarter. We reported a 4% income tax rate for the quarter compared to 2% for the same period last year. So net income thus rose to $13.7 million, up 87% from the $7.3 million we reported in Q3 of 2024. Adjusted EBITDA reached another new quarterly record of $23.1 million or an adjusted EBITDA margin of 24% of net revenue and up 53% from what was an excellent performance in the quarter a year ago. GAAP diluted earnings per share increased 77% to $0.90 per share while adjusted earnings per share was up 66% to $1.21 for the quarter compared to $0.73 a year ago. Broad-based growth and excellent execution drove a record quarter. Now to Slide 9. For the 9 months of 2025, contract revenue was up 20% year-over-year to $508 million, while net revenue increased 27% to $275 million. $14 million of the net revenue growth came from acquisitions over the past year, yielding organic net revenue growth of 21% year-to-date. Gross profit increased 31% to $193 million, up from $148 million last year. Pretax income grew 77% to $29.7 million. The discrete tax benefits from stock option exercises and 179D energy efficiency deductions allowed for a $4.2 million tax benefit year-to-date and thus a net income of $33.9 million or $2.26 per diluted share through the 9 months. Adjusted EBITDA rose 52% from $39.1 million in 2024 to $59.5 million or an adjusted EBITDA margin of 21.6% of net revenue, and adjusted earnings per share nearly doubled to $3.34 per share. All are record numbers for a 9-month period. We are on track to exceed our goal of 20% adjusted EBITDA margin in 2025. Slide 10 outlines our balance sheet and cash flow metrics. We ended the quarter with only $16 million in net debt after deploying $33.4 million cash for the recent acquisitions. This brings our trailing 12-month leverage ratio down to 0.2x adjusted EBITDA compared to 0.3x at year-end 2024. Free cash flow for the first 9 months was $34 million, consistent with the $33 million generated for the same period in 2024. On a trailing 12-month basis, our free cash flow was $65 million or an impressive $4.34 per share. We had all $100 million available to draw under our revolving credit facility and an available but undrawn $50 million delayed draw term loan plus $33 million in cash on the balance sheet, giving us $183 million in total available liquidity at quarter end. Our healthy balance sheet, expanded credit facility and consistent operating performance provide us with the financial flexibility to pursue targeted acquisitions and expand capabilities in strategic markets, all while maintaining prudent leverage. Turning to Slide 11. This slide reflects the 20-plus-percent compound annual growth in revenue we've been able to achieve over the past 15 quarters and the even more enviable growth in the adjusted EBITDA over the same period. The lines reflect the ebbs and flows of our diversified portfolio of projects across sequential quarters, but the clear trend across the nearly 4-year period is up and to the right. This record of sustained improvements has been enabled by the strong execution by our management team in a growing market. We've been able to grow and diversify our service offerings to satisfy the increasing demand from utilities, governments and commercial clients to adapt to the new environment. On Slide 12, building on this multiyear record of performance improvements, we're raising our financial targets for 2025. Net revenue for the full year 2025 is now expected to be between $360 million and $365 million, and adjusted EBITDA is now expected in the range of $77 million to $78 million. Adjusted diluted earnings per share is projected to be between $4.10 and $4.20 per share based on an estimated tax benefit of 10% and 15.2 million shares outstanding. These targets do not include the impact of any future acquisitions. Wrapping up on Slide 13. We're proud of the results we've been able to deliver, and we're excited about the potential for the future as we continue to win new contracts and expand existing ones. Organic net revenue growth of 20% for the third quarter, the successful completion of recent acquisitions and excellent free cash flow conversion attest to the record-setting performance for the quarter and the year-to-date. Our performance and confidence in the future support raising our 2025 financial targets. With low leverage and an experienced and motivated management team, we are well positioned in dynamic and growing markets, and we have an active pipeline of strategic acquisition opportunities. Operator, we're now ready to take questions. Operator: [Operator Instructions] Our first question is coming from Craig Irwin from ROTH Capital Partners. Craig Irwin: So I should start by saying congratulations, another really just amazing quarter. Mike, in the last few quarters, you've been growing close to double the targeted growth rate that you've had for the last several years. I wanted to ask if you could maybe talk a little bit about what's lifting this customer demand. How do you plan for the capacity to serve these opportunities? And the profitability is clearly there. Do you get more picky or more choosy about how you service these customers? Or do you see this as something that can maybe be an opportunity for you to continue over the next number of quarters? Michael Bieber: That's a big question, Craig. Thanks. Well, first, the market is good. You know that. Electricity prices are rising. Demand for electricity is increasing. So the market is good. But there's something else going on. Our own performance within that marketplace has improved pretty substantially over the last couple of years, as you mentioned. We're more effective at cross-selling, especially with new acquisitions that we bring in than we ever have been before, and that has led to tens of millions of dollars of new revenue that we had never seen before in our cross-selling evolution, I'll put it. Culturally, we've become much better at that. And APG and the list of their wins sort of epitomizes that. They've been excellent collaborators. We've got a great pipeline. And they're hoping to accelerate and catalyze our growth into 2026. You saw that on the new wins. So that's what's going on. I can't provide you a detailed forecast for 2026. We won't do that until March of this year, but we have been -- we normally guided the Street towards high single-digit organic growth rates. And you're right, we've been about double that now for a little while. We're going to do our best to make it as reasonably high as we can. You mentioned becoming selective. And in certain instances, we have become selective with those projects. We can afford to do so at this point, especially in our commercial work for data centers, where we're choosing to work with certain mid-tier developers that we have very close relationships with, we're working effectively with and it's a good business environment. It's not competitive. It's directly negotiated work, and we are becoming more selective in that area. Craig Irwin: Understood. And I'm guessing that you might be referring to APG, which bridges into my next question. So the work that APG is executing the work they're winning -- the data center work is some of the most exciting projects that Willdan is completing right now. Can you maybe talk about the ability for other areas of Willdan to supplement the capabilities at APG and the execution capacity there? And is this something that is improving employee utilization and just general resource utilization for the company? Michael Bieber: Yes, sure, Craig. Well, first, our upfront consulting work that we do, particularly for the hyperscalers is feeding into our information that we know where the new data centers are going into. That's useful. And on the back end of that, the work that we had been doing to make energy efficient or make data centers more energy efficient, we've been doing that work for a long time is useful in our knowledge of working around that environment. So all of those groups are collaborating pretty well. We're also even getting our civil engineering group involved in certain projects. So that's sort of what the landscape looks like right now. Craig Irwin: Okay. And then last question, if I may. Other companies in the service sector are talking about difficulty sourcing employees. Can you talk about the Willdan workforce? How flexible is the workforce that you've assembled over the last several years? Are you able to develop people up to fill these needs, these opportunities? And do you see this as an impediment to your growth? Michael Bieber: We don't see it as an impediment to growth. Actually, we see ourselves as the employer of choice. We have not had major impediments in hiring employees. And I just saw today that our employee count for the first time has reached over 1,800. We're hiring. And I think we're doing a very effective job of hiring and retaining key employees. I'll note that we [ have ] had 0 turnover in our senior management team over the last more than 2 years. We haven't lost a single person. So no, it's not a major impediment. Look at our website if you're interested. Craig Irwin: Well, congrats again on another really solid quarter. Operator: [Operator Instructions] Our next question is coming from Tim Moore from Clear Street. Timothy Michael Moore: Mike and Kim, congratulations on the continued execution and optimizing your funnel to really cross-sell and benefit from this low-power secular theme. So my first question is really more about risk management and balancing that. It's a good problem to have to be growing organically as fast as you have in the last few quarters and seemingly for next year. So can you maybe just give us a little color on -- we know you hired a lot more consultants this year. We know the employee count is up a lot. You're getting inbound inquiries also through your project managers. But just wondering how you kind of think about accepting larger projects and program management and just making sure that you're staffed without maybe having to pay overtime or on-site costs or actual travel and hotels for maybe a project that if you're jumping around. Just -- can you give us some color on that to really keep the margin up there? Michael Bieber: Sure. Great question. We don't often get it from investors, but it's what we spend most of our time on day in and day out, Kim and I, on this risk management idea. You're right that you need to look -- when you're growing organically at 20-plus-percent, you need to look at the leading indicators to make sure that you're delivering effectively for those clients. And we look at everything from quality to health and safety to other factors, and we review them every week with every operating unit. The leading indicators look good, and we're not seeing issues that might say that we're taking on too much risk or growing too quickly. But we are growing quickly, and we're keeping our eye on that and keeping our eyes wide open. That's how I would describe it. Kim, do you have anything to add? Creighton Early: Yes. The only thing I would add to that, Tim, is that these larger scale projects take a while to develop. And it's not necessarily a big surprise to us when we finally get awarded a project. It's not like we're waiting for some envelope to be opened at the end of a process, and we don't know what's going to happen there. We are working on these -- developing these projects for quite a long period of time, and we can see them coming and we can get a pretty good feel from these clients that we may be in position to win. So we're able to look ahead and plan effectively as well as to what those risks are and how can we get those staffed and how can we make sure we're prepared to execute when the project finally does get awarded. Michael Bieber: Yes. Kim is right and points out correctly that a lot of these start out as T&M consulting projects. We're developing the project for months in advance. We're doing all of the engineering, and we may, with the client decide to, convert it to a fixed price or fixed unit price contract later on, but we're mitigating our risks significantly by working closely with the client upfront in planning. Timothy Michael Moore: That's terrific color. I'd realize that a big renewal like the Los Angeles Water and Power Department won, it's pretty well planned out. Just curious about the new first-time ones, and that's really helpful. My only other question is, as you cross-sell APG more that's early innings, E3 software, civil engineering cross-selling, I'm just wondering, does your team -- and maybe Kim you can speak to this, do you prefer smaller bolt-on acquisitions? Or can you really tackle something that's maybe $100 million-plus target and integrate it well and still be able to cross-sell it well without maybe taking some staff power off of the cross-selling team that's in the rest of the business as you kind of really look at commercial electrical engineering or maybe interconnection? Creighton Early: Yes. I think we've got a pretty effective systems and communication devices, I guess, that we use for the cross-selling activity. And so it's pretty efficient for us as we bring in these bolt-on acquisitions to establish that kind of cross collaboration. But we're definitely prepared to be able to handle $100 million kind of size group. Just culturally, we fit that way. Our tools are kind of designed to make sure that we'll be able to cross-collaborate without significant barriers on those projects. So we definitely keep our eye open for those kinds of opportunities, and we plan for that kind of potential acquisition as well. And whenever you make acquisitions of those size, the leadership on both sides of the fence, our side and the company that's being acquired, the management teams are usually pretty anxious to get to know each other and to find out what the others are doing and how can we work together on that. And that's probably the most exciting piece to most of our team. So we're prepared to do that for sure. Operator: Our next question today is coming from Richard Eisenberg, a private investor. Richard Eisenberg: Yes. Congratulations on a great quarter. On the last call, you talked about a potential $100 million contract with the State of New York. Is that still in negotiation phase? Do you expect to close that? Michael Bieber: We have several large contracts in New York that we're pursuing. And yes, we remain very optimistic that we're going to be successful on one, if not several of those opportunities. And I think they're going to help drive 2026 growth. Operator: Thank you. We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments. Michael Bieber: Well, thank you all for attending, and we look forward to speaking with you soon. Thank you. Operator: Thank you. That does conclude today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, and welcome to the Cidara Therapeutics Q3 2025 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Brian Ritchie with LifeSci. Please go ahead. Brian Ritchie: Thank you, operator, and good afternoon, everyone. With me today on the phone from Cidara Therapeutics is Dr. Jeff Stein, President and Chief Executive Officer. Following Dr. Stein's prepared remarks, we will be joined by Mr. Frank Karbe, Chief Financial Officer; Dr. Nicole Davarpanah, Chief Medical Officer; Dr. Les Tari, Chief Scientific Officer; and Mr. Jim Beitel, Chief Business Officer. To participate in a Q&A session. Earlier this afternoon, Cidara released financial results and a business update for the third quarter ended September 30, 2025. Both the press release is available on the company's website. Please note that certain information discussed on the call today is covered under the safe harbor provision of the Private Securities Litigation Reform Act. Management will be making forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially. These statements are qualified by the cautionary notes in today's press release and the company's SEC filings. This call contains time-sensitive information accurate only as of today, November 6, 2025. Cidara undertakes no obligation to revise or update any forward-looking statements. With that, I'd like to turn the call over to Jeff Stein. Jeff? Jeffrey Stein: Thank you, Brian, and thank you all for joining us. We are pleased to report another very productive quarter at Cidara. Our lead candidate, CD388 has advanced into Phase III development on an accelerated time line in addition to other notable achievements, including the expansion of the patient population for our Phase III trial, receipt of breakthrough therapy designation from the FDA and securing funding from BARDA for this program. As with prior calls, we will focus our remarks on clinical and corporate updates. As a non-revenue-generating company, we will not have a dedicated section to review our quarterly financial results on this call, but instead refer you to today's press release and 10-Q filing. Cidara's proprietary Cloudbreak platform has been developed as a fundamentally new approach to treat and prevent serious diseases through the development of novel drug-Fc conjugates or DFCs, a new class of therapeutic that combines the precision of small molecules with the durability of antibodies. Our lead candidate, CD388 is a highly potent, long-acting antiviral designed to deliver universal once-per-season prevention of seasonal and pandemic influenza by directly inhibiting viral proliferation. Its enhanced antiviral potency and durability make it a potentially transformational non-vaccine preventative of influenza that overcomes the limitations of existing vaccines and antivirals. A key accomplishment during the third quarter was the start of our Phase III ANCHOR trial six months earlier than originally planned. This trial will evaluate the safety and efficacy of CD388 in populations at high risk for complications from influenza. Based on feedback from the FDA in our end of Phase II meeting, we believe that the ANCHOR trial, if successful, may support potential BLA approval of CD388 in the study populations examined in both the Phase IIb NAVIGATE study as well as the Phase III ANCHOR study. The ANCHOR trial was started in late September following a constructive end of Phase II meeting with the FDA at the end of August. Initiation of the study triggered a $45 million milestone payment to J&J, which was booked in Q3, but will be paid in Q4. Originally, we plan to enroll participants aged 12 years of age and older with moderate to severe comorbidities as well as subjects who are immunocompromised. However, based on FDA feedback, we expanded enrollment to include healthy adults over 65, a large and growing group that is poorly protected by current influenza vaccines due to age-related declines in immune function. This change has two important implications. First, it more than doubles the initial number of patients who would potentially be eligible to receive CD388 from 50 million to well over 100 million people in the U.S. Second, it has helped facilitate faster enrollment. The study began in the Northern Hemisphere in late September. The primary endpoint is based on laboratory-confirmed influenza, body temperature of 37.2 degrees centigrade or 99 degrees Fahrenheit or greater and new or worsening of either two respiratory symptoms or one respiratory symptom and one new systemic symptom. We plan to enroll 6,000 participants in 150 sites, nearly 3x the number of sites we used in the Phase IIb NAVIGATE study. All sites are now active and the study is over 50% enrolled, on track to achieve target enrollment in the Northern Hemisphere by December. An interim analysis, most likely in late Q1 2026, will assess the trial size, powering assumptions and event rate to determine if it is necessary to enroll participants in the Southern Hemisphere in the spring of 2026. CD388's progression into Phase III is supported by the strength of the compelling data from our Phase IIb NAVIGATE study, which met its primary endpoint, demonstrating statistically significant prevention of efficacy and a benign safety profile in all three doses tested. Importantly, the NAVIGATE study showed that a single 450-milligram dose of CD388 provided 76.1% protective efficacy that extended through the entire flu season. We shared additional NAVIGATE data at key scientific meetings this fall. The data presented continues to reinforce CD388's differentiated profile as a long-acting broad-spectrum antiviral for influenza prophylaxis. The pharmacokinetic data for the 450-milligram dose demonstrated sustained serum concentrations well above the targeted therapeutic threshold, supporting protection through the full flu season with a single 450-milligram dose in both influenza A and B strains, paired with a clean safety and tolerability profile, including low rates of injection site reactions, which further differentiates CD388 from vaccines. These results validate our dose selection for Phase III. Taken together, these findings strengthen our conviction that CD388 can offer clinically meaningful protection in populations at high risk for flu complications, independent of host immune status, setting it apart from both vaccines and currently approved antivirals. In early October, the FDA granted CD388 breakthrough therapy designation, recognizing preliminary clinical evidence of substantial improvement over existing options. The advantages to Cidara will be enhanced access to the FDA, including more frequent guidance, rolling data review and eligibility for priority review, all of which may accelerate development and regulatory time lines. CD388 also holds fast track status, and this latest recognition affirms the quality and promise of the clinical data we have generated. Also in October, we received an award valued up to $339 million from the Biomedical Advanced Research and Development Authority, or BARDA, to support expanded manufacturing and clinical development of CD388. The multiyear agreement is structured to include a base period and additional option periods. The base period valued at $58 million over the first 24 months will fund the onshoring of manufacturing to the United States, expanding our initial commercial supply chain. It will also support several important development activities, including a clinical trial to demonstrate comparability for a higher concentration formulation and alternative product presentations, nonclinical studies to further characterize CD388's activity against pandemic influenza strains and early work on clinical trial protocols for expanded populations. The option periods could provide up to an additional $281 million in funding to support further clinical and nonclinical studies of CD388 in targeted patient groups and broader population settings. Thanks to our successful financing in June, we remain in a strong financial position. With approximately $476 million in cash at September 30, our Phase III development program is fully funded through completion in all scenarios, including potentially expanding the study to the Southern Hemisphere if needed. Before closing, I want to highlight that we plan to host a virtual R&D Day for the investment community on December 15. We'll provide a detailed update on the CD388 program, including enrollment progress, and we'll share insights from recent market research on the commercial opportunity for CD388. Further details will be announced shortly, and we look forward to your participation in this event. With that, I will turn it back to the operator to take your questions. Operator? Operator: [Operator Instructions] Our first question comes from Anupam Rama with JPMorgan. Unknown Analyst: This is Priyanka on for Anupam. At the interim analysis, how will the external statistician decide how many additional patients are needed to enroll? Jeffrey Stein: Yes. Great question, Priyanka. Let me turn that question over to Dr. Davarpanah, our Chief Medical Officer. Nicole? Nicole Davarpanah: Thank you, Jeff. Priyanka, thanks for the question. So as you know, the purpose of the interim analysis is to look at data at an early time point prespecified at the end of the Northern Hemisphere, approximately end of Q1 of next year to look at the events and to tell us essentially if the powering assumptions, the desired power target for the study was met. So there is a kind of a complex algorithm that has been created for this by our statistician. Importantly, this is a statistician independent to the study, and they will be able to see this data, but will not share any of it with us, and so Cidara and the study team will not be informed. We will only be told if the powering assumptions have been met and whether we need to -- we are able to keep the sample size that we have with 6,000 or we need to add additional participants. Operator: Our next question comes from Maxwell Skor with Morgan Stanley. Maxwell Skor: Just a follow-up on the first question. Should we not expect at the interim analysis to see any sort of efficacy data across the cohorts? And also, I was wondering at the Investor Day, will you begin to introduce efficacy thresholds across cohorts that we can expect in the Phase III trial? And the last question, is there a chance you could potentially include mild patients on the label if everything is positive in the Phase III trial? Jeffrey Stein: Good questions, Max. Again, I'll turn that over to Nicole. Nicole Davarpanah: Thanks, Jeff. Max, thank you for the question. So I think the initial question is, will we know any kind of efficacy data from the interim? And the answer is no. So this is essentially only the blinded status -- unblinded excuse me, statistician will see this information and will not share it with us. But I think one thing that maybe you're alluding to as well is we may end up enrolling the entire trial in the Northern Hemisphere. And at that time, there may be no need to actually even move into the Southern Hemisphere, and we will make a decision at that time if it's appropriate to kind of call that the efficacy analysis. However, we will not be informed by the interim analysis if we decide to do this. I appreciate the question as well about the different kind of subgroups in the trial and what we will be able to show. So we won't be able to show kind of any efficacy estimates for our December Investor Day. We will be able to share a little bit more about the population subgroups that we have enrolled. And I think that will be kind of very enlightening for all of us about the real-world high-risk and 65-plus populations as well as IC populations that you can enroll in a trial like this. And you have to remind me of your third question. Maxwell Skor: Sorry, just one last one around mild patients who are immunocompromised and comorbid. Is there a potential for them to be included in the label? Nicole Davarpanah: That's an excellent question. So in our discussions with the FDA, as you know, they have asked us to expand the trial eligibility to anyone who's 65 plus. So that means 65 is healthy or those with low or mild comorbidities. And as you can imagine, we are going to enroll a lot of those participants with lower mild comorbidities. So I believe that there's an opportunity for that, but it will require further discussion with FDA. Jeffrey Stein: And just to add to Nicole's comments, the high-risk populations are focused on the moderate to severe comorbidities. Operator: Our next question comes from Seamus Fernandez with Guggenheim Securities. Seamus Fernandez: So, two from my side. First, we've heard a lot of updates from some of the flu vaccine manufacturers that flu vaccination rates are down. Wondering if you have a sense of the sort of flu vaccination rates in your study. I think previously, you'd anticipated 65% of the adults potentially having flu vaccination and then having CD388 on top of it. Just wondering how you're thinking about the impact of that and if that 65% is still consistent with your expectations? And then just my second question is on manufacturing and how manufacturing scale-up is progressing and what the needs are from a manufacturing scale up, whether it be with the three-dose or sorry, the three-needle regimen as it stands today? And then what it would take to bring us forward to the sort of vial formulation, which is more consistent with how flu vaccines are delivered today. Jeffrey Stein: Great. Thanks, Seamus. Yes, clearly, you got it right. Our estimate of the flu vaccination rate in the ANCHOR study, which was based on prior clinical studies in the prior years, was 65%, given the fact that we are enrolling subjects with moderate to severe comorbidities, immunocompromised and more recently, over 65, all three populations, which tend to have high vaccination rates. And clearly, that has an impact on our -- the powering of the study. We also noted in the Southern Hemisphere, however, this past flu season, that the vaccination rates have trended much lower than that 65% overall. And we also noted some of the vaccine manufacturers who have made similar observations. Because this is an ongoing study, we won't be sharing the vaccination rate because that can change over the course of the season up until the point where we complete enrollment. But let me turn it over to Nicole to see if she has any additional comments on that. Nicole Davarpanah: Thank you very much, Jeff. Yes, I think you stated it very nicely that we had predicted a kind of a historical vaccination rate of around 60%. But really, our goal was to have vaccination be optional, which is in the trial and to really capture the real-world kind of incidence of vaccination. As we know this therapy will work well, particularly in participants who are unvaccinated, but we expect it to work well vaccinated as well. And so we will continue to follow this, and we are pleased with how enrollment is going so far. I also want to add that if we do end up seeing kind of a lower vaccination rate than expected, we -- this may end up actually kind of favoring the results of the trial, as you can imagine, because there may be a higher kind of event rate in the placebo arm based on capturing symptoms. So we are prepared for whatever comes, but it's an interesting time certainly to be doing an anti-influenza study. Jeffrey Stein: And then, Seamus, to answer the second part of your question regarding manufacturing scale-up, I'll turn that question over to Shane Ward, our COO. Shane Ward: Thanks, Jeff. I think we have talked quite a bit about the work we're doing with our partner, WuXi, who has worked with us on manufacturing since the initial stages of clinical development, has supported our clinical trials and will be the site of manufacturing for our BLA submission and planned commercialization. At WuXi, the process characterization and PPQ activities necessary for BLA readiness are progressing well towards our target dates and that provides us more than adequate capacity for launching given our expectations of potential market demand given the population as we now understand it. The bigger question is how do we meet the potentially much greater demand during the life cycle of the product. And we have separate activities underway for further scale up. The first one of those is expanding to a parallel U.S. supply chain. We've talked about our recent receipt of BARDA funding and the primary purpose of that funding is to support standing up a full U.S. commercial supply chain for all nodes of manufacturing. And the tech transfer kickoffs have already begun for those, and we have a time frame that provides that additional capacity to come online shortly after our anticipated approval. And then the third piece is that we are looking at potential larger capacity global manufacturers who could come online a couple of years after that combined U.S. and WuXi supply chain to add the final bit of capacity that we would need for expansion into the largest possible population. Operator: Next question comes from Eric Schmidt with Cantor. Eric Schmidt: Another CMC question, if I could. What is the scale at WuXi currently that you hope to launch with? And I know you've said that CMC is rate limiting to a BLA filing. What exactly within CMC is the rate-limiting effect? And then if I can squeeze another one in for Les on the data that you were presenting a couple of weeks back. Do we have any sense of resistance to CD388 and for those patients who weren't protected, why they weren't protected? Jeffrey Stein: Great questions, Eric. First part, obviously, we'll turn that over to Shane Ward. Shane? Shane Ward: Right. Thank you. Yes, the capacity at WuXi based on our initial scale that we are validating will provide for around production of 5 million doses per year at the 450-milligram dose level. There's some variability to that, and we may be able to scale up further. WuXi certainly has further capacity, but that is the expectation in terms of the initial supply chain, which then we will add the U.S. supply chain to shortly thereafter. In terms of your question about CMC being rate limiting, that's really all of the qualification requirements as we move forward to BLA readiness. So as was referenced earlier, we are transitioning from the clinical trial formulation or clinical trial configuration, which is three injections using prefilled syringes to a commercial configuration that will be a single vial containing the full dose. So we are transitioning to the vial configuration, scaling up, doing full process characterization and then final qualification. And those steps are really why it's rate limiting and why we are gating in terms of the company's timing for filing the BLA. But we have an aggressive time line for all of those pieces, and WuXi has worked closely with us in developing an integrated plan for each of the nodes to be qualified on an accelerated schedule, which gives us the ability for that 2027 filing time. Jeffrey Stein: And Eric, could you repeat the second part of your question for Les? Eric Schmidt: Yes, that was just on anything we may have learned about resistance or why the product wasn't fully protected for those patients who did get breakthrough infections. Jeffrey Stein: Yes, go ahead, Les. Les Tari: Eric, that's a great question. So at IDWeek, we presented our updated Phase IIb data, which included breakdowns of the timing of influenza cases in all the trial arms across the parallel at the European working group and Valencia, we presented comprehensive PK/PD and exposure response modeling analyses. And I think the PK/PD and exposure response modeling analyses get to the heart of your question that there isn't a red line, a concentration threshold where you're going to get 100% protection with a neuraminidase inhibitor. There will be breakthrough infections if there's potentially a high inoculum, it's called an inoculum effect where you could see infections. And so the fact that we saw infections doesn't mean that there was resistance. So we haven't seen evidence nonclinically that this should be a molecule that's susceptible to resistance, but we are conducting the virology next-generation sequencing on the infections that were observed in the placebo and in the treatment arms, and we will report that data in due course once we have the analyses completed. Operator: The next question comes from Brian Abrams with RBC Capital Markets. Brian Abrahams: Congrats on all the progress. I was wondering if you could talk a little bit more about how the inclusion of healthy individuals over 65 impacts your assumptions for vaccine rates, event rates and powering? And then secondarily, also trying to understand the implications of a potential December enrollment completion. I guess I'm curious what was the median time on study during flu season that your event rate projections had assumed and whether December completion potentiates average accrual of either greater or fewer potential influenza events than you had maybe originally assumed in your powering. Jeffrey Stein: Great, Brian. Nicole, do you want to take those questions? Nicole Davarpanah: Absolutely. Brian, thanks for the questions. For your first question, so the addition of 65 plus is really kind of a fascinating addition to the trial because 65-plus is a broad group, as you know. So it's 65 healthy and it's 65 mild to moderate kind of a mild comorbidities, so to speak. In fact, we think in a lot of ways, it helps the study. So this is a much easier population to enroll, as you can imagine, and we would probably expedite enrollment, which it seems to have just done so far for us as well. In terms of kind of background attack rate in this population, this is a population that tends to see more flu events in trials. And I think that's because there isn't as much protection in cocooning. These are our own relatives and people who are going out seeing their grandchildren and out and about and not protecting themselves as much as a traditional kind of high-risk or immunocompromised participant might. And so when we did all the math and put these populations together, we realized that our placebo attack rate didn't really change very much. It was still right around 1.5%. I think we expect this 65-plus population to have a higher background vaccination rate, about 65% or more. So far, we're still monitoring that. But in general, I think it helped us to have this population in the trial and did not affect our sample size or powering assumptions in any negative way. As to your second question, for the December analysis, so what we mean by that is we will enroll everybody by December. Of course, the endpoint of the trial is still a six-month follow-up. That's the 24-weeks influenza rate or event rate. And so all those participants would still be followed for -- to the flu season, if that helps. So it would be similar to our Phase IIb study, where we looked at that at the end of flu season and had results in June. Jeffrey Stein: And I would add to Nicole's remarks that so far, we have not seen any early signs of influenza in North America. That's important. We want to fully enroll this study before we see the first peak or a peak of influenza this year. So far, it is resembling last year when we're enrolling the 5,000 participant Phase IIb NAVIGATE study. where we fully enrolled it about 1.5 weeks, 2 weeks before the first peak of the flu season. So, so far, fingers crossed, we're tracking to a similar time line here. Operator: Our next question comes from Joseph Stringer with Needham & Company. Joseph Stringer: Just wondering if you could give us a sense for how you're thinking about potential real-world uptake or penetration of CD388 within the individual patient segments. I think at a previous R&D Day, you had some initial survey work that you've done on this. But just given the potential for subsequent developments here for a larger addressable patient population, how should we think about that? Maybe as a representative example, what would be the realistic uptake in, say, a severe immunocompromised patient versus an otherwise healthy 50-year-old with a mild comorbidity? Jeffrey Stein: Yes. These are important questions, Joey, and we'll be addressing those in detail at our R&D Day event on December 15. But let me turn it over to Jim Beitel to address those to the extent we can now. Jim? Jim Beitel: Yes. Sure, Jeff. Thanks for the question. Certainly an important one. The scope of the approved label is expected to be quite broad. And so certainly, commercial reach will factor into the adoption and sort of how fast we get to peak sales over time. But I also want to point you to some interesting data in our current corporate deck, I think it's Slide 20, where we described the data from our primary market research showing that prescribers have interest in this product in terms of their perception of the burden of flu and the importance of preventing it in subjects with moderate to severe comorbidities, but also these mild forms of comorbidities. And so there's a very broad market opportunity here with strong physician interest across the scope of the populations included in the Phase III study. Operator: [Operator Instructions] Our next question comes from Sara Nik with H.C. Wainwright. Sara Nik: Again, congrats on all the progress. My question is more actually looking for opportunities beyond even the seasonal flu. As you've highlighted previously, CD388 universal activity against all flu strains, including H5N1. So just wondering beyond the BARDA funding at this point, what specific clinical or preclinical work is planned to formally establish its utility in the pandemic setting? And do you think this could create a separate regulatory pathway or government stockpiling opportunity distinct from the seasonal flu? Jeffrey Stein: Yes. Thanks, Sara. Les, do you want to take that question about any other studies we might be performing to evaluate CD388 in pandemic strains? Les Tari: Yes. So we're working closely with Richard Webby's lab at St. Jude's Hospital. And thus far, we -- at a meeting earlier this summer, we presented data against the pandemic H5N1 strains in ferrets, where we demonstrated robust efficacy with H5N1 at exposures that are consistent with the exposures at the high dose in human subjects. We're going to continue to work with them on other pandemic strains as well as mutant strains that are resistant to neuraminidase inhibitors -- thus far, all of the strains that we've tested that have resistance against neuraminidase inhibitors, we retain activity against those without a shift. So we're going to do in vitro studies that will follow up on the ferrets efficacy study that we ran with Webby's lab at St. Jude. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Jeff Stein for any closing remarks. Jeffrey Stein: Well, thank you all for joining us today. We greatly appreciate your interest in Cidara and hope that you enjoy your evening. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone, and welcome to the Eventbrite, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, Finance Manager, Paul Bach. Sir, the floor is yours. Paul Bach: Good afternoon, and welcome to Eventbrite's Third Quarter 2025 Earnings Call. With us today are Julia Hartz, our Co-Founder and Chief Executive Officer; and Anand Gandhi, our Chief Financial Officer. As a reminder, this conference call is being recorded and will be available for replay on Eventbrite's Investor Relations website at investor.eventbrite.com. Please also refer to our Investor Relations website to find our press release announcing our financial results, which was released prior to the call. Before we get started, I would like to remind you that during today's call, we'll be making forward-looking statements regarding future events and financial performance. We caution that such statements reflect our best judgment as of today, November 6, based on the factors that are currently known to us and that actual future events or results could differ materially due to several factors, many of which are beyond our control. For a more detailed discussion of the risks and uncertainties affecting our future results, we refer you to the section titled Forward-Looking Statements in our press release and our filings with the SEC. We undertake no obligation to update any forward-looking statements made during the call to reflect events or circumstances after today or to reflect new information or the occurrence of unanticipated events, except as required by law. During this call, we'll present adjusted EBITDA and adjusted EBITDA margin, which are non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and have limitations as an analytical tool. You should not consider them in isolation or as a substitute for analysis of our results of operations as reported under GAAP. A reconciliation to the most directly comparable GAAP financial measure is available in our investor presentation, which is available on our Investor Relations website. We encourage you to read our investor presentation, which contains important information about GAAP and non-GAAP results. And with that, I'll now turn the call over to Julia. Julia Hartz: Thanks, Paul, and thank you all for joining today's call. In Q3, we delivered revenue in line with our outlook. Net revenue was $71.7 million, and we saw a solid sequential improvement in paid tickets, down 3% year-over-year versus down 7% last quarter. Eventbrite Ads revenue grew 38% year-over-year and paid events grew while paid creators were essentially flat, reflecting meaningful stabilization after several quarters of volatility. We also executed with discipline. The adjusted EBITDA margin was 11.7%, well above our 7% guidance as structural cost actions flowed through while we continue to invest in line with our growth plan. The cost actions we took this year are structural, and we're allocating a portion of that benefit to areas where Eventbrite has clear advantages, including creator acquisition, event discovery, and key verticals to set up both revenue and margin expansion in 2026. As we enter the fourth quarter, our outlook reflects the steady operational progress we've made this year, balanced against a few near-term factors that modestly temper top line growth. The ongoing mix shift towards smaller creators continues to serve as a modest revenue headwind. Even so, engagement, paid creator acquisition and paid event activity are strengthening, underscoring the improving health of our marketplace. We remain focused on disciplined execution and expect this foundation to support renewed revenue growth and margin expansion as we move into 2026. Turning back to this year. We entered 2025 with a clear objective to stabilize paid ticket volumes and creator activity. Our third quarter results show the progress we've made. We've strengthened reliability, reporting, and foundational systems, and we've made real gains in creator retention by improving user experience, support, and success tools. At the same time, we've launched a refreshed consumer app and brand, advanced trust and safety through stronger authentication and fraud protection, and reignited our sales engine with a larger category-focused team. Encouragingly, the work we've done over the course of this year has resulted in a nearly 4% increase in new paid creator acquisition in Q3, while meaningfully improving creator retention over the same time frame. Together, these efforts form a strong foundation that positions Eventbrite to capture even more of the opportunity ahead as we move into next year. To build on the momentum we are generating in the second half, we're shifting from rebuilding to laying the groundwork for growth. On the consumer side, we're making Eventbrite the go-to destination to discover live experiences by improving discovery and search and by connecting more consumers with the creators they love. For creators, we're simplifying our event creation tools, so it's easier to publish and promote events. We believe these initiatives reinforce our position at the center of the experience economy and set us up for success in the year ahead by delivering for creators, offering experiences consumers love to attend and continuing to bring people together through live events. Eventbrite sits at the heart of the thriving experience economy where generations of event goers are choosing connection, creativity, and community. With 92 million average monthly users in Q3, consumers and creators across 180 countries and nearly 5 million events each year. Eventbrite is the platform that democratizes live experiences at scale. As our communities continue to grow, we will continue to invest in our platform to ensure that Eventbrite remains the go-to global marketplace, empowering millions of creators to transform their passions into real-world experiences from wellness and culinary gatherings to music and cultural events, fueling a movement that celebrates belonging and discovery. To reaccelerate growth in the year ahead, we plan to build upon the foundation we've laid this year by executing targeted strategic initiatives designed to empower creators, engage consumers, and expand our market. For years, we've been recognized as a powerful and innovative platform for creators, and we're continuing to raise that bar by investing in our platform. Our work focuses on helping creators sell more tickets, operate more efficiently and grow their businesses by improving the conversion of their listings and leveraging our deep insights to inform how they market their events on our and our partners' platforms. In 2026, our product road map is designed to drive creator success by increasing visibility, enhancing conversion, and achieving better outcomes across the Eventbrite marketplace. For example, we'll integrate AI-powered recommendations throughout the event creation journey, leveraging our unique insights into consumer purchase behavior to help creators craft more impactful listings that drive higher ticket sales. We're also applying AI to our rich data set to deliver deeper insights and expand analytics that improve marketing performance and ROI for our creators. Expanding our offerings for our larger and most prolific creators will be a top priority for 2026, and the reason is simple. Today, 13% of paid creators drive nearly 60% of paid tickets and about half of gross ticket fees. Importantly, these creators have the potential to meaningfully improve tickets per creator in the year ahead. To strengthen our product market fit for this segment, we're investing in a more cohesive, modern Eventbrite experience, simplifying product flows, unifying design and navigation and improving mobile ticket access. We're enhancing support through AI-powered automation and reinforcing security with advanced authentication, and we're continuing to enhance core features like waitlist, reserve seating, and timed entry to help large creators operate seamlessly at scale. These initiatives will help high-volume creators sell out faster, expand audiences, and deliver exceptional attendee experiences, further positioning Eventbrite as the trusted platform for their biggest and most ambitious events. And as these creators grow, they power the marketplace flywheel, fueling growth in key categories like music, immersive events, food and drink and festivals. That leads directly to how we plan to engage consumers in the year ahead. Our consumer initiatives are designed to leverage our marketplace flywheel and drive consumer lifetime value by efficiently attracting new attendees and increasing repeat ticket purchases. To grow our consumer audience, we're refining our performance marketing strategy to focus on smarter targeting, stronger campaign optimization and higher quality acquisition. Early results this quarter are encouraging, showing that we can achieve both efficiency and growth. Consumer paid orders driven by performance marketing grew 28% quarter-over-quarter while optimizing for our acquisition cost to keep a positive ROI. Together, these efforts will expand our reach, deepen loyalty and increase the lifetime value of consumers on our platform. To drive repeat purchases, we're taking the consumer experience to the next level. Building on the discovery features we introduced this year, we'll deliver more personalized recommendations and make finding and engaging with relevant events and creators faster and easier. We're also working to optimize our unique event inventory for Agentic tools, paving the way for smarter, more dynamic ways for consumers to connect with the events they love. As our strategy continues to gain momentum, we're identifying and pursuing opportunities to further expand our market share. Our ambition is to achieve this by expanding the power of Eventbrite globally. In the year ahead, we plan to strengthen our foothold in markets with strong creator and consumer demand while increasing localization and monetization in our existing regions through the addition of more payment options and expanded creator tools. We will also continue to expand the reach of our successful Eventbrite ads offering to more countries while enhancing its effectiveness and return on investment for creators. As we advance our strategy, we'll continue to execute with focus and discipline. In the year ahead, every dollar we spend will be intentional, aimed at strengthening leverage, efficiency and our long-term financial foundation. Our significantly improved structural economics will better enable us to drive lasting value for our creators, consumers, and shareholders as we capitalize on the momentum ahead. We're entering an exciting year with building momentum and a solid foundation. Our core business continues to demonstrate resilience and opportunity, and we're executing with focus in the areas where Eventbrite has clear advantages. The work we've done this year positions us to scale our strength and accelerate growth, supported by a clear road map for 2026 that will drive both expansion and efficiency. I would like to thank our Brightlings and shareholders for your continued commitment and confidence. Together, we're shaping the future of live experiences, and I look forward to sharing more as we build on this momentum in the year ahead. And now I'll turn it over to Anand to review our financials. Anand Gandhi: Thanks, Julia. In the third quarter, we delivered top line results in line with our outlook and once again exceeded expectations on the bottom line. We delivered meaningful trending improvements in paid tickets, paid creators, and paid events. At the same time, we made solid progress on our key strategic initiatives, which position us well for growth in the year ahead. I'll walk you through our Q3 results and then discuss our outlook. Note that all comparisons refer to year-over-year changes unless otherwise indicated. In Q3, we delivered net revenue of $71.7 million, down 8% as expected, driven by lower ticketing revenue as well as the continued impact from the elimination of organizer fees. These were partially offset by a 38% increase in revenue from Eventbrite ads. Paid ticket volume totaled $19.1 million, down 3%, reflecting a 400 basis points improvement from the 7% decline in Q2. This represents our fourth consecutive quarter of year-over-year trending improvement. We also saw meaningful inflection points this quarter with new paid creator acquisition and total paid events both returning to year-over-year growth. Gross margin was 67.9%, down 60 basis points year-over-year as expected due to the elimination of high-margin organizer fees. Sequentially, this was a 40 basis points improvement from Q2, driven by the growth of high-margin Eventbrite ads. On the cost side, operating expenses were $49.6 million, down 20% year-over-year. Note that the prior year included $5.4 million of reduction in force costs. Excluding this, on a non-GAAP basis, operating expenses were down 13%. Notably, Q3 operating expenses were our lowest in 4 years with double-digit reductions across the board. Product development expense was down 26% sales, marketing and support down 17%, and G&A down 16%. Overall stock-based compensation was down 42% year-over-year due to disciplined management of equity awards. As Julia noted, these expense reductions have improved the structural economics for the business going forward and also serve as a source to fund growth investments for the future. Q3 net income was $6.4 million, up from a net loss of $3.8 million last year. Note that Q3 benefited from a gain of $5.8 million on the early paydown of $125 million of our 2026 converts. We delivered adjusted EBITDA of $8.4 million, up 58% year-over-year, representing an 11.7% margin. The current and prior year quarters included adjustments to annual incentive compensation. This provided a $1.5 million benefit this quarter and a $3.7 million benefit in Q3 last year. Now turning to the balance sheet. We ended the quarter with $511 million of cash, cash equivalents and restricted cash. Available liquidity was $196 million compared to $248 million at the end of Q2. $60 million related to our term loan will be held in escrow until we retire our remaining converts outstanding. The quarter-over-quarter decrease in available liquidity reflects the repurchase of $125 million of our 2026 converts, reducing our total debt to $175 million, down from $241 million at the end of Q2. We plan to retire the remaining $30 million of our 2025 converts this December and the remaining $88 million of our 2026 converts by next September, at which point, our only debt outstanding will be the $60 million term loan maturing in 2029. Now turning to our financial outlook. We have delivered meaningful trending improvements over the past 4 consecutive quarters. And in Q3, as Julia noted, we made strong progress in acquiring new creators and improving creator retention. These clearly demonstrate the operational momentum we're building, and we expect the revenue and retention of these new cohorts to continue to build over the coming year. At the same time, as we noted in Q2, average tickets sold per creator has been slower to recover. Hosts of smaller events and lower volume creators are still growing faster than larger ones, and the resulting mix shift continues to serve as a modest headwind relative to our expectations. Accordingly, we're slightly adjusting our guidance for the remainder of 2025. For Q4, we expect to deliver net revenue between $71.5 million and $74.5 million and adjusted EBITDA margin of 8% to 9%. Based on this Q4 guidance, for fiscal year 2025, we anticipate net revenue between $290 million and $293 million and adjusted EBITDA margin of 8% to 9%. We now expect to return to monthly year-over-year paid ticket volume growth within the first few months of 2026. And by Q2 of 2026, we project to return to quarterly year-over-year growth for paid tickets, ticketing revenue, and total net revenue. With 4 consecutive quarters of solid recovery and strong execution across the business, we're well-positioned to drive durable revenue growth and margin expansion in 2026 going forward. And now the operator will open it up for questions. Operator: [Operator Instructions] Your first question is coming from Justin Patterson from KeyBanc. Justin Patterson: You've made some really nice progress this year with stabilizing creators and improving the cost structure. As you look ahead, how are you thinking about the right level of investment to build upon that and drive that return to growth you just outlined in 2026? Anand Gandhi: Thanks, Justin. I appreciate the question. As we're looking at the year, we're -- as you know, we're focused on bringing down OpEx in a very disciplined and consistent way. And part of that is really to focus on getting the most return on where we choose to allocate those dollars. So the goal isn't purely just to continue to bring down OpEx by itself. It's also to reallocate some of those funds in areas that we find can drive growth. So part of this is through experimentation, like Julia mentioned, performance marketing, we've seen some strength and others are tied to product features in different areas that we have a lot of faith that meet what consumers, creators are looking for. So overall, it's a balance, and we do believe that we can continue to keep operating expenses in line and potentially continue to reduce them over time while still having enough to fund areas for growth. So it's a balance. It's something that we're focused on closely, but we'll continue to always be focused on that balance, but we feel pretty good about right now where we're positioned. Justin Patterson: Got it. That's helpful. And if I could squeeze in one more, just a product question for Julia. You outlined some really compelling initiatives for 2026. If you just step back and consider a lot of the changes we've seen around GenAI, how do you think that influences just the pace of product innovation you're doing for both creators and consumers? Julia Hartz: Great question. Thank you so much. When we think about the investments for 2026, they're really in four different areas. The first is premium tools for larger creators. We think that the market is shifting, and there's an opening for us in 2026 in particular, to go upmarket and actually address the needs of these creators that are either not being well served by technology platforms today or aren't able to access the transparency and independence that a tool in a marketplace like Eventbrite can offer them. So it's a pretty hefty undertaking for us to think about how we can help these creators expand their market share, but we're really excited to do that. So things like, first and foremost, helping them run their businesses more efficiently, increasing the functionality of the ticketing tools that we offer today, but also introducing some really interesting tools for them to be able to make smarter choices like dynamic pricing, for instance. The second thing is that we're thinking about how we can help use AI to drive creator success. So where they're spending their marketing dollars, how can we help them lean in even more to create greater success from any type of marketing budget. Today, our largest creators that are using our ads product are seeing an over 200% ROAS through Eventbrite ads. And we want to lean in and make them even better and smarter and more effective. So we're looking at marketing performance. We're looking at listing quality and conversion, all areas ripe for innovation through our product and the use of AI. The third thing that we're looking at is consumer engagement and personalization. So advancing discovery of the great inventory that's in our marketplace and making sure that we're putting the right event in front of the right person at the right time and really balancing both sides of that marketplace. So we're helping not only consumers find the exact right event and suggesting those events to them, but also helping our creators increase the conversion of their events through content coaching and really helping in a way to create a better event listing in a very interactive way as they're building out their events. And then the fourth area is really around global and monetization expansion. We know that Eventbrite is used in 180 countries every year. We want to lean into the globalization opportunity once again and really help elevate the experience within markets that we're really not focused on today. And we know that AI has given us this wonderful breadth of tools to use to efficiently be able to expand our offering, but then also be able to go deeper in really important markets and make sure we're meeting our creators where they are to help them expand their businesses and be able to create more events. So I think we're able to make these investments because our cost structure is stronger and more efficient than it's ever been. I'm sure you've noted that our operating expense is the lowest it's been in 4 years, and that's structural. That's really focused on helping us be the strongest, most sustainable business, but also be able to innovate in both product and service and operate with discipline and leverage. Operator: Your next question is coming from Cameron Mansson-Perrone from Morgan Stanley. Cameron Mansson-Perrone: Julia, there's been obviously a lot of discussion this week about the ticketing industry, the last couple of months around the ticketing industry following the FTC lawsuit, which obviously focuses more on secondary ticketing, so a little bit of a different area of the industry. But I'd still appreciate your thoughts on kind of where you see Eventbrite fitting into this conversation around the ticketing ecosystem and whether some of these potential changes have any knock-on effects for your business that investors should be aware of. And then as part of that, just wondering kind of how you approach Eventbrite's philosophy around balancing monetization of the platform and also being transparent and consumer-friendly. Julia Hartz: Absolutely. Thanks so much for the question. At Eventbrite, our founding principle is to democratize the ticketing industry. And over the last 20 years, we have shown that we can be the most broad-reaching accessible, transparent, and fair ticketing partner that is out there, just full stop. So when we look at the market across the board, we think that the consumer deserves fair prices. They deserve transparency, and we work with our creators to make sure that we're helping them bring to market unique live experiences that are priced fairly and transparently. So we have been a part of different movements to drive transparency in ticketing fees and have advocated for fair pricing practices across the board in the primary ticketing space. In terms of the future, I think that our customers, especially on the creator side, they deserve to have fairness and choice. They deserve to have flexibility and transparency. And they deserve to have the best technology that will help them build their businesses over time. And that's really what we're focused on. So as the industry evolves and the market becomes more fair in competition, we look forward to really being able to go into bigger venues where we've previously played and helping those business owners grow their audiences, fill their rooms and be able to continue expanding their businesses through adjacent revenue opportunities. And regardless of outcomes of different lawsuits, our strategy doesn't change. We are going to invest in premium creator tools. We're going to be continuing to push transparent high conversion checkout for our creators and consumers. And competitive openings is really for us an opportunity to be able to better serve customers that we know will thrive on Eventbrite. Cameron Mansson-Perrone: I appreciate the thoughts. And one housekeeping one for Anand, if I can. On the sequential gross margin improvement this quarter, you called out the ads benefit. I was wondering if you could provide some color around kind of sequentially thinking through the end of the year and whether that momentum can continue and just whether we should think that the guidance reflects the opposite. So trying to marry the unit economic improvement with the adjusted EBITDA guidance for next quarter. Anand Gandhi: Thanks, Cameron. Good to chat again. So just to clarify, for the -- it sounds like two pieces, the gross margin piece and then the OpEx piece. Is that right? So growth... Cameron Mansson-Perrone: No, just -- yes, I mean if you're -- I don't know if 40 bps is like if there's other stuff going on there. And so maybe extrapolating that sequential momentum is not what we should do. But if you were going to get another 40 bps of gross margin, it just trying to make sense of that with the downtick in adjusted EBITDA margins. Anand Gandhi: Got you. Got you. I think that's a good question. So we do expect to have, I guess, modest continued improvement sequentially on gross margin, particularly just as you call out, as the ads revenue increasingly ticks up and drives a greater share of our overall revenue, that is higher margin. So I would say that we do expect that trend to continue. We're not guiding exactly on how many basis points that is. But yes, it's going to improve proportionately as ad revenue proportionately contributes more and more of our total revenue. Operator: [Operator Instructions] There are no further questions in the queue. And thank you, everyone. This concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Kimberly Callahan: Good morning, and welcome to Camden Property Trust Third Quarter 2025 Earnings Conference Call. I'm Kim Callahan, Senior Vice President of Investor Relations. Joining me today for our prepared remarks are Ric Campo, Camden's Chairman and Chief Executive Officer; Keith Oden, Executive Vice Chairman; and Alex Jessett, President and Chief Financial Officer. We also have Laurie Baker, Chief Operating Officer; and Stanley Jones, Senior Vice President of Real Estate Investments available for the Q&A portion of our call. Today's event is being webcast through the Investors section of our website at camdenliving.com, and a replay will be available shortly after the call ends. And please note, this event is being recorded. Before we begin our prepared remarks, I would like to advise everyone that we will be making forward-looking statements based on our current expectations and beliefs. These statements are not guarantees of future performance and involve risks and uncertainties that could cause actual results to differ materially from expectations. Further information about these risks can be found in our filings with the SEC, and we encourage you to review them. Any forward-looking statements made on today's call represent management's current opinions, and the company assumes no obligation to update or supplement these statements because of subsequent events. As a reminder, Camden's complete third quarter 2025 earnings release is available in the Investors section of our website at camdenliving.com, and it includes reconciliations to non-GAAP financial measures, which will be discussed on this call. We would like to respect everyone's time and complete our call within 1 hour. So please limit your initial question to 1 then rejoin the queue if you have a follow-up question or additional items to discuss. If we are unable to speak with everyone in the queue today, we'd be happy to respond to additional questions by phone or e-mail after the call concludes. At this time, I'll turn the call over to Ric Campo. Richard Campo: Thanks, Kim. Our on-hold music theme today was moving. This week, we completed the move of Camden's Houston corporate headquarters from Greenway Plaza to the Williams Tower in the Galleria. This is a big deal. Camden has been at Greenway Plaza for over 40 years. We are excited about moving on and the new beginnings that it will bring for 2026 and beyond. As I was leaving my office for the last time, the thought that popped in my head was don't look back. And that reminded me of a song by the classic rock band Boston. The first versus of the song captured my sentiment as I was leaving the building. Don't look back, a new day is breaking. It's been too long since I felt this way, I don't mind where I get taken. The road is calling today is the day. Team Camden is not looking back. We look forward to welcoming you to our new offices, and we look forward to the continued success for the next 40 years. Strong apartment demand continued through the third quarter, making 2025 one of the best in the last 25 years for apartment absorption, helping to fill up the record number of recent deliveries. The summer peak leasing season was met with continuing new supply, slower job growth and economic uncertainties that led apartment operators to focus on occupancy instead of rental increases earlier in the season than usual. Apartment affordability improved during the quarter with 33 months of wage growth exceeding rent growth and increased affordability improves apartment residents' ability to absorb higher rents when new apartment deliveries are leased up in 2026 and beyond. Apartments and our shares are on sale, but not for much longer. Resident retention continues to be strong, in large part because of living excellence provided by our on-site teams. Great job, Team Camden. The case for investing in apartments is compelling. Demand is high, supply is falling to below 10-year pre-COVID averages, bringing balance back to the market. Rents are affordable, apartments provide flexibility and mobility to residents. Rent versus buy economics favor renting more than ever. And demographic and migration trends both support new demand going forward. We look forward to moving to a stronger growth profile after the excesses of post-COVID supply environments end. Camden is positioned well with one of the strongest balance sheets and no major dilutive refinances over the next couple of years. Private market sales of apartments have been robust with cap rates for high-quality properties landing in the 4.75% to 5% range. And there is a clear disconnect between private and, and public market values for apartments. In the quarter, we bought back $50 million of our shares at a significant discount to consensus net asset value. If market conditions remain at current levels, we will continue to buy the stock, and we have $400 million remaining in our authorization. This can be funded through dispositions of our slowest growing higher CapEx properties. I want to give a big shout out to Team Camden for their steadfast commitment to improving the lives of our teammates, our customers and our stakeholders, one experience at a time. Thank you. And next up is Keith Oden. D Keith Oden: Thanks, Ric. Camden's third quarter 2025 operating results were in line with our expectations with same-store revenue growth of 0.8% for the quarter up 0.9% year-to-date and up 0.1% sequentially. Occupancy for the quarter averaged 95.5%, consistent with third quarter of 2024, and down slightly from 95.6% last quarter. Year-to-date through September, occupancy has averaged 95.5% versus 95.3% last year. Rental rates for the third quarter had effective new leases down 2.5% and renewals up 3.5%. Our blended rate growth was 0.6% declining 10 basis points from last quarter and 40 basis points compared to the third quarter of 2024. Our preliminary October results reflect typical seasonality and a moderation in both pricing and occupancy as we move into our slower leasing season during the fourth and first quarters. Renewal offers for December and January were sent out with an average increase of 3.3%. Turnover rates across our portfolio remain 20 to 30 basis points below last year's levels and move-outs attributed to home purchase were a record low of 9.1% this quarter. Moving into new office space is never easy, especially when it involves 5 floors and several hundred corporate team members. But the end result was definitely worth a significant amount of time and effort invested by our design and special projects team. Our new headquarters look amazing. A big shout out to Venmills, Chrissy Hopper, Luther Alanis, Kevin Neely, Amy Funk, Zev Malone, Teresa Watson, Blake Robinson, Pango, Derek, Aaron and the entire IT support team. And finally, we want to give a special thanks to Camden's team of executive assistance on a job incredibly well done. We can't wait for everyone to get a chance to visit. I'll now turn the call over to Alex Jessett, Camden's President and Chief Financial Officer. Alexander Jessett: Thanks, Keith, and good morning. I'll begin today with an update on our recent real estate activities, then move on to our third quarter results and our guidance for the remainder of the year. This quarter, we disposed of 3 older communities for a total of $114 million. Two of the 3 disposition communities were located in Houston and the third in Dallas. These disposition communities were on average 24 years old. These older, higher CapEx communities were sold at an average AFFO yield of approximately 5%. We used the proceeds in part to repurchase approximately $50 million of our shares at an average price of $107.33, which represents a 6.4% FFO yield and a 6.2% cap rate. During the quarter, we stabilized Camden Durham and completed construction on Camden Village District both located in the Raleigh-Durham market of North Carolina. Additionally, we continue to make leasing progress on Camden Long Meadow Farms, one of our two single-family rental communities located in suburban Houston. At the midpoint of our guidance range, we are now anticipating $425 million of acquisitions and $450 million of dispositions for the full year, reduced from our prior guidance of $750 million in both acquisitions and dispositions. This implies an additional $87 million in acquisitions and an additional $276 million in dispositions in the fourth quarter. Turning to financial results. Last night, we reported core funds from operations for the third quarter of $186.8 million or $1.70 per share, $0.01 ahead of the midpoint of our prior quarterly guidance, driven primarily by the combination of higher fee and asset management income and lower interest expense resulting from the timing of capital spend and lower floating rates. Property revenues were in line with expectations for the third quarter. We are pleased with how well our property revenues are performing considering the peak lease-up competition we are facing across many of our markets, illustrating the significant depth of demand in the Sunbelt, and we did adjust our full year 2025 outlook for same-store revenue growth from 1% to 75 basis points, and property expenses continue to outperform, particularly property taxes coming in well below our forecast once again. As a result, we are decreasing our full year same-store expense midpoint from 2.5% to 1.75%. And maintaining the midpoint of our full year same-store net operating income growth at 25 basis points. Property taxes represent approximately 1/3 of our operating expenses and are now expected to decline slightly versus our prior assumption of increasing approximately 2%. This is primarily driven by favorable settlements from prior year tax assessments and lower rates and values primarily from our Texas and Florida markets. For the fourth quarter, we are assuming occupancy will be in the range of 95.2% to 95.4%. Blended lease trade-out will be down approximately 1% and bad debt will be approximately 60 basis points with then 10 basis points of our pre-COVID levels, almost entirely as a result of the decreased transactional activity anticipated in the fourth quarter combined with lower floating rate interest expenses, we are increasing the midpoint of our full year core FFO guidance by $0.04 per share from $6.81 to $6.85. This is our third consecutive increase to our 2025 core FFO guidance and represents an aggregate $0.10 per share increase from our original 2025 guidance. We also provided earnings guidance for the fourth quarter. We expect core FFO per share for the fourth quarter to be within the range of $1.71 to $1.75, representing a $0.03 per share sequential increase at the midpoint, primarily resulting from the typical seasonal decreases in property operating expenses, favorable final property tax valuations and rates and lower interest expense, partially offset by the impact of our anticipated fourth quarter net dispositions. Noncore FFO adjustments for 2025 are anticipated to be approximately $0.11 per share and are primarily legal expenses and expense transaction pursuit costs. Our balance sheet remains incredibly strong with net debt-to-EBITDA at 4.2x. We have no significant debt maturities until the fourth quarter of 2026 and no dilutive debt maturities until 2027. Additionally, our refinancing interest rate risk remains the lowest of the peer group, positioning us well for outsized growth. At this time, we will open the call up to questions. Operator: [Operator Instructions]. Our first question today comes from Eric Wolfe from Citi. Eric Wolfe: I was just wondering if you could provide any early thoughts on 2026 in terms of the building blocks earning -- any thoughts on other income or whatever else you can share about how you're thinking about 2026 at this stage? Alexander Jessett: Yes. So certainly, we're not giving guidance for 2026 quite yet. What I will tell you is the earn-in for us is probably going to be pretty much flat, which is going to be consistent with the earn-in that we had for 2025. Everything else we will give you when we have our next earnings release. But I will tell you, if you look at just the broad environment and what's going to be happening in 2026, it certainly does shape up much better than we saw in '25 in terms of uncertainty that's out there. If you think about when we were going through 2025, obviously, there was a tremendous amount of uncertainty around tariffs, around taxes, et cetera, most of that should be worked out as we go through 2026. The other thing that we think about is a significant amount of multifamily supply that was absorbed in 2025 that we will not have to absorb in 2026. So as I said, we're not going to give any guidance, but if you're an optimistic person, there's certainly things to be optimistic about when we look at next year. Operator: Our next question comes from Jamie Feldman from Wells Fargo. James Feldman: You talked about the public-private disconnect around apartment valuations. I was hoping to get your thoughts on the current broader appetite for investment in apartments from private investors, especially for groups that can write the really big checks, given the growing concerns on jobs, immigration, the government's focused on fixing the housing market? And are there any specific markets that stand out in terms of more interest, less interest or even from your end, more concerned or less concerned given the macro overlay. Richard Campo: So the first thing I'll tell you is there remains robust demand for multifamily. In fact, if you look at the amount of dry supply -- or excuse me, dry powder that is there by asset class, multifamily absolutely leads all asset classes. And so everybody is looking for assets. The challenge is, there's just not a lot out there. Stanley, I don't know if you want to opine on this. Stanley Jones: Sure, Alex. Just a little bit of additional color on the current transaction environment. Like Alex said, the market is healthy. There's a ton of debt and equity capital available. There's really good bid depth and thus really strong liquidity in the market. So with respect to volumes, 2025 is trending about the same as 2024, so still well below pre-COVID levels, which is, to some extent being driven by lenders continuing to modify and extend loans. So no meaningful distress in the market. And from a pricing standpoint, cap rates have really stabilized over the last few quarters with cap rates for Class A assets in our markets in the 4.5% to 5% range and in the Class B space in the 5% to 5.5% range. Richard Campo: Let me add to that, that there's probably -- there's definitely been more sales on the coast than there have been in the Sunbelt. And the reason being that clearly coastal revenues, you can predict in terms of positive growth easier than you can in the Sunbelt, given the supply issues that we've been facing there. And when you think about sellers, the seller in the Sunbelt is looking at the market saying we do know that supply and demand will be in balance. The question is when. And so there is a -- to Stanley's point, the lenders are not pressing people to sell. So why would you sell into a market when underwriting future growth is more difficult today just because of what's going on in the marketplace. So there's less transaction volume in the Sunbelt. I think what's going to happen, however, there will be a pivot and that pivot will probably happen sometime in, I would guess, mid-26 and you'll have a combination of lenders finally saying, "All right, we've extended. Now you need to do something." so that's going to put pressure on sellers to sell. But at the same time, once you get to the middle of '26, based on Alex's discussion a minute ago, you should have a more constructive environment, and it should be easier than for people to look out into '27 and '28 and see a very robust rental growth scenario given the supply dynamics that we have today. Operator: Our next question comes from Adam Kramer from Morgan Stanley. Adam Kramer: Just wanted to ask about sort of how you see the fourth quarter shaping up relative to normal seasonality. I think one of your peers talked about a sort of a relatively normal 4Q, maybe even a little bit better than normal seasonality in the fourth quarter. I think that was a little bit of a surprise, just given some of the headlines and some of that is a little bit sensational out there. But just wondering, within your portfolio with absorption data that actually, I think, still looks pretty good for the Sunbelt and even nationally, how do you see the fourth quarter shaping up in terms of lease spreads relative to typical seasonality? Richard Campo: Yes. So the first thing I'll tell you is, if you think about our portfolio, and it's important before we talk about the fourth quarter to go back and look at the third quarter, if you look at the deceleration that we saw from 2Q '25 to 3Q '25 on a blended rate, it was only 10 basis points. I think that's the lowest deceleration in the space. And what that tells you is that we're starting to get some footing here in the Sunbelt markets. When we go into the fourth quarter, what we're anticipating and what I said in the prepared remarks is that we think our blend will be down about 1%. If you sort of think about that on a typical seasonality basis, this sort of is what you see in the fourth quarter. And this year, now we did sort of hit the slower leasing period 1 month earlier than we typically would, but the fourth quarter is shaping up like a traditional fourth quarter. Operator: Our next question comes from Austin Wurschmidt from KeyBanc Capital Markets. Austin Wurschmidt: Kind of going back and piggybacking on the last question, I mean, so with this sort of reacceleration now in lease rate growth, -- would you expect that to just carry into the early part of next year and into the spring leasing season based on what's going on in the fourth quarter versus what you expect -- what you saw in the third quarter? And then just also -- so is it occupancy that's the driver of that 25 basis point decrease to 2025 same-store revenue growth guidance? Stanley Jones: So Austin, thanks again for the '26 guidance question. We're not going to answer '26 guidance questions quite yet. But what I will tell you is -- the main driver that we saw in the reduction, which is a very minor reduction in top line revenue growth, was an occupancy driven. It was rate driven, and that is because we were making sure that we could get the occupancy to the level that we felt comfortable for going into the fourth quarter. And in order to do that, we did have to drop rental rates slightly. Richard Campo: I think the key takeaway that we're going to give you for 2026 is based on Alex's answer to the question, maybe 2 questions ago. And that is there should be less uncertainty in 2026. And the uncertainty that we have today, we know that tax reform is off the table, we know inflation is coming down. We know that Federal Reserve's lowering rates. And we know that there's a midterm election coming, which means that the administration is going to do whatever they can to make sure the economy is good in November of 2026. The big tariff debates will likely be less of a debate during that period for all the obvious political reasons. And we have a 25% reduction in new deliveries in Camden's markets. And so -- with all that said, generally speaking, when you have a midterm election in this environment, you're going to have a -- unless something really comes off the rails, it should be a reasonable environment to improve demand and to create more optimistic scenario in 2026. Now obviously, there could be lots of slips that change that, but we'll see. Operator: Our next question comes from Steve Sakwa from Evercore ISI. Steve Sakwa: Ric, I guess going back to your question about the disconnect between public and private, I guess, how big are you willing to lean into that on the share buyback and do dispositions. There hasn't been many very large buybacks in the REIT space. And typically, they haven't been overly success, but I'm just curious, how much would you lean into this size-wise? Richard Campo: Well, the -- if you go back in history, in the -- leading up to the bubble and the tech rec in 2000, we bought 16% of the company back at that point. We could sell properties on Main Street for $0.75 or for $1, and we could buy our stock back for $0.75 on the dollar. Right now, with the current stock price today, it's a 30% discount to consensus NAV. It's a mid-6, mid-6% cap rate. And the market today is a 4.5% to a 5% cap rate. So with simple math, that's a 150 to 200 basis point positive spread to sell an asset and buy stock. And we've always said that we would allocate capital in this way if we had a significant discount, I think 30 is pretty significant. And it was persistent, meaning that we had enough time to be able to sell assets to fund the buybacks. We will not increase leverage to do that. And it's very typical capital allocation model. And over the last maybe 7 or 8 years, we've had opportunities to buy stock back, but it's never lasted long enough and with the constraints that we have on how much we can buy in a day and that kind of thing. The opportunity is not lasted long enough to actually make a material difference. Today, we'll see how long it lasts, and we're going to lean in pretty well. Operator: Our next question comes from Michael Goldsmith from UBS. Michael Goldsmith: Can you talk a little bit about the impact of direct supply? And if there's any way to quantify how that will improve like, for example, are you able to provide how much of your portfolio is directly competing with supply now? How does that compare to last year? And if there's an anticipated figure for next year? D Keith Oden: So you -- I didn't hear the first part of your question. You said direct supply? Michael Goldsmith: How much of your portfolio is directly competing with some new supply? D Keith Oden: Yes. So every part of our portfolio is directly competing with delivered supply. So we're in the -- between last year and this year going into 2026 -- we're going to see the highest number -- the largest number of supply across Camden's portfolio in the last 45 years. So it's pervasive. Obviously, some places are better than others, but all -- everyone is dealing with some level of supply. The highest 2 markets in our world, for supply and the impact thereof is or Austin and Nashville. And to various degrees, all of our markets are dealing with some level of oversupply. California would probably be at the very far end of the range, but still there's supply issues and supply that we're having to deal with there. So to one degree or another, every market has been impacted. The good news is as Ric mentioned, we're likely getting going to see a 25% decline in deliveries next year. If we continue to see good demand that has continued across our platforms, incrementally, it should be better in terms of the absorption making a difference for our ability to push rents and maintain occupancies. Stanley Jones: When we look at specific assets that are younger, that are directly in submarkets where there is a tremendous amount of new supply we are seeing significant improvements on that. Last year when we first started talking about this number, we said that about 20% of all of our assets were directly competing with new supply, thanks to the record level of absorption that we've seen in '25. The good news is that number is down to 9% of our portfolio today. And that's just going to continue to improve as we go through '26 and into '27. Richard Campo: I think the other thing you have to think about in -- and I'll just use an example like Austin, which is like the poster child or poster city for excess supply. So in Austin, even the suburban properties that are older and kind of B properties in good locations, are all feeling the supply pressure. And the reason it's not that they're so competitive with the new supply. It's just that consumers in Austin read the paper every day, saying apartment rents are coming down, and they expect a deal. And so you have a consumer sentiment issue in some markets like Austin, Nashville, and a couple of others. And where the consumers, even though there's not as much competition in the suburban B properties, the consumer has this mindset that they have to get a discount and then that just kind of feeds into the market and you end up with a market that -- where you can't actually raise rents because of that sentiment. Once that -- you have that pivot point, it changes dramatically. Laurie Baker: And I would just add, Ric, this is Laurie. That if you look at Austin, which does have quite a bit of supply, a great example of a story where the tides eventually will turn is Rainy Street, and it can turn quickly. And so we're going from the lowest occupied community in our portfolio mid-summer to now the highest occupied community. So it's starting to turn. And when it does, I think it will turn quickly. Operator: And our next question comes from Jana Galan from Bank of America. Jana Galan: Congrats on your move. I was hoping, can you provide some commentary on what your team is seeing in greater DC, given it's been such a strong performer this year and into the third quarter, but some of the years noted less activity. If you could just comment on that. Stanley Jones: Yes. So D.C. Metro remains our top market. And if you sort of look at how it progressed throughout the year, in the first half of this year, it was just an extreme outlier in terms of new leases and renewals. And we think most of that was driven by the return to office movement, in particular on the government side. As we're progressing throughout the year, obviously, we think most of those folks have returned to office and have now leased their apartments and so now it's gone from being an extreme positive outlier to just being the best market we have, which we'll still definitely take you look at it, it is our -- in the third quarter, it's our top sequential revenue market. It's our top quarter-over-quarter revenue growth market. And -- and it just remains incredibly strong. When it comes to DOGE, because obviously, that's what we talk about so much. I will tell you, we are still not seeing any evidence of our consumer being directly impacted by DOGE. What we're seeing more is a shift in the market of the way our competitors are reacting and concerns about potential impact from DOGE. But we're just not seeing it whatsoever. It remains an incredibly strong market. And as you know, when we're talking about D.C. Metro, we're really talking about the DMD and the trend continues where Virginia is -- or Northern Virginia, which is where we have most of our real estate is incredibly strong followed by the district and then followed by Maryland. Operator: And our next question comes from Rich Anderson from Cantor Fitzgerald. Richard Anderson: So I understand the uncertainty or lack or maybe lower uncertainty next year. I'm in the camp that I don't know, I think there will always be a lot of uncertainty in the next few years, but we'll see. But in terms of supply and its impact on 2026, not a guidance question, I just want to know your history is with -- when guidance -- excuse me, when supply delivers what's the typical tail of disruption from that asset or those collections of assets that come to market essentially vacant. Is it an 18-plus month sort of issue and maybe the real growth story for Camden doesn't materialize until 2027? Or is it quicker than that? And maybe you can say something specific about your portfolio that makes it quicker or longer based on your own circumstances. So I just want to get some color on how supply might impact things next year, even though the deliveries are coming down. D Keith Oden: They are coming down. I think in our portfolio, if you kind of look at the mix between Whitten and RealPage's numbers, they've got supply in Camden's markets coming down from 190,000 in 2025, down to about 150,000 in 2026. If you roll that forward to 2027 on their numbers, you're going to be somewhere around 110,000 completions across Camden's platform. So the trick and the tail that you're talking about, it's always a little tricky because when something delivers, usually the data providers are talking about building completed buildings, if they have the granularity to say that they've received their certificate of occupancy that becomes supply. The reality is, is that people don't go to that level of detail on when an apartment community delivers actual leasable units. So that -- but if you think about the time it takes from the beginning of first apartments delivered, and I'm talking suburban, walk-up type product, from that point forward on a typical 300 apartment community, average lease-up is going to be somewhere around 25 units per month. So call it, 10 to 12 months if things are kind of at a normal pace, you would expect to see all of those units absorbed over that 10- to 12-month period from the time that you first start turning your apartments. So there's just a lot of gray areas around when does that happen? When does construction end, does that really matter? It doesn't really -- what really matters is leasable apartments that come online for the developer to be able to put to sign a lease on. So that's kind of what we're looking at. So if you think about the average coming down from 190,000 apartments to 110,000 over a 2-year period, it's pretty significant. And if the demand side of the equation stays kind of like it is today, doesn't have to get a whole lot better, just kind of in this zone, then you're going to see a significant impact -- positive impact in 2026. And there's no chance that, that doesn't get better in 2027 because that cake is already baked on deliveries for 2027. Richard Campo: I think we need to talk more about demand than supply because we know what supply is, right? And so when you think about demand, 2025 was the best year in 20-plus years of apartment absorption in spite of the incredibly high supply that came into the market. What's driving that is the same thing that's been driving apartment demand for a long time, migration, demographics. And today, we have even a more interesting one, which is the retention. So retaining more people than we ever have, which means that we don't need as many people coming in the -- to lease new apartments when the people are moving out. And so you have this really interesting situation where people are staying longer everywhere. You have less mobility in America today for lots of different reasons, and it's really helping the apartment markets. And then if you pivot to, to home purchases and think about that, we have 9% of our people moving out to buy homes. That is not going to change anytime soon. If you look at the math on homes, if you look at medium income for a home or medium home price plus interest at current cost, it's $3,200 a month compared to in 2019 when it was $1,750 a month. And what's driving that clearly are 3 major things. One is home price appreciation is up over 50% since in most markets, some doubled in -- since 2019. You had increases in interest rates, obviously, and increases in taxes and insurance. if you had a 0 to 30-year mortgage rate, the monthly cost for a medium price home today would be about $1,900 a month compared to $1,750 in 2019. And the driver of that is not interest rates, the driver is home price cost and insurance and taxes. So it's going to be a long time before you have people moving out to buy houses. The other part of the equation, I think the medium age of first-time homebuyer today is 40 years old before COVID, it was like 34 or 35. So there's been a massive shift and the ability of Americans the demographics continue to be in our direction plus migration. And so I think the demand side is going to be much higher than people believe because of that -- those equations. And so I think we need to focus on demand as much as supply for sure. Operator: Our next question comes from Alexander Goldfarb from Piper Sandler. Alexander Goldfarb: Ric, we'll stick with the 40 years of experience that you guys have. I was just looking at a stock chart of Camden and not to -- I'm not picking on Camden, but REITs have had a tough go in the public world. And maybe the private world isn't any better, but it just seems that in the private world, the assets are rewarded more than they are in the public world. I'm just curious, in the 40 years, you and Keith took Camden public, what do you think is missing there? And do you think that the current setup where, as you just described, less home affordability, more propensity to rent, do you think it's finally the time where we will see the REITs actually deliver what they're supposed to? Richard Campo: If you do take a look at the private values and public values, over a long period of time, they're pretty close. We have for 40 years or 33 years as a public company, there's times when the markets get dislocated like they are now. And generally speaking, it hasn't lasted very long because once the market decides that, that the assets are undervalued then smart investors come in and buy the stock, so they drive the prices back closer to NAV. And so for me, being in the public market, I think it's great. We have access to capital that none of our private competitors have. We don't have the same sort of business model, which is I got to sell my properties in order to create value for my shareholders or from my owners. So you're constantly buying and selling and buying and selling or building the selling. And that's a great business model for some, but -- but for us, we buy and hold and create long-term cash flow and benefits for our shareholders. And I think it's a great space. D Keith Oden: Yes. So Alex, I kind of think of it like a playing field. And the playing field over our 30-plus years as a public company, sometimes it's been tilted in our favor. Sometimes it's been tilted in the favor of the private guys -- and it can happen pretty quickly. If you think about kind of coming out of the COVID world or in the bottom of that time frame, the playing field got tilted pretty quickly towards the private guys because debt was free and plentiful. And that's never a good -- that's more interesting to private guys than it is to public companies. So for the last couple of years, in my mind, has sort of been tilted our way a little bit on the -- certainly on the debt side, certainly on the balance sheet side of things, the ability to finance projects that private guys probably couldn't have gotten done in the last 18 months. I think there's still some of that out there, and I think that we're going to continue to use that to our advantage. Richard Campo: Let me just add one last thing because oftentimes, people would ask me, especially when we get to a discounting NAV like we are right now, they go, why are you public? And why wouldn't you just go private? Just sell the company. They're like, okay, I got that. So there is a disconnect, and it's significant, right? It's like $3 billion, okay? So if somebody buys the company, then they're going to make an expected rate of return on that asset that they buy. And ultimately, they believe that the prices are going to continue to rise and therefore, we're going to make a reasonable rate of return. And so at the end of the day, if the reason that we are at a significant discount to NAV is because people don't trust management. We are a value trap. We really are a poor operator, and we just are awful and you can't really bridge that gap. And yes, so the company move on because the market is voting you deserve to be a public company and valued at least what your assets could trade for in the private market. On the other hand, if you have a dislocation in the market like we have today, right? So we have slow growth or flat growth and you have uncertainty environment, you have an oversupply condition, and there's a lot of concern about when that supply condition is going to change. That will change. And what will happen, the same thing that's happened over the last 30-plus years is the market will recognize that the stocks are cheap, the stock will go up to or above its NAV, and that you'll be back. And so to me, the issue is what is causing the disconnect and then what -- how do you get out of that disconnect and ultimately, the market will figure that out, and it may take longer or shorter. It just depends on what's out there and what's the du jure of investors today, but we feel pretty comfortable where we are. Operator: Our next question comes from Wes Golladay from Baird. Wesley Golladay: I just wanted to ask you about selling the assets that you're doing. Are you able to shield the taxable gains there? And then one separate tax question. I believe you mentioned there was a big accrual the big rebate you got from a prior year. How much of a headwind will that be for next year? Richard Campo: Yes. So the first thing I'll tell you is if you look at the sales that we're doing, we are doing 1031 exchanges on those with the acquisitions. We're doing reverses. So we bought the real estate first. And then we're selling the real estate. So that's what we're going to do now. To piggyback to one of Ric's earlier comments about buying back shares, we do have the ability to sell or to absorb about $400 million of gains where we don't have to do 1031 exchanges if we want to use those proceeds to repurchase shares. When you think about property tax refunds, here's the best way to think about it. If you look at 2024, we had about $6.5 million of property tax refunds. If you look at 2025 that number dropped down to about $5.5 million. But we are consistently good in getting refunds. This is something we do. As we've talked about in the past, we contest almost every one of our valuations. If we go through a normal contesting process and we don't win and we don't feel comfortable with where we're settling, we will file lawsuits. And a lot of what you're seeing are -- is the settlement of those lawsuits. We have no reason to anticipate that in '26 and '27 and '28 and going on forward that we won't continue to have the same level of success that we're seeing. And so I'm not anticipating any significant sort of headwinds associated with the refunds that we got in '25. In particular, as I said, because the refunds we got in '25 were actually less than the refunds we got in '24, and we're still showing a negative growth on the property tax side. Operator: Our next question comes from Rich Hightower from Barclays. Richard Hightower: Covered a lot of ground this morning, but I believe at Camden sort of has an operational philosophy not to use concessions. But obviously, the market around you, we'll use concessions and flex up or down based on the individual operators. So as you think about -- or as we think about sort of market rents next year comping against sort of the net effective market rents in '25, what's the impact of concessions as far as you can tell. So it's a bit of a sneaky question on '26, but just help us understand. Richard Campo: Well, a little bit of a sneaky question. But I think what would be helpful for you is for Laurie to sort of give a rundown of what we're seeing in the market, not for Camden, but in the market on the concession side. Laurie Baker: So in our highest supply markets, we continue to see elevated concessions as operators work through the success inventory. But on average, these markets are offering right around 5 weeks of concessions, approximately 10%. So those key markets include Austin, Nashville, Denver and Phoenix. And so where supply pressures remain most pronounced, that's what we're seeing. But despite these headwinds, we've been able to kind of navigate these markets pretty well, and we're outperforming the market average, each with kind of limited pricing power. But again, those are embedded into our net prices. So beginning in July, we actually initiated incremental price reductions, so that we could prioritize our occupancy, and that strategy has really paid off. So while conditions remain challenging, we are taking a disciplined approach to really position ourselves to remain strong on the occupancy side as we head into next year. Richard Campo: So if you look at the concessionary impact in the market then. So if you look at the highest supply markets, we just talked about Austin, Nashville, et cetera. So they're having 10% concessions or sort of think about effectively 6 weeks, that's what needs to burn off in 2026. Now the good news is, is that those concessions are not being prorated mostly and so they're upfront, which means that the consumer is used to paying the appropriate rental rates. And so when they go to renewals, it shouldn't be a big shock to them. But that is what needs to roll off in those markets. Operator: Our next question comes from John Kim from BMO Capital Markets. John Kim: Despite the favorable supply outlook with deliveries going back to pre-COVID levels, you haven't started the development projects since the first quarter. And I'm wondering why projects had not leveled out for you at this time. Or do you plan to accelerate development starts as indicated on the last call? Richard Campo: Yes. I mean what I'll tell you is today, you can buy real estate at a discount to replacement cost. And if you can buy real estate at a discount to replacement cost, then that is a better use of capital. In addition, obviously, as we just talked about, we are using some of our capital to repurchase shares. Now I will tell you, this is going to change. We are already seeing construction costs starting to come down. Depending upon where you're building those costs can be down 5% to 10%, which will certainly help the math. The other thing I would tell you is we are very good developers. And when we find land sites and we are actively looking at additional land sites, we've got land sites under contract as well. when we pulled in a trigger, it's because we believe that we can create value for our shareholders. And we do believe with construction costs coming down, looking at, what, '20 -- call it, '26, '27, '28 could look like in terms of revenue growth. That can make a lot of math work -- and so expect to see us get a little bit more active on the development side. But in 2025, as I said, when you combine a discount to replacement cost, that just seemed like a better use of capital. Operator: Our next question comes from Linda Tsai from Jefferies. Linda Yu Tsai: Nice work with your 3Q blends being down only 10 bps quarter-over-quarter. With your 4Q blends expected to be down 1%. Is that all of the new leasing spread side, as it seems like the 4Q comparisons are a bit easier than 3Q. So just wondering if there are certain markets where you're seeing more softness or that somewhat reflects conservatism. Richard Campo: Yes. So the first thing I'll tell you is, I made the comment that as we were going through the end of the third quarter, we did make a push on the occupancy side. And when we made that push on the occupancy side, that was at the expense of some new lease growth. And so when you sign something in the third quarter, you're effectively seen in the fourth quarter. So yes, we are expecting new leases in the fourth quarter to be the primary driver of what we're seeing in terms of having a blended fourth quarter of just negative 1% approximately. So that's where we're seeing it. Markets that we're seeing additional softness, there's no one market that jumps out. I will tell you, that we are starting to see some markets that are doing the inverse that are actually doing better than we had expected. And call out a couple of those markets because I think we focus too much on the ones that are a little softer, let's focus on some of the good ones. And so we absolutely saw second and third quarter improvements in Nashville, in Dallas and Charlotte and in Atlanta. And then Laurie can give some quick entail of what we're seeing on the ground there. Laurie Baker: Yes, absolutely. So while we experienced the elevated supply in these markets, we're starting to see really some encouraging signs, signs as demand rises. So on -- or actually, I would say, as the demand really remains strong. But on total rent gain for renewals and new leases, blended rents have actually turned positive in Dallas, Charlotte and Nashville. And we're also seeing improvements in Atlanta. So some specifics just to give you a little color. So in Dallas, for instance, blended rent gains improved quarter-over-quarter, moving from a negative point -- or negative 1.2% to a positive 0.6%. We also saw our average days vacant improved by 7 days. So moving from 38 days in Q2 to 31 days in Q3. If you look at Charlotte, again, blended gains moved from negative 0.2% and to a positive 0.5%. So an improvement there. We also saw 61 more move-ins in Q3 than we saw in Q2 just in Charlotte. Nashville, let's talk about that in another high supply market, but we saw blended gains improve from a negative 1 point -- yes, negative 1.3% to a positive 0.4% in the quarter. And we also saw our renewals and transfers peak in August. So again, that was the highest they've seen in Nashville for the whole year and then I'll end with Atlanta. Blended gains increased from -- it was already positive, but it was positive 0.3% and we improved 2.7% quarter-over-quarter and recorded 96 more move-ins during the third quarter than the second quarter. So just some positive improvement particularly with the blended shift in rents being strong occupancy trends or signaling just progress we're making in managing these challenges in the these concessionary supply-driven markets and positioning ourselves for really a sustained recovery if all things remain the same. Richard Campo: Yes. I just want to piggyback really quick because Nashville is an interesting market. Granted, we only have 2 assets in Nashville. But obviously, it's a market that we talk about supply quite a bit. And Laurie had talked really great about how fast Rainy Street in Austin turned. In Nashville, when you look at the actual lease rates on new leases, that went up $61 from the second quarter to the third quarter. $61 is pretty dramatic, and that tells you how fast things can turn. Operator: Our next question comes from Michael Lewis from Truist. Michael Lewis: Great. So I want to go back to the conversation about demand that came up in a few questions. And I want to push back on anything you said, I agree with all of it, but I think you left out at some point. And so -- let's pretend I'm not an optimistic person, and I look at October, the most layoffs in any month since 2003, 22 years ago, manufacturing activity down 8 straight months, inflation is now 3% and Fed's going to be cutting. The ADP drives number came out. It's really just healthcare and education, not really adding jobs anywhere else. So why shouldn't I be concerned about demand as we kind of move forward the next few months? And I know you're not giving '26 guidance, but would it be completely shocking if same-store revenue was not materially better than it was this year? Like would that be stunning? Richard Campo: I think the -- look, I put, I think, a cautionary side of the equation and said the glass is half full, but it's still half, right? And it could be half empty if you don't believe that the economy will hold in there for the midterms. So there are things to be optimistic about. There are also things to be worried about. And you just mentioned a number of them, right? I think at least for us, the good news is we don't need as much demand because we have less supply coming in, and we have a retention rates that are at historic highs, right? So we have fewer people moving out. So we don't need as many people to move in to offset those folks. And so I think these are definitely your points are well taken and are -- and we understand them. But I don't think any of us know what the economy will look like. I think we need fewer jobs than normal to have a reasonable apartment market in 2026 because of the other things we talked about. But it's still an issue out there, obviously. D Keith Oden: And just one follow-up, Michael, on the idea of the stats that you gave about layoffs, et cetera. We have a very good barometer in our portfolio given our platform that we know immediately when people start losing their jobs because they move out. I mean it's like almost automatic you lose your job, there's stress, maybe you stay a month, but it's a really quick read-through for us. And we're just not seeing people -- we're not seeing that as an increase as a reason for move out. I lost my job. Obviously, there's always people in the economy who are losing their jobs, but we've not seen what you're talking about, the read-through that would suggest that our residents in Camden's markets are losing their jobs. And that's been -- that's certainly been a hallmark of the past. Our demographic is different. Our markets given the growth profiles of our markets from in migration and the concentration of the jobs that are being created being the preponderance in Camden's markets, I think we've been pretty resilient in the past, and my guess is we will be in the future. Operator: Our next question comes from Omotayo Okusanya from Deutsche Bank. Omotayo Okusanya: Just curious, portfolio-wise if you seen any really big differences in performance in regards to your Class A versus your Class B or your urban versus suburban assets? Richard Campo: Yes. I'll tell you, and I think it's entirely supply driven. We are seeing our Class A assets to a little bit better than our Class B -- and then I will tell you that in the third quarter, our urban assets actually did a lot better than our suburban assets. But once again, that makes sense to me because it's just following where the supply is. If you think about -- the first wave of supply was very urban focused. And then the second wave was suburban-focused. And so now you're seeing the supply disproportionately in the suburban markets. Omotayo Okusanya: But I believe you said that your Class B is doing -- your Class A is doing better than your B, but a lot of the supply is, A, isn't it? Richard Campo: Well, a lot of the supply is A. But if you think about where most of our B assets are, most of our B assets are in the suburbs where the supply is. Operator: Our next question comes from Julien Blouin from Goldman Sachs. Julien Blouin: Alex, on the second quarter earnings call, you mentioned fourth quarter blends would look a lot like the second quarter, but it sounds like guidance now for the fourth quarter is about 150 bps below the second quarter. I guess when you sort of think of all the things you mentioned earlier, slower job growth, supply economic uncertainties. What has changed the most in the last 90 days to drive that? Or is it just the posture of landlords sort of moving more aggressively than anticipated to prioritizing occupancy over rate? Alexander Jessett: I think you nailed it. That's exactly what it is. And it's really interesting to see because D.C.is a great example of that. As I talked about earlier, D.C. is incredibly strong. The reason why we saw a drop off in the third quarter and an anticipated -- continued drop off in the fourth quarter is just all of the talk about those resulted in some reactionary actions from the competitors out there. And I think when you sort of look at the uncertainty that we've talked about quite a bit on this call already, the uncertainty that confines 2025, I think a lot of competitors when they were looking at where they were and realizing that they're about to hit their slow season, which is the fourth quarter and the first quarter, really tried to go after occupancy. And the way they did that is they drop rates. And I will tell you that even though demand is very strong when you have this amount of supply and you've got competitors that are dropping rates all around you, you do have to sort of move in the same direction, and that's exactly what we saw. Operator: And our next question comes from Alex Kim from Zelman & Associates. Alex Kim: Congrats on the move to the new office here. You're down the street from one of my pocket picks, Kenny and Ziggy's now. I want to dive a little into marketing costs here a little bit. This expense bucket has been elevated the past couple of years with double-digit year-over-year growth. And I was wondering if this is somewhat reflective of weaker front-end demand that's required more advertising to maintain leasing traffic and occupancy or something else entirely? Richard Campo: Yes. I'll tell you what it is. It's really 2 things. It's number one, we're really big into SEO, search engine optimization. And so we are buying -- we're buying the placements when people search for apartments. And with the level of supply that is out there and folks are trying to obviously chase the same traffic that we're trying to chase. What we found is that, that the cost of SEO has gone up pretty dramatically. And obviously, if you've got a lot of folks that are buying and trying to make sure that they are the first name that appears, you're going to expect to see some additional costs on that front. So we're absolutely seeing that. And then the second thing, which is in line with your question is if you sort of look at, although demand is record high, supply is also pretty high. And so we're all fighting for the same prospects. And so because of that, we absolutely are trying to make sure that we can generate as much traffic as we possibly can. So that's what you're seeing now. I would expect that once we get this supply absorbed that the SEO costs will come down pretty dramatically. Operator: Ladies and gentlemen, our final question today is a follow-up question from Julien Blouin from Goldman Sachs. Julien Blouin: I just wanted to go back to something you mentioned last quarter's earnings call, which was that Witten Advisors was telling you that 2026, you could see over 4% market rent growth across your markets. I'm just curious, are they still telling you there's a path to that kind of market rent growth in 2016 despite the fact that the second half is maybe playing out a little bit weaker than we had hoped. Richard Campo: The numbers have come down a bit, but they still have 3% or 3.5% in '26 and over 4% in '27, so they have moderated their numbers slightly, but it's not dramatic. And it's likely to be more second half is what they've showed in their model. Operator: And ladies and gentlemen, with that, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to Ric Campo for any closing remarks. Richard Campo: We appreciate you being on the call today, and we will see some of you in Dallas in December for NAREIT. So thanks a lot. We'll see you then. Operator: And with that, ladies and gentlemen, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the EcoSynthetix 2025 Third Quarter Results Conference Call. [Operator Instructions] Listeners are reminded that portions of today's discussion may contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on EcoSynthetix risks and uncertainties related to these forward-looking statements, please refer to the company's annual information form dated February 18, 2025, which is posted on SEDAR. This morning's call is being recorded on Friday, November 7, 2025, at 8:00 a.m. Eastern Time. I would now like to turn the call over to Mr. Jeff MacDonald, Chief Executive Officer of EcoSynthetix. Please go ahead, sir. Jeff MacDonald: Thank you. Good morning, and thank you all for joining us. Yesterday afternoon, we reported our third quarter results. We're seeing good momentum across our core end markets. Sales were up 11% year-over-year. But more important in my view, is the strong demand we're seeing in our key end markets, specifically pulp, tissue, wood composites and personal care. In our view, it has led to higher quality revenue and an evolution in the composition of our book of business. We've largely diversified away from legacy graphic paper into these new end markets that can have a meaningful impact on our growth. Each of pulp, tissue and wood composites drove significantly stronger volumes in Q3 than the same period last year, well beyond 11%. We're making good progress with the account that is a leading global pulp manufacturer. They continue to invest resources to support the product that uses our SurfLock strength aids. They're also increasing the promotion of their product with end customers, driving awareness of its benefits through publications and social media as well as direct promotion and support around the world by their team members. Key players in their market are trying the new product. The broader market dynamics also support its adoption. The market price differential between more expensive softwood fiber remains well above $200 a ton globally compared to the lower-cost hardwood fiber. That is driving the use of hardwood pulp to be a top priority for any manufacturer that uses pulp in their products, and that's exactly where we help. Softwood fiber has greater strength than hardwood fiber or recycled fiber. Our strength aids enable the production of pulp with superior mechanical properties or the production of paperboard and tissue with lower-cost fibers while retaining the required strength. At the beginning of the year, demand for our strength aids from the global pulp manufacturer was approximately $1 million on an annual basis on their first line. They've now increased their run rate to more than $3 million a year on that line. They operate multiple lines, and we're on one today. We believe the market potential for Surflock could exceed $50 million at this customer. And while they are a leading global player, they have less than a 20% share of the global pulp market today. We believe the pulp end market is set to be a major component of our growth. On the tissue front, we won 2 new tissue accounts during the quarter. These wins were a result of our work with a European distributor, the R&M Group. R&M is one of several distributors that we're working with as part of our go-to-market strategy in the tissue and packaging end markets. R&M is a great example of the type of high-quality partners we've identified. They have a long track record of success in this industry and others of growing new chemistries and driving adoption based on the product's benefits to manufacturers and the strong support they provide. They're an impressive organization, and we believe there's more runway with them while we work to replicate this success with others as well. One of the key measures of our success to date in the tissue end market is our ability to drive repeat wins. Every one of our wins this year in tissue is a repeat win with an existing customer or a new customer that has already moved to a second line. Every account that we're commercial with in tissue now has multiple lines using our strength aids. They've proven it once and repeated it at additional mills. In the case of one smaller regional tissue manufacturer, we are now commercial across all of their mills as a result of another distributor relationship we work with in Europe. That repeatability with accounts that have really dug in and invested to drive it across their organization is a telling sign of how well our strength aids are working in the tissue end market. In the paperboard and specialty end market, we are running ongoing trials and volume expansion programs with existing accounts. Paperboard is a more complex trial program, which takes longer than tissue. But once commercial, the lines use more product than a tissue line, so the opportunity per line is larger. Just before turning to wood composites, one dynamic we're seeing play out in the broader pulp and paper market is consolidation. There have been a number of interesting and significant transactions this year. Large integrations can be complex and distracting, but we believe some of these consolidations could be a benefit to us in the longer term with the potential for broader adoption of our technology with players that already use our strength aids or binders, which once again speaks to the repeatability theme. In wood composites, progress continues at our key strategic account that is an international retailer, which is backward integrated into wood panel production. We experienced increased demand from them, both during Q3 as well as on a year-to-date basis compared to the prior periods. They've driven usage of our binder across more SKUs at the first mill. Part of the reason for that growth has been our continued push for innovation and improving the value of our product even over the course of this year. We've reached a stage now where we know we're very competitive on a cost basis, even cost advantaged over the incumbent solution at certain points this year. They're conducting regular runs of our product at a second mill now, but they're starting from a very small base. We believe their intent is to grow their usage at the second mill step by step as they build success and confidence just as they did at the first mill. I recently participated in a group panel discussion at an industry conference where our key customer was also present. They continue to act as thought leaders in the sector with a clear commitment to drive down their carbon footprint through the use of bio-based glues in panel production. They remain as committed as ever to reaching their 2030 targets, and that will require the other players in the market that produce wood panels for them to pursue bio-based solutions that are cost competitive and deliver the required performance. And we're a proven enabler of that change based on our work with the international retailer. Moving over to Personal Care. I often refer to this end market as a warrant on our growth. I still believe that today, but I'm becoming even more confident in it. We're seeing an uptick in demand from our marketing and development partner, Dow. It's still off a small base relative to our other end markets, but it's encouraging. Dow is building momentum with some of the smaller brands at top 10 players in the space. It's a positive sign that Dow's all-natural formulations are being proven in new niche products, but with big players gaining exposure to them. Lastly, a quick update on our work here in Burlington at the center of innovation. The productivity improvement that we've seen since internalizing our North American production base here at the COI has been great. Having the full team and production under one roof has increased the cycle time on both the commercial production and the research and development side. We believe the footprint we have today with a tolling operation in Europe, serving Europe and Asia and the COI serving the Americas provides greater flexibility and optionality for both sourcing raw materials and serving our accounts most effectively. And with that, I'll turn it over to Rob to review the financials. Rob? Robert Haire: Thanks, Jeff, and good morning. Net sales were $5.8 million in Q3 ' 25, up 11% or $600,000 compared to the same period in 2024. The improvement was primarily due to higher volumes of $500,000 or 10%. As Jeff mentioned, we're seeing higher volumes at our strategic accounts in tissue, pulp and wood composites. Net of manufacturing depreciation, gross profit as a percentage of sales was 34.2% in the quarter compared to 36.8% in the same period in 2024. The change was primarily due to higher manufacturing costs due to product mix. Gross profit was $1.7 million in the quarter, unchanged from the same period last year. SG&A expenses were $1.8 million in the quarter compared to $1.5 million in the same period in 2024. The change is primarily due to higher salary and benefit costs as well as higher repairs and maintenance costs during this quarter. R&D expenses were $390,000 in the quarter compared to $560,000 in the same period in 2024. The change is primarily due to higher product scale-up costs, which we incurred in the prior year as well as lower asset depreciation. R&D expense as a percentage of sales was 7% in the quarter. Our R&D efforts continue to focus on further enhancing the value of our existing products and expanding our addressable opportunities. Adjusted EBITDA was $200,000 in the quarter compared to $360,000 in the same period in 2024. The change was primarily due to higher operating expenses, partially offset by higher gross profit when adjusted for noncash items. We've reported positive adjusted EBITDA in 4 of the last 5 quarters, and we are adjusted EBITDA positive on the last 12-month basis. While we still expect some lumpiness in our results from period to period, we are very close to consistently reporting positive EBITDA on a go-forward basis. As of September 30, 2025, we had $30.4 million of cash and term deposits compared to $32.2 million as of December 31, 2024, representing a change of $1.8 million. During the first 9 months of 2025, we invested $1 million to purchase and retire 346,000 shares. We also increased our working capital investment, primarily due to $1.2 million higher inventory compared to December 31, 2024. We have demonstrated our ability to responsibly manage our cash reserves through multiple cycles while continuing to invest in our long-term growth strategy. With that, I'll turn it back to Jeff for closing comments. Jeff MacDonald: Thanks, Rob. Through the course of 2025, we're seeing significant demand growth in our key end markets, pulp, tissue, wood composites and personal care. Our ability to successfully diversify into new strategic markets through innovation and strong customer support has set the stage for sustainable and profitable longer-term growth. The composition of our revenue base is of a higher quality today. Our improving gross margin profile demonstrates that. It's indicative of the shift in our book of business to more strategic and higher-value applications of our technology. The demand outlook from our key accounts in pulp and wood composites underpins our confidence. Each account continues to publicly highlight targets that align directly with increased usage of our strength aids and binders. In pulp, the strategic account has identified a multimillion metric ton opportunity for the increased use of hardwood fiber to offset pricing and capacity constraints of softwood fiber. In wood composites, it's the strategic accounts 2030 plan to reduce its carbon footprint through the use of bio-based glues. Successfully supporting the demand profile for these 2 accounts and their supply chains position us for a significant step-up in growth over time. These opportunities are augmented by our momentum in the tissue end market and personal care. We're engaged with the right players in our core end markets to deliver for shareholders. And with that, I'll ask the operator to open up the call to your questions. Thank you. Operator: [Operator Instructions] Your first question comes from Brian McIntyre. Unknown Analyst: Let's start with Surflock on the pulp side. Last quarter, you had a second purchase order from a major pulp client. And then you said in the release that they're adding additional resources. Can you maybe just define what that means and what feedback you're getting with respect to the client reception to their product? Jeff MacDonald: Yes, sure. So we're seeing an increased number of people simply in major centers around the world that are educating customers on their ability to use more hardwood fiber. And those teams are actually online helping customers to implement their enhanced hardwood fiber solution. That team has expanded over the course of this year. And I guess in parallel to that and part of how we see this is they're putting out some really interesting publications in some of the technical journals in the market on the use of their hardwood fiber and lots of social media hives and explanations of how well this is going from their side. So that's what gives us some confidence that their end marketing efforts are going well. We're seeing and hearing about them more and more out in the market in the broader pulp use space. Unknown Analyst: Jeff, have you seen any additional players take note and start to accelerate their interest in the product? And on that front, are you seeing -- what can you say with respect to the cadence of trials or service providers? Is that increasing in terms of the number and volumes? Jeff MacDonald: Yes. So I guess we should probably separate those. So on the pulp side, our first customer has been at this now for a while, and it is a major undertaking when you consider the scope of a pulp mill. Absolutely, others in that same space have taken interest and have, let's say, an early start in that work. Our initial customer clearly has a lead. In the end markets of tissue and paperboard, we have continued to expand through the course of this year, the distributor relationships that have proven to work really well. We did a press release together with the R&M Group of their success. And I really consider them to be a model of the kind of partners we need to be looking for in their capabilities, their approach to business, their -- including their financial strength, their ability to support their customers. So we're really happy with that one, and that becomes a model for replicating it elsewhere. We're actually -- we're seeing distributors where we had to search them out at first. Some that even we may have had some initial discussions with have recently come back and said, "Hey, that thing you told us about, we're hearing more about it. Can we reopen those discussions. So I think that's going really well, and it shows that the market is really taking notice of what we're doing. Unknown Analyst: Okay. So in your press release, you say that pulp could be a major component of long-term growth. I'm just wondering, to the extent you have visibility, how should we think about maybe a cadence in terms of volume growing here? Jeff MacDonald: Yes. I guess that's probably the most challenging part of where we are right now. We're excited. It's showing up in our numbers. Our customer is clearly investing a lot. I'll put it in the tens of millions of dollars in their efforts to push this forward. But I'd also say, like for them as such a large entity and this being such a major undertaking, I think it's still pretty early for them. So our visibility is not great today. What we're relying on is the ramp-up, the consistent ramp-up in the need for our product to say that it's going well and maybe what we might need to be prepared for 6 months out. The good news is that our operations, both of them are fully capable of delivering this product, and we've added some suppliers within our supply chain to make sure that, that doesn't become a constraint. We're actually also making a pretty significant investment right now in Europe in putting some more tools in place within the operation to be able to flexibly use more raw materials and have raw materials on hand that we need to support this. So we're ready to go. The press release we put out was -- the whole thing was in pretty short term. So things were going really well, and they placed a quick call to us requiring more product in fairly short order. And what we did was demonstrate to them that we can unlock both operations simultaneously and get them what they needed in the rapid time frame they had asked for it. So that gave them confidence. It also showed ourselves just what we can do to make these operations work to serve a big opportunity. Unknown Analyst: In your prepared remarks, Jeff, you mentioned -- I thought it was very interesting, you mentioned vertical integration of pulp producers into the tissue market. Wouldn't it be a natural evolution for potential pulp producers moving into tissue to utilize your product as well? Jeff MacDonald: I don't think I quite put it in that detail, but there is some interesting consolidation going on. And there are players that in history, in their history as organizations are backward integrated to pulp. And certainly, their understanding of hardwood pulp flowing all the way through to tissue has helped with our efforts in one customer in particular, at both ends of the business where we're working with them in tissue and also working with them back upstream in the pulp end of their business. There have been some other -- I think what you're probably referring to some interesting ventures between pulp manufacturers and tissue manufacturers where, in my view, if it's been proven in tissue for one of the players, it seems to be a no-brainer to then roll out those results at some of the new operations you have under your fold. So I think stuff like that can be an accelerator for us. Integrations can sometimes be sort of messy and distract people, but the savings we offer, I think, can play right into like the synergies that these companies are reporting in coming together under new consolidated entities. So we see it as a net positive for sure. Unknown Analyst: Okay. Just I want to go back to one of the questions I asked just in terms of the range of trials ongoing, your progress with service providers. Can you give us maybe a ballpark in terms of the percentage increase or number of trials that are ongoing just to get a range of how much momentum you have? Jeff MacDonald: I can't give you an exact percentage, no. But like our trial activity is well up again over the course of this year. And that's partly with existing service providers having more experience and fanning that out. but it's also through the addition of some new service providers as well. So momentum continues to build. We're actually seeing tissue wins come through on a quarterly basis now. So that's the best direct indicator we have. I noted them in my comments, and we also did a press release to highlight 2 of them that just came in through the R&M Group. So that momentum is definitely building and the pipeline behind it is building as well. Unknown Analyst: Okay. I'm going to switch gears here for a second. I think maybe the most exciting new news in the press release was what you alluded to with respect to Dow. And maybe can you elaborate on what's progressing so well there? And I guess with respect to that, should we anticipate some potential news here and the potential for it to hit the bottom line in 2026? Jeff MacDonald: I mean they're certainly sounding like they see bigger things ahead, which has got us excited. But what we see that we can count so far is just a steady increase in their business to the point where the results you see in this quarter has an impact from their contribution, a meaningful impact in the direct results as well as the growth, the profitable growth. I think the biggest indicator, as I referred to, is that while the wins that they've had leading up to today have been niche brands that maybe haven't been tied to a major brand in many cases. But what we're seeing within this year is some of those smaller brands within the portfolio of large personal care companies. So think about kind of the top 5 personal care companies, we're seeing some wins within their portfolios. And what that says to us, and it's backed up by discussions with our partner is that there's more trialing activity in those kind of products and in larger products as well that's progressing quite well. So it's showing up in the numbers more and more, building off like a very small base at first to the point where it's a meaningful contribution now to our bottom line and some good signals of good stuff to come. Unknown Analyst: And just remind us the margin profile, why it's such an attractive margin profile in that business? Jeff MacDonald: Yes. It's -- I'll just put it in -- it's roughly 3x what our normal margin profile would be. Unknown Analyst: Okay. Wood products, maybe just -- you talked about it a little bit in terms of progressing with Line 1 and 2 now, I guess. Maybe update us with respect to the external clients? Is there a progression on that front? Jeff MacDonald: I would say there's progression in terms of being ready. It was interesting to be at the Wood industry conference a few weeks ago with the end customer and some of their supply chain and to see some of those discussions and that push happening. I think at the beginning of that conference, and I do think there was maybe a bit of a turning point in thinking at that conference. I think at the beginning of the conference, you had some skeptics as to whether the big market leader was going to stick to its 2030 commitments. But they made it super clear that they're not coming off those commitments and that they feel the solutions are already in place for them to get there, and it's just about driving them forward and those that are with them are going to be with them and those that aren't going to be with them. And they were already encouraging the industry not to look at who else could squeeze in there for that 2030 goal. They called that a done deal. They were already talking about how can you help us for our goals beyond 2030 now because that's the time frame we're thinking of. So they consider this now operational. They consider it proven, and they're clearly pushing their supply chain to get on board as well, along with their continued implementation of the solution. So that was encouraging. Unknown Analyst: Yes, for sure. So if they maintain their 2030 emission targets, should we not start to see things ramp up quite meaningfully in the next year or so? And what does that mean in terms of the potential addressable market for you? Jeff MacDonald: Yes. It's not a long time now for such a level of industrial change out to 2030. And so the needs of that one customer equate to roughly 17 lines of production. And for us, that would require somewhere between $50 million and $60 million worth of DuraBind products to support. So that's kind of the time frame and the magnitude that we're faced with today. It's a lot of change, but we're ready to support it. And I think they've now got the teams in place. And I think they've done enough with a few suppliers that the readiness is there in their supply chain to get there as well. So it was just -- it was great to hear that they are so emphatic about sticking to that goal. Unknown Analyst: For sure. So we have $50 million in pulp, we have $50 million in wood products. I guess I see where you're confident lies in terms of hitting this $100 million top line target. What needs to happen for you to really go out there and put a time frame on this? Jeff MacDonald: Seeing the trajectory in getting there. So far, it's been about replacing the legacy business getting things happening in a commercialized way with these key leaders in each of these segments, which I think we've done now. I don't think any company our size could hope for a set of first adopter customers like we have to drive this success. And now it's just -- it's really seeing the momentum step by step that puts us on that path toward $100 million. And as soon as we can see that trajectory, then we'll stick a pin on it again. Unknown Analyst: Okay. And you feel like -- it really feels, Jeff, like we've hit this inflection point now that we should start to see that trajectory start to move up in 2026. Is that fair? Jeff MacDonald: Yes, it is for sure. And I think you said it's $50 million to $60 million with one opportunity, $50 million to $60 million with another. Keep in mind, like that's serving one customer in one segment and one customer in another segment. And I think what makes us even more excited is that those are the thought leaders in those spaces. And if they really go, then the rest of the market follows them. And that's historically proven over changes with the leading retailer. And certainly, from a cost perspective, if the leading pulp manufacturer goes in that direction, others have to follow. Unknown Analyst: No, I agree. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call over to Jeff for closing remarks. Jeff MacDonald: Okay. Thanks very much again to everybody for joining us, and we look forward to checking in with you again soon. Operator: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the DXP Enterprises, Inc. Third Quarter 2025 Earnings Release. [Operator Instructions] Now I would like to turn the call over to our CFO, Kent Yee. Please go ahead. Kent Yee: Thank you, Mark, and thank you, everyone, for joining us today. This is Kent Yee, and welcome to DXP's Q3 2025 Conference Call to discuss our results for the third quarter ending September 30, 2025. Joining me today is our Chairman and CEO, David Little. Before we get started, I want to remind you that today's call is being webcast and recorded and includes forward-looking statements. Actual results may differ materially from those contemplated by these forward-looking statements. A detailed discussion of the many factors that we believe may have a material effect on our business on an ongoing basis are contained in our SEC filings. DXP assumes no obligation to update that information as a result of new information or future events. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings press release. The press release and an accompanying investor presentation are now available on our website at ir.dxpe.com. I will now turn the call over to David Little, our Chairman and CEO, to provide his thoughts and a summary of our third quarter performance and financial results. David? David Little: Thanks, Kent, and thanks to everyone on our 2025 third quarter conference call. Kent will take you through the key financial details after my remarks. After our prepared comments, we will open for Q&A. It is my privilege to share DXP's third quarter results with you on behalf of over 3,234 DXPeople. Congratulations to all our stakeholders and a special thank you to our DXPeople you can trust. We are pleased to see end market demand and DXP's performance continue through Q3 and remain at record levels as we move into the last quarter of 2025. This allows us to achieve another quarter of both solid sales growth and 11% adjusted EBITDA margins. We are pleased to announce strong third quarter results with sales, operating income and earnings per share all up over the prior year. This is a great way to start the second half of fiscal 2025. We remain focused on serving our customers, providing products and services that help them save money, consolidate their MRO spend, manage inventory and provide solutions to solve their ever evolving needs. Being customer-driven and growing sales profitably is our goal. We continue to focus on driving organic and acquisition growth, increasing gross profit margins and increasing productivity. Our execution has resulted in fiscal 2024 and 2025 top line and bottom line growth, both organically and through acquisitions. That said, our growth strategies are working, and our acquisition pipeline should add to our results as we close out the fiscal year 2025 and go into the fiscal year 2026. We continue to be excited about the future, delivering a differentiated customer experience, creating an engaging winning culture for DXPeople, and investing in our business to strengthen our core capabilities and drive long-term growth. Year-to-date through September 30, total sales are up 11.8% and adjusted EBITDA is up 17.6%. Last 12 month sales and adjusted EBITDA were $1.6 billion and $217.1 million, respectively, with adjusted EBITDA margins of 11.1%. Moving to our third quarter results. Total DXP revenue was $513.7 million, an 8.6% increase year-over-year with adjusted EBITDA of $56.5 million. In terms of Q3 financial results from segment perspective, Innovative Pumping Solutions led the way, growing sales 11.9% year-over-year to $100.6 million, followed by our Service Centers growing sales 10.5% year-over-year to $350.2 million. Supply Chain Services declined 5% year-over-year to $63 million. In terms of IPS, our Innovative Pumping solution, it bears repeating that we have 2 broad businesses tied to capital budgets or project work, DXP's heritage energy-related project work and DXP Water. Year-to-date, DXP Water is 54% of IPS' sales versus last year at this time, it was 47%. As we grow -- have grown our DXP Water platform, we have increased both gross margins and operating income margins for the IPS segment and for DXP. Our energy-related bookings and backlog continues to show resilience and perform above our long-term averages, albeit not an all-time high. Additionally, our year-to-date average remains above our long-term average energy IPS backlog going back to 2015. What this indicates is that we continue to feel good at this point in the cycle on energy and water and wastewater-related project work. As we have been discussing on previous earnings calls, we have booked a few large projects in both energy and water that have been recognized some of the revenues in 2025 and will continue in 2026. We are quoting a lot of opportunities and working hard to convert quotes to bookings. That said, DXP's focus within IPS will be to continue to manage the demand levels we have plus finding opportunities in all markets such as energy, biofuels, food and beverage and water and wastewater and manage pricing and delivery while improving and maintaining margins. In terms of Service Centers, the diversity of end markets, multiple product division approach, service and repair and our MRO nature within Service Centers allows us to continue to remain resilient and to continue to experience consistent top line year-over-year growth. A few growth initiatives that are helping DXP grow percentages at over the last several years is technical products like automation, vacuum pumps, new pump brands for water and industrial markets, process equipment and filtration. New markets like water, air compression and data centers need pumps. They need water, power, cooling and filtration. We have added an e-commerce channel for the generation that wants to buy pumps and parts electronically. The service nature within Service Centers allows us to continue to remain resilient and continue to experience consistent sales performance and continue to find ways to add value for our customers. From a regional perspective, regions that continue to experience year-over-year growth includes South Central, California, Southeast, South Rockies, Texas Gulf Coast and Northern Rockies. We have also seen strength in our air compressor, metalworking and U.S. Safety Services division, which is also great to see. Supply Chain Services sales decreased 3.7% sequentially and year-over-year declined to $63 million. In the Supply Chain Services, all pricing is electronics, so flow to improve processes and price increases and inflation and tariffs take longer to implement. That said, SCS is adding several new customers and are currently -- they are being implemented. Historically, the latter half of the year is impacted by the holiday season and there being fewer billing days with SCS and also being subject to the customers' facility closures and holiday hours, thus, we expect mild Q4 and stronger outlook as we close out Q1 of 2026. Demand for SCS services is increasing because of the proven technology, efficiency they perform for all of their industrial customers, and we expect a strong year in 2026. DXP's overall gross profit margins for the third quarter were 31.4%, a 50 basis point improvement over 2024. Overall, I am pleased with our gross margins and our steady improvement over the last 2 years. SG&A for the third quarter increased $11 million versus Q3 of 2024. SG&A as a percent of sales increased going from 22.5% in Q3 of 2024 to 22.9% in Q3 of 2025. SG&A continues to reflect our investment in our people, increasing insurance renewals, technology investments, acquisition support and other growth strategies. As always, it is our privilege to share DXP's financial results on behalf of all our DXPeople. DXP's overall operating income margin was 8.5% or $43.7 million, which includes corporate expenses and amortization. This reflects a 14 basis point increase in margins versus Q3 of '24. We still feel there is opportunity in our operations to be more efficient, but we have chosen to invest in the business via people and our operations, and we have been focused on growth. Overall, DXP produced adjusted EBITDA of $65.5 million in the third quarter of 2025 versus $52.6 million in the same period of 2024. Adjusted EBITDA as a percent of sales was 11% for the third quarter. I am pleased with our performance in the third quarter. DXPeople continue to make great efforts and adapt as we grow and evolve DXP into a more diversified and less cyclical business. We call that the next chapter. We still have substantial work to do to achieve our efficiency goals, but I am confident that the team will continue to execute and drive sales and profitability. We are growing sales more than the market and expect that into the near future. We continue to make progress on our growth strategies and our commitments to our customers is strong. We are driving growth and improvements at DXP, and we look forward to navigating and working through the remainder of fiscal 2025. To continue to build our capabilities to provide a technical set of products and services in all of our markets, which makes DXP very unique in our industry and gives us more ways to help our customers win. Finally, I would like to thank our DXPeople for continuing to maintain 11% plus EBITDA margins, hitting a new quarter sales high in Q3. Q3 was another great quarter as we continue to have a successful year in 2025. We remain excited about the next chapter. And with that, I'm going to turn it over to Ken. Kent Yee: Thank you, David, and thank you to everyone for joining us for our review of our third quarter 2025 financial results. Q3 financial performance reflects DXP's ability to continue to successfully navigate through the market and execute and create value for all our stakeholders. Our third quarter results also reflect another new record sales watermark. As it pertains specifically to our third quarter, DXP's third quarter financial results reflect solid sales growth within IPS along with an accelerating contribution from DXP Water, record Service Center performance marked by gross margin strength and stability and a pickup in sales performance from Q2 to Q3 2025, consistent consolidated gross margin performance with year-to-date margins up 89 basis points versus last year, continued contribution from acquisitions with sales year-to-date of $74.1 million and consistent operating leverage leading to sustained 11% plus adjusted EBITDA margins. Total sales for the third quarter increased 8.6% year-over-year to a record $513.7 million and 3% compared to Q2. Acquisitions that have been with DXP for less than a year contributed $18.4 million in sales during the quarter. Average daily sales for the third quarter were $8 million per day versus $7.92 million per day in Q2 and $7.39 million per day in Q3 of 2024. Adjusting for acquisitions, average daily organic sales were $7.74 million per day for the third quarter of 2025 versus $6.95 million per day during the third quarter of 2024. That said, the average daily sales trends during the quarter went from $7.26 million per day in July to $8.9 million per day in September, reflecting a normal push in the last month of the quarter. In terms of our business segments, Innovative Pumping Solutions sales grew 11.9% year-over-year and 7.5% sequentially. This was followed by Service Center sales growing 10.5% year-over-year and 3.1% sequentially. Supply Chain Services sales declined 3.7% sequentially and 5% year-over-year. In terms of Innovative Pumping Solutions, we continue to experience strong backlogs in both our energy and water and wastewater businesses. Our Q3 energy-related average backlog declined 3.3%. This is our first decline in the backlog in 10 quarters, but continues to be ahead of all our averages. As David mentioned, and as we have been discussing on previous earnings calls, we have booked a few large projects in both energy and water that we have recognized some revenue in 2025 and will continue into 2026. We will be looking to see what happens to our Q4 2025 and Q1 2026 average backlog. The conclusion continues to remain that we are trending meaningfully above all notable sales levels based upon where our backlog stands today. To provide a broader perspective, on a 9-month comparative basis, our native energy IPS backlog is up 56.2% year-over-year. We expect this to continue throughout 2025. We also see strength in our IPS water backlog as it continues to grow due to a combination of organic and acquisition additions. DXP Water's average backlog is up 7% compared to Q2. In terms of our Service Centers, our Service Center performance reflects our internal growth initiatives along with our diversified and evolving end market dynamics. On a comparative basis, our third quarter of 2025 is now our strongest quarter within Service Centers over the last 10 quarters and sets a new sales high watermark. Regions within our Service Center business segment, which experienced year-over-year sales growth in South Central, California, Southeast, North and South Rockies and the Texas Gulf Coast. From a product perspective, we also experienced strength in our air compressors and U.S. Safety Services divisions. Supply Chain Services sales performance reflects a 3.7% decrease sequentially and 5% decline year-over-year. Supply Chain Services third quarter sales performance reflects pullback in activity at oil and gas and our diversified chemical customer sites. Overall, we experienced reduced spending from existing customers by continuing to drive efficiencies and streamline purchasing that we bring to our new customers. Going into Q4, we expect the next quarter to be impacted by seasonality with there being fewer billing days as SCS customers have facility closures and holiday hours. Thus, we expect a mild Q4 and stronger outlook as we close out Q1 of 2026. However, interest and demand for SCS services is increasing because of the proven technology and efficiencies they perform for all their industrial customers, and we expect a stronger 2026. Turning to our gross margins. DXP's total gross margins were 31.39%, a 50 basis point improvement over Q3 of 2024. This improvement is attributed to strength in gross profit margins within Service Centers with a 117 basis point improvement from Q3 of last year. Additionally, the accretive contribution from acquisitions at a higher overall relative gross margin versus our base DXP business helped drive consistent gross margins within consolidated DXPE. Acquisitions continue to be accretive to both our gross and operating margins. That said, from a segment mix sales contribution, Service Centers contributed 68.16%; Innovative Pumping Solutions, 19.57%; and Supply Chain Services was 12.26%. This sales mix positively impacts our gross margins as we see an uptick in contribution from IPS. In terms of operating income, Service Centers, IPS and Supply Chain Services each had 14.6%, 18.3% and 8.4% operating income margins, respectively. The consistency in Innovative Pumping Solutions reflects the impact of our water and wastewater acquisitions at a higher relative operating income margin and a growing percentage of revenue in our sales mix. DXP Water has gone from 28% of year-to-date sales in Q1 of 2023 to over 54% of year-to-date sales of IPS at the end of the third quarter of 2025. Total DXP operating income was $43.7 million in the third quarter or 8.5% of sales versus $39.6 million or 8.37% of sales in the third quarter of 2024. Our SG&A for the quarter increased $11 million from Q3 2024 and $5.7 million from Q2 of this year to $117.6 million. The increase reflects the growth in the business and associated incentive compensation and DXP investing in its people through merit and pay raises. Additionally, this also reflects an increase in our insurance premiums, which we changed our renewal from a calendar year to midyear renewal, continued investments in technology and our facilities as well as acquisition costs and growth initiatives. SG&A as a percentage of sales increased 36 basis points year-over-year to 22.88% of sales and was up slightly or 46 basis points sequentially from Q2 of this year. Turning to EBITDA. Q3 2025 adjusted EBITDA was $56.5 million. Adjusted EBITDA margins were 11%. We continue to benefit from the fixed cost SG&A leverage we experienced as we grow sales. This translated into 1.5x operating leverage. In terms of EPS, our net income for Q3 was $21.6 million. Our earnings per diluted share for Q3 2025 was $1.31 per share versus $1.27 per share last year. Adjusting for onetime items, adjusted earnings per diluted share for Q3 2025 was $1.34 per share. Turning to the balance sheet and cash flow. In terms of working capital, our working capital increased $15.6 million from June and $73.6 million from December to $364.5 million. As a percentage of last 12 months sales, this amounted to 18.6%. This is an uptick from where we have been and reflects the impact of acquisitions and an increase in DXP's capital project work. As we move into fiscal 2026, we will continue to grow into the working capital as a percentage of sales, and particularly the impact from recent acquisitions. In terms of cash, we had $123.8 million in cash on the balance sheet as of September 30. This is an increase of $9.5 million compared to the end of Q1 and reflects our ability to produce free cash flow while managing growth capital expenditures and remaining acquisitive. In terms of CapEx, CapEx in the third quarter was $6.8 million or a decrease of $3.6 million compared to Q2 and a $2.8 million increase versus Q3 of last year. We are continuing to make investments in our business, software, our facilities and operations for our employees. As we move forward, we will continue to invest in the business as we focus on growth. That said, as mentioned during the second quarter, over the short to medium term over the next 1 to 2 quarters, we should see CapEx lessen and we look for it to be less in 2026. Turning to free cash flow. Free cash flow for the third quarter was $28.2 million versus $24.4 million in Q3 of 2024. This does reflect improvements in profitability along with elevated CapEx, which is primarily growth-oriented and highly controllable. Additionally, we continue to focus on tightly managing our capital projects, which we see as an opportunity to further generate and optimize cash flow. We have highlighted this in the past as requiring investments in inventory, product and costs in excess of billings. That said, we continue to focus on tightly managing this aspect of our business from a cash flow perspective and look to align billings with the investments. Return on invested capital, or ROIC at the end of the third quarter was 33% and continues to be measurably above our cost of capital and reflects the improvements in EBITDA and the operating leverage inherent within the business. Additionally, also, it points to our recent acquisitions performance and their positive contribution and accretive impact to both gross profit and EBITDA. As of September 30, our fixed charge coverage ratio was 2.2:1, and our secured leverage ratio was 2.3:1 with a covenant EBITDA for the last 12 months of $225.1 million. Total debt outstanding on September 30 was $644 million. In terms of liquidity, as of the third quarter, we were undrawn on our ABL with $31.6 million in letters of credit with $153.4 million of availability and liquidity of $277.3 million, including $123.8 million in cash. In terms of acquisitions, we have closed 5 acquisitions year-to-date, including 2 subsequent to the quarter end, and we will look to close a minimum another 3 before the end of the first quarter. DXP's acquisition pipeline continues to remain active and robust, and the market continues to present compelling opportunities. That said, we remain comfortable with our ability to execute on our pipeline and valuations continue to remain reasonable. In summary, we are excited about the future and building the next chapter. We will keep our eyes focused on those things we can control and what is ahead of us. We are excited because there is still substantial value embedded in DXP. Now I will turn the call over for questions. Operator: And your first question comes from the line of Zach Marriott with Stephens. Zachary Marriott: So sorry, I missed the daily sales number for June. If you could just quickly walk through Q3 again? And then any color you could share on Q4 thus far? Kent Yee: Yes. No, absolutely. I'll just walk through each month in Q3 and then kind of give you our flash look at October for Q4. July was $7.26 million per day, August, $7.95 million per day, September $8.9 million per day and October was $7.59 million per day. Zachary Marriott: Much appreciated. Looking at EBITDA margins, the last 2 years, there was a little compression in the margin percentage from 3Q to 4Q. Is it fair to expect something similar this year in 4Q '25? Kent Yee: Yes. Zach, actually, I think last year, which may have been the first time, we started going above 10% EBITDA margins really, really in Q2, Q3 and in Q4 of last year. So point being is I think, big picture, we've said it on the last couple of earnings calls, but that we feel plenty comfortable with 11%. Yes, there may be quarters where it's 11.2%, 11.4%. But really, we're trending now, I'll call it, at a sustainable 11% plus for now. As we move into 2026 and we continue to get more acquisitions and particularly in the water space, we may adjust that. But right now, the 11% is sustainable. So hopefully, that answers your question around Q4. Q4 is a lighter, though, I think that's your point, is lighter from the number of days in the quarter due to holidays, Thanksgiving and Christmas here in the U.S. and Boxing Day, if you will, in Canada. But we still expect from a profitability perspective to be our mix to kind of get us to that 11%. Zachary Marriott: Understood. That's responsive. And then corporate expenses aren't something we talk about too much, but there has been some variability just worth asking about today. The Q3 number you just reported was just under $26 million. Is that a fair proxy for what we should assume going forward? And what might bias that number higher or lower as you move through the coming quarters? Kent Yee: Yes. So there was a couple of unique things in there that I think David and I both called out in our scripts. One, we just -- and this is the first year, we flipped our insurance renewal from a calendar year to a midyear. And so that created July as when you're paying all the premiums, a little bit of an elevated level. On top of that, from an insurance perspective, no different than any other company, our insurance overall premiums have gone up slightly. So that's what you're seeing from July going forward, if you will. And so in Q4, I think you will see from a percentage basis, very similar. The other thing we experienced was just higher -- we're self-insured and we play on a claims basis from a health insurance perspective, and we had some unique claims come through, if you will, in Q3. That I can't forecast right now whether that will happen in Q4 or not, but that created an elevated level of cost, if you will, that's flowing through that corporate SG&A number. And then once again, we're acquisitive, as everyone knows. And so just more so timing than anything else, but we've been busy here, if you will, in Q3 from an acquisition standpoint. So our professional fees, if you will, and costs kind of were elevated here in Q3. That will continue. We have a very robust pipeline, but that will continue in Q4 and into Q1 for sure, just given our pipeline from an acquisition standpoint. So hopefully, that gives you additional color there on that SG&A line. Zachary Marriott: Last one for me. Can you please touch on any data center exposure or opportunities you guys may have? David Little: Sure. I'll take that. We're looking at a lot of different avenues based on the products that we represent. So we represent pumps, we represent water, represent filtration. And so all these data centers are -- and we also represent power and equipment that handles gas and other things. So we have an opportunity there. We're trying to do best we can to figure out how to tap into that market. We are getting a little bit here and there, but it's not been a big market for us. We feel like it can be from -- and so we're attacking it pretty hard. It's pretty diversified across the country. So trying to get on top of all the projects and trying to get some credibility, I guess, with the fact that we can do a lot of things is what we're doing. But really, at this point, I'm going to tell you that it's not been a big win for us. And yet, I think it's a great opportunity. Operator: There is no further questions at this time. I will now turn the call back over to David Little for closing remarks. David? David Little: Yes. First, let me thank all our DXPeople for certainly setting record sales. I think that's awesome. I think as we manage the company, the hardest thing we do is satisfy customers and get bookings and sales. So expenses, they were a little surprising, but they were really for all the right reasons and for the things that are necessary for us to be a growth-oriented company. So I'm not concerned about that. There's nothing really broken about DXP where we add acquisitions, expenses and the dollars are certainly going up, but it was a little concerning that the expense percentage went up. So -- so we're not crazy about that, but it's certainly a lot easier to fix than sales. I also want to thank our suppliers. It seems like they're doing a much better job with deliveries, and they're trying to manage their costs the best they can and keep us competitive in the marketplace. And we pass on those increases, but -- and that seems to be working all right. I'm pretty proud of the fact that we've got our gross profit margins up slightly and maybe a better statement is they're certainly holding. So I feel good about that. Of course, thanks to our shareholders and thanks for everybody supporting DXP. In summary, I think you can just say, well, we just had record sales. Gross profit margins are good and holding. Expenses were a little higher than expected, but they were for all the right reasons. Free cash flow improved at $28.2 million, which is great. We continue to hit adjusted EBITDA margins of 11%. We're excited about that. If we have any negatives, it would be a little bit in the booking side and that we trace that back to kind of our smaller piece of oil and gas that we have today. That market is still struggling as far as growth is concerned. And -- but they tell me even there that quoting activity is up and doing well, and we just got to get from the quote to the bookings. But anyway, so we're not concerned about any particular markets. We're not concerned about tariffs. We're not concerned about our government as it affects DXP. And so we feel good about our future. And so thank you for joining our call today, and we look forward to talking to you next quarter. Thanks. Operator: That concludes today's call. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Grindr's Third Quarter 2025 Earnings Call. My name is Janine, and I will be your lead operator for today. [Operator Instructions] I would now like to turn the call over to Tolu Adeofe, Grindr's Head of Investor Relations. Please go ahead. Tolu Adeofe: Thank you, moderator. Hello, and welcome to the Grindr Earnings Call for the Third Quarter 2025. Today's call will be led by Grindr's CEO, George Arison; and CFO, John North. They will make a few brief remarks, and then we'll open it up for questions. Please note, Grindr released its shareholder letter this afternoon, and this is available on the SEC's website and Grindr's Investor page at investors.grindr.com. Before we begin, I will remind everyone that during this call, we may discuss our outlook, future performance and future prospects. You should not rely on forward-looking statements as predictions of future events. These forward-looking statements are subject to risks and uncertainties, and our actual results could differ materially from the views expressed today. Some of the risks that could cause our actual results to differ from views expressed in our forward-looking statements have been set forth in our earnings release and our periodic reports filed with the SEC, including our annual report on Form 10-K for the year ended December 31, 2024, or any subsequently filed quarterly reports. During today's call, we will also present both GAAP and non-GAAP financial measures. Additional disclosures regarding non-GAAP measures, including a reconciliation of these non-GAAP financial measures to their most closely comparable GAAP financial measures are included in the earnings release we issued today, which has been posted on the Investor Relations page of Grindr's website and in Grindr's filings with the SEC. With that, I'll turn it over to George. George Arison: Thanks, Tolu, and hello, everyone. The Grindr team delivered another awesome quarter with revenue up 30% year-over-year and adjusted EBITDA margin of 47%. The results put us in a great position as we finish the year. Today, we are increasing our expectation for full year 2025 adjusted EBITDA to a range of between $191 million and $193 million, implying a margin of greater than 43%, and we are reaffirming our revenue growth outlook of 26% or greater. Our new CFO, John North, will walk you through the results in a moment. We're thrilled to have him join Grindr. He's led high-performing finance teams at Fortune 500 and S&P 500 companies and served as a public company CEO. He's already become an invaluable partner to [indiscernible] as we execute on our long-term vision. Over the past 3 years, we focused on expanding Grindr's product service area, delivering more capabilities and high-quality experiences for free and paid users alike. On Page 4 in my shareholder letter, you will see a chart showing that our product expansion has been tremendous, creating enormous value for users and driving higher conversion, more revenue capture and an increased revenue per pair. Grindr now offers a richer, more effective experience powered by strong technology and a broader feature set. Users endure products like Albums, Boost, Travel Boost, Viewed Me and Right Now. Through Gen AI, we are giving users access to powerful features like chat summary, discovery and profile recommendations. All in, we've made the Grindr app more magical, dynamic and rewarding than it was just a few years ago, and we're only getting started. Expanding both our product surface area and the value we've created for paying users has put us in a strong position to test subscription price changes for the first time since 2018. We asked new subscribers in a large set of test markets to pay slightly more and experienced a de minimis impact on our paying user base with retention exceeding even our most optimistic projections. We're deeply grateful for our paying users' vote of confidence in our direction, demonstrated by their willingness to invest more for the new value and capabilities we've built. Over the next few months, we'll continue gathering data and prepare for a global rollout early next year. Concurrently, in one country, we've begun offer testing a new AI-powered premium tier designed for power users for one of the most advanced and magical experiences. Think of it as a flagship first-class cabin of Grindr with features that simply weren't possible 2 or 3 years ago before Gen AI. This tier targets a smaller segment interested in higher-value products, offering distinctive user benefits and a meaningful revenue opportunity beginning in late 2026 and accelerating in 2027. Our rich, free experience remains central to Grindr's power, fueling the unmatched scale and vitality of our network. Capturing revenue through exceptional value-added features enable us to continue bolstering an already rich, free experience and to maintain the open conversational architecture that makes Grindr unique among any gay or straight platform that will always remain our top priority. A defining strength of Grindr is its ability to renew itself with new users. Every year, Gay and bi men all over the world join as they become adults. Grindr is often the first place they learn about the engage, explore gay culture and find all types of connections from casual dates and hookups to love, to workout mates to friendships. This generational influx keeps the platform vibrant, relevant and ever growing with younger cohorts driving engagement across the network and older ones driving monetization. To help illustrate this characteristic, which is very unique to our platform, we've included a onetime demographic disclosure with our shareholder letter. It highlights why Grindr's strong, consistent engagement, especially among users aged 18 to 29, who make up a majority of our global user base, positions us for durable long-term growth. We recognize that many of our investors are Grindr users and hope these insights make our user dynamics and community more tangible to you. Overall, the products and business are performing exceptionally well, and the team remains laser-focused on delivering more value and more success to our users every day. Before I wrap up, I'm sure everyone has seen the filings from 2 of our large shareholders, Ray Zage and James Lu proposing to take Grindr private. The Board has formed a special committee of independent disinterested directors to evaluate the proposal. The committee is working with its own independent financial and legal advisers. From the company standpoint, that process will run its course. Our team remains unwavering focused on execution. We are fortunate to work every day on things we love that bring happiness to millions of people and make a world that is more free, equal and just. Grindr has enormous potential to create value while continuing to deliver a product of deep importance to its users, and our job is to keep driving towards that. That's all we'll say on this matter at this time, and we won't be taking any questions about it on today's call. Thank you to the Grindr team for delivering outstanding results we are reporting today. We're proud of what we've achieved, excited for a strong finish to the year, setting the stage for another standout year in 2026. Now here's John to cover the results. John North: Thank you, George, and it's great to be here with all of you. I look forward to meeting many of you in the near future. I'm excited to be a part of Grindr and what the incredibly talented team is building. I've known and respected George for a long time, and the Grindr business model is among the most powerful I've ever seen. I see my role as further strengthening the finance organization, expanding our capital markets relationships and ensuring the company scales efficiently and profitably as we deliver on our vision. As George highlighted, we had a phenomenal Q3. Total revenue was up 30% year-over-year to $116 million. Adjusted EBITDA of $55 million was up 37% year-over-year, resulting in 2 points of margin improvement to 47%, a record for Grindr. Our direct revenue grew 25% year-over-year, while indirect revenue was up 56%. Our ads business was the primary driver of outperformance in the quarter as we saw strong results from international third-party advertising partners. In the core app, revenue growth was driven by our strength in our unlimited tier, which this year saw the introduction of additional duration options and feature updates alongside the ongoing success of our weeklies product across subscription tiers. Our user KPIs were strong with an average of 1.3 million paying users in the quarter for an improved penetration rate of 8.6%. Average MAU totaled $15.1 million and ARPU was $24.70. Our adjusted EBITDA margin performance reflected the strong flow-through of our revenue outperformance to the bottom line as well as higher capitalized product development costs. Operating expenses, excluding cost of revenue, were up 9% year-over-year, largely related to people costs as we execute on our innovation road map, including our AI initiatives. Grindr's net income for Q3 was $31 million or $0.16 per diluted share compared with $25 million or $0.09 per share a year ago. We generated approximately $51 million in free cash flow in the third quarter. Year-to-date, we've repurchased 25.1 million shares of our common stock for approximately $450 million, leaving us with $50 million remaining under our current authorization as of September 30. Our Board regularly reviews capital allocation plans, including options for returning excess cash. Turning now to our guidance. Our strong Q3 results give us increased confidence in our 2025 outlook. And as George mentioned, we now expect our full year 2025 adjusted EBITDA will be between $191 million and $193 million, implying a margin greater than 43%, and we are reaffirming our revenue growth outlook of 26% or greater. As I noted in the P&L review, our 30% total revenue growth in Q3 was largely driven by outperformance in our ads business, which we do not expect to repeat in Q4. Recall that in our 2024 fourth quarter, we benefited from a large onetime brand campaign. In conclusion, Q3 was a very strong quarter that reinforces Grindr's powerful business model. We're in a great position to deliver on our annual guidance, which we increased earlier this year and are revising upward today. And with that, we'll open the call up for some questions. Operator: [Operator Instructions] Our first question comes from the line of Andrew Marok from Raymond James. Andrew Marok: I wanted to talk quickly on pricing first. So I think you've mentioned in the past and your payer conversion rate kind of points to this that given that Grindr had a little bit farther to go in terms of product breadth that getting users to pay at all was one of the biggest milestones that you would make as a user. So I guess in light of that, how do you balance that philosophy of raising prices versus getting people to pay at all? Like is the increased price a potential higher barrier to make that first purchase? George Arison: Andrew, good to talk to you. We are obviously excited for users to pay if they've not paid before, but we also believe it's important for users who are getting a lot more product in the paid tiers and a lot more value to pay a little bit more for that value. And the price changes are, I think, fairly minor in the large scheme of things, given the amount of value that we've added to the product. We have seen significant growth in our number of paying users. The change over the last 3 years has been pretty significant. As you know, I think we went from something like 6.5% to 8.5%. And that, I think, speaks for a lot, especially given that MAU has also grown dramatically in that time period. And secondly, we want to maintain a very robust free offering. I think one of the things you'll see in the shareholder letter in the disclosure that younger users who constitute a vast majority of our user base worldwide and nearly a majority of our user base in the United States and the U.K. tend to pay at a much lower rate than slightly older users. So on Page 8 of the letter, you'll see that 18- to 22-year-olds have the lowest penetration and then that kind of increases dramatically as they go to 30, 39 or 40, 40, 49, et cetera. And so we kind of have a 2-parted strategy, right? On the one hand, we want as many young users coming into the product and having a really awesome experience through a very robust free offering where they can use all the features that we offer, including being able to talk to anybody for free with no limits. We're the only product of our kind that has that, whether gay or straight. And then from there, we want people to be able to pay for the value-added services that we offer them. And what we are learning is that people who -- as they age and get older, they end up getting more value from the features that we offer in paid tiers, and they're willing to pay for those. What we've seen in our price testing as prices have changed is that we have had very little to de minimis change in our conversion rates when you compare new prices versus old, which is really great and it speaks to the fact that people value the products they're getting in those paid tiers. And then a couple of more things on that. Number one is we do monetize our free users through ads. Obviously, we had a significant increase in our ad revenue over the last 3 years as well, and we continue to do very well there. And I think that's an important component of that equation as well. We have thought about whether we should offer a cheaper tier as well for users who might want to not have ads at all, but are not quite ready to pay for XTRA because they don't need the value that XTRA includes in terms of features and products. And that's something we're still thinking about. I don't want to promise either way that we'll do that, but that's certainly a possibility as a way to get more people to potentially be payers. But if you do that, you actually won't have that big of a revenue impact because the price point on that would be fairly low. And then lastly, I think the important thing for us is by creating a lot more product value, we are now asking people to pay a little bit more for that. This isn't just a price raise for the sake of a price raise or because we want to make more money. It's to ensure that users who are enjoying a lot more value in the experiences because the XTRA and the Unlimited tiers are way more robust today than they were 3 years ago as a result of a lot more product area that we've created in those tiers are actually paying for the value they're getting from those tiers. Andrew Marok: Got it. Really appreciate that. And then maybe if you could just give us a quick update on how some of the newer products, especially thinking of something like Right Now is trending in terms of things like engagement metrics and to the extent that you can measure them, things like user satisfaction or outcomes. George Arison: I don't really have much new to say on that beyond what we've said before, which I'll be happy to repeat. I think the way we tend to think of our products is launch a lot of product surface area. Some will be free, some will be paid. We want to have a robust free offering and some things that are more special might be offered to paying users only. With Right Now, our objective was to dramatically increase the surface of a free product. So everybody who is on Grindr, whether paid or free can utilize Right Now and enjoy it. Somewhere between 20% and 25% of our users post in Right Now, at least once a week. And over 75% of our users look at Right Now postings within -- once people are in Right Now, which I think shows really high engagement, and we are very happy about that. But obviously, there is a lot more that you can do with Right Now. I was in New York a couple of weeks ago, where we have the mapping feature in Right Now on as well. I'll be totally honest. I was not sold on the idea of mapping in Right Now when the team first went after it. But when you're in New York and are seeing the product kind of in your hands, it's a really incredible magical experience and looks really, really nice. And I think people really like that. And so we're really happy with where the product is trending. And normally, we don't really share a lot of product metrics, but I do want to call out, again, in the shareholder letter, we did share a very extensive disclosure on our user base and kind of how that is split out. The fact that we have -- in the U.S., for example, 15% of our users are ages 18 to 22, 31% of our users are ages 23 to 29 that 46% of all Grindr profiles are kind of in that age range of 18 to 29. And that to me is something that kind of speaks to the uniqueness of Grindr as a business and a product and the fact that users -- the younger generation really likes what they're getting in the product, and it's very much working for them. So as long as our products are accomplishing the idea of bringing young people into the product as they become adults as a right of passage like it has for the last 15 years, I think we're in a very strong position. Operator: Our next question comes from the line of John Blackledge from TD Cowen. Logan Whalley: It's Logan Whalley on for John. So just looking at top of funnel, MAUs grew nicely again in 3Q. Could you discuss any trends which drove the top of funnel users higher in the quarter? And then also in 2Q, you called out some significant removal of bad actors in a certain region. Could you just update us on any similar efforts globally in 3Q and then looking forward just based on health of the platform? George Arison: Thanks for the questions. So first, let's start with what it is that we actually report. We report monthly active devices, not users and not profiles. A lot of Grindr users have more than 1 profile, and those are pretty hard to debug in terms of are they 1 individual or 2. That happens for many different reasons. Some people might have a profile that is more friendship focused and then they might have a profile that is more casual dating focused, and they have different information on those profiles, and we definitely don't discourage that and are happy with users having more than 1 profile. So the best way for us to debug what we report is monthly active device, not user. And I think it's really important for people to understand, especially when I try to compare it to external data, which, as we have spoken before, tends to be perpetually wrong about Grindr information. I think in part because people don't pay attention to what it is that Grindr actually reports. Secondly, our ecosystem is really -- the health of the ecosystem is really important to us. And so as we see bad actors come into the ecosystem, whether those are stammers or other types of bad actors, we take actions to remove them. Over the last 2 to 3 years, I think all social networking companies would validate this. Scammers have become more sophisticated with Gen AI, and that means that you have to become more sophisticated in fighting them. And as we do that, it can impact MAU. In Q2, in the first half of the year, there were a significant impact on MAU, and we've spoken about that. It doesn't always impact MAU when we go after bad actors because some bad actors have profiles that don't have a device ID associated with them. They do that by spoofing Android devices. That's a known kind of flaw with the Android ecosystem that you can do. And so when we remove actors that are bad, that don't have a monthly active device, they don't get associated with MAU one way or the other because they were never in our MAU in any way. But when we remove bad actors that do have devices, they do. Thirdly, we have never really done much to drive MAU growth. Our MAU grows almost completely organically through word of mouth. As I said earlier, Grindr is a rider passage for people as they turn 18. And if they are gay, they come to Grindr as a way to figure out who they are, what it's like to be to start meeting people for any number of types of connections. And so organically, our MAU tends to grow really nicely. We are very happy with our MAU growth. And frankly, the numbers that you're seeing in terms of growth are very much in line with our long-term guidance assumptions that we shared at Investor Day 1.5 years ago. And then lastly, I'll call out again the disclosure towards of our user demographics. You couldn't have the demographics that we have in our profile set that we share on Page 7 and 8 unless you're attracting a lot of new users. It would be impossible to have 50% of the user base be 18 to 22 in the United States when only 9% of the U.S. adult male population is in that age cohort unless you're constantly attracting people who are young and attracting them at very high rates. And that's even more true internationally in places like India and Philippines, et cetera, where older users are still stigmatized and might not so comfortable being a [indiscernible] while younger users are coming out and more comfortable. So in those places, our user base is even more heavily young. And a lot of our focus is ensuring that we continue doing that through the right product initiatives so that we serve this younger adult male cohort as well as we possibly can. Logan Whalley: Great. Maybe one other question just on the premium tier. You mentioned that would be designed for power users. Like could you give us any kind of an idea of what how many power users are on the Grindr platform? Like what percentage of overall users might kind of fall into the bucket that you're designing the subscription for? George Arison: Yes. So the premium tier was a significant component of what we envisioned in terms of the long-term strategy that we shared at Investor Day because we knew that a lot of our investments would be around AI features, which are really magical and previously were not possible to build. We are building those and making them available. And we just think that the amount of value that we will be generating through those features and products for people, we will see -- I think people need to be prepared to pay for the value they'll be getting from that. That tier is meant for our power users and for a very select set of people. We don't expect a huge number of people going into that, but it will be priced appropriately for that. We have something like, I think, 350,000 Unlimited subscribers. So if you imagine that 20% of those subscribers switched over to Unlimited, I think you'd have -- sorry, to the premium tier, you'd have a very nice kind of growth in our revenue because it's a significant dollar amount at the price points that we are thinking about. And I would call that like a good home run. If 30% or 40% or 50% of our Unlimited users switch to the premium tier, then you'd have like a grand slam because it'd be like an incredible result. I don't know which one of those is going to happen. That's why we need a few quarters of testing and learning to understand what happens. But I do know that the kinds of features that we offer in this new premium tier are pretty magical. And I think a lot of people will be very happy with them. But at no point have we thought about as something that a very large percentage of our overall user base will utilize. This is very much meant for our power users who can benefit from the unique features that will be put into that tier or that have already been put in that tier. And quite frankly, I think 1 of -- maybe 5 people in the United States who is in the beta because the beta is starting somewhere else. And when you use Grindr with these features, it is a very, very different experience. We were entering a fairly senior product candidate about 2 weeks ago and kind of walked them through what it's like on the app and he's like, wow, that's really, really special. And I really very much hope that everybody else feels the same way as this tier kind of expand more broadly to be available to more people. But I would not expect to have a global rollout until at the earliest sometime in H2 of next year. John North: Yes. And maybe, George, if I can just jump in and add on to that. The one thing I want to triangulate back to is that we are looking at continued investment in these enhancements that are going to bring new and exciting features and differentiation as we move forward. And that's been contemplated in the 3-year plan that we put out in the summer of 2024. We're going to finish the year at better than a 43% EBITDA margin, but I want to make sure we remind everyone that in that plan, we anticipated many of these investments. And so we still think triangulating to the EBITDA margin range we gave at the time of 39% to 42% as you think about years '26 and 2027 is an important point to keep in mind and that you can't just roll forward what we may finish this year at as you think about next year and beyond. Operator: Our question will come from the line of Andrew Boone from Citizens Bank. Andrew Boone: Three for me, if I could. I would love to get an update in terms of international. Just how did that trend in the quarter? And then any new initiatives you guys may have in terms of localization or anything else we should think about there? gAI, George, can you just talk about the bigger opportunity with that product in the quarter? And kind of what's your vision in terms of bringing more AI tools in terms of incorporating AI into the Gayborhood? And then lastly, just on advertising. Can you guys just help us understand, it sounds like it was very strong in the quarter. What was the driver of that growth? Is there anything to call out? And then how do we think about that going forward? George Arison: Great. Thank you for all that. I wrote it down, but hopefully, I don't forget, if I do, please remind me, I'm not ignoring any of the questions. They're all fun things to talk about. So on international, what we said at Investor Day is that international is a very large opportunity for Grindr. And I'll walk you through kind of how we think about that. But first to kind of preface, I think one of the main jobs of the CEO is twofold, right? Number one is to paraphrase another very prominent CFO, CEO whom I really admire is to amp things up, meaning to put pressure for things to happen as fast as possible and as many things to get done as possible. And I think everyone who knows me knows that I'm costly amping it up on the team. But concurrently with that, another really critical place is to prioritize things properly. If you try to do everything, you'll get nothing done well and finding the right prioritization on things is really important. There was a lot to do at Grindr when we got started 3 years ago, and we've been prioritizing things based on what we thought was most critical. And in total fairness, I think going after our international opportunity was not as top of a priority as some other things have been so far because those were more important even for the user base or from a perspective of what we wanted to achieve over the long term, which still means that international is a huge opportunity and is something that should be viewed as upside when you think about it from the long-term modeling perspective rather than something that we assumed would be the case in our 3-year plan that we shared June 2024. The way we think of international is in 3 buckets. So first, in countries where we already have a pretty significant presence and those countries are economically advanced, we believe that there is opportunity to continue driving more users to become paying customers and to pay for the extra value they're seeing from the added new features that we're building. So we -- our payer penetration in Europe, for example, is lower than our payer penetration is in the United States. And we'd love to do things that would help us drive payer penetration to be more akin to the U.S. in Mainland Europe, which we think is possible. Obviously, U.S. will continue to grow as well. I'm not saying U.S. is going to just stop growing. But if we could get them closer to U.S. levels of payer penetration or even the U.K.'s levels of payer penetration, that would be a really big win. So that is one bucket of focus for international is Europe and countries like Europe in terms of their economic development, get them to have more payers. Number two is countries where we have very large sets of users and do okay on payers, but we believe that there is still opportunity for people to learn that we exist and to use us, have a ton of user growth opportunity. Places like that are Brazil, Philippines, rest of Latin America, Mexico, Colombia, Chile, et cetera. And Asian countries like Thailand, Vietnam, potentially Cambodia. In many of these places, we know from research that a very large number of people in our user cohort know that we exist and those that know about us, use us. But then there are a bunch of others that don't know about us and because our brand recognition is not as high in those countries as it is in the United States or the U.K. And so as they learn about us, we believe there will be opportunity for them to start using us, which we think will be very valuable. And then the third bucket is India, which should be called out separately because of its size. 10 years ago, it was illegal to be gay in India. So obviously, there's a ton of social stigma attached with being gay. It is changing for young users, as you can see from the data that we shared. But we want to be present there as the social transition changes, or happens and as more and more people become comfortable with who they are, and kind of continue to be the primary product for gay people in India like we already are as many more of them become comfortable using our product. And so that's the kind of opportunity. A lot of what we need to do internationally is around localization of the product. That might be simple things like how we show up in a specific language in a given country. We don't use a lot of slang in how we describe ourselves in a lot of these places in our translations, and we probably should and kind of what -- how people communicate in those languages to what kind of imagery we show you in each of these countries. And then on a more advanced level, what kind of products do we build? If you go to New Delhi, for example, and you open up Grindr, the grid will look very, very different from what the grid looks like in New York. Everywhere, there are a lot of people who are discrete and who might not show their face. or might not have a picture at all. But in India, vast majority of people don't show their face in a picture at all because it's still really hard to be gay. And so maybe in a place like India, the grid should actually look a little bit different. Maybe we should allow people to have AI-generated photos that they can post. I'm not saying that's what we would do, but like you can imagine through product solving the problem of discreetness in India differently than you deal with it in other places because they have unique needs in that country. And those are all things that we can do to help grow our presence. And obviously, through marketing, we can do a lot as well. We've spoken the shareholder about the fact that we have now launched our Spanish-speaking social media channels. We've also launched our first social show in Spanish. And those are the kinds of things we'll be doing in other languages as well, such as Portuguese and for specific countries like India as well. So that's on international. When it comes to gAI, we believe that AI, and I detailed this quite a bit in the document we shared last quarter about AI incumbent companies with a lot of data can benefit significantly if they start taking advantage of AI early before potential challenges are able to catch up with data because AI is better with data. And if you are kind of at the forefront, you can make your product be very, very different from a technology point of view with AI. And we do want our product to be turned into an AI-native product. And that's very much what we've been striving to do by retraining models to be able to speak gay, and I think we're doing a pretty good job at that. And then being able to use those models inside our product to do specific new experiences that previously did not exist. To start with, a lot of those experiences will go into the premium tier that I spoke about in the previous question in the shareholder letter. And there will be things like insights where we will actually provide users with detailed information about people that might be talking to that we can infer based on people's behaviors or conversations. Obviously, that will only be done with permission, meaning only people who agree to be part of our AI features will be able to see those features and we'll have those features or the information available about them in the app. Another kind of product that we've built through AI is called A-list, which goes through all your messages and creates a short list of people that we believe you should keep talking to and gives you summaries of conversations that you have with those people, brings together all the photos that you've exchanged with those people, all in a really nice summarized folder that makes it much easier for you to navigate the product. You can envision that as the next step of that, we will add a little button that will be the gAI button, and you can start asking gAI questions about that specific user that you were previously talking to. So it's something that you discussed previously does not appear in the chat summary, you can say, hey, I believe we talked about XYZ, can you get that information back to me to remind me what it is that we exactly talked about. So very similar to what Grok is doing inside X, where you can actually get information about a specific post with a lot more detail that would be quite kind of -- that's quite beneficial. So those are the kinds of features that we are working on. I don't know of a lot of consumer-facing products that are doing the kind of stuff that we're doing yet. But the same way that Grindr invented the use of mobile in the way it is used today, I think we'll be at the forefront of using AI in the consumer experiences in the future. And for advertising, I'll switch over to John to speak about that. John North: Yes. Thanks, George. We did have a good quarter in terms of our advertising growth. That's been an area of focus both through the TPA and then the direct piece. It's also a very nice contribution margin because it doesn't have the cost of sales associated with the subscriptions do come in through the app stores. So that tends to be more accretive to EBITDA, and we did see some benefit in that in the third quarter, you're right to call it out. But more importantly, I wanted to focus and just remember -- remind everyone that last year, we had a pretty significant direct advertising boost in the fourth quarter that we don't expect to continue this year. And so that's contemplated in the range of guidance that we gave. And certainly, we think this is an area that can continue to be a focus for us and that it should give us opportunity for potential additional growth in the future. There is much more we can do here, and we've had good success with Brian and the advertising team, but we're going to continue to look for ways to grow that in 2026 and beyond. Operator: [Operator Instructions] There are no further questions at this time. I will now turn the call -- we have a question, by the way, from John Blackledge from TD Cowen. Logan Whalley: It's Logan on for John again. Just -- maybe one follow-up on the user base breakdown. It's really interesting. Could you talk maybe about any trends you've seen over time or since you've come on board, George, in usage amongst different age groups? Like have you seen any trends among older age groups or younger age groups like more engagement or less engagement over time? And do you think there -- like you may have any initiatives in place in the future to kind of boost engagement amongst specific age demos like maybe older people, for example? George Arison: Yes. Great question. Thank you for that. We debated whether we should put in more, but we thought for competitive reasons, probably kind of what we shared made sense because we do have obviously data on the things you're asking. So I'll try to speak to it directionally without being too specific because I thought that for competitive reasons, releasing more of that would be potentially risky. What we know are the following things. One is our young adults, meaning people in the 18 to 35 age range, tend to do a lot of communication with each other, but they also get messaged a lot by older users, and they respond to older users as well, whereas the younger adult cohorts such as 18 to 30 don't actually initiate a lot of conversations with older users themselves. Since we know that they actually do respond to people who are older when they get messages, that is something that you could probably solve the product, right? Because I think what happens is a lot of younger adults, such as 18- to 30-year-olds, might feel uncomfortable messaging somebody who is older because they think, hey, this older person might want to talk to me. And that's why they're not messaging out to them, but they're getting messages from them and then they're willing to respond. And so that is something that we could solve through product by saying -- by having product features that kind of facilitate that a little better. We also do know from our older users kind of in that 50-plus age demo, and I'm approaching that cohort soon. So I'm kind of learning about that more, is that sometimes they don't always feel as welcome in the app as they did before, meaning they all have Grindr accounts. But as they age, their priorities tend to change. And as a result, sometimes they don't quite feel as at home. And we definitely can do things, I think, through a product to make that experience be better for them. That is part of the thinking behind the premium tier and the AI features with insights, right? Because part of what we can do with insights is tell a user, yes, this person is likely to engage really well with you based on what we know about you. And that I think would be very helpful for users who are older who might feel a little bit uncomfortable with the app because their priorities today might be different, right? If you are a 45-year-old or 50-year-old guy with kids living in the suburbs, your priorities are probably different than what they were when you were in your 20s and frequent circuit party. So I think those are the kinds of things that insights can really help solve, and that's something that we are envisioning. Obviously, older users do have more disposable income as well. And so I think the alignment there is quite interesting in terms of offering them better functionality that is unique through AI that is also creates a lot more value for them and so it is more expensive at the same time. Does that answer the question or any follow-ups on that? Before we close, unless there are more questions, I just do want to add one other thing. Grindr is an 18-plus product only. We do not allow people who are not 18 on the product. You cannot download the product if you are not 18 on either Android or iOS, and you cannot log into Grindr by creating an account on the web. We only allow you to create accounts through the app stores. And so whenever I refer to younger users, I'm referring to people 18 and older, nobody below 18. Operator: Thank you. This ends the conference call for today. You may now disconnect.
Operator: Greetings, and welcome to the Main Street Capital Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you. You may begin. Zach Vaughan: Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's Third Quarter 2025 Earnings Conference Call. Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer; David Magdol, President and Chief Investment Officer; and Ryan Nelson, Chief Financial Officer. Also participating in the Q&A portion of the call is Nick Meserve, Managing Director and Head of Main Street's Private Credit Investment Group. Main Street issued a press release yesterday afternoon that details the company's third quarter financial and operating results. This document is available on the Investor Relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until November 14. Information on how to access the replay was included in yesterday's release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the company's homepage. Please note that information reported on this call speaks only as of today, November 7, 2025, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may or similar expressions. These statements are based on management's estimates, assumptions and projections as of the date of this call, and there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties and other factors, including but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.gov. Main Street assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non-GAAP financial measures, including distributable net investment income or DNII. DNII is net investment income or NII, as determined in accordance with U.S. generally accepted accounting principles or GAAP, excluding the impact of noncash compensation expenses. Management believes that presenting DNII and the related per share amount are useful and appropriate supplemental disclosures for analyzing Main Street's financial performance since noncash compensation expenses do not result in a net cash impact to Main Street upon settlement. Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Two additional key performance indicators that management will be discussing on this call are net asset value or NAV and return on equity, or ROE. NAV is defined as total assets minus total liabilities and is also reported on a per share basis. Main Street defines ROE as the net increase in net assets resulting from operations divided by average quarterly NAV. Please note that certain information discussed on this call including information related to portfolio companies, was derived from third-party sources and has not been independently verified. And now I'll turn the call over to Main Street's CEO, Dwayne Hyzak. Dwayne Hyzak: Thanks, Zach. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call, and we hope that everyone is doing well. On today's call, David, Ryan and I will provide you with our key quarterly updates, after which we'll be happy to take your questions. We are pleased with our performance in the third quarter, which resulted in another quarter of strong operating results, highlighted by an annualized return on equity of 17%, favorable levels of DNII per share and new record for NAV per share for the 13th consecutive quarter. We believe that these continued strong results demonstrate the sustained strength of our overall platform, the benefits of our differentiated and diversified investment strategies, the unique contributions of our asset management business and the continued depth and quality of our portfolio companies, particularly our existing lower middle market portfolio companies. We are also pleased that we further strengthened our capital structure during the quarter, which Ryan will discuss in more detail. We continue to maintain a very strong liquidity position and conservative leverage profile, and we are well positioned for the continued growth of our investment portfolio. We remain confident that our unique investment income and value creation drivers, together with our cost-efficient operations and conservative capital structure will allow us to continue to deliver superior results for our shareholders in the future. Our favorable results for the third quarter, combined with our positive outlook for the fourth quarter, resulted in our most recent dividend announcements, which I will discuss in more detail later. Our NAV per share increased in the quarter primarily due to the impact of net fair value increases in both our lower middle market and private loan investment portfolios, which Ryan will discuss in more detail. The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of strong dividend income contributions and significant net fair value appreciation in our lower middle market equity investments. Based upon our current views of these investments and feedback from our portfolio company management teams, we expect these contributions to continue to be strong for the next few quarters. We also continue to see significant interest from potential buyers in several of our lower middle market portfolio companies, which we expect will lead to favorable realizations over the next few quarters and which we believe further highlights the strength and quality of our portfolio companies and their exceptional leadership teams. We're also excited about the new and follow-on investments we made in our lower middle market portfolio companies during the quarter, which resulted in the addition of 3 new portfolio companies and a net increase in lower middle market investments of $61 million. Consistent with our guidance last quarter, our private loan investment activity in the quarter continued to be slower than our expected normal quarterly activity resulting in a net decrease in private loan investments of $69 million. In addition to the potential for favorable investment realizations in our lower middle market portfolio, we also recently exited one of our private loan portfolio company equity investments and have a second exit in process, subject to customary closing conditions and regulatory approvals with these activities representing total realized gains of at least $35 million, both at meaningful premiums to our quarter end fair values. David will discuss our investment activity in more detail. Given our conservative capital structure and strong liquidity position, we remain very well positioned to continue the growth of our investment portfolio for the foreseeable future, and we are excited about the current opportunities we are seeing. We also continue to produce positive results in our asset management business. The funds we advised through our external investment manager continued to experience favorable performance in the third quarter resulting in significant incentive fee income for our asset management business for the 12th consecutive quarter and together with our recurring base management fees, a significant contribution to our net investment income. We remain excited about our plans for the external funds that we manage as we execute our investment strategies, and we are optimistic about the future performance of the funds and the attractive returns we are providing to the investors of each fund. We also remain excited about our strategy for growing our asset management business within our internally managed structure. As part of these efforts, we remain focused on growing the investment portfolio of MSC Income Fund, a publicly traded BDC advised by our external investment manager and our largest asset management business client, which maintains meaningful current liquidity and will benefit from a significant increase to its regulatory debt capacity at the end of January 2026. In addition to deploying the fund's current liquidity into new private loan investments, we also continue to focus on maximizing the benefits of the fund's legacy lower middle market investment portfolio and are excited about the near-term expectations for additional realized value creation over the next few quarters. Based on our results for the third quarter, combined with our favorable outlook in each of our primary investment strategies and for our asset management business, earlier this week, our Board declared a supplemental dividend of $0.30 per share payable in December, representing our 17th consecutive quarterly supplemental dividend and an increase to our regular monthly dividends for the first quarter of 2026 to $0.26 per share. These first quarter regular monthly dividends represent a 4% increase from the regular monthly dividends paid in the first quarter of 2025. The supplemental dividend for December is a result of our strong performance in the third quarter and our near-term expectations for additional net realized gains and will result in total supplemental dividends paid during the trailing 12-month period of $1.20 per share, representing an additional 40% paid to our shareholders in excess of our regular monthly dividends. We currently expect to recommend that our Board continue to declare future supplemental dividends to the extent DNII before taxes significantly exceeds our regular monthly dividends paid or we generate net realized gains and we maintain a stable to positive NAV in future quarters. Based upon our expectations for continued favorable performance in the fourth quarter, we currently anticipate proposing an additional significant supplemental dividend payable in March 2026. Now turning to our current investment pipeline. As of today, I would characterize our lower middle market investment pipeline as above average. Consistent with our experience in prior periods of broad economic uncertainty, we believe that our ability to provide unique and flexible financing solutions to lower middle market companies and their owners and management teams and our differentiated long-term to permanent holding periods represent an even more attractive solution to the needs of many lower middle market companies given the current economic environment, and we are confident in our expectations for strong lower middle market investment activity in the fourth quarter. In addition, we continue to have an increased number of existing portfolio companies that are actively executing acquisition growth strategies that we anticipate will provide attractive follow-on investment opportunities for us in the near term and significant value creation opportunities for these portfolio companies in the longer term, consistent with the successes we've demonstrated and experienced with other portfolio companies. We also continue to be pleased with the performance of our private credit team and the significant growth they have provided for our private loan portfolio and our asset management business over the last few years. Our investment pipeline has increased significantly since our last conference call. And as of today, I'll characterize our private loan investment pipeline as above average. With that, I will turn the call over to David. David Magdol: Thanks, Dwayne, and good morning, everyone. As Dwayne highlighted in his remarks, we believe our strong third quarter financial results continue to demonstrate the strength of Main Street's platform, our differentiated investment approach and our unique operating model. We are very pleased to report that the overall operating performance for most of our portfolio companies continues to be positive, which contributed to our attractive third quarter financial results. Despite the continued heightened level of concern and uncertainty in the overall economy, we remain confident in the ability of our portfolio companies to continue to navigate the current climate. Each quarter, we try to highlight a key aspect of our investment strategy and differentiated approach. For today's call, we thought it would be useful to spend some time discussing the support we provide to our lower middle market portfolio companies. In addition to our ongoing investment management activities and the managerial assistance we offer our lower middle market portfolio companies, we are also happy to host an annual event for the leaders of our lower middle market portfolio companies called the Main Street President's Meeting, which we recently hosted for the ninth time. For those of you who are not familiar, our President's Meeting is an annual event that we host for our lower middle market portfolio company leaders to network, build relationships share best practices, learn from each other and from third-party speakers and benefit from being a part of Main Street's family of portfolio companies. Based on post-event feedback from our lower middle market portfolio company executives, the event is highly valued by the participants and the event improves each year as we refine our agenda based on the feedback we receive. Topics covered at our most recent event included artificial intelligence, use cases and best practices disaster recovery planning and enterprise risk management, adding value through executing add-on acquisitions, linking incentive compensation to performance and succession planning. As a result of this annual event, our portfolio companies have increasingly worked together, referred business to each other, utilized each other's operational resources and formed long-term relationships that we believe are invaluable. As an example, one valuable topic we covered this year was best practices for utilizing artificial intelligence in lower middle market businesses. Based on our surveying as part of the event, the vast majority of our portfolio companies are engaged in utilizing AI and are actively seeking additional ways to use AI tools in their businesses. This topic was enhanced by breakout sessions led by several of our portfolio company CEOs who shared specific examples of AI tools they use and the benefits they are achieving from utilizing AI in their businesses. Q&A from the audience was robust, and we are highly encouraged about the benefits that our lower middle market portfolio companies can achieve in the future from their continued adoption of AI. Another panel we received very positive feedback on this year was focused on executing proprietary strategic add-on acquisitions. The panel was comprised of another peer group of our portfolio company CEOs with extensive experience in this area, who led a discussion on the benefits of pursuing add-on acquisitions, developing and executing a successful acquisition plan, strategies for creating shareholder value through these transactions and lessons learned while sourcing and executing an acquisition growth strategy. We are highly confident that the lessons learned shared by the panelists will be very helpful for other portfolio company executives to consider as they execute their own acquisition strategies in the future. The engagement from the audience during both sessions was robust and led to several post-event discussions, including the sharing of key third-party resources and best practices that we believe will ultimately improve the future financial results and operating performance for our portfolio companies. Given our primary focus on our lower middle market investment strategy and the unique benefits it can provide both to us and our management team partners at our portfolio companies, we are excited to bring together the key leadership from our lower middle market portfolio companies at our Annual Presidents' Day. We always leave this event very excited about the quality of the individuals leading our lower middle market portfolio companies and the future value creation that we expect they and their teams can generate for a mutual benefit in the future. We left this year's event more excited than ever. Now turning to the overall composition of results from our investment portfolio as of September 30, we continue to maintain a highly diversified portfolio with investments in 185 companies spanning across numerous industries and end markets. Our largest portfolio companies, excluding the external investment manager, represented only 4.8% of our total investment income for the trailing 12-month period and 3.6% of our total investment portfolio fair value at quarter end. The majority of our portfolio investments represented less than 1% of our income and our assets. Our investment activity in the third quarter included total investments in our lower middle market portfolio of $106 million, including total investments of $69 million in 3 new lower middle market portfolio companies, which after aggregate repayments, return of invested equity capital and a decrease in cost basis due to realized losses resulted in a net increase in our lower middle market portfolio of $61 million. Since quarter end, we have closed an additional lower middle market platform investment, representing an additional $81 million of invested capital, and we have several other expected near-term investments. Driven by the capabilities and relationships of our private credit team, we also completed $113 million in total private loan investments during the third quarter which after aggregate repayments and a decrease in cost basis due to realized losses resulted in a net decrease in our private loan portfolio of $69 million. At the end of the third quarter, our lower middle market portfolio included investments in 88 companies representing $2.8 billion of fair value, which is over 28% above our cost basis. We had 86 companies in our private loan portfolio, representing $1.9 billion of fair value. The total investment portfolio at fair value at quarter end was 18% above the related cost basis. In summary, Main Street's investment portfolio continues to perform at a high level and deliver on our long-term results and goals. Additional details on our investment portfolio at quarter end are included in the press release that we issued yesterday. With that, I'll turn the call over to Ryan to cover our financial results, capital structure and liquidity position. Ryan Nelson: Thank you, David. To echo Dwayne's and David's comments, we are pleased with our operating results for the third quarter which included favorable levels of NII per share and DNII per share and another increase in NAV per share. Our total investment income for the third quarter was $139.8 million, increasing by $3 million or 2.2% over the third quarter of 2024 and decreasing by $4.1 million or 2.9% from the second quarter of 2025. Interest income decreased by $7.3 million from a year ago and increased by $2.4 million from the second quarter of 2025. The decrease from prior year was principally attributable to a decrease in interest rates, primarily resulting from decreases in benchmark index rates on our floating rate debt investments and decreases in interest rate spreads on existing debt investments and an increase in investments on nonaccrual status, partially offset by the impact of increased net investment activity. The increase from prior quarter was driven primarily by the impact of increased net investment activity and a decrease in investments on nonaccrual status. Dividend income increased by $8 million when compared to a year ago, including a $600,000 increase in unusual or nonrecurring dividends and decreased by $6.6 million from the second quarter including a $4.2 million decrease in unusual or nonrecurring dividends. The increase in dividend income from prior year is primarily a result of the continued underlying positive performance of our lower middle market portfolio companies. The decrease in dividend income from the second quarter is primarily due to nonrecurring dividends received from one of our lower middle market portfolio companies in the second quarter. Fee income increased by $2.2 million from a year ago and was consistent with fee income from the second quarter. The increase from prior year was primarily due to higher closing fees on new and follow-on investments and an increase in exit and prepayment fees from investment activity. Fee income considered nonrecurring increased by $900,000 from a year ago and by $500,000 from the second quarter of 2025. The third quarter included higher levels of income considered less consistent or nonrecurring in nature in comparison to the prior year, including interest income from accelerated prepayment repricing and other activity, accelerated fee income and dividends from our equity investments. In the aggregate, these items totaled $4.3 million and were $2.1 million or $0.02 per share higher than the third quarter of 2024. Income considered less consistent or nonrecurring in nature decreased from the second quarter by $3.8 million or $0.04 per share, primarily due to a decrease in dividends from one of our lower middle market portfolio companies. The current quarter's less consistent or nonrecurring income was in line with the prior 4-year average. Our operating expenses increased by $1.1 million over the third quarter of 2024 and decreased by $300,000 from the second quarter. The increase in operating expenses from the prior year was largely driven by increases in cash compensation related expenses and share-based compensation expense, partially offset by a decrease in interest expense. The decrease in interest expense from a year ago was primarily driven by a decrease in the weighted average interest rate on our credit facilities resulting from decreases in the benchmark index interest rates and a decrease in the applicable margin rates resulting from the amendments of our credit facilities in April 2025, partially offset by an increase in average borrowings to fund the growth of our investment portfolio. The ratio of our total operating expenses, excluding interest expense, as a percentage of our average total assets, was 1.4% for the quarter on an annualized basis and 1.3% for the trailing 12-month period and continues to be among the lowest in our industry. Our external investment manager contributed $8.8 million to our net investment income during the third quarter representing an increase of $900,000 from the same quarter a year ago and was consistent with the contribution to our net investment income in the second quarter. Our investment manager ended the quarter with total assets under management of $1.6 billion. During the quarter, we recorded net fair value appreciation, including net realized losses and net unrealized depreciation on the investment portfolio of $43.9 million. This increase was primarily driven by net fair value appreciation in our lower middle market and private loan investment portfolios, partially offset by net fair value depreciation in our external investment manager. The net fair value appreciation in our lower middle market portfolio was largely driven by the continued positive performance certain of our portfolio companies. The net fair value appreciation in our private loan portfolio was primarily driven by several specific portfolio companies and decreases in market spreads. The net fair value depreciation of our external investment manager was primarily driven by decreases in the valuation multiples of publicly traded peers, which we use as one of the benchmarks for valuation purposes, partially offset by increased incentive fee income. We recognized net losses of $19.1 million in the quarter. The realized losses recognized were primarily the result of the restructures of 2 private loan investments and the full exits of 2 lower middle market investments. which were partially offset by a realized gain on the full exit of a lower middle market investment and the partial exit of another portfolio investment. We ended the third quarter with investments on nonaccrual status comprising approximately 1.2% of the total investment portfolio at fair value and approximately 3.6% at cost. Net asset value, or NAV, increased by $0.48 per share over the second quarter and by $2.21 per share or 7.2% when compared to a year ago to a record NAV per share of $32.78 at quarter end. Our regulatory debt-to-equity leverage calculated as total debt, excluding SBIC debentures divided by NAV was 0.62x and our regulatory asset coverage ratio was 2.61x, and these ratios continue to be more conservative than our long-term target ranges of 0.8 to 0.9x and 2.25 to 2.1x, respectively. We continue to be active this quarter on capital activities, aided by our strong relationships as we continue to manage our near-term maturities and overall capital structure diversity and efficiency. In August 2025, we issued $350 million of unsecured investment-grade notes maturing in August 2028 with an interest rate of 5.4%. In September 2025, we repaid the $150 million due on our December 2025 notes prior to their maturity and without any fees or penalties. Given our current liquidity position and recent investment activity, we continue to be less active during the third quarter in our ATM program, raising net proceeds of $6.7 million from equity issuances. After giving effect to the capital activities in the third quarter of 2025, we entered the fourth quarter of 2025 with strong liquidity, including cash and unused capacity under our credit facilities totaling over $1.5 billion with a near-term debt maturity of $500 million in July 2026. We continue to believe that our conservative leverage, strong liquidity and continued access to capital are significant strengths that have proven to benefit us historically and have us well positioned for the future. allowing us to continue to execute our attractive investment strategies despite the current market uncertainty. Because of the market uncertainty, we expect to continue to operate over the next few quarters at leverage levels more conservative than our long-term targets. Coming back to our operating results. DNII before taxes per share for the quarter of $1.07 was $0.01 higher than DNII before taxes per share for the third quarter of last year. and $0.04 lower than DNII before taxes per share for the second quarter. Looking forward, we expect fourth quarter of 2025 DNII before taxes of at least $1.05 per share with the potential for upside driven by portfolio investment activities during the quarter. With that, I will now turn the call over to the operator so we can take any questions. Operator: [Operator Instructions] Our first question comes from Arren Cyganovich with Truist Securities. Arren Cyganovich: In your prepared remarks, you indicated that the pipeline for investment activity is actually above average for both and that's a notable change for the private loan portfolio. pipeline from last quarter. Maybe just talk a little bit about the sustainability of that and what necessarily kind of changed in the private loan part of the focus of the middle market? Dwayne Hyzak: Sure, Arren, I'll give a few comments, and I'll let Nick add on if he has anything he wants to add. But I'd say this quarter, we've just seen the pipeline grow significantly. I think overall, from a market standpoint, from our perspective, you've seen an increase in overall activity, and we've seen that come in both at the front end of the funnel and in transactions that we're working on that we expect to close either in the fourth quarter or the first quarter. So overall, I think it's been driven by more market activity. I think the quality of the transactions, consistency of the transactions with what we've done historically continues to be the same. So I think it's really driven more by market activity. But I'll let Nick add on any additional color. Nicholas Meserve: Yes. I think what I would add there is it probably started the week after the last earnings call. So it's been picked up for a decent amount of time now and I think we expect it to continue into '26. And I'd say it's both in volume and the number of deals and the overall deal sizes. And each transaction, just overall the pipeline feels like it's more live and actually going to close and get to a finish line versus, I'd say, over the last year, a lot of deals felt like they weren't to get anywhere, and we were kind of just performing back and forth on [LOIs]. We don't really feel like you get to a closed transaction. Arren Cyganovich: Got it. You you an improvement in credit quality in the quarter, at least from a statistical standpoint, maybe you could talk a little bit to give us a little bit more color about what was driving that? Dwayne Hyzak: Yes, Arren, I wouldn't say there's anything specific. I think overall, in both the lower middle market and private loan portfolios, the companies are doing well. There's always some outliers both in terms of companies doing exceptionally well and some underperforming when you've got a large diversified portfolio like we have. But I wouldn't say there's anything specific quarter-over-quarter that changed. It's just overall the portfolio continues to perform at a high level. Operator: Our next question comes from [indiscernible] with Raymond James. Unknown Analyst: Going back to the private loan portfolio. Can you talk a little bit more about what was driving the $69 million net decrease? Was it primarily driven by elevated repayments, the slowing deal flow or just less attractive opportunities in the current market environment? Any like additional color you can provide there? Dwayne Hyzak: Sure. I'd say it was a combination probably of all 3. I think in general, as we had communicated on the last call, for the third quarter, our investment activity was a little bit below our expectations. We also had more than expected or more than normal repayment or prepayment activity. So I'd say it was a combination of those 2 factors that drove the decrease. I think as Nick said, we feel good about the pipeline today in addition to the new origination activity being higher from an expectation standpoint. I think some of the prepayment activity is a little bit lighter. So I think it's just kind of a point in time in the third quarter, you had both the lower originations and higher repayments that both occurred in the same quarter. Nicholas Meserve: The only thing I'd add out there is there's probably a handful of deals that we expected to close late in the quarter that really got pushed into the fourth quarter, and they're still going to close. It just got pushed into this quarter versus the third quarter. Overall, there was a lighter origination, but some of it is just timing. Unknown Analyst: Okay. And do you see any of these like trends shifting going into 4Q? Or is it more of the same? Dwayne Hyzak: I think overall, as Nick said, I think we feel good about the new investment expectations for Q4. I think we also feel pretty good about expectations for Q1 just given the strength of the pipeline, both in the early stages and in the more developed stages. Looking out longer than that, it really is going to come down to how active the private equity industry as a whole is. But I think for the near term, I think we feel pretty good about it. Operator: [Operator Instructions] Our next question comes from Doug Harter with UBS. Cory Johnson: This is Cory Johnson on for Doug. The compensation expense was a little bit higher this quarter. And in the press release part of what you attributed to that was an increase in headcount to support the portfolio and asset management activities. Can you talk a little bit about what type of roles those are? And I guess what -- should we expect the headcount to continue to grow into this year and the end of this year and also into next? Dwayne Hyzak: Sure, Cory. Thanks for the question. Thanks for joining us this morning. I'd say that across the platform on the investment side, both lower middle market and private loans, we have been and continue to look for ways to grow our teams and our investment professionals. I think we view both market opportunities to be very attractive. The lower middle market is very people heavy or people intensive, just the nature of the activities, more of a private equity type investment strategy. So we are always looking to add resources there, and we continue to be in that position today. So some of that headcount and comp increase would be concentrated there. But we've also grown our private loan team significantly, not just for Main Street's portfolio and balance sheet. But as you know, we've got an asset management business that we have been and we expect to continue to grow going forward. That growth is going to be almost exclusively focused on the private loan, private credit side. So we've also been working -- Nick and his team have been working to grow our team there. So I'd say it's on both sides. Nicholas Meserve: All right. And then I guess do you happen to have any targets for your RIA in terms of like AUM for 2026 that you could possibly share? Is there a range or anything at all that you're looking to hit? Dwayne Hyzak: Yes. We haven't shared any specific guidance, Cory. I think our goal and our expectation is that we will grow AUM. We'll grow it 2 ways. Right now, as you likely recall, we have our largest asset management business client, MSC Income Fund, which is a publicly traded BDC. It has the opportunity at the end of January 2026 to have a significant increase in its regulatory leverage capacity. We would expect to expand the leverage capacity there. Those -- that capital or those proceeds would be invested in the private loan private credit space. So we think that will be the biggest catalyst going forward into 2026. We also have our second private fund MS Private Loan Fund II that's still kind of in the earlier stages of its investment deployment activities that should ramp up significantly in 2026 as well. But outside of giving guidance, that those are the 2 catalysts, we have not given specific guidance for how much we expect the AUM to grow in 2026. Cory Johnson: And if I could just ask one more. You spoke about how your LMM companies are sort of talking about AI and sort of how to integrate that. Have you seen, I guess, in those conversations, have companies been mentioning that AI is making significant efficiency gains? And are they showing up at all in like the valuations that perhaps that you might be able to realize either now? Or do you expect that to possibly make a difference in upcoming quarters, something soon? Dwayne Hyzak: Sure, Cory. I'd say it's more forward-looking. I don't think we've seen significant benefit from AI from a historical standpoint or any of the valuations that we have today. I do think we're excited as our portfolio companies and their management teams are that there's a lot of opportunities through the implementation of AI. So I think we're excited about that, but it would be more forward-looking as opposed to historical. Operator: This now concludes our question-and-answer session. And I would now like to turn the floor back over to management for closing comments. Dwayne Hyzak: I just want to say thank you again to everyone for joining us this morning. I think it will be a few months before we talk to you again. So hopefully, everyone has a happy holidays, and we look forward to talking to you again with our next update call in February after the results for the fourth quarter and the year-end for Main Street. Thank you. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good afternoon. My name is Julian, and I will be your conference call operator today. [Operator Instructions] as a reminder, this call is being recorded. I would now like to turn the conference call over to Mariann Ohanesian, Senior Director of IR for Puma Biotechnology. Thank you. You may begin. Mariann Ohanesian: Thank you, Julian. Good afternoon, and welcome to Puma's conference call to discuss our earnings results for the third quarter of 2025. Joining me on the call today are Alan Auerbach, Chief Executive Officer, President and Chairman of the Board of Puma Biotechnology; Maximo Nougues, Chief Financial Officer; Heather Blaber, Senior Vice President of Marketing; and Roger Storms, Senior Vice President of Sales. After the close today, Puma issued a news release detailing earnings results for third quarter 2025. That news release, the slides that Roger will refer to and a webcast of this call are accessible via the homepage and Investors section of our website at pumabiotechnology.com. The webcast and presentation slides will be archived on our website and available for replay for the next 90 days. Today's conference call will include statements about Puma's future expectations, plans and prospects that constitute forward-looking statements for purposes of federal securities laws. Such statements are subject to risks and uncertainties, and actual events and results may differ from those expressed in these forward-looking statements. For a full discussion of these risks and uncertainties, please review our periodic and current reports filed with the SEC from time to time, including our annual report on Form 10-K for the year ended December 31, 2024. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this live conference call, November 6, 2025. Puma undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law. During today's call, we may refer to certain non-GAAP financial measures that involve adjustments to our GAAP figures. We believe these non-GAAP metrics may be useful to investors as a supplement to, but not a substitute for, our GAAP financial measures. Please refer to our third quarter 2025 earnings release for a reconciliation of our GAAP to non-GAAP results. I will now turn the call over to Alan. Alan Auerbach: Thank you, Mariann , and thank you all for joining our call today. Today, Puma reported total revenue for the third quarter of 2025 of $54.5 million. Total revenue includes product revenue net, which consists entirely of NERLYNX sales as well as royalties from our sub-licensees. Product revenue net was $51.9 million in the third quarter of 2025, an increase from $49.2 million reported in Q2 2025 and a decrease from $56.1 million reported in Q3 2024. As a reminder to investors, Puma reported NERLYNX sales includes both U.S. net sales of NERLYNX and product supply revenues of NERLYNX to Puma's ex-U.S. partners. Please note that in Q3 2024, we reported product supply revenue to our international partners of about $7.4 million versus $0.1 million in Q3 2025. Therefore, U.S. net sales of NERLYNX in Q3 2025 were $51.8 million versus $48.8 million in Q3 2024. Product revenue for the third quarter of 2025 was impacted by approximately $3.1 million of inventory build in our specialty pharmacies and specialty distributors. Royalty revenue was $2.6 million in the third quarter of 2025 compared to $3.2 million in Q2 2025 and $24.4 million in Q3 2024. Q3 2024 royalty revenue included sales to China by our offshore partner, Pierre Fab. We reported 2,949 bottles of NERLYNX sold in the third quarter of 2025, an increase of 341 from the 2,608 bottles sold in Q2 2025. In Q3 2025, we estimate that inventory increased by 172 bottles. In Q3 2025, new prescriptions were down approximately 3% compared to Q2 2025 and total prescriptions were down approximately 1% compared to Q2 2025. Roger will provide further details in his comments and slides. I will now provide a clinical review of the quarter, then Heather Blaber and Roger Storms will add additional color on NERLYNX commercial activities. Maximo Nougues will follow with highlights of the key components of our financial statements for the third quarter of 2025. As investors are aware, Puma currently has 2 ongoing Phase II trials of our investigational drug, alisertib, ALISCA-Breast1, which is a Phase II trial of alisertib in combination with endocrine treatment in patients with HER2-negative hormone receptor-positive breast cancer; and ALISCA-Lung1, a Phase II trial looking at the efficacy of alisertib monotherapy in patients with small cell lung cancer. As a reminder, the ALISCA-Breast1 trial investigates alisertib in combination with endocrine treatment, which consists of either an anastrozole, exemestane, letrozole, fulvestrant or tamoxifen in patients with HER2-negative hormone receptor-positive metastatic breast cancer. Patients must be chemotherapy naive, have been previously treated with a CDK4/6 inhibitor and received at least 2 prior lines of endocrine therapy in the recurrent or metastatic setting to be eligible for the trial. Patients are being dosed with alisertib given at either 30 milligrams, 40 milligrams or 50 milligrams twice daily BID on days 1 to 3, 8 to 10 and 15 to 17 on a 28-day cycle in combination with the endocrine therapy and investigator choice. Patients must not have been previously treated with the endocrine treatment in the metastatic setting that will be given in combination with alisertib in the trial. The primary efficacy endpoints include objective response rate, duration of response, disease control rate and progression-free survival. As a secondary objective, the company will be evaluating each of these efficacy biomarkers within biomarker subgroups in order to determine whether any biomarker subgroup correlates with better efficacy and has been -- as has been seen in preclinical and clinical studies in other cancers, including breast cancer and small cell lung cancer. The company will then look to focus the future clinical development of alisertib in combination with endocrine therapy for patients with HER2-negative hormone receptor positive breast cancer with these biomarkers. The trial was initiated in late November 2024. There are currently 34 sites in the U.S. and 18 sites in Europe that have been activated for the trial, and the trial is enrolling ahead of expectations. There are currently 98 patients enrolled in the trial and 14 additional patients in screening. Due to the faster-than-expected enrollment in the trial, the former interim analysis was triggered sooner than expected. We anticipate that the formal interim analysis will be completed in the first half of 2026 and look forward to sharing this with investors at that time. With respect to the ALISCA-Lung study -- the ALISCA-Lung is a Phase II study of our investigational drug alisertib to investigate the efficacy of alisertib monotherapy in patients with small cell lung cancer and to specifically look at the efficacy of the drug in patients with biomarkers where the aurora kinase pathway plays the role. The goal is to correlate the efficacy in these biomarker subgroups in the ALISCA-Lung1 study to the efficacy that was previously seen in the biomarker subgroups from the randomized trial of paclitaxel plus alisertib versus paclitaxel plus placebo that was published in the Journal of Thoracic Oncology in 2020. In that randomized trial, a progression-free survival benefit and overall survival benefits were seen in patients with biomarkers, which correlate with the aurora kinase pathway. If the efficacy and biomarker data are comparable from the 2 studies, the company would look to engage the FDA to discuss the regulatory path further. As discussed on the recent earnings call, the company believes the data obtained to date from the ALISCA-Lung1 is providing a preliminary indication of potentially better activity in patients with biomarkers where the aurora kinase plays a role. The most recent analysis of the PK data from the ALISCA-Lung suggests that we are seeing lower PK of alisertib in the ALISCA-1 study compared to the previous Phase II of alisertib monotherapy in small cell lung cancer patients that was published in Lancet Oncology. The company has amended the protocol for the trial to increase the dose of alisertib from 50 milligrams BID to 60 milligrams BID, which the company believes will increase the PK of the drug to levels closer to what was seen in the prior Phase II. The company is currently enrolling patients at the 60-milligram dose -- 60-milligram BID dose. There are currently 61 patients in the trial with 9 of these patients enrolled at the 60-milligram BID dose and additional 2 patients in screening. Assuming the safety at the 60-milligram dose is acceptable, the company plans to meet with the FDA in order to amend the protocol to continue to dose escalate to 70 milligrams BID. The company looks to have additional interim data from this trial in the first half of 2026. As mentioned on prior earnings calls and in response to investor questions, Puma continues to evaluate several drugs to potentially in-licensed or acquire that would allow the company to diversify itself and leverage Puma's existing R&D, regulatory and commercial infrastructure. The company will keep investors updated on this as it progresses. I will now turn the call over to Heather Blaber for an update on our marketing initiatives. Roger Storms will follow with a review of our commercial performance during the quarter. Heather Blaber: Thank you, Alan. I appreciate the opportunity to share some additional insights into our marketing strategy. The marketing team is focused on creating awareness of both clinical messaging for NERLYNX as well as recently published data that demonstrate the continued need to reduce the risk of recurrence in HER2-positive early breast cancer after treatment with adjuvant therapy. We continue to invest in market research to help us better understand risk factors that put a patient at high risk of recurrence in HER2-positive early-stage breast cancer as well as Garner Insights on the NERLYNX clinical data in this patient population. Together with our marketing initiatives, our strategy is focused on increasing awareness of our broad indication of patients that are appropriate for treatment with NERLYNX. We have adjusted our strategy based on our learnings and revised both personal and nonpersonal messaging with the goal of engaging physicians on a broader set of patients where the risk of recurrence still remains high and where we believe NERLYNX can play an important role in helping to reduce the risk of recurrence in patients with early-stage HER2-positive breast cancer. In addition to revising our messaging, we have a new resource to support patients throughout their recommended course of NERLYNX therapy. This educational resource is provided to patients on a monthly basis with the goal of improving patient adherence as they receive their refills. Lastly, year-to-date, we have reached 99.7% of oncologists through nonpersonal promotion and continue to expand our share of voice, working closely with the sales team to increase engagement with health care providers. In summary, we are excited about our new marketing strategy and messaging, which we believe will continue to help educate and engage oncologists on the unmet need for those diagnosed with HER2-positive early breast cancer. I will now turn the call over to Roger Storms to provide an overview on the commercial performance for the third quarter. Roger Storms: Thank you, Heather, and thanks to everyone for joining our third quarter earnings call. Before I move into the commercial review, just a reminder that I'll be making forward-looking statements. The sales team remains focused on expanding overall HCP reach and frequency with a strong emphasis on driving engagement at key treatment decision points. In Q3 2025, call activity increased 22% year-over-year and increased 17% quarter-over-quarter. This is a direct result of continued emphasis put on executional excellence and increased accountability with the existing sales team. I expect call activity to continue to improve as we fill vacancies. The commercial team continues to prioritize increasing use of NERLYNX with the main focus on patients at higher risk of recurrence. They are also dedicated to enhancing clinical education and engagement through nonpersonal promotional efforts as well as utilizing patient resources to support persistence and compliance during NERLYNX therapy. Let me now transition to some of the commercial slides where I'll provide some additional specifics around performance. Slide 3 is an illustration of our distribution model, which is broken out into the specialty pharmacy channel and the specialty distributor or in-office dispensing channel. In regards to overall distribution of our business, in Q3 2025, about 65% of our business was purchased through the SP channel and the remaining 35% was purchased through the SD channel. We are seeing some stronger growth in the SD channel driven by 2 main factors: one, increased sales in the group purchasing organization segment; and two, increased 340B purchasing. Turning to Slide 4. NERLYNX net product revenue in Q3 2025 was $51.9 million, which represents an increase of $2.7 million from the $49.2 million we reported in Q2 2025 and a decrease of $4.2 million from the $56.1 million we reported in Q3 of 2024. As a reminder to investors, Puma's reported NERLYNX sales includes both U.S. sales of NERLYNX and product supply revenues of NERLYNX to Puma's ex-U.S. partners. Please note that in Q3 2024, we reported product supply revenue to our international partners of about $7.4 million versus the $0.1 million in Q3 of 2025. Therefore, U.S. net sales of NERLYNX in Q3 2025 were $51.8 million versus the $48.8 million in Q3 of 2024. I will provide some more details around inventory changes, and Maximo will provide some additional specifics around gross to net expenses during his update. In Q3 of 2025, we estimate that inventory increased by about $3.1 million. As a comparator, we estimate that inventory decreased by about $1.3 million in Q2 of 2025 and increased by about $0.7 million in Q3 of 2024. Slide 5 shows Q3 2025 ex-factory bottle sales and also provides both a year-over-year and a quarter-over-quarter comparison. In Q3 2025, NERLYNX ex-factory bottle sales were 2,949, which represents an approximate 13% increase quarter-over-quarter and an 8% increase year-over-year. Inventory declined for the first 2 quarters, but increased in Q3 of 2025. Similar to the prior slides, let me specifically call out the inventory changes from a bottle perspective. In Q3 2025, we estimate that inventory increased by 172 bottles. As a comparator, we estimate that inventory decreased by 85 bottles in Q2 of '25 and increased by 39 bottles in Q3 of 2024. Let me take a moment to provide some additional metrics regarding our second quarter performance. In Q3, we saw enrollments increase by about 6% quarter-over-quarter and decline about 6% year-over-year. New patient starts or NRx follow a similar pattern, increasing 3% quarter-over-quarter and declining about 1% year-over-year. Turning to total prescriptions or TRx, -- we saw TRx decline about 1% quarter-over-quarter and decline about 4% year-over-year. Finally, let me share some specifics around demand. In Q3 2025, we saw demand increased by about 3% quarter-over-quarter and about 3% year-over-year. As mentioned earlier, we have seen stronger demand growth in the SD channel where we saw SD demand grow by about 11% quarter-over-quarter and about 25% year-over-year. Slide 6 highlights the quarterly adoption of dose escalation since NERLYNX launch. In Q3 2025, approximately 77% of patients started NERLYNX at a reduced dose. This is higher compared to the 71% we reported in Q2 2025. Continued messaging and adoption of dose escalation remains an important commercial priority. Patients who are started on NERLYNX utilizing dose escalation have better persistence and compliance. We believe dose escalation, coupled with the new patient education resources will give patients better support throughout their NERLYNX therapy and ultimately help them reduce the risk of recurrence. Slide 7 highlights the strategic collaborations we formed across the globe. We really appreciate the excellent work being done by our partners around the world and look forward to supporting their continued success moving forward. Let me close by expressing my heartfelt gratitude to the entire Puma team for their unwavering passion and dedication to supporting patients and families affected by breast cancer. This disease can be devastating, and we recognize there is still more work to do and more that can be done. I will now turn the call over to Maximo for a review of our financial results. Maximo F. Nougues: Thanks, Roger. I will begin with a brief summary of our financial results for the third quarter of 2025. Please note that I will make comparisons to Q2 2025, which we believe is a better indication of our progress as a commercial company than year-over-year comparisons. For more information, I recommend that you refer to our third quarter 2025 10-Q, which will be filed today and includes our consolidated financial statements. For the third quarter of 2025, we reported net income based on GAAP of $8.8 million or $0.18 per basic share and $0.17 per diluted share. This compares to net income in Q2 2025 of $5.9 million or $0.12 per share. On a non-GAAP basis, which is adjusted to remove the impact of stock-based compensation expense, we reported net income of $10.5 million or $0.21 per basic and diluted share for the third quarter of 2025. Gross revenue from NERLYNX sales was $70 million in Q3 2025 and $62.1 million in Q2 2025. As Alan mentioned it, net product revenue from NERLYNX sales was $51.9 million, an increase from the $49.2 million reported in Q2 2025 and a decrease versus the $56.1 million reported in Q3 2024. As a reminder to investors, Puma reported NERLYNX sales include both U.S. net sales of NERLYNX and product supply revenue of NERLYNX to Puma's ex-U.S. partners. Please note that in Q3 2024, we reported product supply revenue to our international partners of about $7.4 million versus $0.1 million in Q3 2025. Therefore, U.S. net sales of NERLYNX in Q3 2025 were $51.8 million versus $48.8 million in Q3 2024. The increase in Q3 2025 net revenue versus Q2 2025 was driven primarily by an increase in NERLYNX bottles sold in the U.S., inventory build of $3.1 million, offset by a higher gross to net expense. Inventory build by our distributors was approximately $3.1 million in Q3 versus drawdown of approximately $1.3 million in Q2 2025. Royalty revenue totaled $2.6 million in the third quarter of 2025 compared to $3.2 million in Q2 2025. Our gross to net adjustment in Q3 2025 was about 25.9% and 20.8% in Q2 2025. The increase on gross to net was driven mostly by a higher-than-expected Medicare rebate driven by the Inflation Reduction Act implemented in Q4 of 2022 and higher Medicaid share. Cost of sales for Q3 2025 was $12.2 million and includes $2.4 million for the amortization of intangible assets related to our neratinib license. Cost of sales for Q2 2025 was $12.3 million. Going forward, we will continue to recognize amortization of the milestones to the licensor about $2.4 million per quarter as cost of sales. For fiscal year 2025, Puma anticipates that net NERLYNX product revenue will be in the range of $198 million to $200 million, higher than our prior guidance. We also anticipate that our gross to net adjustment for the full year 2025 will be between 23% and 23.5%. In addition, for fiscal year 2025, we anticipate receiving royalties from our partners around the world in the range of $22 million to $23 million, lower than 2024 due to the fewer shipments expected to China as our partner works through regulatory transitions during the first several quarters of 2025. We don't expect any license revenue in 2025. We also expect that net income for the full year will be in the range of $27 million to $29 million. The current guidance does not include any potential release of any additional tax asset valuation allowance in our net income estimate. The company is reviewing its deferred tax assets as part of its ongoing tax valuation analysis and has not yet determined whether any adjustment will be required or if so, the potential timing or size of such an adjustment. We will continue to keep investors updated on this as it progresses. At this time, we do not believe the tariffs imposed or proposed to be imposed by the United States, particularly with other countries, will have a material impact on our product cost or results of operations. However, shifts in trade policies in the United States and other countries have been rapidly evolving and are difficult to predict. As a point of reference, our manufacturing product cost accounts for a mid- to high single-digit percentage of our cost of goods sold. We anticipate that for Q4 2025, NERLYNX product revenue net will be in the range of $54 million to $56 million. Please note that Q4 net product revenue guidance includes almost $4.5 million of product sales to one of our global partners as well as U.S. net revenue, which we will -- we expect to be in the range of $50 million to $52 million. The sales to our global partners will also contribute to the large royalty revenue we expect in Q4. We expect Q4 royalty revenue will be in the range of $13 million to $14 million and no license revenue. We further estimate that the gross to net adjustment in Q4 2025 will be approximately 24% to 25%. Puma anticipates Q4 net income between $9 million and $11 million. SG&A expenses were $16.8 million in the third quarter of 2025 compared to $18 million in the second quarter. SG&A expenses included noncash charges for stock-based compensation of $1.1 million for Q3 and $1 million for Q2 2025. Research and development expenses were $15.9 million in the third quarter of 2025 and $15.5 million in the second quarter. R&D expenses included noncash charges for stock-based compensation of $0.6 million in the third quarter of 2025, unchanged from the second quarter. On the expense side, Puma anticipates flat to slightly higher total operating expenses in 2025 compared to 2024. More specifically, we anticipate SG&A expenses to decrease by 7% to 10% and R&D expenses to increase by 20% to 25% year-over-year. The higher increase in R&D is driven by faster enrollment in our clinical trials than previously expected. In the third quarter of 2025, Puma reported cash burn of approximately $1.6 million. This compares to cash burn of approximately $2.9 million in Q2. Please note that during Q3, we made our sixth quarterly principal loan payment of $11.1 million related to our obligation with Athyrium. As a result of this, our total outstanding principal debt balance decreased to approximately $33 million. At September 30, 2025, we had approximately $94 million in cash, cash equivalents and marketable securities versus about $101 million at year-end 2024. Our accounts receivables balance was $33.6 million. Our accounts receivable terms range between 10 and 68 days, while our days sales outstanding are about 50 days. We estimate that as of September 30, 2025, our distribution network maintained approximately 3.5 weeks of inventory. Overall, we continue to deploy our financial resources to focus on the commercialization of NERLYNX, the development of alisertib and controlling our expenses. Alan Auerbach: Thanks, Maximo. On past earnings calls, we have stressed that Puma's senior management in cooperation with the Board of Directors continues to remain focused on NERLYNX sales trends in 2025 and beyond and recognizes its fiscal responsibility to the shareholders to continue to maintain positive net income. We believe that this focus has contributed to our commercial execution in a positive way. And according to our current projections, 2025 will mark the first year-over-year demand increase for NERLYNX in the United States since 2018. We are pleased to report this demand-driven growth in NERLYNX sales for the first 9 months of 2025. In addition, we believe that the positive net income that the company achieved in Q3 '25 and that the company is guiding to for the full year 2025 has resulted from the continued financial discipline across the company over the last few years. The company remains committed to continuing to achieve this positive net income, and we'll continue to reduce expenses if needed to achieve this. We look forward to updating investors on this in the future. There continues to remain a significant unmet need for patients battling breast cancer, lung cancer and other solid tumors. We at Puma are committed and passionate about finding more effective ways of helping these patients during their journey, and we will continue to strive to achieve that goal. This concludes today's presentation. We will now turn the floor back to the operator for Q&A. Operator? Operator: [Operator Instructions] And our first question comes from the line of Mark Frahm with TD Cowen. Marc Frahm: Maybe just looking forward to the breast cancer interim. Just remind us what the kind of bar you're going to be kind of evaluating that with in terms of willingness to continue to spend on that indication, particularly in light to your comments in the prepared remarks of remaining committed to staying profitable. Alan Auerbach: Yes. Thanks, Marc. So there's been 2. This is going to be alisertib in combination with endocrine. You remember, there was a previous trial TBCRC41 of alisertib in combination with endocrine. And I think that's probably going to be the gauge we're looking for to see -- to compare it to those numbers. Right now, as you know, the standard of care for ER-positive HER2-negative breast cancer is first line, they get a CDK4/6 inhibitor. Second line, depending on which mutation they have, they may get a targeted therapy or may get a different type of a combination therapy. Third line is still kind of a white space, if you will. And that's where we're focusing is in that third-line white space. So all these patients are kind of third-line endocrine, if you will. So obviously, what we would look for in terms of continued spend would really be, number one, how the efficacy compares to what we would typically expect to be standard of care in third line. But then also assuming we're able to find a biomarker where it portends for or it predicts a better outcome to alisertib, that would obviously be quite compelling as well. So we've gotten asked that question in the past, which is, okay, you have both the breast and the lung. You want to remain profitable. As we've said in the past, and I will say again, we're happy to stagger the indications to control the burn so we can remain a profitable company. Marc Frahm: Okay. That's helpful. But I guess the next steps could ultimately involve a larger pivotal program. Would that -- which I think would strain -- for any one of the indications might strain the ability to stay profitable. Would you be willing to go negative the data and go back to a loss if the data supports -- or does that require a partner? Alan Auerbach: Yes. So a couple of things to remember from that perspective, Marc. If you look at our guidance for our full year in terms of net income, remember, that includes us paying down our debt. The debt goes away mid next year, and we become a debt-free company. So you start to see cash flow generation occurring because of that. Now in terms of the pivotal Phase III that you would need, based on the other Phase IIIs I've seen in this space, I'm not anticipating this to be like a 1,000-patient trial or something. So I think it would still be within a manageable number, especially given that you're not going to hit all those expenses at once, you're going to see it spaced out over time. I think it's still possible to be able to do a pivotal Phase III just based on the cash flow from NERLYNX and remaining committed to being net income positive. Operator: With that, this does conclude today's question-and-answer session. I'd like to turn the conference back to Mariann for closing remarks. Mariann Ohanesian: Thank you for joining us today. As a reminder, this call may be accessed via replay at pumabiotechnology.com beginning later today. Have a good evening. Operator: Thank you, ladies and gentlemen, thank you for participating in today's conference call. This concludes our program. Everyone, have a great day. You may now disconnect your lines.
Operator: Good morning, ladies and gentlemen, and welcome to Trinseo's Third Quarter 2025 Financial Results Conference Call. We welcome the Trinseo management team, Frank Bozich, President and CEO; David Stasse, Executive Vice President and CFO; and Bee Van Kessel, Senior Vice President and Corporate Finance and Investor Relations. Today's conference call will include brief remarks by management team, followed by a question-and-answer session. The company distributed its press release along with its presentation slides after closing market on Thursday, November 6. These documents are posted on the company's Investor Relations website and furnished on Form 8-K filed with the Securities and Exchange Commission. [Operator Instructions] I will now hand the call over to Bee Van Kessel. Please go ahead. Bregje Roseboom-Van Kessel: Thank you, Calvin, and hello, everyone. [Operator Instructions] Our disclosure rules and cautionary note on forward-looking statements are noted on Slide 2. During this presentation, we may make certain forward-looking statements, including issuing guidance and describing our future expectations. We must caution you that actual results could differ materially from what is discussed, described or implied in these statements. Factors that could cause actual results to differ include, but are not limited to, risk factors set forth in Item 1A of our annual report on Form 10-K or in our other filings made with the Securities and Exchange Commission. The company undertakes no obligation to update or revise its forward-looking statements. Today's presentation includes certain non-GAAP financial measurements. A reconciliation of these measurements to corresponding GAAP measures is provided in our earnings release and in the appendix of our investor presentation. A replay of the conference call and transcript will be archived on the company's Investor Relations website shortly following the conference call. The replay will be available until November 7, 2026. Now I would like to turn the call over to Frank Bozich. Frank Bozich: Thanks, Bee, and welcome to our third quarter 2025 earnings call. I'd like to begin by sharing some information on trade flows in our chemistries as we believe this is instructive for understanding how the end markets we serve have reacted to tariff uncertainties. We've included some of this information on Slide 4 of our presentation materials. In general, we saw a sharp increase in imports of Asian polymers to both the U.S. and Europe beginning in Q1. We believe this was a reaction to the threatened tariff levels that ultimately were announced in early April and an attempt to fill supply chains in the U.S. ahead of the tariffs being implemented. And a redirection of trade flows to Europe from Asia because of slowing demand in China. With respect to the U.S. on Slide 4, you can clearly see a significant increase in imports of ABS, primarily from Asian producers beginning in the first quarter to get ahead of the tariff implementation. Exports from the U.S. of both ABS and PMMA decreased versus prior year, and the decrease was most pronounced in the exports to Canada and Mexico. A similar dynamic occurred in Europe, where Asian material that is typically consumed in China was redirected to the European market, putting margin pressure on the more standard grades of ABS and PMMA. These industry trade flow dynamics continued into the third quarter, resulting in lower volumes versus prior year, but similar volumes quarter-over-quarter. Whether these new levels of demand are transitory or structural remains to be seen. However, late in the third quarter and into the fourth quarter, we are seeing an increased run rate of sales of our more formulated, higher-margin products that is higher than the year-to-date average and prior year levels. In the case of our more formulated PMMA resins, the year-over-year increase in volumes was over 10% beginning in late Q3, and this has continued into Q4. We do believe there is a drive to reshore demand even at slight premiums to the import parity price to derisk longer Asian supply chains and address potential tariff impacts in both Europe and the U.S. Concerning our focus on sustainability, I want to highlight the fact that the European Parliament finalized its vehicle end-of-life directive in September. This mandates that new vehicles must contain 20% recycled plastic within 6 years, 15% of which must come from end-of-life vehicles and this increases to 25% within 10 years. This action formalizes the EU's drive for greater product supply chain circularity. We have remained committed to pursuing investments to scale up our technology for our circular recycled content containing platforms and expect these regulations to drive demand in the near term. Our pilot plants for recycled polycarbonate, ABS and MMA are sold out. The volumes are still small, but will become more meaningful as we ramp up. Year-to-date, our recycled content containing plastic sales grew 2% across all applications with our recycled solutions in Engineered Materials growing at 12%. Before I hand the call over to Dave, let me comment on our press release from the 6th of October, in which we announced the discontinuation of Virgin MMA production in Italy and the intention to close our polystyrene production facility in Germany. We took this difficult decision after carefully considering our options and the impact on our employees. However, it is clear to us that these assets will not be competitive in the long term. Our Rho, Italy site will remain focused on PMMA resin production and will also be the site for our investments in recycled MMA. Pending works council negotiations in Germany, these projects should lead to $30 million of EBITDA improvement next year, and the cash savings will exceed restructuring costs beginning in 2026. Now I'd like to turn the call over to Dave. David Stasse: Thanks, Frank. We ended the third quarter with $30 million of adjusted EBITDA, which was impacted by $9 million of unfavorable raw material timing and negative equity affiliate earnings from Americas Styrenics due to an $8 million headwind from repair and other costs related to an unplanned outage that occurred in June. At the segment level, Engineered Materials adjusted EBITDA was flat versus prior year as fixed cost improvements and slightly higher volumes in PMMA resin for building and construction and automotive applications were offset by lower volumes in medical. On Medical sales, I want to remind you that we reported increased sales last year related to the closure of our Stade polycarbonate site and customers stocking up prior to the shutdown. Latex Binders adjusted EBITDA was $9 million below prior year, mainly driven by lower volume in Europe paper and board applications as well as significant pricing pressure in Europe and Asia. Our higher-margin targeted growth platforms in CASE and battery binders continue to outperform the market. Sales volume in battery binders were up 27% versus prior year for the quarter as we continue to enhance our portfolio, including new customer wins in anode binder applications. We're currently working closely with 5 of the 15 largest lithium-ion battery producers in the world. Lastly, Polymer Solutions adjusted EBITDA was $19 million below prior year, driven by $9 million of unfavorable timing, lower ABS volumes and unfavorable mix related to the closure of our polycarbonate plant. Third quarter free cash flow was negative $38 million, and we ended the third quarter with $346 million of available liquidity. The fourth quarter is typically our seasonally strongest quarter for free cash flow due to a working capital release. We expect our free cash flow in the fourth quarter to be positive $20 million and our year-end liquidity to be over $350 million. Now I'll turn the call back over to Frank. Frank Bozich: Thanks, Dave. Looking forward, we expect fourth quarter 2025 adjusted EBITDA of roughly $30 million to $40 million, and as Dave mentioned, positive free cash flow of $20 million. This forecast assumes a continuation of the year-to-date market dynamics and a somewhat exaggerated seasonal year-end effect as well as $5 million to $10 million of negative raw material timing. We will remain intensely focused on what's under our control, including improving our free cash flow in the short and long term through continued inventory management, restructuring activities and other actions. Additionally, we continue to believe that there are at least 5 triggers that could improve the demand environment. First, trade certainty in any form would improve consumer confidence and provide a landscape for new investments. Second, a continuation of Federal Reserve interest rate cuts, which will lower our own interest expense and improve demand for housing and consumer durables. Third, a resolution of the conflict in Ukraine. Fourth is a rationalization of higher cost, less environmentally sound chemical assets in Asia; and lastly, stronger support for the EU chemical industry as outlined in the EU chemical industry action plan. Thank you and now we're happy to take your questions. Operator: [Operator Instructions] Your first question comes from the line of Alex Kelsey of Wells Fargo. Alex Kelsey: I wanted to start with Slide 4 on the trade flows. I think one of the dynamics we've seen among another -- a number of chemicals companies is just structurally higher imports of China products into Western markets that's just structurally depressed pricing and influence demand. So I'm just curious, is it your view that this is transitory in nature, truly just getting ahead of tariffs? Or are you seeing just a structural difference in how China is behaving with regard to your markets? Frank Bozich: So yes, thanks for the question. Actually, the -- we don't know whether it's structural or transitory. It's too early to tell, as we said in the prepared comments. But I would tell you that the -- in our chemistries, the biggest, I guess, the more problematic dynamics. So the countries that are -- we're seeing the most increase in inflows are actually Taiwan and Korea. And in our chemistries, we believe that those -- their domestic markets don't support the significant capacity that's been built over the years. And where they used to have an outlet to supply China, that volume or that surplus capacity is now being redirected to Europe and North America. And I would point out that at least our analysis would indicate that those are higher cost assets in these chemistries. The other thing I would point out that's problematic from a trade flow standpoint is the use of using imports of resin produced in China and Korea into Mexico that can be compounded relatively lightly compounded locally and then brought into the U.S. under the USMCA tariff convention, tariff-free. Now our understanding is from our trade associations and our discussions that this sort of pathway or loophole in USMCA is a goal to be closed by the administration, but that would be helpful in our value chains. And that's where China -- Chinese products, we see more of the impact of Chinese flow into Mexico. Alex Kelsey: Do you have any perspective of like within PMMA and ABS, maybe this is a tricky one, but how much of the market Taiwan/Korea/China represents today versus, I don't know, 12 months ago, 24 months ago, whatever the right time frame might be? Frank Bozich: Well, I can't precisely answer what share of the market that they represent. But what I would tell you is that the import volumes on, for example, the percentage increase in imports to, for example, from -- into Europe from South Korea in the first half of 2025 was up 18% over prior year. And in Q2, it went up to 26% increase over prior year. And they are by far the biggest importer of ABS into Europe. In the case of PMMA, imports from South Korea were up marginally in the first half into Europe. But in the case of imports into the U.S., the biggest import increase in imports sorry, the biggest imports -- increase in imports came from South Korea and Taiwan for ABS, where it was approximately 23% increase, but then Mexican product increased 75%. So that was that pathway that we were talking about. Now I want to point out though that remember, we make mass ABS and these are basic -- generally basic grade or standard grade polymers that are coming in under these conventions that are more broadly used in the less specified or formulated products. Alex Kelsey: Got it. Okay. And then on the PMA comment, the formulated PMA comment, I thought the commentary about seeing sequential ramp into Q4 was positive. One, has just something changed in that market from a supply or demand dynamic to suggest we're at trough and rising off trough levels? And then within the EM segment, like what percentage of that is [ Air quotes-formulated ] PMMA? Frank Bozich: So yes, I think it's too early to -- we don't know that the market dynamic is changing necessarily. It's too early to tell. And like I said, this is a late Q3, early Q4 dynamic that we observed, and we're watching it and trying to understand it. We believe that there is an effort on behalf of many of the customers in North America and Europe to derisk their supply chain from a complexity standpoint and also with regard to potential tariffs or trade barriers in North America and Europe. So I guess at this point, that's -- we're watching it. But again, it was good to see that increase over prior year. Alex Kelsey: And then to that second question that I asked in terms of however you want to define it, like what percentage of revenue/EBITDA/volumes in EM would you define as formulated? Frank Bozich: Yes, I wouldn't disclose that specifically. It's a material part of our EM segment and -- but we wouldn't share that information generally. Alex Kelsey: Okay. And then on AmSty, I have one question maybe accounting related. But if the shutdown unplanned maintenance was taken in Q2, I'm curious why there's an impact on Q3 EBITDA? And then more generically, can you just talk about what's being done within AmSty to sort of rightsize that business, just given how underperforming it's been this year? David Stasse: Alex, this is Dave. So the unplanned outage occurred at the end of the second quarter in June. And it was related to the production of styrene. So what that forces in which is obviously upstream to polystyrene. So what they have to do then is go out and buy styrene, obviously, at a cost higher than what they can make it for. And those increase -- that increased cost of goods sold in this case goes through the P&L in the second -- in the third quarter, right? So there's both repair costs that are included in the -- so the total impact for the year for AmSty was $10 million -- or excuse me, the total impact to our equity income was $10 million, $2 million of it was in June and $8 million of it was in the third quarter. And the composition of that is both the cost of repair, but also the higher cost raw materials from the styrene that they had to buy going through the P&L. So look, related to the second question about what are we doing to rightsize it. I mean, look, I don't think we're doing -- I don't think anything is necessary to rightsize the business. They've got 2 styrene units that are very competitively positioned on the global cost curve for styrene. 70% of the styrene they produce, they consume internally in polystyrene downstream and the other 30% goes into the merchant market. But again, they're on the kind of the left side of the cost curve. So look, I don't think there's anything necessary to do there from a rightsizing perspective. Clearly, styrene is long globally. I mean it's why we exited our European plants. So styrene margins are lower, a lot lower than they used to be. But I don't think a necessary step there is going to be any capacity rationalization. Alex Kelsey: Okay. That's helpful. And then last one for me. If we like -- when we were entering 2025, and I understand things have changed, the expectation was flat volumes kind of started us at $200 million-ish of EBITDA plus cost saves got us to something closer to $300 million, if I'm remembering correctly. I know it's probably early on 2026. But again, it feels like we're lower for longer, maybe troughing. But if you kind of take some of that same analogy, where the business is forecasted to be at the end of 2025, like all else equal in like up 10% volume environment, down 10% flat, any range of outcomes for what we could think about for 2026? Frank Bozich: So yes, maybe let me tackle the last thing first. So we've said this consistently that at 10% volume increase across the portfolio results in about $100 million of EBITDA. And so again, we're not prepared to talk about -- we don't have a view on 2026 or are prepared to give any guidance for 2026. But I think it might be helpful to go back to how we were -- as we entered the year, how we thought about it. And our expectation for significant increase was really in 2025 over '24 was driven by 5 factors. One was stable volume. Number two was the disposition -- the sale of our polycarbonate assets to Deepak. The also known business wins that we had as well as a more normalized earnings from AmSty as well as the cost savings initiatives that we announced last year. What I would tell you is that we got the known business wins or the incremental business wins in our downstream markets. We delivered the cost savings, and we executed on the Deepak sale, where we've had a shortfall versus our expectation was on the more normalized earnings from AmSty and then the volume development that occurred, what we would attribute to really global tariff uncertainty. So again, I think what's in our control, we've done a good job of managing, but that's sort of how this year developed. And again, too premature -- it's premature for us to give you guidance for next year. Operator: There are no further questions at this time. And with that, ladies and gentlemen concludes today's call. We thank you for participating. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Ltd. Third Quarter Earnings Call. [Operator Instructions] And I would now like to turn the conference over to Phil Stefano with Investor Relations. You may begin. Philip Stefano: Thank you, Abby. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO; and David Weinstock, Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Curran, President of Essent Guaranty. Our press release, which contains Essent's financial results for the third quarter of 2025 was issued earlier today and is available on our website at essentgroup.com. Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release. The risk factors included in our Form 10-K filed with the SEC on February 19, 2025, and any other reports and registration statements filed with the SEC, which are also available on our website. Now let me turn the call over to Mark. Mark Casale: Thanks, Phil, and good morning, everyone. Earlier today, we released our third quarter 2025 financial results. Our performance this quarter again underscores the resilience of our business as we continue to benefit from favorable credit trends and the interest rate environment, which remains a tailwind for both persistency and investment income. These results reflect the strength of our buy, manage and distribute operating model, which we believe is well suited to navigate a range of macroeconomic scenarios and generate high-quality earnings. For the third quarter of 2025, we reported net income of $164 million compared to $176 million a year ago. On a diluted per share basis, we earned $1.67 for the third quarter compared to $1.65 a year ago. On an annualized basis, our year-to-date return on equity was 13% through the third quarter. As of September 30, our U.S. Mortgage Insurance in force was $249 billion, a 2% increase versus a year ago. Our 12-month persistency on September 30 was 86% flat from last quarter, while nearly half of our in force portfolio has a note rate of 5% or lower. We continue to expect that the current level of mortgage rates will support elevated persistency in the near term. The credit quality of our insurance in force remains strong, with a weighted average FICO of 746 and a weighted average original LTV of 93%. Our portfolio default rate increased modestly from the second quarter of 2025, reflecting the normal seasonality of the Mortgage Insurance business. Meanwhile, we continue to believe that the substantial home equity embedded in our in-force book should mitigate ultimate claims. Our consolidated cash and investments as of September 30 totaled $6.6 billion with an annualized investment yield in the third quarter of 3.9%. Our new money yield in the third quarter was nearly 5%, holding largely stable over the past several quarters. We continue to operate from a position of strength with $5.7 billion in GAAP equity, access to $1.4 billion in excess of loss reinsurance and $1 billion in cash and investments at the holding companies. With a 12-month operating cash flow of $854 million through the third quarter, our franchise remains well positioned from an earnings, cash flow and balance sheet perspective. We remain committed to a prudent and conservative capital strategy that allows us to maintain a strong balance sheet to navigate market volatility while preserving the flexibility to invest in strategic growth. Thanks to our robust capital position and strength in earnings, we are well positioned to actively return capital to shareholders in a value-accretive fashion. With that in mind, year-to-date through October 31, we have repurchased nearly 9 million shares for over $500 million. At the same time, I am pleased to announce that our Board has approved a common dividend of $0.31 for the fourth quarter of 2025 and a new $500 million share repurchase authorization that runs through year-end 2027. Now let me turn the call over to Dave. David Weinstock: Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the third quarter, we earned $1.67 per diluted share compared to $1.93 last quarter and $1.65 in the third quarter a year ago. My comments today are going to focus primarily on the results of our Mortgage Insurance segment, which aggregates our U.S. Mortgage Insurance business and the GSE and other Mortgage Reinsurance business at our subsidiary, Essent Re. There is additional information on corporate and other results in Exhibit O of the financial supplement. Our U.S. Mortgage Insurance portfolio ended the third quarter with insurance in force of $248.8 billion, an increase of $2 billion from June 30, and an increase of $5.8 billion or 2.4% compared to $243 billion at September 30, 2024. Persistency at September 30, 2025, was 86% compared to 85.8% at June 30, 2025. Mortgage Insurance net premium earned for the third quarter of 2025 was $232 million and included $15.9 million of premiums earned by Essent Re on our third-party business. The average base premium rate for the U.S. Mortgage Insurance portfolio for the third quarter was 41 basis points, consistent with last quarter, and the average net premium rate was 35 basis points, down 1 basis point from last quarter. Our U.S. Mortgage Insurance provision for losses and loss adjustment expenses was $44.2 million in the third quarter of 2025 compared to $15.4 million in the second quarter of 2025 and $29.8 million in the third quarter a year ago. At September 30, the default rate on the U.S. Mortgage Insurance portfolio was 2.29%, up 17 basis points from 2.12% at June 30, 2025. Mortgage Insurance operating expenses in the third quarter were $34.2 million, and the expense ratio was 14.8% compared to $36.3 million and 15.5% last quarter. At September 30, Essent Guaranty's PMIERs sufficiency ratio was strong at 177% with $1.6 billion in excess of apple assets. Consolidated net investment income and our average cash investment portfolio balance in the third quarter were largely unchanged from last quarter due to our share repurchase activity. In the third quarter of 2025, we increased our 2025 estimated annual effective tax rate, excluding the impact of discrete items from 15.4% to 16.2%. This change was primarily due to withholding taxes incurred on a third quarter dividend from Essent U.S. Holdings to its offshore parent company. As Mark noted, our holding company liquidity remains strong and includes $500 million of undrawn revolver capacity under our committed credit facility. At September 30, we had $500 million of senior notes -- senior unsecured notes outstanding, and our debt-to-capital ratio was 8%. During the third quarter, Essent Guaranty paid a dividend of $85 million to its U.S. holding company. As of October 1, Essent Guaranty can pay additional ordinary dividends of $281 million in 2025. At quarter end, Essent Guaranty's statutory capital was $3.7 billion with a risk-to-capital ratio of 8.9:1. Note that statutory capital includes $2.6 billion of contingency reserves at September 30. During the third quarter, Essent Re paid a dividend of $120 million to Essent Group. Also in the third quarter, Essent Group paid cash dividends totaling $30.1 million to shareholders, and we repurchased 2.1 million shares for $122 million. In October 2025, we repurchased 837,000 shares for $50 million. Now let me turn the call back over to Mark. Mark Casale: Thanks, Dave. In closing, we are pleased with our third quarter financial results as Essent continues to generate high-quality earnings, while our balance sheet and liquidity remains strong. Our performance this quarter reflects the strength and resilience of our franchise, while Essent remains well positioned to navigate a range of scenarios given the strength of our buy, manage and distribute operating model. Our strong earnings and cash flow continue to provide us with an opportunity to balance investing in our business and returning capital. We believe this approach is in the best long-term interest of our stakeholders and that Essent is well positioned to deliver attractive returns for our shareholders. Now let's get to your questions. Operator? Operator: [Operator Instructions] And our first question comes from the line of Terry Ma with Barclays. Terry Ma: Just wanted to start off with credit. New notices were a bit lower than what we had, but the provision on those notices were higher. So any color on kind of just the makeup from a vintage or even geography perspective this quarter? Mark Casale: Yes. Terry, it's Mark. I wouldn't say there's nothing really to read out in terms of geography or trends. The one thing for you guys as analysts, we pointed this out a few quarters ago is just our average loan size continues to increase. I mean ever since for years, it was like $230,000. And when the GSEs started raising their limits and it really kind of picked up post-COVID. So our average loan size, if you just look through the stat supplement for the insurance force is close to $300,000. So again, larger loans when they come through kind of into default, it's going to be a larger provision. So I wouldn't read any more into it than that. I think the -- again, the default rate is relatively flattish. And I think from a credit position, there's nothing we're really seeing that concerns us at the current time. Terry Ma: Got it. That's helpful. And then maybe just a follow-up on the claims amount. The number was higher and also the severity. So like anything to call out there, like anything idiosyncratic? Or is there more of a trend? David Weinstock: Terry, it's Dave Weinstock. Yes, there's really nothing to point out there. A lot of that is going to depend on when we get documents in and when the claims are fully adjudicated and ready for payment. And so you're going to see fluctuations based on what the underlying claims are. But at the end of the day, there are not a lot of claims there. And the biggest takeaway really is that the severity continues to be well below what we're reserving at. So we're getting favorable results there. Operator: And our next question comes from the line of Bose George with KBW. Bose George: First, just on the ceded premiums, it was kind of the high end of the range. Is that a good level going forward? Or does that just bounce around depending on the timing of when you're doing the reinsurance transactions? David Weinstock: Bose, it's Dave Weinstock. Yes, it's going to bounce around a little bit based on default and provision activity. So it's seasonal. I think you saw the ceded premium being a little bit lower in the first half of the year, similar to where you see our defaults being more favorable and lower. And this is the seasonal second half of the year, as we've talked about, we definitely -- you generally see an uptick. And so you're going to see a little bit of an uptick in the ceded premium. Mark Casale: Yes. And also keep in mind, Bose, we raised the quota share this year to 25%. So that is going to create a little bit more volatility. At the end of the day, it comes through the wash, right? So in terms of the mix between the provision and expenses and ceding commission, but yes, it will bounce around a little bit more. So I'd be conscious of that in your models. Bose George: Okay. Great. And then just in terms of the tax rate, what drove the higher tax rate? And then just can you remind us just based on how much you're ceding, et cetera, where you think the tax rate is going to be over the next, say, 12 months? Mark Casale: Yes. I mean I think Dave alluded to it in the script, a lot of it is just a little bit of the tax friction moving from kind of guarantee to U.S. up to Bermuda and out to shareholders. So I think 16 and maybe a touch higher going forward. I would think through that with your models, I'd be relatively conservative those. And it really gets back to the fact that we're just distributing a lot more capital back to shareholders. And that's kind of a little bit of a signal that we don't really see it changing much, given where sitting with still $1 billion of cash at the holdco and kind of where the stock is right around bookish value. And I think we pointed this out last time in our investor deck, which will come out kind of post earnings, like the embedded value of the business, we believe, is much higher than kind of where we are today, right? And just again, it's simple math, it's nothing revolutionary. We have $6 billion of cash, $6 billion of equity. We trade right around $6-ish billion. It doesn't really give credit for the $250 billion of insurance in force that we have. And there's a significant embedded value. I think we've proven that over the past 10 years in terms of the cash flow. And just look, again, just we generated $854 million of cash flow over the last 12 months. So based on that and where we're -- just given the capital position, and we're still generating unit economics kind of in that 12-ish to 14-ish range. We think it's the best value. So I think we'll continue to do that. But there, again, it just getting the cash out is -- creates a little friction. But I think from a shareholder perspective, we'll pay a couple of extra bucks on the tax rate. But I think from lowering the share count and kind of delivering value to shareholders, it's a little bit of a no-brainer. Operator: And our next question comes from the line of Rick Shane with JPMorgan. Richard Shane: I'm looking at Exhibit K and one trend that is pretty consistent is the increase in severity rates, and that makes sense given slowing home price appreciation and vintage mix. It was 78% this quarter. I'm curious, long-term where you think that could go? Are we sort of asymptotically approaching the limit there? Or are we -- should we expect that to continue to rise? Mark Casale: Yes. I mean I wouldn't -- I don't know if you would expect it to rise. Again, we -- the provision is at 100, Rick, just so you know. The embedded HPA in the book is still kind of 75-ish. So I mean, in terms of mark-to-market LTV. So some of it is just timing, right? If somebody from the later vintages kind of call it, '23 or '24 goes into default, there's going to be a higher provision or if they go into claim, we're going to pay a higher claim there because they have less embedded value. But taking a step back just at the portfolio level, we're not going to get too fussed about it, Rick. I mean, again, you're talking about a relatively low losses. And remember, just -- and we point this out every quarter or 2, just what the real risk is in our business, right? Take from my seat, Rick, we own that first loss position, right? So call it 2 to 3 claims out of 100. We hedge out from above that kind of into that 6, 7 range, and we reattach above that. That's the risk in the business, right? We are a specialty insurance type business, almost like a cat where our catastrophe is a severe macroeconomic recession. And that's when we hold capital when we think about PMIERs, we think about the different stress tests that we run, whether it's Moody's Constant severity S4, the GFC, that's when we come in and think about it week-to-week or month-to-month. That's -- we're focused really on making sure we're fine there, and we clearly are given the amount of capital that we're using to repurchase share. So getting back to this, again, we clearly look at it. I think we're conservative in how we provision just from a severity standpoint because I think that's -- the severity is an actuarial -- I mean, the provisions is an actuarial-based model. So we don't really mess with it quarter-to-quarter, even year-to-year that much. So again, I'm just trying to -- from a big picture standpoint, sure, you're going to try to point out trends. And Terry pointed out the trends around the new notices, those are all good. That's like you guys have to do that for your models. But I think taken like a step back, the biggest metric for the quarter, Rick, is we produced $854 million of cash over the last 12 months. So again, not trying to get too high level, but I mean, I think it's important to kind of put context around some of these numbers. Richard Shane: No. Look, it's a fair point, Mark. Given how low losses have been for so long, a modest dollar movement looks like a larger -- looks like a significant percentage movement. And I think we're all sensitive to that and trying to sort of, I think, understand what the normalized returns on the business are? And do you think we are approaching those levels? Or -- and look, you've enjoyed an extraordinary period for a long time, for a whole host of reasons that we've all talked about. But as the business normalizes and sort of reverts to the return levels that the two of us spoke about a decade ago? Or do you think we're getting there now? Mark Casale: No, it's a good question. And Rick, we've been studying this. So let's go back in time, right? Let's start with 1990, which is really the beginning of the modern day Fannie and Freddie. And let's just go with the last 35 years. If you take away the GFC, which it's hard to do, but just to stick with me here for a second, the average loss rate on Fannie and Freddie back loans is less than 1%. That, I believe, is actually -- so it's not this, "Oh my goodness, we have such a good run, when is it going to end?" This is it. This is the business. It's a great business. You're talking about, and again, and some of the things that caused the great financial crisis because you don't want to ignore that. And the reason we like the business, coming out of the crisis, you had the Dodd-Frank qualified mortgage rules. So 35% of the loans that were done during the crisis, they no longer qualify. They literally got the RIF-wrapped out of the industry. So that is now either going, it's going to either FHA or it's going to kind of non-QM or they're not being originated, which is the most case. A lot of those borrowers are ending up in single-family rental. It's a great outcome for them, right? So then all of a sudden then you add in the increased, I would say, sophistication of DU and LP at the GSEs, their quality control has gotten significantly better. I mean, over the last 15 years. So all of a sudden, the credit guardrails around our business are exceptional, and we don't see it changing. Unless there's something happens with GSE reform, and clearly, we look at that. But as long as the market is where it is today, this is a very narrow fairway. And so we don't see really credit changing that much. It's hard. I mean, actually, our credit for this -- the last 2 quarters, Rick, was the best FICO's we've had since we started the company. So -- and part of that's affordability, part of it is affordability, like just folks are having a harder time qualifying. But the credit quality in this business is exceptional. And just from a public policy standpoint, 65% of our borrowers are first-time homeowners. I mean, I was with a young guy last week who just got mortgage insurance through one of our clients. He's paying like $65 a month. You put 10% down. I mean you can't beat it. It's a great value to the customer, which you always want to have, right? The borrowers is our ultimate customer, and then I think the math for us. So I would say from -- and some of our longer-term investors kind of know this clearly, I would stop and one of our other analysts has always asked me, Mark, is this as good as it gets? Guys, It's been good for a long time. I mean -- and I don't really -- again, there's going to be some volatility Rick, quarter-to-quarter or year-to-year. Look, If unemployment goes up, we're probably going to pay some losses. But remember, we're kind of capped until we hit until we go through that mezz piece. So it's relatively well boxed. Hence, our confidence in paying the quarterly dividend and right now in terms of where we are returning capital to shareholders has been quite a shift the past 12 months, but part of it was we've just continued to accumulate cash and we've had this retain and invest mentality. We just haven't invested in anything. And so we look at it now and say the best investment we can make is in the company. And if we keep this pace up, Rick, every time you repurchase shares, our long-term owners, which include the senior management team, we own a little bit more of the company. And if I'm going to own a business, this is my favorite business. So we'll see. So sorry for the long-winded answer, but I want to again try to give some of the investors on the phone some context. Richard Shane: No. Mark, look, I appreciate it. And I suspect there are some folks who are listening to this call imagining the 2 of us on rocking chairs debating the stuff. And that's okay, too. I appreciate the answer. Operator: [Operator Instructions] And our next question comes from the line of Mihir Bhatia with Bank of America. Mihir Bhatia: I actually want to follow up on Rick's last question there about just about the guardrails, around underwriting currently. I think there was news yesterday about Fannie removing the minimum credit score requirements. There's been some noise out of Washington about trying to do -- play a more active role in housing or lower increased housing demand, if you will. And I was just wondering from your seat, are you seeing any signs of that? Are originators trying to get more stuff underneath, gets more stuff approved that maybe wouldn't have been -- they wouldn't have tried a couple of years ago. Just wondering what that looks like. Mark Casale: It's a good question. There is a lot of noise around kind of credit scores and Vantage and Fair Isaac and Vantage can qualify more borrowers, all those sort of things. The reality is, Mihir, the GSEs haven't changed their systems yet. So until that happens, there's really not going to be changed. So like a lender would be unable today to kind of "get something past the GSEs." It gets back to my point, the GSE's, their systems are fantastic. And in terms of DU and LP, very sophisticated. And if they do get through it, they're most likely their QC and repurchase program, they're going to put that back to lenders. So lenders have I think lenders have really understood that the game today, and you're seeing some of the bigger lenders do it, the game today is all about lowering and being efficient on origination cost. That hasn't always been the case. So if you go before the crisis, what would happened is if you get a small or midsized mortgage banker, and all a sudden production is down, they immediately go to credit expansion right? I wouldn't normally do that loan, but I have fixed costs, I'm going to try to get that loan in either through the GSEs or to whole loan buyers. You can't do that today. I mean, whether it's -- you're trying to get it through the GSEs, you're trying to go through some of the larger correspondent purchases like PennyMac, whose systems are also excellent. And it's not going to happen. So you're almost -- you have to either you have to manage costs. And again, from a credit provider, that's exactly where we want it. So we're not too worried about it. And if it were to go, we mentioned this last call, if it were to change, right, and I'm not saying it's going. If it were to change and you could have like kind of a wider fairway, so to speak, so more things qualify. The fact that our credit engine doesn't really rely on FICO, we're really -- we're almost credit score agnostic. We're looking at the 400 kind of variables underneath that along with things in the 1003, we're not too worried. We can see through that. In fact, our model works better when things are a little bit more disparate, so to speak. It doesn't work as well in a market like this. It kind of works more from a premium standpoint, picking and choosing, but credit, not -- you almost don't really need it from a FICO standpoint. So again, I think I would look at it that way. I think it's something that we're pleased with, but I don't see any kind of chink in the guardrails to date. Operator: [Operator Instructions] And our next question comes from the line of Doug Harter with UBS. Douglas Harter: Can you talk about your plans to upstream capital from the MI subsidiary? It sounds like you have a lot of capacity left for the year. Do you plan to kind of spill that over or do a large dividend in the fourth quarter? Mark Casale: I think it's pretty consistent with the dividends. It might be a little bit larger in the fourth quarter for sure. I think, again, as we look at kind of PMIERs, Doug and credit and where it's going, we feel comfortable continuing to upstream cash from Guaranty to U.S. Holdings. And as I said earlier, there's a little bit of friction getting it back to the group level, but that's -- and that's not the worst problem to have. And also, we have the quota share reinsurance, that's one of the reasons we took it up to 50% earlier this year. That's another kind of backdoor way to get cash up to the holdco. Douglas Harter: And then you -- obviously, you bought Title a little while ago. Can you just talk about how you're thinking about the benefit of the great business that is MI versus looking to further diversify and have other avenues of growth? Mark Casale: Yes. I mean I think right now, it's a good question. I think Title has performed pretty much in line with what we thought, if we would have thought rates would be this high, to try to be honest with you. I think if rates go lower, we're very levered to rates given the lender focus of the business. We have an underwriter. It's really kind of in it's still small stages growing primarily in Texas and Florida and a bit of the Southeast. That's kind of the purchase angle of the business, but it's small. So the real lever is lenders and refinance. And we've continued to add lenders, we're working on developing a new system. We're still building the business out per se, and we're fine with that. So it's kind of in corporate and other, Doug. And think of that almost as like an incubator. So again, if it gets big enough, it will pop up as its own segment. If it stays small, it stays small. And that could happen. And clearly, Essent Re has some opportunities outside of mortgage. We haven't really done anything yet, but there's things that we look at. So I would look at it as another "incubator". We kind of call them call options. But for the time being, clearly, the focus and where the cash flow is coming in from the MI business. And when we look at investment opportunities whether it's title, other acquisitions that come to us, we still feel at this time, our stock is the best value, and we're kind of voting with our feet there. And I don't really expect it to change absent like some large movement in the stock. And then if there's a large movement in the stock, which it's -- it would be nice per se, but not necessarily. If you're in the business of buying back shares and shrinking ownership, this isn't the worst place to be in. If the stock were to move outside of our range, we would probably do like a special dividend. We'll continue to look for ways to get capital back to shareholders. But given just how good the MI business is today we would need to -- again, there's going to have to be a good reason for us to do it. And I look at it, if you're looking at a way to kind of quantify it, our book value per share today is right around $60. It's a tad below 58-ish. It will finish -- my guess is it will finish the year around $60 Doug. So if we look and say, hey, we're going to grow it, 10%, 12% a year, which we've been doing, that book value per share over the next 4 or 5 years is going to be $85, $90, right? It's big picture, right? Just looking at the numbers. So as we look at an acquisition, it's going to have to either help us increase that book value per share target or achieve that book value per share target sooner, all else being equal or making us a stronger company and things like that. There's other factors in there. That's a pretty high bar. That's a pretty high bar. We kind of know this business well. And like what I've said, just in my response to Rick earlier, this is such a good business. We're a little bit spoiled and in terms of how good the business is, again, there's going to be some bumps along the road. There always are, but that's why you have capital, right? You have capital to withstand those bumps and reinsurance is another form of capital. We expect kind of those expected losses per se. And then you have capital on reinsurance for unexpected losses, they'll come, but that's what we're prepared for. We don't necessarily try to sit down and say, where is the market going? We try to prepare for every different avenue that the market potentially could go down. I mean, that just comes with experience. We've been doing this for quite a while. But that being said, so to sum it up, the investment right now continues to be an asset. I don't expect that to change absent something really special comes along. Operator: And there are no additional questions at this time. So I will now turn the conference back over to management for closing remarks. Mark Casale: Thanks, everyone, for their time and questions. And have a great weekend. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.